Equity Strategists See Smaller S&P 500 Gain in 2012

By Inyoung Hwang - Jan 3, 2012 4:41 PM GMT+0700

Forecasters at securities firms are more conservative on U.S. stocks than any time in seven years, predicting the Standard & Poor’s 500 Index will rise 7.2 percent in 2012 as budget deficits around the world limit gains.

The benchmark gauge will climb to 1,348 after it was virtually unchanged in 2011 and the U.S. beat every equity market in the developed world except Ireland, according to the average forecast of 12 strategists tracked by Bloomberg. That’s the smallest predicted return since 2005. Adam Parker of Morgan Stanley, whose estimate for 2011 proved the most accurate among current analysts, forecast a loss of 7.2 percent as Europe’s debt crisis will keep volatility above historical levels.

Bulls at Oppenheimer & Co. and Citigroup Inc. (C) say record profits and improving U.S. economic data will propel stocks after the S&P 500 advanced 86 percent since March 2009. Parker and UBS AG (UBSN)’S Jonathan Golub say the prospect of a global slowdown will curb investors’ appetite for equities and keep the rally from gaining momentum.

“The question we pose is, ‘Do you want to be buying it now?’” Golub, the New York-based chief U.S. market strategist at UBS, said in a phone interview on Dec. 29. “A year is a long time. Will there be better entry points than right now? We think the answer is yes.”

Smallest Change

Shares fell last week after an expansion in the European Central Bank’s balance sheet stoked concern the region’s debt crisis will worsen. The S&P 500 lost 0.6 percent to 1,257.6, erasing its 2011 gain and leaving the measure with the smallest price change (SPX) for any year since 1947. Financial companies led the retreat in 2011, declining 18 percent, and utilities advanced 15 percent.

Golub says the S&P 500 will climb to 1,325 in 2012, the same forecast he gave at the beginning of last year. Credit market conditions, including yields on the 10-year Treasury note (USGG10YR) that are below 2 percent, are signaling Europe’s crisis may worsen in the first half, slowing earnings growth, he said.

The S&P 500 ended 2011 about 8.3 percent below the 1,371 average strategist estimate from 12 months earlier, data compiled by Bloomberg show. The gap compares with a 13-year average of 7.2 percent and is the biggest miss since 2008, when the index’s 38 percent retreat left it 45 percent below the mean projection. Wall Street firms underestimated the measure’s close by 2.7 percent in 2010 and 3.4 percent in 2009, the data show.

Pared Estimates

Forecasters pared their average 2011 prediction from 1,401 on Aug. 2 after S&P stripped the U.S. of its AAA credit rating, President Barack Obama and Congress struggled over deficit cuts and Europe was forced to bail out Greece. The index moved 1.3 percent a day since April, compared with 50-year average of 0.6 percent before the collapse of Lehman Brothers Holdings Inc.

“Volatility carried the day,” Jeffrey Schwarte, a money manager who helps oversee about $231 billion in Des Moines, Iowa, at Principal Global Investors, said in a telephone interview on Dec. 29. “The market was very top-down, looking at the macro drivers, and assumed everybody’s going to have poor earnings going forward. That’s certainly not the case from our perspective.”

Stock advisers are counting on the same things to spur this year’s gain as they did in 2011: profits (SPX) that are exceeding analyst estimates, record low interest rates and prospects for an expanding economy. The S&P 500 rallied as much as 102 percent from its low in March 2009.

Stock Valuations

The benchmark index tumbled 19 percent from its April high through Oct. 3 as more than $3 trillion (WCAUUS) was wiped from U.S. equities. For the year, the S&P 500 traded at an average price- earnings ratio (SPX) of 14.1, compared with the five-decade mean of 16.4. The measure is trading at 11.6 times forecasts for 2012 profits, with analysts calling for a 9.7 percent gain to $108.38 a share for S&P 500 earnings, the highest level ever.

Earnings multiples will contract in 2012 as investors concerned about the outcome of the U.S. presidential election, growth in China and Europe’s debt crisis refuse to pay more for profits, according to Parker, U.S. equity strategist at Morgan Stanley. (MS) Last year’s 5.5 percent gain in the Dow Jones Industrial Average compares with an average of 12 percent in years prior to elections since the measure’s creation in 1896, data compiled by Bloomberg show.

“You don’t want to pay a higher multiple for today’s earnings knowing that there’s this negative skew as to what can happen,” he said in a telephone interview on Dec. 28. “About half of getting a stock right these days seems to come from bottom-up issues and half seems to come from macro issues.”

Profit Estimates

Parker predicted at the beginning of 2011 the S&P 500 would end the year at 1,238, 1.6 percent from the close. His forecast was the lowest in a survey of 12 strategists’ estimates compiled by Bloomberg and compared with the average projection of 1,371. In a report to investors dated yesterday, he wrote the benchmark will close the year at 1,167. His forecast isn’t included in the average of 12 strategist calls by Bloomberg.

Bulls say rising profits mean the S&P 500’s earnings yield will expand, fueling gains in prices. Strategists are more pessimistic than equity analysts about how much earnings will climb in 2012, forecasting $102.31 a share. That would still represent the highest level ever.

Brian Belski, Oppenheimer & Co.’s New York-based chief investment strategist, said he’s never seen investors more influenced by the economy and government than now. That’s a bullish signal because it means there are more people who may change their minds and buy stocks in 2012, he said.

Equity Bull Market

Belski says the S&P 500 will climb 11 percent to 1,400 in 2012. He forecast the index would rise 5.4 percent last year to 1,325. When he gave his prediction, the average strategist projection for the end of 2011 was 1,379, according to Bloomberg data.

“We’re at the cusp of the next great equity bull market,” Belski said in a telephone interview on Dec. 28. “The U.S. is not just the best house in a bad neighborhood anymore. It’s the best house period. This has all been led by the structural change that corporate America has undergone in the last 10 years.”

The S&P 500 had the tenth-best performance in 2011 among the world’s stock markets. China’s Shanghai Stock Exchange Composite Index and Brazil’s Bovespa slumped 22 percent and 18 percent respectively. Japan’s Topix lost 19 percent, while the DAX Index of German stocks erased 15 percent. Ireland’s ISEQ Overall Index climbed 0.6 percent, the only benchmark to beat the S&P 500 among 24 developed markets.

Corporate Cash

Companies built reserves as stocks sank and forecasts for growth in U.S. gross domestic product in 2012 slipped from 3.3 percent in February to as low as 2 percent in October. Cash at companies excluding banks, utilities, truckers and automakers rose to a record $998.9 billion in the third quarter, according to S&P.

Low investor expectations for earnings growth will help stocks rise when companies beat estimates, Citigroup’s Tobias Levkovich said in a Dec. 27 interview on Bloomberg Television’s “Street Smart.” He sees the S&P 500 climbing to 1,375 in 2012.

S&P 500 companies have beaten Wall Street profit estimates (SPX) for 11 straight quarters. An average of 73 percent of corporations in the index exceeded analysts’ estimates in the first three quarters of 2011, with earnings-per-share topping projections by 5.3 percent, according to data compiled by Bloomberg.

“Markets are going to be moving higher,” Levkovich, the New York-based chief U.S. equity strategist at Citigroup, said. Clients who are money managers speculate earnings in 2012 will be about $95 a share, he said. “So if it’s comes in at about $100, that’s better than what investors believe.”

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Read more...

Intel Confronts Qualcomm in Vegas Standoff

By Ian King - Jan 3, 2012 12:01 PM GMT+0700

A looming clash between Intel Corp. (INTC) and Qualcomm Inc. (QCOM) will take center stage at the Consumer Electronics Show next week in Las Vegas, with both chipmakers seeking to control the future of mobile devices.

Qualcomm Chief Executive Officer Paul Jacobs will demonstrate notebook computers based on his company’s chips on Jan. 10, highlighting a push into an area dominated by Intel. Later that day, Intel CEO Paul Otellini will take the same stage to announce phones featuring his chips, renewing a decade-long push to get into a market that Qualcomm controls.

The popularity of smartphones and tablets has put the companies on a collision course. The market for mobile-phone chips will grow 40 percent to $29.9 billion by 2015, according to the Linley Group. With more consumers using handheld devices as their primary access to the Internet, Intel can’t afford to stay only in the realm of personal computers, said Jim McGregor, chief technology strategist for research firm In-Stat.

“For Intel, it’s a ‘we have to be there,’” he said. “Never bet against a computing device that fits in your pocket. I do more on my smartphone than any other device.”

For years, Intel processors failed to win orders in the mobile-phone market, mostly because they were too energy-hungry to work in a device that consumers expect to last days between charges. Qualcomm and other mobile-phone chipmakers, meanwhile, haven’t had much impact on Intel’s dominance of laptops because their products can’t run most computer software.

ARM Technology

The success of Apple Inc.’s iPad, which runs smartphone chips based on ARM Holdings Plc (ARM) designs, proved to consumers that phone processors could deliver enough performance for computing tasks. Microsoft Corp., the top software maker, also is putting pressure on Intel to adapt. After years of working exclusively with Intel’s x86 technology, a partnership known as “Wintel,” Microsoft’s pending Windows 8 operating system will also support ARM chips.

Qualcomm and other developers of smartphone components license their technology from ARM, an English company that doesn’t make its own chips. The change to Windows will give those manufacturers a new opening into the PC industry.

“Now we have the world’s largest software company saying they’re committed to this kind of platform for their flagship operating system,” Rob Chandhok, a senior vice president at San Diego-based Qualcomm, said in an interview.

PCs shifting to ARM chips could cost Intel $2.2 billion in sales by 2015, according to Daniel Amir, an analyst at Lazard Capital Markets in San Francisco.

Same Experience

Consumers expect their laptop computers to behave the same as their phones, Qualcomm’s Chandhok said. That means they turn on instantly and are always connected to the Internet. Because Qualcomm designed its chips from the ground up for that kind of use, they have an advantage, he said.

Intel says the reverse is true. Smartphones are becoming more like personal computers, giving an edge to Intel’s technology, said Bill Calder, a spokesman for the Santa Clara, California-based company.

“We believe we have an opportunity to play there, and we’ve been working hard on multiple fronts to make that a reality,” Calder said in an interview.

Intel’s experience with previous versions of Windows and its ability to support all existing software will make systems that use its chips more attractive, particularly for companies that need a secure environment, he said. That’s because existing security software may not be compatible with computers based on non-Intel chips.

Advanced Techniques

Its role as the world’s largest chipmaker, with the most advanced production factories, also will help Intel develop high-performance chips that use less battery power, Calder said.

Jen-Hsun Huang, CEO of Nvidia Corp. (NVDA), which is expanding into ARM-based processors for mobile devices, says it won’t matter if Intel can produce more efficient chips.

Too many electronics and software companies have shifted their efforts to ARM and other mobile technology, in part because Intel’s dominance of PCs made it hard to compete in that market, he said.

“The amount of innovation around ARM has reached critical mass,” Huang said. “If you’re a cell-phone maker or even a car company, you would absolutely choose ARM.”

Neither side will have an easy time pushing into the other’s turf, said In-Stat’s McGregor.

“It’s going to be as difficult for ARM to get into computing devices as it is for x86 to get into mobile devices,” he said.

Holding Their Ground

McGregor expects Windows 8 (MSFT) devices to debut first on Intel’s chips, rather than ARM versions. While Intel could get its processors into new smartphones, those deals probably won’t translate into significant orders in 2012, he said.

Qualcomm’s Chandhok said that even though there have been more test systems -- so-called development platforms -- for Windows 8 produced on Intel chips, his company will be providing ARM-based versions. Microsoft plans to begin selling both versions of the operating system at the same time, he said.

Catherine Brooker, a spokeswoman for Redmond, Washington- based Microsoft, said the company hasn’t shared details about when the software will be released.

In addition to announcing new contracts with phone manufacturers, Intel’s Otellini plans to showcase the company’s Ultrabook project during his speech. The company is encouraging PC makers to make lighter laptops that start more quickly and go longer between recharges, offering an experience closer to that delivered by Apple’s iPad and MacBook Air.

More to Lose?

Intel is counting on the effort to help maintain its leadership in the notebook market, said Lazard’s Amir.

“You need to be sure that you’re not losing the notebook,” said Amir, who has a “neutral” rating (INTC) on Intel.

Of the two sides, Intel probably has more to lose and less to gain, Amir said. Grabbing 10 percent of the market for mobile-phone chips wouldn’t be enough to add significant growth to Intel’s sales. Conversely, stronger competition in PCs, where it has more than 80 percent of the market, would hurt Intel’s high average selling prices, he said.

Intel’s processors can cost more than $4,000 each, with an average selling price of about $107, according to Mercury Research in Cave Creek, Arizona. That compares with an average selling price of less than $20 for the typical applications processor in a mobile phone.

Lazard’s Amir estimates that ARM-based processors will grab as much as a third of the market for mobile computers by 2015, up from 8 percent last year. The total market will grow to 340 million units in 2015 from 275 million in 2010, he predicts.

Faster Growth

The smartphone market has even bigger growth prospects. It will reach 1.1 billion units by 2015, up from 300 million last year, Amir said. In that period, Intel will increase its share from zero to 13 percent, he estimates.

While phones and PCs are currently separate markets, new software and hardware may blur those distinctions. In the future, consumers and companies will have a wider variety of choices that don’t fit the traditional definitions, In-Stat’s McGregor said. It’s up to the chip companies to evolve.

The winners will most probably be companies that produce packages of chips that deliver Internet connections, graphics and processing, he said. For now, Qualcomm is in the lead.

“They’re definitely in pole position,” McGregor said. “Intel even admits they are playing a little catch-up in some of the areas that they need to be competitive on.”

To contact the reporter on this story: Ian King in San Francisco at ianking@bloomberg.net.

To contact the editor responsible for this story: Tom Giles at tgiles5@bloomberg.net

Read more...

U.S. Stocks Advance on Signs of Rising Manufacturing Output Across Globe

By Adam Haigh and Ksenia Galouchko - Jan 3, 2012 9:31 PM GMT+0700

U.S. stocks climbed, sending the Standard & Poor’s 500 Index higher on its first trading day of the year, amid signs that manufacturing output is increasing from China to Australia and America.

The S&P 500 (SPX) rose 1.2 percent to 1,272.36 as of 9:31 a.m. New York time.

“You’re starting to see people want to take more risks,” Frank Ingarra, who helps manages the Can Slim Select Growth Fund at Greenwich, Connecticut-based NorthCoast Asset Management LLC, said in a telephone interview. His firm oversees $1.4 billion. “They’re getting positioned to start the year off with a positive step.”

The S&P 500 rallied 14 percent from last year’s lowest level on Oct. 3 through Dec. 30 as better-than-estimated economic data fueled optimism the world’s largest economy can shrug off concern over Europe’s sovereign-debt crisis. The gauge still recorded its first annual decline since 2008 last year.

The S&P 500 had the 10th best performance among the world’s stock markets in 2011. The gauge posted a loss of 4/100ths of a point, closing at 1,257.6.

Australian manufacturing expanded for the first time in six months, an industry survey showed today, adding to evidence the global economy is strengthening after Chinese and German (PMITMGE) factory-output reports beat economist estimates in the past two days. Data today may show a U.S. manufacturing gauge climbed to a six-month high in December, according to a survey of economists’ forecasts compiled by Bloomberg.

To contact the reporters on this story: Adam Haigh in London at ahaigh1@bloomberg.net; Ksenia Galouchko in New York at kgalouchko1@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Read more...

Stocks, Commodities Gain on Outlook for World Manufacturing; Dollar Drops

By Stephen Kirkland and Lynn Thomasson - Jan 3, 2012 9:31 PM GMT+0700

Play Video

Jan. 3 (Bloomberg) -- Kit Juckes, head of foreign-exchange research at Societe Generale SA, discusses the outlook for currencies in 2012 including the euro, Canadian dollar and Mexican peso. He speaks with Maryam Nemazee on Bloomberg Television’s “The Pulse.” (Source: Bloomberg)

Play Video

Jan. 3 (Bloomberg) -- Pu Yonghao, Hong Kong-based chief investment strategist at UBS Wealth Management, talks about Asia financial markets and economies. Pu also discusses Europe's sovereign debt crisis and the U.S. economy. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Play Video

Jan. 3 (Bloomberg) -- Bill Blain, co-head of the Special Situations Group at Newedge Group Ltd., and Holger Schmieding, chief economist at Joh. Berenberg Gossler & Co in London, discuss Europe's growth prospects in 2012. They speak with Mark Barton on Bloomberg Television's "On the Move." (Source: Bloomberg)

Stocks (MXWD) rose, driving the MSCI All- Country World Index to a four-week high, and commodities climbed on signs of increased manufacturing output. The dollar weakened and U.S. Treasuries fell.

The MSCI gauge advanced 1 percent at 9:30 a.m. in New York, on course for the highest close since Dec. 7. The Stoxx Europe 600 Index (SXXP) added 0.8 percent and the Standard & Poor’s 500 Index rallied 1 percent. The Dollar Index fell (DXY) 0.7 percent, while the 10-year Treasury yield increased seven basis points to 1.95 percent. The yield on similar-maturity French debt rose three basis points. Oil rose above $101 a barrel and copper gained for a second day.

U.S. manufacturing probably expanded last month at the fastest pace since June, economists in a Bloomberg survey said before a report today, and the Federal Reserve is scheduled to release minutes from its December meeting. Factory output (AIGPMI) in Australia grew for the first time in six months after reports in the past two days showed a pickup in Chinese and Indian manufacturing, providing evidence that some economies are withstanding Europe’s debt crisis.

“While the reasons to be gloomy are legion and unchanged, there is no new negative news, and lots and lots of cash washing around the system,” Kit Juckes, head of foreign-exchange research at Societe Generale SA in London, said in a report today. “All of which makes for too much cash sitting idly by and a decent risk rally.”

Two-Month High

The Stoxx 600 (SPX) climbed to the highest level in two months as the U.K.’s FTSE 100 Index and the Swiss Market Index, which were closed yesterday for a holiday, led gains in the region. The Euro Stoxx 50 Index of the biggest euro-region companies slipped 0.4 percent.

Rio Tinto Group led a rally in mining companies, gaining 5.4 percent. Afren Plc jumped 14 percent as the U.K. energy explorer focused on Africa said production topped its forecasts.

The MSCI world index (MXWD) sank 9.4 percent last year, the most since 2008, as Europe’s debt crisis hurt global growth. The S&P 500 Index closed the year almost unchanged, slipping less than 0.1 percent.

The Institute for Supply Management’s factory index (NAPMPMI) rose to 53.4 from 52.7 in November, according to the median projection of 63 economists surveyed by Bloomberg. Fifty is the dividing line between growth and contraction. Construction spending increased for a fourth straight month in November, another report may show.

The dollar weakened 0.8 percent to $1.3031 per euro, which appreciated 0.6 percent against the yen after falling to an 11- year low yesterday. The yen depreciated against 14 of its 16 most-traded peers monitored by Bloomberg, while the New Zealand dollar strengthened versus all but two of its major counterparts.

Debt Sales

The 30-year Treasury yield rose eight basis points to 2.98 percent before the U.S. auctions $56 billion of three- and six- month bills.

The German 10-year bund yield was little changed at 1.91 percent. Italian 10-year bonds fell, sending the yield up four basis points at 6.95 percent and Austrian bonds slid, driving the difference in yield (.AUSTGER) with bunds 10 basis points higher to 124 basis points. The French-German spread widened four basis points as France auctions as much as 8.9 billion euros of 84-, 161-and 315-day securities today.

Belgium’s two-year note yield fell two basis points as the government sold almost 2.44 billion euros of three-month and six-month treasury bills, more than it planned, with borrowing costs dropping to an 18-month low.

Default Risk

The cost of insuring against default on corporate and financial bonds fell, with the Markit iTraxx Crossover Index of 50 companies of mostly high-yield credit ratings dropping 13.5 basis points to 741.5, the lowest since Dec. 7, according to JPMorgan Chase & Co. The Markit iTraxx Financial Index linked to senior debt of 25 banks and insurers decreased nine basis points to 268.

Bank funding costs declined with the three-month cross- currency basis swap, the rate lenders pay to convert euro interest payments into dollars, slipping to 105.5 basis points below the euro interbank offered rate. That’s the lowest cost since Nov. 8, data compiled by Bloomberg show.

Oil in New York jumped 2.6 percent to $101.39 a barrel as Iran’s Deputy Navy Commander Rear Admiral Mahmoud Mousavi told Press TV that any effort to harm the nation’s interests will lead to “reciprocal measures.” Copper advanced 0.9 percent.

The MSCI Emerging Markets Index (MXEF) rose 2.2 percent, set for the biggest advance in a month. The Hang Seng China Enterprises Index (HSCEI) jumped 3 percent as trading resumed in Hong Kong. Benchmark indexes gained more than 2 percent in Russia, India and South Korea.

Hungary sold three-month Treasury bills at 7.67 percent, the highest since August 2009, after lawmakers approved regulations Dec. 30 that reduced powers of the president of the central bank, despite opposition from the International Monetary Fund and the European Union. The BUX Index (BUX) of stocks (MXWD) slid 1.1 percent and the forint weakened 0.1 percent against the euro.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

Read more...

European Stocks Rise Before U.S. Manufacturing Report; BHP Billiton Climbs

By Julie Cruz - Jan 3, 2012 9:32 PM GMT+0700

European stocks rose, with the Stoxx Europe 600 Index extending a two-month high, before a report that may show manufacturing in the U.S. (NAPMPMI) expanded in December at the fastest pace in six months.

BHP Billiton Ltd. (BHP) and Rio Tinto Group jumped more than 5 percent, leading gains by commodity producers as copper increased in London. Automakers rallied as R.L. Polk & Co. said the number of cars and light trucks sold globally will grow 6.7 percent this year. Marks & Spencer Group Plc advanced 1.7 percent as Bank of America Corp. upgraded the stock.

The benchmark Stoxx 600 (SXXP) rose 0.8 percent to 249.08 at 2:30 p.m. in London for the gauge’s fourth straight day of gains, its longest winning streak in a month. The U.K., the U.S. and Swiss markets were closed for a holiday yesterday.

“The new year has bearish expectations for growth baked in, providing an equity-buying opportunity for investors as growth improves later in the year,” said Daniel Weston, a portfolio adviser at Schroeder Equities GmbH in Munich. “The market will focus on improving growth increasing profits, low interest rates benefiting businesses and investors will see equity as a more attractive alternative than holding cash.”

The Stoxx 600 (SXXP) rallied 1.1 percent yesterday as a measure of German manufacturing beat estimates. The gauge posted its first yearly decline since 2008 last year as U.S. leaders wrangled over cutting the deficit and euro-area policy makers remained divided on their response to the sovereign-debt crisis.

European Budget Rules

National leaders have pledged to draft a stricter rulebook for controlling government spending. German Chancellor Angela Merkel and French President Nicolas Sarkozy will meet in Berlin on Jan. 9 to work out the details.

The Institute for Supply Management’s factory index, which is due at 10 a.m. New York time, rose to 53.4 last month from 52.7 in November, according to the median projection (NAPMPMI) of 63 economists surveyed by Bloomberg News. Fifty is the dividing line between growth and contraction. Construction spending (CNSTTMOM) in the world’s largest economy increased for a fourth straight month in November, another report today may show.

A separate report on Jan. 6 will probably show that hiring in the U.S. accelerated in December for a second month, a sign that the country’s improving labor market will bolster consumer spending in early 2012, economists said. Payrolls climbed by 150,000 workers after rising 120,000 in November, according to the median forecast of 62 economists in a Bloomberg News survey before the Labor Department release on Jan. 6.

“U.S. data has continued to impress and markets are expecting the trend to persist,” Jim Reid, a strategist at Deutsche Bank AG in London, wrote in a research note today.

European Debt Sales

France sold 84-, 161- and 315-day treasury bills today. The 10-year yield increased four basis points to 3.28 percent as of 2:05 p.m. London time, rising for a fifth consecutive day. Two- year yields added two basis points to 0.87 percent.

German unemployment (GRUECHNG) fell in December more than economists had forecast as exports of cars and machinery boomed and one of the mildest winters on record helped support jobs in construction.

“The main focus is that there will be no recession,” said Robert Halver, head of research at Baader Bank AG in Frankfurt. “It can be a good year for equities under the condition that European politicians do their homework. The European Central Bank is in the driving seat.”

National benchmark indexes advanced in 13 of the 18 western-European markets. Germany’s DAX Index added 1.1 percent, while the U.K.’s FTSE 100 Index climbed 1.3 percent. France’s CAC 40 Index retreated 0.5 percent.

BHP Billiton, the world’s biggest mining company (BLT), surged 5.9 percent to 1,987.5 pence, while Rio Tinto, the second- largest, soared 5.8 percent to 3,305.5 pence. Copper, tin and zinc advanced on the London Metal Exchange.

Global Auto Sales

Carmakers posted the second-best performance of the 19 industry groups on the Stoxx 600 (SXXP) as Polk, a research company based in Southfield, Michigan, predicted that the industry’s sales will rise to 77.7 million vehicles this year, helped by a 16 percent gain in China to 17.9 million.

Bayerische Motoren Werke AG (BMW) rose 3.1 percent to 54.82 euros as Sueddeutsche Zeitung said the world’s biggest maker of luxury cars (BMW) expects the automotive market to remain stable in 2012, with growth opportunities in the U.S. and China.

Afren Plc (AFR) soared 17 percent to 100.4 pence, the stock’s largest increase since August 2009 and the best performance in the Stoxx 600. The U.K. oil and gas explorer focused on Africa said its aggregate production has reached 55,400 barrels of oil equivalent per day, exceeding its year-end target of 50,000 barrels.

Lagardere, Adecco

Lagardere SCA (MMB) jumped 4.7 percent to 22.03 euros after Qatar Holding LLC said it will seek a seat on the French media company’s supervisory board. Qatar Holding, which owns 10.07 percent of Lagardere’s shares, said it may also raise its stake in the company though it will not seek management control of the owner of the Europe 1 radio station.

Adecco SA (ADEN) increased 3.7 percent to 40.79 Swiss francs. The company said it has agreed to buy VSN Inc., a provider of professional staffing services in Japan, for an enterprise value of 90 million euros. VSN doubles Adecco’s exposure to professional staffing in Japan and reinforces the company’s strong position in an attractive structural growth market, it said in a statement.

Marks & Spencer Gains

Marks & Spencer rose 1.8 percent to 316.5 pence, its sixth day of gains for the longest winning streak since Dec. 2009. The U.K.’s largest clothing retailer (MKS), was raised to “neutral” from “underperform” at Bank of America, which said “concerns are more priced in now and we are more comfortable with the progress of the Food business.”

Sky Deutschland AG (SKYD) jumped 8.3 percent to 1.56 euros, its biggest gain since November, as the German pay-television operator was raised to “buy” at Royal Bank of Scotland Group Plc.

Royal KPN NV dropped 3 percent to 9.04 euros, its first retreat in four days. The company said Chief Financial Officer Carla Smits-Nusteling will step down because she failed to agree with a new management structure.

Storebrand ASA (STB) tumbled 7.6 percent to 27.72 kroner after the Norwegian insurance company was downgraded to “underperform” from “market perform” at Keefe, Bruyette & Woods Inc.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net

To contact the editor responsible for this story: Andrew Rummer at arummer@bloomberg.net

Read more...

Iran Warns U.S. Against Sending Carrier to Gulf

By Heather Langan - Jan 3, 2012 6:00 PM GMT+0700

The head of Iran’s army warned the U.S. against sending an aircraft carrier back to the Persian Gulf after it passed through the Strait of Hormuz a week ago.

“We usually don’t repeat our warning, and we warn only once,” Ataollah Salehi was cited as saying by the state-run Fars news agency. “We recommend and emphasize to the American carrier not to return to the Persian Gulf.”

The USS John C. Stennis, which Iran said it spotted during naval exercises, passed eastward through the Strait of Hormuz on Dec. 27 on a routine voyage and was operating in the northern Arabian Sea, said the U.S. 5th Fleet, which has a base in Bahrain. Salehi spoke today at a ceremony to mark the completion of 10 days of maneuvers by the Iranian navy on the east side of the strait in the Gulf of Oman.

Iran will block oil shipments through the Strait of Hormuz if sanctions are imposed on its crude exports, as the U.S. and European Union have threatened, the state-run Islamic Republic News Agency said on Dec. 27, citing Vice President Mohammad Reza Rahimi. Navy Commander Habibollah Sayyari said the blockage would be “easy,” according to the country’s Press TV.

About 15.5 million barrels of oil a day, or a sixth of global consumption, passes through the Strait of Hormuz between Iran and Oman at the mouth of the Persian Gulf, according to the U.S. Energy Department.

The U.S. Navy said Dec. 28 that it won’t tolerate a disruption to shipping in the strait.

Iran, the world’s third-largest oil exporter, is facing new trade restrictions aimed at halting what the U.S. and allies say is a plan to build nuclear weapons. Iran says its atomic program is for peaceful purposes.

Inspectors from the International Atomic Energy Agency are expected to visit Iran soon, the Fars news agency cited Foreign Ministry spokesman Ramin Mehmanparast as saying in Tehran today.

Read more...

Buffett’s Defense No Match for S&P 500 in 2011

By Andrew Frye - Jan 3, 2012 12:00 PM GMT+0700

Warren Buffett, the billionaire investor who has highlighted his record of beating the market when stocks languish, oversaw a decline last year as the Standard & Poor’s 500 Index ended unchanged.

Buffett’s Berkshire Hathaway Inc. (BRK\A) slipped 4.7 percent in 2011. It was the second time since 1990 that the Omaha, Nebraska-based firm underperformed an S&P 500 that had either declined for the year or rose less than 5 percent. Berkshire gained about 17-fold in the 21-year period, while the index has nearly quadrupled.

“There’s going to be a big asterisk by this year,” said David Rolfe, chief investment officer of Berkshire investor Wedgewood Partners Inc. “In tough markets it’s a strong performer. There’s no doubt it has broken the mold this year,” he said in an interview last month.

Buffett’s personal holdings of Berkshire (BRK/A) lost about $2 billion last year. In September, the 81-year-old Buffett initiated the first share-repurchase program in four decades as Berkshire’s chief executive officer. On a quarterly average basis, the stock price slipped in the three months ended Sept. 30 to the lowest relative to book value (BRK\A) in more than 20 years.

The firm faced a surge in insurance claims tied to natural disasters and losses on a portfolio of speculative derivatives. The resignation of Berkshire manager David Sokol in March raised questions about succession for Buffett.

“Berkshire stock went to a price we never thought,” Vice Chairman Charles Munger said on July 1 after the firm slipped 3.6 percent in the first six months of the year compared with a 5 percent rise in the S&P.

Insurance Losses

Munger cited Berkshire’s insurance losses tied to the March earthquake and tsunami in Japan. Jay Gelb, an analyst with Barclays Plc, said in May that “succession risk is elevated” following Sokol’s exit. On Aug. 9, Gelb raised his rating on Berkshire stock to “overweight” from “neutral,” saying the stock slide provided a buying opportunity. The shares have gained 5.2 percent since.

Berkshire was one-thirtieth the size it is now based on book value, when in 1990 it dropped 23 percent, compared with the 6.6 percent slide in the S&P 500. Since then, the S&P 500 has posted five annual losses and three advances of less than 5 percent. Berkshire beat the index in each of those eight years, except for 2005 when the company gained less than 1 percent compared with a 3 percent rise in the S&P 500.

“Our defense has been better than our offense,” Buffett said in the letter accompanying the 2009 annual report. Buffett, who highlights book value as a measure of performance rather than stock gains, said his firm has “consistently done better than the S&P” in years when the index has fallen.

Book Value

Berkshire’s book value, a measure of assets minus liabilities, rose 1.7 percent to $160 billion in the nine months ended Sept. 30, helped by the Burlington Northern Santa Fe railroad and units like toolmaker Iscar Metalworking Cos. The price-to-book ratio was about 1.2 on Dec. 31, higher than the third-quarter average of 1.1, according to data compiled by Bloomberg. Book value was $5.3 billion at the end of 1990.

Berkshire is the biggest shareholder of Wells Fargo & Co. (WFC) and New York-based American Express Co., both of which posted fourth-quarter gains. Wells Fargo, the San Francisco-based bank that is the biggest U.S. mortgage lender, fell 22 percent in the first nine months of the year, wiping more than $2 billion off of the market value of Berkshire’s stake.

Buffett, who built Berkshire through stock picks and insurance sales, has transformed the company by buying whole companies and adding businesses with large infrastructure like the railroad and a power producer. The shift, Buffett said in 2007, has made Berkshire’s book value less sensitive to declines in equity markets.

Expect to Outperform

“We, therefore, expect to outperform the S&P in lackluster years for the stock market and underperform when the market has a strong year,” Buffett said in Berkshire’s 2006 annual report, adding an entry to his list of business principles included in every year-end edition.

The earthquake and tsunami that struck Japan on March 11 contributed to $1.3 billion of after-tax catastrophe costs in the first nine months of the year, compared with about $500 million a year earlier. Losses on derivatives, used to bet on long-term stock gains and the creditworthiness of borrowers, widened 23 percent to $2.36 billion.

Buffett, who runs Berkshire with a staff of about 20 people at the company’s headquarters, has told investors the firm has a list of candidates capable of succeeding him at CEO. Sokol, a former chairman of Berkshire’s MidAmerican Energy Holdings, was seen by some, including Buffett biographer Andrew Kilpatrick, as a possible successor before he resigned.

To contact the reporter on this story: Andrew Frye in New York at afrye@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net.

Read more...

World’s Biggest Economies Face $7.6T Debt

By Keith Jenkins and Anchalee Worrachate - Jan 3, 2012 5:22 PM GMT+0700

Skyscrapers including Tower 42, the Swiss Re, center, and Canary Wharf, right, are seen on the skyline in London, U.K. Photographer: Simon Dawson/Bloomberg

Play Video

Jan. 3 (Bloomberg) -- Governments of the world's leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs. The amount needing to be refinanced increases to more than $8 trillion when interest payments are included. Linda Yueh reports on Bloomberg Television's "First Look" with Caroline Hyde. (Source: Bloomberg)

Enlarge image

St. Peter's Basilica stands on the skyline in Rome. Italy auctioned 7 billion euros ($9.1 billion) of debt on Dec. 29, less than the 8.5 billion euros targeted. Photographer: Alessia Pierdomenico/Bloomberg

Governments of the world’s leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs.

Led by Japan’s $3 trillion and the U.S.’s $2.8 trillion, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year, according to data compiled by Bloomberg. Ten-year bond yields will be higher by year-end for at least seven of the countries, forecasts show.

Investors may demand higher compensation to lend to countries that struggle to finance increasing debt burdens as the global economy slows, surveys show. The International Monetary Fund cut its forecast for growth this year to 4 percent from a prior estimate of 4.5 percent as Europe’s debt crisis spreads, the U.S. struggles to reduce a budget deficit exceeding $1 trillion and China’s property market cools.

“The weight of supply may be a concern,” Stuart Thomson, a money manager in Glasgow at Ignis Asset Management Ltd., which oversees $121 billion, said in a Dec. 28 telephone interview. “Rather than the start of the year being the problem, it’s the middle part of the year that becomes the problem. That’s when we see the slowdown in the global economy having its biggest impact.”

Competition for Buyers

The amount needing to be refinanced rises to more than $8 trillion when interest payments are included. Coming after a year in which Standard & Poor’s cut the U.S.’s rating to AA+ from AAA and put 15 European nations on notice for possible downgrades, the competition to find buyers is heating up.

“It is a big number and obviously because many governments are still in a deficit situation the debt continues to accumulate and that’s one of the biggest problems,” Elwin de Groot, an economist at Rabobank Nederland in Utrecht, Netherlands, part of the world’s biggest agricultural lender, said in an interview on Dec. 27.

While most of the world’s biggest debtors had little trouble financing their debt load in 2011, with Bank of America Merrill Lynch’s Global Sovereign Broad Market Plus Index gaining 6.1 percent, the most since 2008, that may change.

Italy auctioned 7 billion euros ($9.1 billion) of debt on Dec. 29, less than the 8.5 billion euros targeted. With an economy sinking into its fourth recession since 2001, Prime Minister Mario Monti’s government must refinance about $428 billion of securities coming due this year, the third-most, with another $70 billion in interest payments, data compiled by Bloomberg show.

Rising Costs

Borrowing costs for G-7 nations will rise as much as 39 percent in 2011, based on forecasts of 10-year government bond yields by economists and strategists surveyed by Bloomberg in separate surveys. China’s 10-year yields may remain little changed, while India’s are projected to fall to 8.02 percent from about 8.39 percent. The survey doesn’t include estimates for Russia and Brazil.

After Italy, France has the most amount of debt coming due, at $367 billion, followed by Germany at $285 billion. Canada has $221 billion, while Brazil has $169 billion, the U.K. has $165 billion, China (PRCH) has $121 billion and India $57 billion. Russia has the least maturing, or $13 billion.

Rising borrowing costs forced Greece, Portugal and Ireland to seek bailouts from the European Union and IMF. Italy’s 10- year yields exceeded 7 percent last month, a level that preceded the request for aid from those three nations.

Bad Combination

“The buyer base for peripheral Europe has obviously shrunk at the same time that the supply coming to the market is increasing, which is not a good combination,” said Michael Riddell, a London-based fund manager at M&G Investments, which oversees about $323 billion.

The two biggest debtors, Japan and the U.S., have shown little trouble attracting demand.

Japan benefits by having a surplus in its current account, which is the broadest measure of trade and means that the nation doesn’t need to rely on foreign investors to finance its budget deficits. The U.S. benefits from the dollar’s role as the world’s primary reserve currency.

Japan’s 10-year bond yields, at less than 1 percent, are the second-lowest in the world, after Switzerland, even though its debt is about twice the size of its economy.

The U.S. attracted $3.04 for each dollar of the $2.135 trillion in notes and bonds sold last year, the most since the government began releasing the data in 1992. The U.S. drew an all-time high bid-to-cover ratio of 9.07 for $30 billion of four-week bills it auctioned on Dec. 20 even though they pay zero percent interest.

Tougher Year

With yields on 10-year Treasuries (USGG10YR) below 2 percent, an increasing number of investors see little chance for U.S. bonds to repeat last year’s gains of 9.79 percent. The U.S pays an average interest rate of about 2.18 percent on its outstanding debt, down from 2.51 percent in 2009, Bloomberg data show.

‘Given how well they have done, we don’t think they’re any longer a very good hedge,” Eric Pellicciaro, head of global rates investment at New York-based BlackRock Inc., which manages $1.14 trillion in fixed-income assets, said in a Dec. 16 telephone interview.

The median estimate of 70 economists and strategists is for Treasury 10-year note yields to rise to 2.60 percent by year-end from 1.94 percent at 10:03 a.m. London time. In Japan, the forecast for the nation’s benchmark note yield is 1.35 percent, while it’s expected to rise to 2.50 percent in Germany, from 1.93 percent today.

Central Banks

Central banks are bolstering demand by either keeping interest rates at record lows or reducing them, and by purchasing bonds through a policy know as quantitative easing.

The Federal Reserve has said it will keep its target rate for overnight loans between banks between zero and 0.25 percent through mid-2013, and is now selling $400 billion of its short- term Treasuries and reinvesting the proceeds into longer-term government debt in a program traders dubbed Operation Twist.

The Bank of Japan has kept its key rate at or below 0.5 percent since 1995, and expanded the asset-purchase program last year to 20 trillion yen ($260 billion). The Bank of England kept its main rate at a record low 0.5 percent last month, and left its asset-buying target at 275 billion pounds ($426 billion).

The European Central Bank reduced its main refinancing rate twice last quarter, to 1 percent from 1.5 percent. It followed those moves by allotting 489 billion euros of three-year loans to euro-region lenders. That exceeded the median estimate of 293 billion euros in a Bloomberg News survey of economists. The central bank will offer a second three-year loan on Feb. 28.

‘Flush With Liquidity’

The money from the ECB may be used by banks to buy government bonds, according to Fabrizio Fiorini, the chief investment officer at Aletti Gestielle SGR SpA in Milan.

“The market is now flush with liquidity after measures taken by central banks, particularly the ECB, and that’s great news for risky assets,” Fiorini said in a telephone interview on Dec. 20. “The market will have no problem taking down supply from countries like Spain and Italy in the first quarter. In fact, they should be able to raise money at lower borrowing costs than what we saw in recent months.”

Italy’s sale last week included 2.5 billion euros of 5 percent bond due in March 2022, which yielded 6.98 percent. That was down from 7.56 percent at an auction Nov. 29. It also sold 9 billion euros of bills on Dec. 28 at a rate of 3.251 percent, compared with 6.504 percent at the previous auction on Nov. 25.

‘Phony War’

Investors should be most worried about the period after the ECB’s second three-year longer-term refinancing operation scheduled in February, according to Ignis’s Thomson.

“The amount of liquidity that has been supplied by central banks, with more to come from the ECB in February, suggests the first couple of months will be a sort of phony war as far as the supply is concerned,” Thomson said.

The ECB has bought about 212 billion euros of government bonds since starting a program in May 2010 to contain borrowing costs for Greece, Portugal and Ireland. It began buying Spanish and Italian debt in August, according to people familiar with the trades, who declined to be identified because they weren’t authorized to speak publicly about the transactions.

“There’s a lot of talk that the ECB might have to give more direct support to the governments,” Frances Hudson, who helps manage about $242 billion as a global strategist at Standard Life Investments in Edinburgh, said in a Dec. 22 telephone interview.

Following is a table of bond and bill redemptions and interest payments in 2012 for the Group of Seven countries, Brazil, China, India and Russia, in dollars, using data calculated by Bloomberg as of Dec. 29:

Country    2012 Bond, Bill Redemptions ($)      Coupon Payments
Japan             3,000 billion                   117 billion
U.S.              2,783 billion                   212 billion
Italy               428 billion                    72 billion
France              367 billion                    54 billion
Germany             285 billion                    45 billion
Canada              221 billion                    14 billion
Brazil              169 billion                    31 billion
U.K.                165 billion                    67 billion
China               121 billion                    41 billion
India                57 billion                    39 billion
Russia               13 billion                     9 billion

To contact the reporters on this story: Keith Jenkins in London at kjenkins3@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net

Read more...

Hu Tells Magazine West Is Trying to Divide China by Using Cultural Weapons

By Bloomberg News - Jan 3, 2012 10:32 AM GMT+0700

The West is using cultural means to divide China (PRCH), which needs to be alert to this threat, President Hu Jintao said in a Communist Party magazine.

“International forces are trying to Westernize and divide us by using ideology and culture,” Hu wrote in an article in Qiushi. “We need to realize this and be alert to this danger.”

Many countries, especially Western powers, are attempting to expand their influence through cultural hegemony, and China must deepen and promote its own values of “socialism with Chinese characteristics,” Hu wrote in the article, which was published on the government’s website on Jan 1. China needs to strengthen its cultural values as it faces possible challenges from the West, he said.

Hu’s comments are part of a wider push by the party to reassert its influence over Chinese culture and society, including in television and the arts. China’s leaders are grappling with the best way to manage Twitter-like social-media sites such as Sina Corp (SINA).’s Weibo service that are hard for government censors to control.

The Communist Party’s Central Committee said it will supervise the world’s biggest online community more closely, promote “constructive” websites and punish the spread of “harmful information,” according to a communique from its Oct. 15-18 meeting released by the official Xinhua News Agency.

Members of the party’s Politburo visited web companies after a deadly train crash in July. Internet users criticized the government’s handling of the crash and spread commentary and photos of the accident at odds with the official line.

Competitive Edge

The Central Committee’s communique also focused on television, with the Communist Party vowing to “promote more fine literary and artistic works” in fields such as television, movies and photography.

That coincided with an announcement that new limits would be imposed on the number of “overly entertaining and vulgar” reality and talent shows aired on television. Starting this year, the nation’s 34 satellite channels must limit themselves to two such programs every week, according to an Oct. 25 statement on China’s State Administration of Radio, Film and Television’s website.

In a globalized world in which people are exposed to many ideologies and values, the country with the most cultural influence will gain a competitive advantage, Hu wrote.

To contact Bloomberg News staff for this story: Liza Lin in Shanghai at llin15@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net

Read more...

Dollar Demise Refuted With 13% Gain Since 2008

By Liz Capo McCormick - Jan 3, 2012 4:46 PM GMT+0700

Moves by the Federal Reserve to flood the world with dollars are doing little to dent the currency’s value, bolstering the appeal of U.S. assets at a time when the government needs the support of foreign investors the most.

The U.S. Dollar Index (DXY) has appreciated 13 percent from a record low in March 2008 even as the Fed kept interest rates at about zero and printed cash to buy $2.3 trillion (FARBAST) of Treasury and mortgage-related bonds, and is little changed since 1991. The International Monetary Fund said Dec. 30 that the greenback’s share of global foreign-exchange reserves rose in the third quarter by the most since 2008.

That long-term stability shows America’s currency is a store of value and may help explain why the U.S. is attracting record demand for the unprecedented amount of bonds (DEBPMARK) the Treasury Department is selling to finance a budget deficit exceeding $1 trillion. Even though Standard & Poor’s stripped the U.S. of its AAA rating in August, investors see the nation as a refuge from slower global economic growth and Europe’s sovereign-debt crisis.

“The safe-haven function of the dollar is still alive,” said Achim Walde, head of global fixed income and currencies at Deutsche Bank AG’s Cologne, Germany-based Sal. Oppenheim private-wealth manager, which oversees 3 billion euros ($3.9 billion). “The dollar will be strong in 2012,” he said in a telephone interview on Dec. 29.

Currency Correlation

IntercontinentalExchange Inc.’s Dollar Index, which tracks the currency against the euro, yen, pound, Swiss franc, Canada dollar and Swedish krona, rose 1.46 percent last year. That followed a gain of 1.5 percent in 2010, marking the first time it advanced two years in a row since 2000-2001.

The Dollar Index weakened 0.5 percent to 79.916 at 9:43 a.m. London time. The gauge is up from 70.698 in March 2008 and compares with 1991’s low of 80.34. The dollar appreciated 1.11 percent last year, the most after the yen’s 5.5 percent climb among 10 developed-nation peers as measured by Bloomberg Correlation-Weighted Indexes. The indexes show that since 1975, only the yen and Swiss franc have done better than the dollar.

The performance counters officials in China, Germany and Brazil who said that the Fed’s policies were weakening the dollar. House Speaker John Boehner of Ohio and three other Republicans sent Fed Chairman Ben S. Bernanke a letter in 2010 expressing “deep concerns” about the central bank’s plan to print money to buy bonds, saying it risked weakening the dollar and fueling asset bubbles.

Europe Crisis

That was before Europe debt crisis spread, sparking demand for the safest of assets.

Russia is now unlikely to reduce the share of U.S. assets in its international reserves, President Dmitry Medvedev’s chief economy aide, Arkady Dvorkovich, said in an interview outside Moscow on Dec. 27. The nation boosted dollars to 45.4 percent of its reserves as of June 30 from 45.3 percent three months earlier, its central bank said in a report published on Dec. 27.

For the first half of 2012, “the dollar continues to look appealing,” said Manoj Ladwa, a London-based senior trader at ETX Capital, which provides services including currency trade execution, in a Dec. 29 telephone interview. “In the second half we could have something resembling a global recovery, with potentially a bottom to this euro-zone crisis and further clarification from China on how hard or soft the landing will be. Money could then shift back away from the dollar and into riskier assets.”

Global Reserves

The U.S. dollar’s share of global foreign-exchange reserves climbed in the third quarter to 61.7 percent, the highest (CCFRUSD%) since late 2010, while holdings of euros (CCFREUR%) fell to a three-year low of 25.7 percent, according to figures from the Washington-based IMF quarterly data.

While the dollar is up since 2008, it’s down 34 percent from its highs a decade ago, IntercontinentalExchange’s index shows. The Fed’s Trade-Weighted Real Broad Dollar Index (USTRBROA) that tracks it against those of 38 countries shows the dollar has depreciated 15 percent from its average in 1973, the year global currencies began freely floating.

The dollar has been the world’s reserve currency since the U.S. and allies agreed at the 1944 Bretton Woods conference to peg it to a rate of $35 per ounce of gold. It remained the most- traded legal tender after global currencies began freely floating in 1973, accounting for 85 percent of the $4 trillion per day foreign-exchange market, according to the Basel, Switzerland-based Bank for International Settlements.

Japan-China Accord

The currency’s value peaked in 1985 before finance ministers from the world’s largest economies forged the Plaza Accord, agreeing to weaken the dollar to reduce a record U.S. current-account deficit, the broadest measure of trade because it includes investment.

While the dollar’s shares of the more than $10 trillion in global reserves has increased, it has tumbled from a peak of 72.7 percent in 2001.

Some nations are seeking ways to reduce dollar dependence. Japan and China said last month they will promote direct trading of the yen and yuan and will encourage the development of a market for companies involved in the exchange rates.

The appeal of U.S. financial assets can be seen in the market for Treasuries, which gained 9.8 percent, the most since 2008 at the height of the financial crisis. Treasuries due in 10 years or more soared 29 percent.

Foreign Holdings

The Treasury Department attracted $3.04 for each dollar of the $2.135 trillion in notes and bonds sold last year, the highest bid-to-cover ratio since the government began releasing the data in 1992 during the George H. W. Bush administration, according to data compiled by Bloomberg. The U.S. drew an all- time high ratio (USB4WBC) of 9.07 for $30 billion of four-week bills it auctioned on Dec. 20 even though they paid zero interest.

The amount of Treasuries held by foreigners has surged, with holdings (HOLDTOT) rising to a record $4.66 trillion in September from $4.44 trillion at the end of 2010 and $3.69 trillion in December 2009, the latest government data show.

“The U.S. dollar was recognized as really the ultimate source of liquidity in terms of the very uncertain conditions in the euro-zone,” said Stewart Hall, senior currency strategist at Royal Bank of Canada in Toronto in a telephone interview on Dec. 28. “You’ve also got a U.S. economic growth dynamic that is throwing off a little bit of a feel good story that is not the case in Europe and in Asia.”

Economies Decouple

The value of the dollar will hold steady over the next year versus peers including the euro, yen, and U.K. pound, according to strategists and economists surveyed by Bloomberg.

Demand for American assets is increasing as consumer confidence, manufacturing and employment show the U.S. is strengthening as Europe struggles to save its currency union and the developed world weakens. U.S. gross domestic product will expand 2.1 percent next year, compared with 1.25 percent for all Group of 10 nations, Bloomberg surveys of economists show.

“In 2012, I believe the stronger U.S. data -- a relatively better performing U.S. economy -- will be a dollar positive,” Ian Stannard, head of European foreign-exchange strategy at Morgan Stanley, said in a Dec. 23 interview with Owen Thomas on Bloomberg Television’s “The Pulse.”

Balance Sheets

A stronger U.S. economy is boosting speculation that the Fed won’t need to undertake a third round of bond purchases, or quantitative easing, as central banks elsewhere expand their balance sheets to counter slowing economies.

The ECB’s balance sheet expanded to a record 2.73 trillion euros, and its lending to euro-area banks jumped 214 billion euros to 879 billion euros in the week ended Dec. 23, the Frankfurt-based central bank said in a statement on Dec. 28. Its holdings were 553 billion euros more than three months ago.

The Bank of Japan expanded its asset-purchase program three times last year, to 20 trillion yen ($260 billion). The Bank of England has left its asset-buying target at 275 billion pounds ($429 billion).

“We have favored stronger dollar positions given our Fed is essentially on hold and the U.K., Euro-zone and Japanese central banks are in expansive phases,” David Kotok, the chief investment officer of Sarasota, Florida-based Cumberland Advisors, which manages about $1.8 billion, said in a telephone interview on Dec. 28. “The U.S. economy seems to be growing at a slow but steady pace and improving, while inflation is not a threat.”

To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

Read more...

Asia Stocks Advance on Regional Optimism

By Jonathan Burgos - Jan 3, 2012 8:45 AM GMT+0700

Play Video

Jan. 3 (Bloomberg) -- Sean Fenton, a portfolio manager at Tribeca Investment Partners in Sydney, talks about Australia's economy, stock market, and central bank monetary policy. Australian manufacturing expanded for the first time in six months in December, driven by gains in basic metals, transport and publishing, a private survey showed. Fenton speaks with Zeb Eckert on Bloomberg Television's "First Up." (Source: Bloomberg)

Asian stocks (MXAPJ) rose as manufacturing growth from Australia, China and India added to optimism the region’s economies will withstand Europe’s unresolved sovereign- debt crisis.

Samsung Electronics Co., a South Korean exporter of consumer electronics that counts China as its biggest market, climbed 1.8 percent in Seoul. BHP Billiton Ltd. (BHP), the world’s largest mining company that receives 28 percent of sales from China, increased 1.7 percent in Sydney. Industrial & Commercial Bank of China Ltd., the world’s NO. 1 lender by market value, advanced 1.5 percent as trading in Hong Kong resumed.

“Positive economic data provide a catalyst for a small new-year rally,” said Pauline Dan, Hong Kong-based chief investment officer at Samsung Asset Management, which oversees about $72 billion. “We’ll probably see more headwinds from Europe as large amounts of debt from countries such as Italy are due for refinancing.”

The MSCI Asia Pacific Excluding Japan Index (MXAPJ) gained 1.3 percent to 397.22 as of 9:43 a.m. in Hong Kong, poised for its biggest advance since Dec. 21. About seven stocks rose for each that fell in the gauge. The measure posted its first annual decline in three years in 2011 as China took steps to cool its property market and Europe struggled to resolve its debt crisis.

Australia’s S&P/ASX 200 Index (AS51) rose 1.1 percent, while South Korea’s Kospi Index climbed 2 percent. Singapore’s Straits Times Index rose 0.6 percent even as the city-state’s economy shrank for the second time in three quarters.

Hong Kong’s Hang Seng Index advanced 1.6 percent. Japanese and Chinese markets are closed today for a holiday.

U.S. Hiring

The Standard & Poor’s 500 Index (SPX) slipped 0.4 percent on Dec. 30 as concern over Europe’s debt crisis overshadowed optimism that the U.S. economy will expand in 2012. Hiring probably accelerated in December for a second month, a sign an improving U.S. labor market will bolster consumer spending in early 2012, economists said before a report on Jan. 6.

Manufacturing in India and China improved in December, while Australian output expanded for the first time in six months, separate surveys showed. Data due out today may show production in American factories climbed to a six-month high in December, according to economists surveyed by Bloomberg News.

The MSCI Asia Pacific Index (MXAP), which includes Japan, lost about $1.5 trillion in 2011 amid concern Europe’s debt crisis will drag the global economy into recession. Stocks on Asia’s benchmark index were valued at 12.6 times estimated earnings on average, compared with 12.7 times for Standard & Poor’s 500 Index and 9.9 times for the Stoxx Europe 600 Index.

To contact the reporter on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

Read more...

BP Seeks Recovery of Spill Damages From Halliburton

By Laurel Brubaker Calkins - Jan 3, 2012 8:45 AM GMT+0700

BP Plc (BP/) seeks to have Halliburton Co. (HAL), its cement contractor for the Macondo well project whose blowout set off the 2010 Gulf of Mexico oil spill, pay all of the oil company’s related costs and damages.

BP had paid more than $21 billion in cleanup costs and economic damages to individuals, businesses and governments harmed by the spill as of Dec. 1, the company said on its website. BP reserved more than $40 billion to cover costs related to the sinking of the Deepwater Horizon drilling rig (RIG).

The oil company seeks “the amount of costs and expenses incurred by BP to clean up and remediate the oil spill, the lost profits from and/or diminution in value of the Macondo prospect, and all other costs and damages incurred by BP related to the Deepwater Horizon incident and resulting oil spill,” Don Haycraft, BP’s lead trial attorney, said in a filing yesterday in federal court in New Orleans.

BP and Halliburton accuse each other’s employees of making critical mistakes that caused the blowout of the London-based oil company’s well off the Louisiana coast in 2010. The explosion aboard the Deepwater Horizon killed 11 workers and caused the worst offshore spill in U.S. history.

500 Lawsuits

BP, which owned the Macondo lease, and Halliburton, which provided well-completion services for the project, jointly face more than 500 lawsuits by coastal property owners, businesses and governments claiming billions of dollars in damages from the drifting oil. The lawsuits have been combined for pretrial processing in federal court in New Orleans, where a judge is scheduled to begin a trial in February to determine liability for the spill.

Halliburton, based in Houston, has said in court papers that its cementing-services contract requires BP to indemnify it from all damage claims, even if its employees were found to have shared blame for the disaster.

BP, rejecting that argument, accused Halliburton in yesterday’s filing of gross negligence. That level of misconduct “will suffice to eliminate any indemnity obligation for damages of any kind,” Haycraft said in the filing.

Halliburton has said in court filings that the actions of BP’s employees caused the explosion on the rig.

“Halliburton believes it is fully indemnified by BP against any loss resulting from the Macondo incident and any penalties arising from the violations,” Beverly Stafford, a spokeswoman for the company, said yesterday in an e-mail.

Transocean, Mitsui (8031)

The defendants in the lawsuits over the spill also include Switzerland-based Transocean Ltd. (RIG), the owner of the Deepwater Horizon; Cameron International Corp. (CAM), the maker of the blow-out prevention equipment used on the well; Anadarko Petroleum Corp. (APC), which owned 25 percent of the Macondo prospect; and Mitsui & Co.’s Moex Offshore LLC unit, which owned a 10 percent stake in the well.

Cameron, Anadarko and Mitsui have reached settlements with BP. Transocean, along with Halliburton, hasn’t.

The case is In Re Oil Spill by the Oil Rig Deepwater Horizon in the Gulf of Mexico on April 20, 2010, MDL-2179, U.S. District Court, Eastern District of Louisiana (New Orleans).

To contact the reporter on this story: Laurel Brubaker Calkins in Houston at laurel@calkins.us.com

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

Read more...

Singapore Economy Shrinks as Manufacturing Eases

By Shamim Adam - Jan 3, 2012 7:33 AM GMT+0700

Singapore’s economy shrank for the second time in three quarters as manufacturing eased, increasing pressure on policy makers to spur growth as they forecast slower expansion this year.

Gross domestic product (SGDYTY) fell an annualized 4.9 percent in the fourth quarter of 2011 from the previous three months, when it climbed a revised 1.5 percent, the trade ministry said in a statement today. The median of 11 estimates in a Bloomberg News survey was for a 5 percent contraction. The economy grew 4.8 percent in 2011 and may expand 1 percent to 3 percent this year, Prime Minister Lee Hsien Loong said Dec. 31.

A faltering global economy has eroded demand for goods made on the island, forcing policy makers to juggle protecting growth with containing inflation in the city of 5.2 million people. The nation’s currency fell 3.2 percent in the past two months after the Monetary Authority of Singapore, which uses the exchange rate to manage inflation, eased its policy stance last quarter while the government took steps to cool the property market.

“Manufacturing and services will continue to be quite weak, and won’t prove supportive of the economy,” said Chow Penn Nee, an economist at United Overseas Bank Ltd. in Singapore. “We may see a technical recession later this year. There is a possibility of more easing in April” when the central bank next reviews its monetary policy stance, she said.

The Singapore dollar, the fourth-worst performer in the past six months among 10 Asian currencies tracked by Bloomberg, rose 0.3 percent to S$1.2936 against its U.S. counterpart at 8:32 a.m. local time today. It weakened about 5.3 percent in the second half of 2011.

Rate Cuts

Asian nations from Thailand to Indonesia have reduced interest rates to shield their economies from the protracted European sovereign-debt crisis. Taiwan’s central bank left borrowing costs unchanged for a second straight quarter last week, while the People’s Bank of China said it will maintain a “prudent” monetary stance and “ensure the continuity and stability” of policy in 2012.

Singapore’s growth will “inevitably be affected” this year in a “difficult” global economy, Prime Minister Lee said in a New Year message.

“The external environment is uncertain,” Lee said Dec. 31. “Debt problems in Europe are far from solved.”

The MSCI Asia Pacific Index (MXAP) of stocks slumped about 17 percent last year, halting a two-year rally in equities. Singapore’s benchmark Straits Times Index (FSSTI) dropped by a similar amount in the same period, led by Neptune Orient Lines (NOL) Ltd., Southeast Asia’s biggest container carrier, commodity-trading company Noble Group Ltd. and CapitaMalls Asia Ltd. (CMA), an owner of shopping malls across the region.

Inflation Forecast

GDP increased 3.6 percent from a year earlier last quarter, after rising a revised 5.9 percent the previous three months. The expansion was slower than the median forecast of 4.3 percent in a Bloomberg survey.

The island’s inflation was 5.7 percent in November, matching the fastest pace since 2008. Consumer-price gains (SICPIYOY) are forecast by the monetary authority to average 2.5 percent to 3.5 percent in 2012 from about 5 percent last year.

The central bank had tightened monetary policy at each of the three half-yearly reviews before its October decision to slow gains in the currency while continuing with a modest and gradual appreciation. It guides the local dollar against a basket of currencies within an undisclosed band, and adjusts the pace of appreciation or depreciation by changing the slope, width and center of the band.

Container Port

Singapore, located at the southern end of the 600-mile (965-kilometer) Malacca Strait and home to the world’s second- busiest container port, has remained vulnerable to fluctuations in overseas demand for manufactured goods even as the government boosts the financial services and tourism industries to cut its reliance on exports.

Manufacturing rose 6.5 percent from a year earlier in the three months ended Dec. 31, after climbing a revised 13.4 percent in the third quarter, the trade ministry said today.

The services industry grew 3.2 percent last quarter from a year earlier, after gaining 3.7 percent in the previous three months. The construction industry expanded 1.7 percent, compared with a revised 0.5 percent increase in the quarter through September.

To contact the reporter on this story: Shamim Adam in Singapore at sadam2@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net

Read more...

Teva’s New Chief Levin May Bolster Branded Drugs as Copaxone Threat Looms

By Naomi Kresge - Jan 3, 2012 12:19 AM GMT+0700

After helping Bristol-Myers Squibb Co. (BMY) acquire new drugs in a bid to offset the expected loss of revenue from its top-selling blood thinner Plavix, Teva Pharmaceutical Industries Ltd. (TEVA)’s chief executive officer- designate Jeremy Levin faces the same task at the Israeli drugmaker.

Levin, 58, will replace retiring Teva CEO Shlomo Yanai, 59, in May, the Petach Tikva-based company said yesterday. Teva, the world’s biggest maker of generic drugs, needs new sources of sales as its No. 1 drug, a branded multiple sclerosis medicine called Copaxone, faces competition from newer treatments.

Yanai is stepping down after Teva’s shares (TEVA) last year plunged the most since 2006. A former Israeli army general with no previous pharmaceutical experience, he sought to broaden Teva’s portfolio of innovative medicines with the $6.5 billion acquisition of U.S. biotechnology company Cephalon Inc. last year, then told investors in December that Teva may not meet its long-term target of $31 billion in sales by 2015.

“He’s the perfect guy for this,” Ori Hershkovitz, a Tel Aviv-based partner at Sphera Funds Management Ltd., said of Levin in a phone interview yesterday. “If Jeremy can do one or two good product selections as he has done in the past for Bristol-Myers, that will be very, very good for Teva.” Sphera owns Teva shares.

Teva rose 3.3 percent to 160.60 shekels at the close in Tel Aviv yesterday, the stock’s biggest increase in two months. The more actively traded American depositary receipts lost 21 percent in 2011 including reinvested dividends, compared with (TEVA) an 11 percent return for the Bloomberg EMEA Pharmaceuticals Index.

‘Orderly Transition’

Levin, a Cambridge University-educated physician who worked at New York-based Bristol-Myers as senior vice president for strategy, said in a press conference in Tel Aviv yesterday that he will work closely with Yanai to achieve an “orderly transition.”

“There are some parallels between Bristol-Myers from a few years ago and Teva,” Les Funtleyder, a New York-based portfolio manager for Miller Tabak & Co., said in an e-mail yesterday. “BMY had to come up with a new strategy to deal with slow sales and looming patents.”

At Bristol-Myers, Levin helped oversee the so-called “string of pearls” policy of partnerships and smaller acquisitions to replace revenue that will be lost when Plavix, a blood thinner, faces generic competition in the U.S. this year. Analysts predict the drug had $7.2 billion of sales in 2011, based on the average of three estimates (BMY) compiled by Bloomberg.

Potential Targets

Fruits of the policy include Yervoy, a skin cancer drug gained in the 2009 acquisition of Medarex Inc (MEDX)., Hershkovitz said. The strategy has generated 17 acquisitions and agreements with smaller companies so far.

Levin also handed off drugs Bristol-Myers didn’t plan to develop itself to partner companies in emerging markets, in what he described as an “oyster plan” to build its partners into potential acquisition targets.

“The oysters are being seeded to help create innovation,” Levin said in an interview last month, comparing the Bristol- Myers strategy to the process used to create pearls. “What you’re hoping is that they’ll create an engine of innovation, and then we can do a transaction. Over the years to come, we’ll position ourselves as partners of choice.”

Bristol-Myers won’t change its string-of-pearls strategy, Jennifer Mauer, a spokeswoman for the New York-based drugmaker, said in a phone interview. “We have a very strong and experienced team in that role,” she said. “Business development remains a priority.” Levin left the company Jan. 1, she said.

‘His Decision’

Teva started looking for Yanai’s replacement during the course of last year, Chairman Phillip Frost said at a news conference in Tel Aviv today. He declined to be more specific.

Yanai wasn’t asked to retire, said Denise Bradley, a Teva spokeswoman. “Shlomo came to the board with his decision, and the board accepted it, appreciating his considerable contributions to Teva but recognizing his desire to move on,” Bradley said by e-mail.

“The time has come to start a new path,” Yanai said at the news conference. “I intend to use all my knowledge, ability and experience for the good of Israel’s industry, economy and society.”

Yanai is considering both public and private possibilities, Frost said. The executive may be weighing an entry into politics, Gilad Alper, a Tel Aviv-based analyst for Excellence Nessuah Brokerage, said in an e-mail yesterday.

Conference Call

Teva plans a conference call for analysts at 8:30 a.m. New York time today.

Teva announced Dec. 21 it would buy back as much as $3 billion of its shares to return money to investors. The $31 billion sales goal for 2015 is “aspirational,” Yanai said then.

Analysts suggested the share buyback might herald a pullback from a streak of acquisitions that in recent years included Germany’s Ratiopharm GmbH and Barr Pharmaceuticals Inc. of the U.S.

Teva said last month sales of Copaxone probably will peak this year at $3.8 billion. The injected MS drug accounted for 24 percent of Teva’s $4.34 billion of revenue in the third quarter.

Copaxone contributes as much as 40 percent of Teva’s earnings, Alper said by phone. “The company will need to do something dramatic relatively quickly.”

Novartis Competition

The medicine is already facing competition from Novartis AG’s Gilenya, the first oral drug for MS. Biogen Idec Inc. (BIIB) reported that its own experimental MS pill, BG-12, is safe and reduces the risk of relapses in a late-stage trial in October. BG-12 may generate as much as $3 billion in annual sales, according to analysts with RBC Capital Markets in San Francisco.

Meanwhile, Teva’s own experimental MS pill, laquinimod, disappointed in two trials last year.

The South African-born Levin was global head of business development and strategic alliances at Novartis from 2003 to 2007. He has worked as a practicing physician and has a medical degree from Cambridge and a doctorate from Oxford University in molecular biology, according to the statement. Levin is a citizen of both the U.S. and the U.K.

To contact the reporter on this story: Naomi Kresge in Berlin at nkresge@bloomberg.net

To contact the editor responsible for this story: Phil Serafino at pserafino@bloomberg.net

Read more...