Economic Calendar

Friday, December 23, 2011

Retail Sales Seen Up as Weather Aids Spending

By Matt Townsend - Dec 23, 2011 12:00 PM GMT+0700

As Bing Crosby croons “White Christmas” in malls around the U.S., retailers from Chicago to Boston are betting on a snow-free weekend to cap a strong holiday shopping season.

Last year, a blizzard that began on Christmas closed thousands of stores on the East Coast the next day, when millions of consumers typically make exchanges and redeem gift cards.

The calendar is also lending a potential boost. Christmas Eve lands on a Saturday, and Macy’s Inc., Toys “R” Us Inc. and Family Dollar Stores Inc. (FDO) are all extending their hours. The day after Christmas, one of the biggest shopping days of the year, is Monday. Last year, it fell on Sunday, when religious services and football games kept people away from malls.

“It’s going to be hugely better after last year was a wipeout for about 15 percent of the country,” said Craig Johnson, president of consulting firm Customer Growth Partners. That could boost sales in stores and on the Web Dec. 26 from an estimated $20 billion last year to $29 billion and make it the year’s largest shopping day, he said in an interview.

No major snowstorms are forecast for the U.S. this weekend, continuing one of the warmest and driest holiday seasons on record. U.S. snowfall this month is projected to be as little as 450 inches, about half the amount that fell last December, according Berwyn, Pennsylvania-based Planalytics Inc.

U.K.’s Boxing Day

Same goes in the U.K., which has had above-average temperatures and little snow after several blizzards, including one in late December, hit the country last year. While holiday retail sales are projected to be little changed, store visits rose 0.6 percent last week from a year ago, according to Experian FootFall, a research firm based in Solihull, England. London may be disrupted if transit workers proceed with a strike beginning on Dec. 26, which is called Boxing Day and has been one of the nation’s biggest shopping events.

“The 48 hours before Christmas from Friday to Saturday will be mega,” Jace Tyrrell, a spokesman for London’s New West End Company, which represents more than 600 fashion brands, said in an interview.

One of the effects of the balmy weather, including North America’s fourth-warmest November of the past 50 years, is less demand for sweaters and jackets. As a result, such U.S. apparel chains as Abercrombie & Fitch Co. (ANF) and Gap Inc. (GPS) have been discounting cold-weather gear, with markdowns of as much as 70 percent last weekend, Stacy Pak, a San Francisco-based analyst for Barclays Capital, said in a Dec. 20 note to clients.

Super Saturday

In the U.S., the final holiday push comes as consumers ended the traditional shopping lull after Thanksgiving weekend by spending $26 billion on the Web and in stores on Dec. 17, according to Johnson. That day, marketed by retailers as Super Saturday, with some of the best deals of the season, fell just short of the $27 billion spent on Black Friday, New Canaan, Connecticut-based Customer Growth said.

Revenue during Thanksgiving weekend increased 16 percent to a record $52.4 billion, prompting the Standard & Poor’s 500 Retailing Index to advance 3.1 percent on Monday, Nov. 28, for the biggest gain in a month. Since then, the measure has risen another 2 percent, compared with a 5.2 percent increase for the Standard & Poor’s 500 Index.

November same-store sales rose 3.2 percent, topping analysts’ expectations. That performance prompted the National Retail Federation and ShopperTrak to raise their projections for holiday sales in retail stores to gains of 3.8 percent and 3.7 percent, respectively. Customer Growth Partners, which includes online sales, left its estimate unchanged at an increase of 6.5 percent.

Last-Minute Shoppers

On top of that, 30 percent of consumers had holiday shopping left to do entering this week, an increase from 26 percent a year ago, according to the International Council of Shopping Centers.

Chains are trying to attract those last-minute shoppers by extending store hours. Closely held Toys “R” Us planned to keep almost all of its 600 U.S. locations open for 112 uninterrupted hours from Dec. 20 to Christmas Eve. The Wayne, New Jersey-based retailer’s flagship in New York’s Times Square will push that to more than 200 hours.

Macy’s (M), the second-largest U.S. department store chain, is opening some locations for 83 straight hours and extending closing hours to 2 a.m. at others.

Family Dollar, based in Matthews, North Carolina, will operate on Christmas for the first time by opening about half of its 7,000-plus stores from 10 a.m. to 3 p.m. This came after it added an extra hour to all its stores for this entire month.

Extended Hours

These extended hours are the latest example of retailers going after sales by any means necessary, according to Poonam Goyal, a Bloomberg Industries analyst in Princeton, New Jersey.

Consumers started seeing Black Friday deals just after Halloween, a month before the actual Black Friday. Several chains, including Kohl’s Corp., opened at midnight on Thanksgiving for the first time while Wal-Mart Stores Inc. (WMT) moved its release of Black Friday deals to two hours before that. Most of the industry offered some kind of free shipping deal. When shopping events passed, a few chains repeated them.

“There aren’t many more buttons they can push,” Goyal said in an interview. All of this will drive sales, she said, while “margins are a different question.”

To contact the reporter on this story: Matt Townsend in New York at

To contact the editor responsible for this story: Robin Ajello at


Sundance Seen Doubling Money on Takeover Betting Today: Real M&A

By Elisabeth Behrmann, Angus Whitley and Jesse Riseborough - Dec 23, 2011 9:55 PM GMT+0700

Australia’s Sundance (SDL) Resources Ltd. is giving traders a chance to double their money on the richest mining takeover in five years.

Sundance rose as much as 34 percent after Sichuan Hanlong Group offered in July to buy the owner of the Mbalam iron ore project in Africa. The stock has since lost all its gain on concern the Chinese conglomerate won’t be able to pay for the $1.4 billion purchase. With Sundance cheaper than it was before Hanlong announced its bid, traders can reap a 65 percent return betting on the deal, according to data compiled by Bloomberg.

While Hanlong has yet to secure a financing commitment five months after agreeing to pay what is now the biggest premium for a mining company since 2006, the Chinese government helped Hanlong buy its initial Sundance stake, according to CLSA Asia- Pacific Markets. That helps to make it the “most significant opportunity” to profit from acquisitions in Australia’s mining industry, CLSA said. If Hanlong’s bid unravels, it could prompt companies such as Glencore International Plc, Anglo American Plc or Xstrata Plc to step in with offers, IG Markets said.

“From a risk-reward perspective, you’d definitely be looking to buy,” Chris Weston, a dealer at IG Markets in Melbourne, said in a telephone interview. “It’s got some fantastic assets and it would suit a number of companies. There would potentially be a few others running the ruler over them.”

Paul Armstrong, a spokesman for Sundance, declined to comment and referred to Chairman George Jones’ Nov. 25 speech at the Perth, Australia-based company’s annual shareholder meeting, where he said that Hanlong’s offer “continues to be in the best interest of all shareholders.”

Acquisition Detail

Michael Vaughan, a Sydney-based spokesman for Hanlong, said in an e-mail that it “continues to work closely with Sundance on completing the transaction.”

Hanlong, located in Chengdu in China’s southwestern province of Sichuan, has investments in highway and power projects and said last year it will spend as much as $5 billion on resource assets to feed China’s demand for commodities.

After becoming Sundance’s largest shareholder, closely held Hanlong made an unsolicited bid of A$1.2 billion ($1.3 billion), or 50 cents a share in cash (XTA), in July. Hanlong raised its proposal in October to 57 cents a share, a 68 percent premium to its 20-day average before the initial offer, according to data compiled by Bloomberg.

The premium was the largest for any metals or mining deal over $1 billion since Xstrata paid a 110 percent premium to buy Falconbridge Ltd. in 2006, the data show.

‘Handful of Believers’

While Sundance climbed as high as 53.5 cents in July, the stock has since lost more than a third of its value and ended at 34.5 cents yesterday. When Hanlong first announced its takeover proposal, Sundance traded at 40 cents a share.

The stock climbed as much as 4.3 percent today, before closing up 2.9 percent at 35.5 cents.

The decline has accelerated in the past month, sparked by speculation that Hanlong hasn’t been able to persuade its bankers to lend it money to acquire Sundance. The mining company said on Nov. 25 that it waived a condition that required Hanlong to obtain a “highly confident letter” for financing from China Development Bank Corp. by Nov. 28.

Sundance estimates that its Mbalam rail, port and mine project straddling the Republic of Cameroon and Republic of Congo will produce 35 million metric tons a year and cost $4.7 billion to develop.

“There are a handful of believers, but there’s a large part of the market which is putting it in the ‘too hard’ basket,” Giuliano Sala Tenna, who manages $40 million at Katana Asset Management Ltd. in Perth, said in a telephone interview. “There’s a massive capital expenditure requirement.”

Chinese Money

Sundance still expects the deal to close by the end of May, meaning that traders buying the stock now stand to gain the biggest payout of any billion-dollar deal in the world, according to data compiled by Bloomberg. On an annualized basis, the 65 percent return balloons to 149 percent, the data show.

“You can’t find an investment that can give you such an upside,” said Alick Wong, a quantitative research analyst at Louis Capital Markets in Hong Kong.

Michael Evans, a Sydney-based analyst at CLSA, says the financing concern is misplaced partly because the Chinese government assisted Hanlong in acquiring its initial holding in Sundance. Hanlong owns 18 percent of Sundance, according to data compiled by Bloomberg.

China’s interest and investments in Africa may also help Sundance secure approvals from Cameroon and the Republic of Congo. Cameroon has received “substantial” interest-free loans from China, while the world’s fastest-growing major economy is the biggest buyer of Congolese timber, CLSA said in October.

Ties That Bind

Sundance said in a regulatory filing last month that it is close to completing negotiations with both countries for clearance to start developing the mine. Leaders of both African nations have also voiced their support, it said.

“China’s substantial business interest and aid packages that already exists with both these countries and the high level of discussions that have already taken place, should give investors a high level of confidence a deal can be done,” CLSA’s Evans wrote in a report to clients dated Dec. 14.

In April, Sundance said that it intended to build a 510- kilometer (320-mile) heavy-haulage railroad through Cameroon and a deep-water port for bulk iron ore carriers and aimed to start shipping iron ore by 2014. Based on the present value of future profits, Evans estimates that Sundance could be worth A$1.95 billion, or 66 cents a share.

That’s almost double the company’s current market value.

National Interest

While shares of Sundance have also depreciated on speculation an investigation into allegations of insider trading by two of Hanlong’s former employees in Australia will delay the Foreign Investment Review Board’s ruling on the takeover, Gavin Wendt, senior resource analyst at Sydney-based Mine Life Pty, said the board will probably approve the deal because Sundance’s mine isn’t a strategic asset to Australia.

The review board will “separate out whatever is going on with Hanlong’s situation from the actual deal itself,” he said in a telephone interview.

The FIRB, as the review board is commonly known, considers “the character of an investor and its corporate governance practices,” the Australian Treasury department’s media office wrote in an e-mailed response.

Vaughan, Hanlong’s spokesman, reiterated this week that the company isn’t under investigation. Sundance said on Nov. 22 it wasn’t aware of anything that might bar the approval.

Even if the agreement with Hanlong collapses, Sundance could make sense for Glencore, Anglo American (AAL) or Xstrata, according to IG Markets’ Weston.

Glencore, Anglo American

Several parties conducted extensive due diligence on the Mbalam project and were still doing so when Hanlong made its bid in July, Sundance’s Jones said at its annual meeting.

Glencore Chief Executive Officer Ivan Glasenberg said in August that the largest publicly traded commodities company is “aggressively” seeking acquisitions. Baar, Switzerland-based Glencore had $1.6 billion in cash and short-term investments at the end of June, data compiled by Bloomberg show.

Anglo American, the London-based miner of coal, platinum and diamonds with about $6.8 billion in cash, is always looking for acquisitions, Chief Executive Officer Cynthia Carroll said in September. She also said in July that it studied several potential deals in the first half of the year.

Xstrata, co-owner of the $6 billion Zanaga iron ore project in the Republic of Congo, said last year it was seeking more deals to build up its iron ore business. The Zug, Switzerland- based company has about $1.35 billion in cash on hand.

‘Risk-Reward Ratio’

Charles Watenphul, a spokesman for Glencore, declined to comment on whether the company is interested in Sundance. Anglo American’s James Wyatt-Tilby and Alison Flynn of Xstrata also declined to comment.

“There are still some expectations that if not this deal, there will be another one shortly,” Peter Sorrentino, a senior fund manager at Huntington Asset Advisors in Cincinnati, which oversees $14.5 billion of assets, said in a telephone interview. “The deposits are there, they are proven. Somebody could buy these assets and be very grateful for having done so two years from now. The risk-reward ratio is pretty favorable.”

To contact the reporters on this story: Elisabeth Behrmann in Sydney at; Angus Whitley in Sydney at; Jesse Riseborough in London at

To contact the editors responsible for this story: Daniel Hauck at; Katherine Snyder at; Rebecca Keenan at


Netflix U.K. Debut Without ‘Downton Abbey’ Shows Squeeze by Broadcasters

By Amy Thomson and Manuel Baigorri - Dec 23, 2011 5:54 PM GMT+0700

Netflix Inc. (NFLX), the video-streaming service so popular in the U.S. that it has been blamed for overwhelming the Web, may find itself boxed out of the most coveted content in Europe’s $76 billion pay TV market.

In the U.K., a deal with broadcaster ITV Plc (ITV) probably won’t include the most recent episodes of successful shows such as “Downton Abbey,” a person with knowledge of the matter said, asking not to be named because the talks are confidential. An agreement with British Broadcasting Corporation this week allows Netflix to offer shows such as “Top Gear” but only six months after the broadcaster has aired them.

Netflix’s early entry in U.S. market helped the Los Gatos, California-based company to become the biggest video-streaming service, even spurring premium channels HBO and Showtime to offer shows online. In Europe, Netflix will have to wrest digital rights away from a cabal of powerful broadcasters who own most of the popular content and have their own streaming services.

“Broadcasters are controlling a lot of the premium, online, video-on-demand business in the U.K.,” said Rio Caraeff, chief executive officer of Vevo Llc, a video-streaming company backed by Vivendi SA (VIV)’s Universal Music and Sony Corp. (6758) “They’re able to protect their television business by packaging it with their online business.”

Archived Shows

Netflix, whose biggest investors include Vanguard Group, JAT Capital Management and Morgan Stanley, plans to begin its U.K. service in “early” 2012. Local consumers can already choose from video-streaming services by Inc. (AMZN)’s Lovefilm unit, Channel 4, the BBC, British Sky Broadcasting Group Plc and ITV, the country’s biggest commercial broadcaster.

As with the BBC deal, Netflix may only be able to offer some of ITV’s archived content, the person said. ITV declined to comment. The BBC and Netflix named eight shows, including comedy series “Fawlty Towers” and “Little Britain” in their Dec. 20 statement and spokesmen for both companies declined to name other programs that might be part of the deal.

“The U.K. is a competitive market and we look forward to offering the people of the U.K. and Ireland a great service with fantastic content and ease of use,” said Joris Evers, a Netflix spokesman. The company this month reiterated that it currently doesn’t prepare to expand into European markets beyond the U.K. and Ireland.

Market Domination

Lovefilm said on Dec. 21 it signed an exclusive deal with Sony Pictures to offer titles such as “The Social Network” in the U.K. Last month, Lovefilm announced a deal to offer Warner Bros. films such as “Sex and the City 2” in the U.K.

BSkyB, the U.K.’s biggest pay-TV provider, has too much market control because of its exclusive first rights to play releases from major Hollywood studios, the Competition Commission said in August. The watchdog said an investigation may not be completed until early 2012.

Still, Netflix will offer some popular content in the U.K. The company has deals with Lions Gate Entertainment Corp. (LGF) and Metro-Goldwyn-Mayer Studios Inc. to be the exclusive streaming provider in the U.K. and Ireland. The U.K. service will also stream Miramax films such as “Pulp Fiction.”

The subscription TV market in Europe, Africa and the Middle East, including pay-TV, video-on-demand, mobile and video- streaming services as well as license fees, will expand 24 percent to $95 billion in the next four years, according to PricewaterhouseCoopers LLP. Internet-streamed videos are forecast to be the fastest growing segment.

Spanish Talks

In Spain, talks between Netflix and Antena 3 de Television SA (A3TV) and other local media companies ended this year without a deal as Netflix decided to focus on the U.K. and Ireland, Francisco Sierra, a multimedia executive for the Spanish broadcaster, said in an interview.

Mediaset Espana Comunicacion SA (TL5), the Spanish unit of Italy’s Mediaset SpA (MS), would be open to a deal with Netflix “as both parties are interested in collaborating with each other,” said Cristina Ocana, a spokeswoman for the Madrid-based company.

Netflix is “a company that really needs to try and sustain a growth trajectory,” said Tony Wible, an analyst at Janney Montgomery Scott LLC, Philadelphia, who advises selling the shares. “In the U.S, you’re starting to see some concern about growth.”

‘Arms Race”

Netflix lost 800,000 U.S. subscribers in the third quarter after alienating some customers with changes in pricing and subscription terms. The stock has lost 58 percent this year, valuing the company at $4.1 billion. CEO Reed Hastings this month likened the fight among online video companies for content to an “arms race.”

Netflix will lose access in February to content from Liberty Media Corp.’s Starz pay-TV business after the company refused to charge customers a premium for Starz.

Phil Kent, CEO of Time Warner Inc. (TWX)’s Turner Broadcasting System, said last month that he’s currently keeping digital rights away from services such as Netflix.

Netflix, founded in 1997, had $365.8 million in cash and short-term investments at the end of the third quarter, according to data compiled by Bloomberg. The company, with 23.8 million subscribers at Sept. 30, raised $400 million with the sale of stock and convertible notes last month.

In North America, online movies from Netflix and other video services have become the top source of peak Internet traffic, prompting AT&T Inc. (T) this year to place a cap on the volume of data its customers can consume in a month. Netflix accounts for 25 percent of Internet traffic at peak times, network management firm Sandvine Corp. said in May.

‘Money to Burn’

In September, Netflix began selling subscriptions in Latin America, boosting the number of countries where it operates to 43, including the Caribbean.

“Netflix’s strong cash flow means they have money to burn and buy great content,” said Adrian Drury, who leads the media team at consultancy Ovum. “But in Europe, Netflix will go head to head with high-profile incumbents.”

RTL Group, Europe’s biggest broadcaster with 41 channels in 10 countries, told investors in May that it won’t license content to companies such as Netflix unless it is allowed to sell ads. RTL declined to comment.

“The big challenge in Europe is to intimately understand consumers and to buy and offer the right content in each market,” Drury said. “The execution risk is high and the industry will be eagerly watching if they get it right. The race is on.”

To contact the reporters on this story: Amy Thomson in London; Manuel Baigorri in Madrid at

To contact the editor responsible for this story: Kenneth Wong at


VW Workers Wary of Burnout Win Break From BlackBerry Messages

By Cornelius Rahn - Dec 23, 2011 7:01 PM GMT+0700

Volkswagen AG’s BlackBerry-wielding employees now get a break at the end of the work day from the constant allure of the Research In Motion Ltd. (RIM) device’s blinking red light.

Yielding to demands from its works council, Europe’s largest carmaker agreed to stop its e-mail server from routing messaging traffic to the smartphone 30 minutes after a shift and resume half an hour before the next day begins. The accord affects about 1,150 employees in Germany who use the device and are covered by collective labor agreements, the Wolfsburger Allgemeine Zeitung reported.

Markus Schlesag, a spokesman for VW in Wolfsburg, Germany, confirmed the accord and said the carmaker needs to balance the benefit of being able to reach its staff at all times with the protection of employees’ private life.

VW, with about 191,600 workers in Germany as of Sept. 30, in one of the country’s biggest employers. German media including Der Spiegel magazine have run cover stories on burnout in recent months following the Sept. 22 resignation of Bundesliga soccer coach Ralf Rangnick over exhaustion from work.

Gunnar Kilian, a spokesman for Volkswagen’s works council, didn’t immediately reply to a voicemail message left on his mobile phone. VW employees can continue to use their BlackBerrys for phone calls when the message traffic is halted, Schlesag said.

RIM’s BlackBerry has become a symbol of around-the-clock availability, having evolved from being a gadget for roving executives to a tool many lower-level employees consider vital to their work.

To contact the reporter on this story: Cornelius Rahn in Frankfurt at

To contact the editor responsible for this story: Kenneth Wong at


Bill Gates Chilling in Australian Mansion Gets Coolest Summer Since 1960

By Jacob Greber - Dec 23, 2011 12:08 PM GMT+0700

Bill Gates, the world’s second- richest person, can’t seem to buy a break in the weather during his month-long Australian holiday.

Gates and his family arrived last week in Sydney, Australia’s biggest city, where Bondi Beach attracts some 40,000 sunbathers on weekends this time of year. His arrival during the southern hemisphere’s summer has coincided with the area’s coolest December in more than half a century.

As schools break until late-January and residents flock to the coasts, the city’s typically temperate summer feels more like an extended, soggy spring. The billionaire co-founder of Microsoft Corp. (MSFT) added his voice to a chorus of residents grumbling about the leaden skies, downpours and chilly evenings.

“Wish it was a tiny bit warmer,” Gates told the Sydney Morning Herald after he and his family moved into a Tuscan-style waterfront mansion last week.

The three-level home, costing A$25,000 ($25,425) a week in rent, boasts its own jetty, six bedrooms, a gym and cellar, according to local media reports.

The property is reportedly located in Vaucluse, a wealthy neighborhood in the city’s eastern suburbs which are also home to billionaire James Packer, News Corp. (NWSA) board member Lachlan Murdoch and Westfield Group (WDC) Chairman Frank Lowy.

Gates has maintained a low profile after an initial flurry of interviews with the Australian newspaper, the Herald and Australian Broadcasting Corp.

New Neighbors

Business owners at the local Vaucluse shopping strip told Bloomberg News today that neither he nor his family had been spotted picking up a newspaper or buying groceries. The media office for the Bill & Melinda Gates Foundation, their namesake charity, said in an e-mail that he was not available for comment.

Gates, 56, chose Australia for his getaway because his family “thought it would be fun to come down and see some of the neat places around Australia,” he told the Herald.

If sunshine and warm weather was preferred, their timing hasn’t been great.

Sydney is on track for its mildest December since 1960, David Barlow, a Bureau of Meteorology spokesman, said in a telephone interview today.

The average maximum temperature at the bureau’s weather station, near the southern side of Sydney’s Harbour Bridge, was 22.3 degrees Celsius (72.1 degrees Fahrenheit) for the first 23 days of the month. That’s 2.9 degrees below the 150-year average and close to the 22.8 degrees recorded 51 years ago.

Wet Summer

The weather bureau blames the mild, wet weather on the persistence of a La Nina weather phenomenon across the tropical parts of the Pacific Ocean, which it forecasts will last through the remainder of Australia’s summer.

The so-called southern oscillation index, a measure of La Nina’s strength, has climbed to 21 from 13.8 in November, according to a bureau bulletin issued Dec. 21. Periods of La Nina are often associated with above-normal summer rainfall and colder daytime temperatures across eastern and northern parts of Australia, according to the bureau’s website.

“We’re in a weak La Nina event that’s been going since November and that’s brought above-average rainfall and you get the cloudy conditions that lower the maximum temperatures,” Barlow said.

Sydney recorded its wettest spring since 2004, with 257.4 millimeters (10.1 inches) of rain falling in the three months through Nov. 30. Sydney airport recorded an average 7 hours of sunshine a day in that time, less than the historical average of 7.4 hours.

At least the Gates family can look forward to a warmer Christmas Day in Sydney.

The weather bureau forecasts Dec. 25 will have a high of 26 degrees with “partly cloudy” skies. Boxing Day, a public holiday the following day, is expected to see 27 degrees before the arrival of an afternoon thunderstorm.

To contact the reporter on this story: Jacob Greber in Sydney at

To contact the editor responsible for this story: Chitra Somayaji at


U.S. November Durable Goods Orders Climb 3.8%

By Bob Willis - Dec 23, 2011 9:32 PM GMT+0700

Orders for U.S. durable goods rose in November by the most in four months as an increase in demand for aircraft outweighed declines in spending on computers and equipment.

Bookings for equipment meant to last at least three years rose 3.8 percent after no change in prior month that was previously reported as a decline, data from the Commerce Department showed today in Washington. Demand for business equipment excluding military hardware and aircraft dropped 1.2 percent in November, the biggest decline since January.

The decrease in demand for capital goods signals manufacturers may be growing hesitant to boost investment because of political gridlock in the U.S. and Europe’s debt crisis. Support to manufacturing from a government tax incentive that allows for 100 percent depreciation on new equipment this year may be coming to an end.

“You got a big bump from Boeing orders but the drop in business investment implies a very weak manufacturing base with little traction,” said Bricklin Dwyer, an economist at BNP Paribas in New York. “Manufacturing will have a tough time regaining its footing.”

The median forecast of 80 economists surveyed by Bloomberg News projected a 2.2 percent increase in orders following an initially reported 0.5 percent decline in October. Estimates ranged from a drop of 2 percent to a gain of 7 percent.

Consumer spending rose less than forecast in November as wages declined, another report from the Commerce Department showed. Purchases rose 0.1 percent for a second month. Incomes also grew 0.1 percent, the weakest in three months, after a 0.4 percent rise in October. The November gain in income was limited by a 0.1 percent drop in wages and salaries.

Stock Futures

Stock-index futures pared gains after the report, with the contract on the Standard & Poor’s 500 Index expiring in March rising 0.4 percent to 1,254.2 at 8:40 a.m. in New York. The yield on the benchmark 10-year Treasury note climbed to 1.96 percent from 1.95 percent late yesterday.

Durable orders excluding transportation equipment, like commercial aircraft, rose 0.3 percent after a 1.5 percent gain, the report showed. Boeing Co. (BA), the largest U.S. aircraft maker, said it received 96 orders in November, up from 7 the prior month and the most since August.

Orders for non-defense capital goods excluding aircraft, a proxy for business investment in items such as computers, engines and communications gear, fell after a 0.9 percent decline.

Capital Goods Sales

Shipments of non-defense capital goods excluding aircraft, used in calculating gross domestic product, decreased 1 percent after falling 0.8 percent.

“Based on all we’re seeing and hearing, 2012 will be a more challenging economic environment,” David Anderson, chief financial officer at Honeywell International Inc., said on a Dec. 15 conference call. “On the industrial side, we’re not seeing obviously conditions getting markedly better or worse.”

The support for factory production may come from businesses rushing to qualify for a government credit aimed at spurring investment. A tax break that allows companies to depreciate 100 percent of investment in capital outlays in 2011 falls to 50 percent in 2012.

The tax break that allows companies to depreciate 100 percent of investment in capital outlays in 2011 falls to 50 percent in 2012.

The Federal Reserve’s gauge of factory output declined in November for the first time in seven months, reflecting drops in auto production that may have been hindered by flooding in Thailand that swamped auto-parts suppliers.

To contact the reporter on this story: Bob Willis in Washington at

To contact the editor responsible for this story: Christopher Wellisz at


Stocks Advance for Fourth Day on U.S. Recovery

By Andrew Rummer and Whitney Kisling - Dec 23, 2011 10:46 PM GMT+0700

U.S. stocks rose, extending a weekly advance, and Treasuries declined amid further signs of strength in the world’s largest economy. Commodities climbed as oil headed for the biggest weekly gain in almost two months.

The Standard & Poor’s 500 Index added 0.3 percent at 10:45 a.m. New York time. The MSCI All-Country World Index advanced 0.5 percent, set for the longest winning streak since Dec. 5. Copper increased 1.6 percent and oil in New York approached $100 a barrel. Yields on 10-year Treasuries climbed seven basis points, heading for the biggest weekly increase in two months. The dollar advanced against the euro, erasing an earlier loss.

Orders for U.S. durable goods jumped in November by the most in four months, data showed today, helping to offset weaker-than-forecast consumer spending. The U.S. Congress passed a two-month payroll tax cut extension a day after House Republicans surrendered on whether to endorse the measure days before its scheduled Dec. 31 expiration.

“The market’s holding up,” Paul Zemsky, the New York- based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $550 billion. “It’s important to take it all with the totality of the week, we had fantastic data on housing and jobs earlier this week, so overall, this data is weak, but the jobless claims trumps it because it’s more forward-looking.”

Economic Data

A three-day rally in the S&P 500 trimmed the index’s decline for the year to 0.3 percent. The gauge rose 2.8 percent this week through yesterday after data on employment, consumer confidence, housing starts and leading economic indicators added to expectations that the U.S. economy can weather Europe’s debt crisis.

Orders for U.S. durable goods climbed in November by the most in four months, data from the Commerce Department showed today in Washington. Bookings for equipment meant to last at least three years rose 3.8 percent after no change in prior month that was previously reported as a decline.

A separate report showed sales of new U.S. homes rose in November to a seven-month high, adding to evidence of stabilization in the housing market. Stock futures pared earlier gains as consumer spending rose less than forecast in November as wages declined for the first time in three months.

Equities briefly extended gains after Congress extended a two-percentage-point payroll tax cut, following a month of wrangling among lawmakers. The measure will continue expanded unemployment benefits and head off a reduction in Medicare payments to doctors through February. Lawmakers plan to negotiate on a longer-term extension in the new year.

‘Domestic Threat’

“That removes probably the biggest domestic threat to the economy in 2012,” David Kelly, who helps oversee $394 billion as chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “As the year ends, some of the extremes in uncertainty are diminishing, and that should allow the market to go up.”

Wall Street strategists forecast the S&P 500 will end the year at 1,278, or 1.9 percent higher than yesterday’s close. With five trading days left in 2011, the benchmark index for U.S. equities would need to climb about 0.4 percent each day to reach their average target. On average, the S&P 500 gains 1.2 percent in the last five days of the year, according to data dating back to 1928 compiled by Bloomberg.

The Stoxx Europe 600 Index rose 0.7 percent, taking its weekly advance to 3.3 percent. Wavin (WAVIN) NV jumped 21 percent as Mexichem SAB, a Latin American chemical maker, raised its takeover bid for the Dutch manufacturer to 10 euros a share. The London and Dublin markets closed early today. The Tokyo exchange was shut for the Emperor’s Birthday holiday.

The S&P GSCI index of 24 commodities advanced 0.2 percent, the fifth consecutive gain. Crude oil climbed 0.2 percent in New York.

To contact the reporters on this story: Andrew Rummer in London at; Whitney Kisling in New York at

To contact the editor responsible for this story: Chris Nagi at


Bini Smaghi Says QE Would Be Appropriate Act If Deflation Becomes a Danger

By Gabi Thesing - Dec 23, 2011 3:09 PM GMT+0700
Enlarge image Bini Smaghi Says ECB Should Use QE If Deflation Risk Arises

Lorenzo Bini Smaghi, executive board member of the European Central Bank during an interview at the Ambrosetti Workshop in Cernobbio, near Como, Italy, April 1, 2011. Photographer: Simon Dawson/Bloomberg

Dec. 23 (Bloomberg) -- European Central Bank Executive Board member Lorenzo Bini Smagh said policy makers shouldn’t shirk from using quantitative easing if deflation becomes a danger to the euro region. He commented in an interview published by the Financial Times. Linda Yueh and Mark Barton report on Bloomberg Television's "On the Move." (Source: Bloomberg)

Dec. 23 (Bloomberg) -- Matthew Luckett, portfolio manager for Balestra Capital Ltd., talks about Europe's sovereign-debt crisis, the outlook for the euro and investment strategy. Luckett speaks with Sara Eisen and Stephanie Ruhle on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

European Central Bank Executive Board member Lorenzo Bini Smaghi said that policy makers shouldn’t shirk from using quantitative easing if deflation becomes a danger to the euro region.

“I do not understand the quasi-religious discussions about quantitative easing,” Bini Smaghi, who will leave his post at the end of the month, said in an interview published yesterday by the Financial Times. The ECB confirmed the comments. “It is appropriate if economic conditions justify it, in particular in countries facing a liquidity trap that may lead to deflation.”

Unlike the U.S. Federal Reserve and the Bank of England, the ECB has offset liquidity created by purchases of government bonds so that such operations don’t amount to quantitative easing that stokes inflation. ECB Executive Board member Juergen Stark told Germany’s Die Welt newspaper in an interview published today that the central bank doesn’t “have a mandate” for unlimited purchases of government bonds.

Growth prospects in Europe “have deteriorated” since September, U.K. central bank Governor Mervyn King said yesterday after a risk assessment by European officials. Stark, who resigned in September to protest bond purchases, said while the euro-region economy could shrink at the end of 2011, deflation threats are “significantly lower” than after the collapse of Lehman Brothers Holdings Inc. in 2008.

‘Clear Mandate’

The euro traded at $1.3080 at 8:59 a.m. in Frankfurt, up 0.2 percent on the day. The single currency has depreciated 3.1 percent against the dollar over the past three months as European leaders struggled to contain the region’s debt crisis.

“Central banks are given a clear mandate, to achieve price stability, and the independence to achieve it through the instruments they consider most appropriate,” Bini Smaghi said. “If conditions changed and the need to further increase liquidity emerged, I would see no reason why such an instrument, tailor made for the specific characteristics of the euro area, should not be used.”

The ECB this month cut its benchmark interest rate to 1 percent, and has never followed the Fed or Bank of England in trimming the cost of borrowing below that level. The Frankfurt- based institution has opposed demands to step up government bond purchases to cap borrowing costs in Europe’s peripheral nations.

Deflation Risk

Quantitative easing “is implemented in the U.K. and U.S., where the central banks consider that there are risks of deflation and where the policy rate is constrained by the zero lower bound,” Bini Smaghi said. “This is currently not the case in the euro area because the ECB currently sees no risk of deflation.”

Instead of more bond purchases, the ECB has so far opted to grease the banking system with unlimited liquidity of up to three years, hoping financial institutions will lend the money on to companies and households. The institution loaned banks a record 489 billion euros ($636 billion) for three years on Dec. 21 to avert a credit crunch from the sovereign debt crisis.

“The interest in the long-term refinancing operation may be a sign of confidence gradually returning,” Bini Smaghi said. “If this is right, interest rate spreads would be pushed down and create profitable opportunities. It would generate a herd movement in a positive direction.”

‘Misplaced Concept’

Bini Smaghi will take up a position at Harvard University’s Center for International Affairs on Jan. 1. He will also become chairman of Italian utility Snam Trasporto on the same date, the company said yesterday.

Bini Smaghi dismissed calls for the ECB to act as a lender of last resort to distressed governments. “Central banks act as lender of last resort to the financial system,” he said. “The concept of lender of last resort to governments is misplaced.”

Risks of a euro area breakup are “low” if “policy makers and citizens in the euro area are rational,” Bini Smaghi said.

The policy maker said he’s “not sure” if issuing common euro bonds would be the most effective solution to solve the crisis. “I could nevertheless envisage a limited amount of joint and several issuance to finance, for instance, specific projects, pan-European infrastructure or a common bank restructuring fund.”

U.K. Role

Asked whether the Europe Union should continue integration without Britain, Bini Smaghi said that “continental Europe needs the U.K., where the largest financial center is located and where there is the greatest financial market expertise.”

“The U.K. financial system needs access to the continent where most of its clients are,” he said. “There can be no prosperity for either based on beggar-thy-neighbor policies.”

He added that it’s in the interest of the City of London “that the euro succeeds.”

Bini Smaghi criticized rating companies for threatening to downgrade countries that “over the past few months have undertaken the toughest fiscal adjustment program, and thus improved their fundamentals,” while “those that have postponed adjustment, gaining time in particular through easy financing by the central bank, have been considered to be in better shape.”

To contact the reporter on this story: Gabi Thesing in London at

To contact the editor responsible for this story: Craig Stirling at


‘Monti Effect’ Fizzles Before $574 Billion New Year

By Chiara Vasarri and Lorenzo Totaro - Dec 23, 2011 4:19 PM GMT+0700

Dec. 23 (Bloomberg) -- Niall Ferguson, a history professor at Harvard University and a Bloomberg Television contributing editor, talks about his New Year's resolution suggestions for European leaders including Germany's Angela Merkel and Italy's Mario Monti, as well as U.S. President Barack Obama. Ferguson speaks with Sara Eisen on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

Prime Minister Mario Monti’s market honeymoon is ending as Italian bond yields approaching 7 percent signal mounting concern his government may struggle to sell 440 billion euros ($574 billion) of debt next year.

Monti took just five weeks in office to push through a 30 billion-euro emergency budget package aimed at taming surging borrowing costs. Investors reacted to the plan’s final approval by the Senate yesterday by driving up the yield on Italy’s 10- year benchmark bond by 12 basis points to 6.91 percent, close to the 7 percent level that prompted Greece, Ireland and Portugal to seek bailouts. It was at 6.94 percent at 10:13 a.m. in Rome.

“The Monti effect has now also been priced in and I think there is a lot of room for disappointment next year,” said Lex Van Dam, who manages $500 million in assets at Hampstead Capital LLC in London.

Italy’s 10-year bond yield reached a euro-era record 7.48 percent on Nov. 9, one week before Monti took over from former Premier Silvio Berlusconi and three months after the European Central Bank started backstopping the nation’s bonds. The yield fell to as low as 6.26 percent on Dec. 6 as investors rewarded Monti, a former European Union commissioner, before giving back those gains the following week with EU policy makers struggling to stamp out the debt crisis.

“To overcome the sovereign debt crisis, it’s vital that everybody look at our debt with confidence,” Monti told upper- house lawmakers yesterday. “It is essential that Italians buy government bonds and treasury bills, whose yields are very high. We must trust ourselves.”

Next Week

The Rome-based Treasury will sell 9 billion euros of 179- day bills and as much as 2.5 billion euros of zero 2013 bonds on Dec. 28. The next day Italy will auction four different bonds, including a 10-year security.

Italy, the euro area’s third-largest economy and second most-indebted after Greece, may hold the key to the single currency’s survival. It must repay about 53 billion euros in the first quarter from the region’s total maturing debt of 157 billion euros, according to Swiss lender UBS AG. The nation, with 1.9 trillion euros in debt, owes a further 3.2 billion euros in interest payments based on the average five-year yield of the past three months.

“Paradoxically, the only real lever that Monti has is the weakness of Italian government debt,” said Nicola Marinelli, who oversees $153 million at Glendevon King Asset Management in London. “The more yields go up and the specter of a failed auction becomes real, the more he can push for leeway from the parties” that support the government in Parliament.

Structural Reforms

Monti reiterated yesterday that he will turn his attention next to overhauling Italy’s rigid labor market and streamlining the welfare system.

“The structural reforms are regarded by the market as more important than the budget measures,” said Stephen Lewis, chief economist at Monument Securities Ltd. in London. “Because these structural reforms impinge on special interest groups, Monti will face strong opposition, possibly on the streets, but definitely from politicians representing those interests.”

Monti’s plan, which includes a pension overhaul and tax increases including on primary residences, may also push Italy deeper into a recession that the government forecasts will begin in the current quarter.

The economy shrank 0.2 percent in the third quarter from the previous three months, when it grew 0.3 percent, national statistics institute Istat said this week. The government forecasts a shrinking economy in the fourth quarter, 0.6 percent growth in 2011 and a 0.4 percent contraction next year.

Guaranteeing Bonds

The budget plan, Italy’s third round of austerity since June, also introduced rules to allow banks to use bonds guaranteed by Italy as collateral to obtain loans from the European Central Bank. Banks including UniCredit SpA (UCG) and Intesa Sanpaolo SpA (ISP) issued about 40 billion euros in state-backed bonds this week, two people with knowledge of the matter said.

“I think the fact that Italy is now more or less guaranteeing the banking system means that the ratings agencies will come down even harder on its sovereign debt ratings,” said Van Dam, the fund manager.

Standard & Poor’s on Dec. 5 placed 15 euro nations on review for a possible downgrade, including the euro-area’s six AAA rated nations, amid the worsening debt crisis. Italy’s was downgraded by the main ratings companies this fall starting in September when S&P cut it one level to A, citing weak economic- growth prospects.

‘Recessionary’ Measures

Monti’s package, which seeks to help balance the budget in 2013, will cut 0.5 percent from gross domestic product over the next two years while reducing public debt, Bank of Italy Governor Ignazio Visco told Parliament on Dec. 9. Some of the drag on growth may be offset if borrowing costs fall, he said.

“It’s a recessionary budget package, which won’t produce further proceeds for the state and will choke growth, generating the need for a further budget adjustment,” Gianvittore Vaccari, a senator of the opposition Northern League, said yesterday.

The plan’s approval came one day after the International Monetary Fund ended a visit to Rome as part of its monitoring program. The IMF said the team will return next month.

“The IMF-led technical mission in early January could pose a degree of risk, as there is the potential for misinterpretation of its presence,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “The bottom line is that Italy is simply too big to fail and too big to be bailed out, and the ECB has no other option but to be more flexible on sovereign debt.”

To contact the reporters on this story: Chiara Vasarri in Rome at; Lorenzo Totaro in Rome at

To contact the editors responsible for this story: Angela Cullen at; Craig Stirling at


GM Record Profit No Balm for Obama

By David Welch - Dec 23, 2011 12:01 PM GMT+0700

General Motors Co. (GM), saved by the Obama administration with a $50 billion bailout, is making more money than it has in its history, adding jobs and gaining market share. It’s still a headache for Barack Obama.

GM closed yesterday at $20.70 a share, less than half the $53 price that the U.S. Treasury Department needs to break even. Since Dec. 19, when the shares closed at their lowest price since an initial public offering last year, the shares have risen for three straight days. The stock still needs to rally almost 50 percent to reach $30 a share, the minimum price the Treasury Department would consider for a secondary offering, said three people familiar with the matter.

That puts Obama in a quandary. When Republicans nominate a candidate in August, the government will probably either still own a substantial portion of GM or will have sold the stock at a loss that could be more than $10 billion. Obama’s opponents can criticize him either way, said Dan Ikenson, an economist at the Cato Institute, a Washington think tank.

“The administration is in a Catch-22,” he said. “They want to hold on and get the best price, but the longer they hold onto it, they come open to the scorn that the administration still has a horse in the race and could make policy that is favorable to GM.”

Investors are holding back on buying GM while they expect that the U.S. will be selling hundreds of millions of shares that may push down the price, said Adam Jonas, a New York-based analyst at Morgan Stanley. After the government sells, the shares should rally, he said.

Pension Costs

In Europe, GM’s operations will lose money in 2011, the company said last month, after assurances earlier in the year that it would break even. Now GM management is talking about possible restructuring plans for its Ruesselsheim, Germany-based Opel unit. That makes investors nervous, said Peter Nesvold, a New York-based analyst at Jefferies and Co.

With economic struggles in Europe, GM’s exposure to its car market makes investors even more concerned, he said. Ford Motor Co. (F), also exposed to European risk, has fallen 35 percent this year through yesterday, while GM dropped 44 percent.

GM’s pension plan is underfunded. The plan was $22.2 billion short at the end of 2010. Analysts will get an update when fourth quarter earnings are announced in the next two months. Investors probably will remain wary until then, Nesvold said in a phone interview.

Next year will also be a transition year for new models. GM is preparing to introduce new pickups late in 2012. That means GM will temporarily lower production of its profitable Chevrolet Silverado and GMC Sierra pickups while retooling factories for the new models. That will lower profits, Nesvold said.

Loaded Lots

While GM built up its inventory of trucks in anticipation of that switch, a Bloomberg Industries analysis says U.S. automakers may increase cash discounts to clear out vehicle stockpiles and maintain market share as Toyota Motor Corp. (7203) and Honda Motor Co. run plants overtime to make up for production lost this year to natural disasters in Japan and Thailand.

GM’s profitability this year, as measured by earnings before interest and taxes relative to revenue, lags behind Ford, Volkswagen AG (VOW) and Hyundai Motor Co. (005380), according to an analysis by Morgan Stanley Investment Banking.

Chief Executive Officer Dan Akerson is trying to hold down costs to improve those EBIT margins, including by turning down heat in offices. The automaker hired Hackett Group to identify back-office savings at headquarters and throughout North America, including salaried job cuts, two people familiar with the matter said this week.

Stock Outlook

Nesvold expects GM shares to reach $24 within 12 months. The average of 13 analysts’ estimates issued in the last two months, including Nesvold’s, is $32.04. Selling at that price would add up to a $10.5 billion loss for the government.

The Treasury Department wants a minimum of $30 a share for its 32 percent stake and would prefer to sell above the IPO price of $33 a share, according to the three people, who asked not to be identified revealing private plans. If the analysts are right, GM shares won’t reach the IPO price before the election.

Steve Rattner, who led Obama’s automotive task force that oversaw the restructuring of GM, said in an interview that Republicans will try to use the auto bailout against Obama and the Democrats. The president will have to make a case that the bailout saved the economy from a deeper recession, Rattner said.

Election ‘Centerpiece’

“The auto industry will be a centerpiece in this election in terms of what Obama did and what the Republicans say they would have done,” Rattner said. “Obama will have to say that if he hadn’t done it, things would be worse. Whether the American public will believe that, we’ll find out.”

This year, Obama and some of his staff members made stops in Michigan and Ohio to tout saving GM, Chrysler Group LLC and many of the parts makers that rely on Detroit’s car companies. In May, Ron Bloom, who at the time was Obama’s special assistant for manufacturing policy, gave a speech at a Chrysler plant outside Detroit and cited an independent study that said the bailout saved 1 million jobs.

The Treasury Department has said that losses on the auto rescue are probably inevitable.

“We’re going to lose money in the auto industry on net, but we did this for the jobs we were going to save, not to maximize return,” Treasury Secretary Timothy F. Geithner said at a Detroit Economic Club event on April 28. “We’re not a private investor. Our job was to protect the country.”

Bush First

GM has hired or called back 13,000 workers since August 2009 and plans to add 6,300 more workers over the next four years. The George W. Bush administration provided GM with cash, starting with $4 billion on Dec. 31, 2008, that kept the automaker solvent until the Obama administration could manage the 2009 bankruptcy.

“My view with regards to the bailout was that, whether it was by President Bush or by President Obama, it was the wrong way to go,” Republican candidate Mitt Romney said at a Nov. 9 debate in Rochester, Michigan. Romney has said U.S. bankruptcy laws work fine without White House involvement.

With GM solidly in the black and poised to take the global sales crown back from Toyota, the public is less focused on the automaker or its government ownership, said Douglas Holtz-Eakin, president of the American Action Forum, a conservative think tank in Washington. Republicans will still try to rekindle the issue, he said in a phone interview.

“By and large the public has moved on, but that doesn’t mean the Republicans won’t try to make it an issue,” Holtz- Eakin said. “The Republicans are actively taking surveys and doing focus groups to see how they can attack the Democrats. It’s easy to remind the public about the bailout.”

Saving Jobs

The Obama campaign, meanwhile, is planning to put Republicans on the defensive for not supporting the industry.

“While the Republican candidates would have let the American auto industry be liquidated by uniformly opposing the rescue loan, the president made the tough decision to extend the loan in order to save 1.4 million jobs and require a restructuring plan that has led American automakers to produce the cars of the future,” said Ben LaBolt, a spokesman for the campaign.

Selling GM’s 500 million shares at today’s price would mean a loss of about $17 billion. That would create a political fallout that neither GM nor Treasury wants, said Morgan Stanley’s Jonas.

“It would be difficult to stand that big of a taxpayer loss,” Jonas said in a phone interview. “If Treasury were to sell at these prices, it would be a political issue and would tarnish GM’s commercial image. If we were the financial adviser to Treasury, we’d say, ‘Don’t sell.’”

To contact the reporter on this story: David Welch in Southfield, Michigan at

To contact the editor responsible for this story: Jamie Butters at


Italy to Kick the Cash Habit as Monti Cracks Down

By Alessandra Migliaccio and Sonia Sirletti - Dec 23, 2011 7:52 PM GMT+0700

Floriana d’Andrea, a Naples musician, carries rolls of euro notes when she buys instruments and audio gear, a practice she’ll have to change as Italy sets new limits on cash payments in a bid to curb tax evasion.

“I bought some expensive sound equipment and the shop owner jacked up the price when I asked for a receipt,” said d’Andrea, 41, who paid 1,600 euros ($2,093) in cash in the transaction. She has a credit card, but rarely uses it, she said..

Prime Minister Mario Monti, in office just over a month, wants landlords, plumbers, electricians and small businesses to stop conducting large transactions in cash, which critics say helps them evade taxes. The government on Dec. 4 reduced the maximum allowed cash payment to 1,000 euros from 2,500 euros.

“If they force us to use credit cards, prices will go up,” said d’Andrea, noting that many retailers offer discounts to customers who pay in cash and don’t demand a receipt, in effect splitting with them the savings from evading the country’s 21 percent sales tax. She may curtail future purchases if she’s unable to use cash, d’Andrea said.

Italy loses more than 120 billion euros in unpaid taxes every year, according to the Equitalia tax collection agency. The country spends another 10 billion euros annually on security and labor for processing cash transactions, according to banking association ABI.

Debt Crisis

Monti is focusing on curtailing evasion as one way to reduce Italy’s 1.9 trillion-euro debt, which is bigger than Spain, Greece, Ireland and Portugal’s combined. Investor concern that Italy remains at risk of being overwhelmed by the region’s debt crisis pushed the country’s borrowing costs to euro-era records last month.

Italian consumer confidence fell in December to the lowest in 16 years as the crisis forced austerity measures and intensified households’ concerns about a probable recession. The sentiment index declined to 91.6, the lowest since January 1996, from a revised 96.1 in November, national statistics office Istat said in Rome today.

“Tracking cash payments won’t automatically ensure lower evasion, which often involves transactions smaller than 1,000 euros,” said Luca Mezzomo, head of economic research at Intesa Sanpaolo SpA in Milan. The new measures “could, however, be a good instrument for the tax authorities to identify people who spend more than they’ve officially earned.”

Wedding Receptions, Renovations

The reform pits the government against some Italians who prefer to pay for everything from wedding receptions to home renovations with cash, allowing merchants to underreport or not declare the revenue, and gaining a discount in exchange. Many small companies pay salaries in cash, allowing employees to report less income, the Finance Ministry said last year.

“Businesses make us accomplices, because nobody wants to pay extra on a large transaction,” said Adele Costantini, a professor of medicine in the southern region of Abruzzo, who had to argue to get a receipt from a house painter. “I want them to pay the tax, not unload it on me.”

Italians are the euro region’s least-indebted consumers and among its biggest savers, according to data from the European Union’s statistics office, Eurostat. Their frugality may be at least partly linked to a distrust of paying with anything other than cash. Italian credit-card holders use their cards on average only 26 times per year, or five times less than in the U.K., according to the Bank of Italy.

‘Culture of Cash’

“The culture of cash is strongly ingrained in Italians, even those that don’t evade,” Deputy Finance Minister Vittorio Grilli said at a Dec. 5 press conference in Rome. The government initially wanted to set a 300-euro or 500-euro cash limit but decided against it, Grilli said, reasoning that citizens needed time to adapt to new rules.

Italian banks, which charge businesses up to 2 percent for credit-card transactions, could end up being the main beneficiaries of the new rules, according to Rome-based consumer group Adusbef. “Unless banks cut fees on credit cards and current accounts, they’ll just make more money from the new law,” said Mauro Novelli, the general secretary of the organization, which represents banking and insurance customers.

Consumer advocates say the new law also discriminates against older Italians, many of whom don’t use credit cards. As many as 7.5 million Italians have never had a bank account, according to Adusbef. “The law cannot force old people to use plastic or open bank accounts,” Novelli said.

Bank Fees

The government is negotiating with the banks to get them to cut fees on credit cards and lower costs for bank accounts to encourage the move away from cash, Grilli said Dec. 5.

Banks are willing to consider zero-cost current accounts for low-income retirees and discuss credit-card costs “in light of the government’s new measures,” Giuseppe Mussari, head of Rome-based ABI, said Dec. 11. However, lenders won’t “give away” services that carry a cost for them, he said.

Italy’s tradition of saving won’t be at risk from the new measures, said Nicola Borri, an economics professor at Rome’s LUISS University. “Italians mainly use debit or credit cards with stringent limits,” he said. “Financial instruments that allow you to pile up debt are very limited in this country.”

Politicians have seized on the cash issue as a way to build support among a public reluctant to change. “There’s a real danger of crossing over into a fiscal police state,” former Prime Minister Silvio Berlusconi said at a political convention on Nov. 27 in Verona, about two weeks after the debt crisis toppled his government.

“What we need is a revolution in Italians’ thinking and that takes time,” Monti told reporters on Dec. 5. “This is meant to be a first step.”

To contact the reporters on this story: Sonia Sirletti in Milan at; Alessandra Migliaccio in Rome at

To contact the editor responsible for this story: Frank Connelly at


Fed’s Once-Secret Data Released to Public

By Phil Kuntz and Bob Ivry - Dec 23, 2011 12:01 PM GMT+0700

Bloomberg News today released spreadsheets showing daily borrowing totals for 407 banks and companies that tapped Federal Reserve emergency programs during the 2007 to 2009 financial crisis. It’s the first time such data have been publicly available in this form.

To download a zip file of the spreadsheets, go to For an explanation of the files, see the one labeled “1a Fed Data Roadmap.”

The day-by-day, bank-by-bank numbers, culled from about 50,000 transactions the U.S. central bank made through seven facilities, formed the basis of a series of Bloomberg News articles this year about the largest financial bailout in history.

“Scholars can now examine the data and continue the analysis of the Fed’s crisis management,” said Allan H. Meltzer, a professor of political economy at Carnegie Mellon University in Pittsburgh and the author of three books on the history of the U.S. central bank.

The data reflect lending from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility, the Commercial Paper Funding Facility, the Primary Dealer Credit Facility, the Term Auction Facility, the Term Securities Lending Facility, the discount window and single-tranche open market operations, or ST OMO.

Bloomberg News obtained information about the discount window and ST OMO through the Freedom of Information Act. While the Fed initially rejected a request for discount-window information, Bloomberg LP, the parent company of Bloomberg News, filed a federal lawsuit to force disclosure and won in the lower courts. In March, the U.S. Supreme Court decided not to intervene in the case, and the Fed released more than 29,000 pages of transaction data.

Additional Data

The Fed later supplied additional data to fill in gaps in its initial response. Bloomberg News is updating an interactive graphic it first published in August to add the new information.

Congress required the Fed to post data to its website in December 2010 on six broad-based programs, its assistance to Bear Stearns Cos. and American International Group Inc. (AIG) and more general information on its mortgage-backed securities purchases and so-called foreign-currency liquidity swaps. Those data were presented in spreadsheets that made it difficult to gauge how much individual banks were borrowing from the various programs on any given day.

Some reported totals from media outlets and government studies varied widely. In connection with today’s release, here’s a by-the-numbers explanation of the variations:

$1.2 trillion -- The Fed’s actual lending to banks and financial companies at its single-day peak, Dec. 5, 2008, through the seven programs Bloomberg News studied in depth.

Emergency measures that targeted specific companies -- Bear Stearns, AIG, Citigroup Inc. and Bank of America Corp. -- were excluded from Bloomberg’s analysis because they were previously disclosed. Loans to these companies from the other seven programs were included.

Bloomberg excluded foreign-currency liquidity swaps because names of commercial banks that borrowed under the program haven’t been disclosed to the public.

$1.5 trillion -- The Fed’s own number to represent its peak lending. This amount included the foreign-currency liquidity swaps, according to the Fed website. Under the swap lines, the Fed lends dollars to foreign central banks, which in turn lend the money to local banks. Only the names of central banks involved in the transactions have been made public.

The Fed’s tally of peak lending differed from Bloomberg’s in other ways, too. It included the Term Asset-Backed Securities Loan Facility, or TALF, which Bloomberg excluded. That program’s borrowers were investors rather than banks. Also, the Fed didn’t include ST OMO. Bloomberg did, based on a March 7, 2008, news release in which Fed officials said they would use the program “to address heightened liquidity pressures in term funding markets.”

$7.77 trillion -- The amount the Fed pledged to rescue the financial industry, according to Bloomberg research that examined announced, implied or actual upper limits on lending and guarantees. This number, which represents potential commitments, not money out the door, was first published in March 2009, when it peaked.

“One of the keys to understanding why we’ve avoided another Great Depression, so far, is to see how bold the Fed was in 2008 and 2009,” said Niall Ferguson, a Harvard University history professor. “That boldness consisted of a range of contingency commitments that backstopped the banking system. Just because they weren’t used doesn’t mean they weren’t important.”

After Bloomberg included the $7.77 trillion figure in a Nov. 28, 2011, story, some media outlets mischaracterized it as the Fed’s actual lending. The Fed, in a Dec. 6 memo accompanying a letter Fed Chairman Ben S. Bernanke wrote to lawmakers, called those mischaracterizations “wildly inaccurate.”

$6.8 trillion -- The potential amount the Fed might have lent if “all eligible program applicants request assistance at once to the maximum permitted under the program guidelines,” according to a July 21, 2009, report by the Treasury Department’s Special Inspector General for the Troubled Asset Relief Program, or TARP.

In that report, the officials monitoring the Treasury Department’s $700 billion bailout fund attempted to determine the Fed’s “total potential support” related to the financial crisis.

Most of the difference between the TARP watchdog’s tally and Bloomberg’s involves one program, TALF. The inspector general attributed its $900 billion capacity to the Treasury, which was guaranteeing some of its lending. Bloomberg grouped TALF with the Fed, which created the program.

$16 trillion -- The “total transaction amounts” for Fed lending included in a July 21, 2011, study by the Government Accountability Office, a non-partisan investigative agency that reports to Congress. The Fed’s Dec. 6 memo said it was inaccurate to describe that amount as the total of its lending and guarantees, as some websites did.

The method the GAO used to produce that total differed from Bloomberg’s approach. Bloomberg built spreadsheets to show each borrower’s daily amounts outstanding, and then found the day on which those amounts peaked. The GAO tallied all cumulative loans to arrive at $16 trillion. Its report noted that the total didn’t reflect how loans’ terms varied under different Fed programs.

If a bank borrowed $1 billion overnight for 100 nights, Bloomberg’s analysis would show that the bank had a $1 billion balance at the Fed for 100 days; the GAO method that produced the $16 trillion total would sum up those transactions to $100 billion, even though the bank never owed more than 1 percent of that total.

$1.14 trillion -- A different total for Fed lending that the GAO included in the same July 21, 2011, report. The calculation is similar to, not the same as, Bloomberg’s method of arriving at its peak lending figure. The GAO accounted for differences in loan terms by multiplying each loan amount by the number of days the loan was outstanding and then dividing by the number of days in a year. Bloomberg’s figure represents peak lending on a single day.

$13 billion -- An estimate of the income that 190 banks could have made from investing the Fed loans they took. To arrive at the figure, Bloomberg found the banks’ tax-adjusted net interest margin -- that is, the difference between what they earn on loans and investments and what they pay in borrowing expenses. Such data was available for 190 of the 407 borrowers. That information is included in today’s release.

In those cases, Bloomberg multiplied each bank’s net interest margin by its average Fed debt during reporting periods in which they took emergency loans. In that calculation, Bloomberg excluded loans from the Asset-Backed Commercial Paper Money Market Mutual Fund Liquidity Facility because that cash was passed along to money-market funds.

Penalty Rates

In its memo, the Fed said it was incorrect to write, as Bloomberg did, that banks “reaped an estimated $13 billion of income by taking advantage of the Fed’s below-market rates.”

“Most of the Federal Reserve’s lending facilities were priced at a penalty over normal market rates so that borrowers had economic incentives to exit the facilities as market conditions normalized, and the rates that the Federal Reserve charged on its lending programs did not provide a subsidy to borrowers,” the Fed said.

An October 2008 report by Daniel Thornton, a vice president at the Federal Reserve Bank of St. Louis, said the primary credit rate, which is paid by most borrowers from the Fed’s discount window, had been “consistently lower” than the certificate of deposit and Eurodollar rates since March 2008.

‘Generally Low’

Rates that banks paid at the Term Auction Facility, a lending program created in December 2007 to augment the discount window, “have generally been low relative to rates that depository institutions would have had to pay otherwise,” Thornton said in the report.

David Skidmore, a Fed spokesman, declined to comment on whether Fed programs provided a subsidy relative to actual market rates during the crisis.

Bloomberg’s income-estimate method isn’t perfect. It assumes that the banks used their Fed loans in the same way they did their other capital, for example. Still, in the absence of precise data, the approach provides an indication of banks’ income from their Fed loans.

“The net interest margin is an effective way of getting at the benefits that these large banks received from the Fed,” said Gerald A. Hanweck, a former Fed economist who’s now a finance professor at George Mason University in Fairfax, Virginia.

To contact the reporters on this story: Phil Kuntz in New York at; Bob Ivry in New York at

To contact the editor responsible for this story: Gary Putka at


Stocks Advance With U.S. Futures on Signs of U.S. Recovery; Wavin Surges

By Adam Haigh - Dec 23, 2011 3:07 PM GMT+0700

European stocks rose, with the Stoxx Europe 600 Index extending this week’s rally, before reports that may add to optimism that the American economic recovery is gathering strength. U.S. index futures and Asian shares also advanced.

Wavin NV (WAVIN) jumped 16 percent after Mexichem SAB increased its bid for the Dutch manufacturer by 11 percent to 10 euros a share.

The Stoxx 600 advanced 0.7 percent to 241.5 as of 8:02 a.m. in London. The March futures contract on the Standard & Poor’s 500 Index gained 0.6 percent, signaling the U.S. equity benchmark may climb for a fourth day. The MSCI Asia-Pacific Index added 0.9 percent.

“The U.S. is beginning to show signs of life,” said John Haynes, the head of research at Investec Wealth & Investments in London. “There’s some positive momentum in the U.S. economy.” He spoke in a Bloomberg Television interview with Mark Barton.

Reports today are forecast to show U.S. personal spending, durable-goods orders and new home sales rose in November, after yesterday’s data showed a drop in jobless claims.

Durable goods orders probably rose 2.2 percent in November, while personal spending increased 0.3 percent, according to the median forecasts of economists surveyed by Bloomberg. The reports are due at 8.30 a.m. Washington time.

Home Sales

New home sales climbed to a 315,000 annual rate last month from 307,000, another survey shows. This report will come out at 10 a.m. Washington time.

New unemployment claims unexpectedly fell by 4,000 to 364,000 in the week ended Dec. 17, the lowest level since April 2008, Labor Department figures showed yesterday.

The benchmark Stoxx 600 has gained 13 percent from this year’s low on Sept. 22 amid optimism that U.S. economic growth is holding firm and euro-area leaders are moving to stem the region’s debt crisis. The measure rallied yesterday, bringing this week’s gains to 2.6 percent.

Still, the gauge has tumbled 12 percent this year as the crisis spread to Italy and Spain. Banks and commodity companies have posted the largest declines among 19 industry groups on the gauge, both slumping more than 30 percent.

The volume of shares changing hands across Europe has fallen this week as the Christmas holiday break approaches. Trading on the Stoxx 600 this week was more than 20 percent below the average for 2011, according to data compiled by Bloomberg. The London market will close at 12:30 p.m. today.

ECB Action

European (SXXP) Central Bank Executive Board member Lorenzo Bini Smaghi said that policy makers shouldn’t shirk from using quantitative easing if deflation becomes a danger to the euro region. Unlike the U.S. Federal Reserve and the Bank of England, the ECB has offset liquidity created by purchases of government bonds so that such operations don’t amount to quantitative easing that stokes inflation.

“I do not understand the quasi-religious discussions about quantitative easing,” Bini Smaghi, who will leave his post at the end of the month, said in an interview published yesterday by the Financial Times. The ECB confirmed the comments. “It is appropriate if economic conditions justify it, in particular in countries facing a liquidity trap that may lead to deflation.”

Wavin soared 16 percent to 9.15 euros as it granted access to Mexichem to carry out due diligence, after the Latin American chemical producer increased its bid for Wavin to 10 euros from 9 euros.

China Three Gorges Corp. will pay 2.69 billion euros ($3.5 billion) for 21 percent of EDP-Energias de Portugal SA, outbidding rivals including EON AG, as the south European nation sells assets to meet the terms of a bailout. The bid by the world’s biggest dam operator is a 54 percent premium to the Dec. 21 market price and had “greater merit,” Portugal’s state holding company Parpublica said in a statement.

To contact the reporter on this story: Adam Haigh in London at

To contact the editor responsible for this story: Andrew Rummer at