Manhattan Apartment Prices Decline

By Oshrat Carmiel - Apr 3, 2012 11:13 PM GMT+0700

Manhattan apartment prices dropped in the first quarter as new buyers seeking refuge from rising rents drove purchases of lower-cost studios and one-bedroom units to a two-year high.

The median price of all condominiums and co-ops that changed hands in the three months ended March 31 fell 0.9 percent from a year earlier to $775,000, New York appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate said in a report today. Deals totaled 2,311, down 3.5 percent from the first quarter of 2011.

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Residential and commercial buildings stand in New York. Photographer: Scott Eells/Bloomberg

Studios and one-bedrooms accounted for 56 percent of sales completed in the quarter, the highest share since the last three months of 2009, when first-time purchasers qualified for a federal tax credit of as much as $8,000, according to Jonathan Miller, president of Miller Samuel. The smaller units, favored by entry-level buyers, accounted for 49 percent of all transactions a year earlier.

“Because the rental market is so hot, people are realizing that maybe buying a starter home is a better option, especially if they can take advantage of these low interest rates,” said Sofia Song, vice president of research at property-listings service StreetEasy.com, which also released a report on the Manhattan sales market today.

Among pending sales -- contracts signed but not completed in the first quarter -- studio deals climbed 19 percent from a year earlier, according to StreetEasy. Buyers agreed to purchase 12 percent more one-bedroom units than in the first three months of 2011.

Rents Approach Peak

The median effective rent for Manhattan apartments, or what tenants paid after landlord-sponsored incentives, rose 9.5 percent in the fourth quarter from a year earlier to $3,121 a month, according to Miller Samuel and Prudential. Rents averaged $3,376 in February, $18 less than the market peak in May 1997, data from New York brokerage Citi Habitats show.

The average interest rate for a 30-year fixed U.S. home loan fell to 3.87 percent in February, the lowest in Freddie Mac records dating to 1971. The rate was 4 percent or lower for all but one week in the first quarter, according to the McLean, Virginia-based mortgage financier.

For Katharine Tuckerman, a message from her landlord pushed her into homeownership: The rent for the Midtown apartment she had leased since 2009 would be raised “significantly” come June. Tuckerman decided that it might be time to buy.

“I’ve seen everything that was out there for rent and none were as nice as if I had just bought something,” she said.

Cheaper Than Leasing

Tuckerman, 28, a sales associate at brokerage Brown Harris Stevens, set out to find a building with low maintenance fees so that her entire monthly burden would be no more than $2,500. She considered three options before choosing an 800-square-foot (74- square-meter) co-op on East 66th Street. She put down 50 percent of the $575,000 purchase price and borrowed the rest at a rate of less than 4 percent. After a gut-renovation of the kitchen and bathroom, she plans to move in this week.

Her monthly payments, including mortgage and maintenance, are $2,200 -- “less than I would have to pay for a rental the same size, for sure,” she said.

Other reports issued today on the Manhattan apartment market showed mixed results for sales and values in the first quarter. Corcoran Group said purchases of condos and co-ops totaled 2,700 deals, little changed from a year earlier. The median price climbed 1 percent to $809,000.

StreetEasy said the median price was unchanged at $775,000, while completed deals climbed 9.4 percent to 2,969.

Luxury Properties

Brown Harris Stevens and its sister brokerage, Halstead Property LLC, both reported a median price of $821,500, up 4 percent from the first quarter of 2011. The gain was spurred by an increase in sales of properties priced higher than $10 million, said Gregory Heym, chief economist at Terra Holdings LLC, which owns the two firms. There were 17 deals in that range, up from 12 a year earlier, according to Brown Harris and Halstead.

Purchases of luxury apartments, defined as the top 10 percent of all sales by price, declined 3.3 percent to 231 deals, Miller Samuel and Prudential said. The median price of those transactions climbed 4.4 percent to $4.13 million.

On the Upper East Side, the median price of previously owned co-ops climbed 7 percent to $890,000 from a year earlier, according to Corcoran. Condo prices in the neighborhood declined 17 percent to a median $1.06 million. On the Upper West Side, the median price of co-op resales dropped 4 percent to $669,000, while condo resale prices climbed 28 percent to $1.23 million.

To contact the reporter on this story: Oshrat Carmiel in New York at ocarmiel1@bloomberg.net

To contact the editor responsible for this story: Daniel Taub at dtaub@bloomberg.net

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U.S. Stocks Drop on Spainish Bond Sale, Fed Minutes

By Joseph Ciolli - Apr 4, 2012 8:42 PM GMT+0700

U.S. stocks fell, sending the Standard & Poor’s 500 Index lower for a second day, as demand dropped at a Spanish bond auction and the Federal Reserve signaled it may refrain from more monetary stimulus.

Wells Fargo & Co. (WFC) and Bank of America Corp. (BAC) retreated at least 1 percent, pacing losses among financial shares. SanDisk Corp. (SNDK), the biggest maker of flash-memory cards, tumbled 8.5 percent after cutting its forecast for first-quarter sales and profitability.

The S&P 500 dropped 0.8 percent to 1,402.10 at 9:40 a.m. New York time. The Dow Jones Industrial Average slipped 113.26 points, or 0.9 percent, to 13,086.29 today.

“It doesn’t matter what the news is today, I don’t think it’ll stem a decline,” Richard Weeks, the Vienna, Virginia- based managing director and partner at HighTower’s VWG Wealth Management. His firm oversees more than $20 billion. “The market is showing signs that it’s ready for a little consolidation. You could make a case that the market is looking for an excuse to pause and digest some of its gains.”

The S&P 500 dropped 0.4 percent yesterday as the minutes of the March 13 meeting of the Federal Open Market Committee showed a decreased urgency for further monetary stimulus. The Fed will refrain from increasing monetary accommodation unless economic expansion falters or prices rise at a rate slower than its 2 percent target. The S&P 500 rallied to its highest level since May 2008 on April 2 after a gauge of U.S. manufacturing climbed more than estimated.

Spanish Auction

Spain sold 2.59 billion euros ($3.4 billion) of bonds at an auction today, the Bank of Spain said. That was less than the maximum target of 3.5 billion euros. It auctioned 973 million euros of five-year notes at an average yield of 4.32 percent. Investors bid for 2.46 times the amount of debt allotted. That compared with a bid-to-cover ratio of 2.59 at the previous auction of the securities on March 1.

A report at 10 a.m. New York time will show that service industries in the U.S. expanded at a slower pace in March, economists said. The Institute for Supply Management’s non- manufacturing index fell to 56.8 from 57.3 in February, according to the median estimate in a Bloomberg News survey of 68 economists. Readings greater than 50 signal growth.

Employment increased by 209,000 for the month after a revised 230,000 gain in February, figures from ADP Employer Services showed today. The median estimate in the Bloomberg News survey called for a 206,000 increase.

SanDisk Sinks

SanDisk sank 8.5 percent to $45.79 after predicting revenue in the quarter that ended April 1 of about $1.2 billion. That compared with an earlier forecast for sales of $1.3 billion to $1.35 billion. Gross margin, a measure of profitability, will be less than the company’s previous prediction of 39 percent to 42 percent, SanDisk said.

Chevron Corp. (CVX), the second-biggest U.S. oil producer, slipped 1.1 percent to $105.93, while Transocean Ltd., the biggest operator of offshore drilling rigs, dropped 2.1 percent to $52.50.

A Brazilian federal prosecutor sued the two companies for 20 billion reais ($11 billion) over a second oil spill at the Frade field off the nation’s coast. Prosecutors filed a 20 billion-reai lawsuit last year following the first spill at project -- a 3,000-barrel leak in November.

Gold miners declined as metals fell. Freeport-McMoRan Copper & Gold Inc. (FCX) slipped 2 percent to $37.81, while Barrick Gold Corp. (ABX) lost 2 percent to $42.10.

To contact the reporter on this story: Joseph Ciolli in New York at jciolli@bloomberg.net

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

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Stocks, Commodities Drop on Fed Minutes, Spanish Auction

By Michael Shanahan and Lu Wang - Apr 4, 2012 9:45 PM GMT+0700

Stocks and commodities slid after Spain sold less debt than targeted at an auction and the Federal Reserve signaled it may refrain from more monetary stimulus. The euro weakened and Spanish five-year yields climbed to an almost three-month high.

The Standard & Poor’s 500 Index lost 1.1 percent, its second-biggest drop of the year, and the Stoxx Europe 600 Index declined 1.8 percent as of 10:45 a.m. in New York. The euro depreciated to a three-week low against the yen, while 10-year Treasury yields fell six basis points to 2.24 percent. Spanish five-year yields surged 19 basis points to 4.45 percent, the highest since January. The S&P GSCI gauge of commodities retreated 1.3 percent as silver and gold led losses and oil extended losses after U.S. supplies grew .

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Traders on the floor of the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

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April 4 (Bloomberg) -- Vasu Menon, vice president for wealth management at Oversea-Chinese Banking Corp., talks about the minutes of the Federal Reserve's last meeting and the outlook for Asia equities. Menon speaks from Singapore with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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April 4 (Bloomberg) -- George Boubouras, head of investment strategy at UBS AG's Australian wealth-management unit, talks about global financial markets and economies following the release of U.S. Federal Reserve minutes. The Fed is holding off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its 2 percent target. Boubouras speaks from Melbourne with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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April 4 (Bloomberg) -- Ronald Wan, a Hong Kong-based managing director at China Merchants Securities Co., talks about the nation's opening of its capital markets, the country's banking industry and his investment strategy. Wan speaks with Susan Li, Rishaad Salamat, Mia Saini and Zeb Eckert on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

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Passersby stand in front of the Australia Securities Exchange (ASX Ltd.) electronic stock board in Melbourne, Australia. Photographer: Luis Enrique Ascui/Bloomberg

Spain sold 2.59 billion euros ($3.41 billion) of bonds due between January 2015 and October 2020, compared with a planned maximum of 3.5 billion euros. The Fed will refrain from increasing monetary accommodation unless the economic expansion falters or prices rise at a rate slower than its 2 percent target, according to minutes of its March 13 policy meeting released yesterday.

“The perception is that you’re taking away the safety net of excess liquidity that lifted asset prices,” said Tim Schroeders, who helps manage $1 billion at Pengana Capital Ltd. in Melbourne. “Given the exceptionally good run we’ve had year- to-date, people are reassessing their risk-reward scenarios.”

‘Downside Risks’

European Central Bank officials meeting in Frankfurt today kept the benchmark interest rate at a record low of 1 percent, as predicted by all 57 economists in a Bloomberg News survey. ECB President Mario Draghi said while a “moderate” economic recovery is expected this year, the outlook is subject to “downside risks” as the debt crisis dampens momentum. Draghi also said any talk of an exit strategy from stimulus measures is premature for now.

The S&P 500 retreated for a second day even after an industry report showed companies in the U.S. expanded payrolls in March. Employment increased by 209,000 for the month after a revised 230,000 gain in February, figures from ADP Employer Services showed today. The median estimate in the Bloomberg News survey called for a 206,000 increase.

Service industries in the U.S. expanded less than forecast in March as orders grew at the slowest pace in three months. The Institute for Supply Management’s non-manufacturing index dropped to 56 from a one-year high of 57.3 in February. Readings above 50 signal expansion, and economists surveyed by Bloomberg News projected 56.8 for the gauge, according to the median estimate.

SanDisk Tumbles

SanDisk Corp. slid 9 percent after the biggest maker of flash-memory cards cut its forecast for first-quarter sales and profitability, citing weaker-than-expected pricing and demand for components that store data in mobile phones.

General Electric Co. fell 1.5 percent after its debt rating was cut by Moody’s Investors Service because of “heightened risk” from its finance unit, whose own grade was cut below the parent company’s for the first time in two decades.

U.S. equities fell yesterday as the Fed minutes showed less urgency to add stimulus. Policy makers last month affirmed the plan, first announced in January, to hold interest rates near zero through late 2014 on concern the economy may fail to grow fast enough to continue bringing down unemployment.

‘Welcome Change’

“There’s no justification for the Fed to ease monetary policy further,” Vasu Menon, vice president for wealth management at Oversea-Chinese Banking Corp., said in a Bloomberg Television interview from Singapore. “The market has run up at a very heavy pace, so I think a breather or a correction would be a welcome change for now.”

Almost 50 shares fell for each that advanced in the Stoxx 600. Automakers led declines as U.S. sales of cars and light trucks in March missed the average estimate in a Bloomberg survey of analysts. PSA Peugeot Citroen (UG) slid 6.3 percent and Volkswagen AG fell 2.9 percent. Petropavlovsk Plc, a producer of gold in Russia, sank 6.6 percent as the precious metal retreated for a second day.

Germany’s DAX Index slumped 2.6 percent and Sweden’s OMX Stockholm 30 Index tumbled 3.6 percent to lead losses among European national benchmark indexes. German factory orders increased in February less than economists had forecast. Orders, adjusted for seasonal swings and inflation, increased 0.3 percent from January, the Economy Ministry in Berlin said. Economists had predicted a gain of 1.5 percent, according to the median of 35 estimates in a Bloomberg News survey.

The cost of insuring sovereign debt rose, with the Markit iTraxx SovX Western Europe Index of credit-default swaps linked to 15 governments climbing 5.4 basis points to 270. Swaps on Spain jumped 21 basis points to 460, the highest since November, according to CMA.

Brent Crude

Oil tumbled 1.8 percent to $102.19 a barrel, extending losses after the U.S. Energy Department said stockpiles rose 9.01 barrels to 362.4 million. Copper dropped 2.4 percent to $3.8255 a pound.

Markets in China and Taiwan were shut for holidays. The MSCI Emerging Markets Index (MXEF) fell 1.6 percent, halting a three- day, 2.2 percent climb. The Micex Index (MICEX) fell 2.6 percent in Moscow and the FTSE/JSE Africa All Shares Index (JALSH) slid 1.9 percent in Johannesburg as the prices of oil and metals fell. Turkey’s ISE National 100 Index (XU100) retreated 1.3 percent. South Korea’s Kospi Index (HSCEI) slid 1.5 percent, the biggest loss since Dec. 19.

China Investment

China accelerated the opening of its capital markets by more than doubling the amount foreigners can invest in stocks, bonds and bank deposits. The China Securities Regulatory Commission increased quotas for qualified investors to $80 billion from $30 billion, according to a statement yesterday. Offshore investors will also be allowed to pump an extra 50 billion yuan ($7.95 billion) of local currency into the country, up from 20 billion yuan.

Australia’s dollar sank to an 11-week low as data showed the nation had an unexpected trade deficit. The so-called Aussie slid 0.7 percent to $1.0264 and touched $1.0244 after Australia posted a trade deficit for a second month in February, completing the first consecutive shortfalls in two years.

To contact the reporters on this story: Michael Shanahan in London at mshanahan3@bloomberg.net; Lu Wang in New York at lwang8@bloomberg.net

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

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Nike Unveils New NFL Uniforms to Boost U.S. Sales

By Matt Townsend and Eben Novy-Williams - Apr 4, 2012 3:29 AM GMT+0700

Nike Inc. (NKE) unveiled its new National Football League uniforms today, skipping the duck-wing and lizard-skin prints that it put on some college teams.

The world’s largest sporting-goods provider stuck mainly to the 92-year-old NFL’s traditional look as it begins a five-year licensing deal that may add $500 million in annual revenue, according to Chris Svezia, an analyst for Susquehanna Financial Group in New York.

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Nike Inc. unveiled its new National Football League uniforms today as it begins a five-year licensing deal. Source: Nike via Bloomberg

Nike took over the NFL clothing license on April 1 after Adidas AG (ADS)’s Reebok unit had it for more than a decade. The switch to Nike has generated more interest in NFL apparel from fans, and has retailers raising sales expectations as the maker of Air Jordan basketball shoes puts more marketing behind the license than Reebok, Svezia said yesterday in an interview.

“The bottom line is it’s a freshening of the uniforms that’s going to drive interest,” he said. While the NFL license won’t have a major effect for a company of Nike’s size, it gives the brand more exposure to a large and passionate group of consumers, he said. Nike generated $23.4 billion in sales in the 12 months through February.

The Super Bowl-champion New York Giants’ mostly red, white and blue uniforms were unchanged as Nike showed its apparel for the NFL’s 32 teams at a studio in Brooklyn made to look like a football field. The New York Jets’ green and white uniforms also will stay the same.

Seahawks’ Changes

The Seattle Seahawks, owned by Microsoft Corp. co-founder Paul Allen, were the only team that asked for a redesign, according to Erin Patterson, a Nike spokeswoman. The team will wear deep blue, and have silver numbers and wide silver shoulder stripes, both with lime-green piping. The pants also will have a stripe of stylized wings down the side of the leg.

The Denver Broncos will switch to an orange jersey from navy. Nike expects more teams to revamp their uniforms in the coming years, said Charlie Denson, president of the Nike brand.

The addition of the NFL license will add to sales in North America, where Nike increased revenue 17 percent in its largest market to $2.15 billion in the quarter ended Feb. 29. The company doesn’t break out sales of football products. Orders for NFL apparel have exceeded the company’s expectations, Denson said.

The uniforms are lighter and have more stretch that will improve a player’s mobility, according to the company.

Michael Vick

“The difference is in the feel, and it’s lighter,” said Philadelphia Eagles quarterback Michael Vick, one of 32 players on hand to represent each team and wearing his new uniform for the first time. “I don’t know if it will make me faster, but I hope so.”

Nike was more unconventional with its college uniforms, putting a feather print on the shoulders of University of Oregon’s Ducks and a lizard-skin print on the pants of Texas Christian University’s Horned Frogs.

Nike’s popularity in the college game should immediately translate into NFL sales, according to Brian Swallow, senior vice president of strategy and business development for Fanatics LLC. Fanatics, a Jacksonville, Florida-based company that is the largest retailer of licensed team sports merchandise in the U.S., runs the official online store of the NFL.

“A lot of fans, at least in the college side of our business, have passion for Nike,” Swallow said. “They say they’ll only buy Nike, so the brand itself already commands a large following.”

Higher Price

Reebok had to adjust its buying strategy last year to reflect the final year of its NFL deal, company spokesman Dan Sarro said last week in an e-mailed statement. Swallow said that Reebok’s conservative approach to 2011, the new tailored fit of the Nike jerseys, and their higher prices -- Reebok’s base replica cost $85; the Nike equivalent will be $100 -- may result in jersey sales doubling this season as opposed to 2011.

“A lot of fans have been holding off on buying a brand that was going to be on the outs, so we’re going to see a very frenetic pace in Nike sales as soon as we roll them out,” he said. “When you blend all the Nike products together, I think we would be disappointed with anything less than a 30 to 40 percent increase in overall sales.”

Nike rose less than 1 percent to $109.87 at the close of New York trading.

To contact the reporters on this story: Matt Townsend in New York at mtownsend9@bloomberg.net; Eben Novy-Williams in New York at enovywilliam@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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Letterman’s New CBS Contract Sets Late-Night Hosting Record

By Edmund Lee and Andy Fixmer - Apr 4, 2012 3:48 AM GMT+0700

David Letterman, the late-night star of CBS Corp. (CBS)’s television network, agreed to host his program through 2014, setting the stage to break Johnny Carson’s record of 30 years.

As part of the accord, CBS also re-signed Craig Ferguson, who hosts the talk show that follows Letterman’s weeknight program, the network said today in an e-mailed statement.

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President Bill Clinton and Late Show host David Letterman taping of the Late SHow with David Letterman. Photographer: John Paul Filo/CBS via Getty Images

Late night television host David Letterman. Photographer: Chris Graythen/Getty Images

Letterman, who turns 65 on April 12, will become the longest-serving host on late-night TV, beating Carson’s 1962- 1992 run on NBC’s “The Tonight Show,” CBS said. “The Late Show With David Letterman” began airing in August 1993. He previously hosted “Late Night with David Letterman” on NBC starting in February 1982.

“David Letterman is a late night legend with an iconic show and Craig Ferguson continues to evolve the genre in exciting and innovative ways,” Nina Tassler, president of CBS Entertainment, said in a statement.

Letterman’s company, Worldwide Pants Inc., produces “The Late Show,” as well as the “The Late Late Show With Craig Ferguson.” Under the new agreement, Ferguson’s show will move to a larger stage at CBS studios in Los Angeles and the network will become co-producer, according to the statement.

Audience Ratings

Today’s announcement completes negotiations with both late- night hosts. Letterman was close to an agreement with the network in January, a person with knowledge of the situation said at the time.

Letterman’s “The Late Show” has averaged 3.3 million total nightly viewers each week this season, according to Nielsen data made available by Comcast Corp. (CMCSA)’s NBCUniversal. That compares with 3.8 million for Jay Leno’s “The Tonight Show,” broadcast by NBCUniversal.

CBS, the most-watched television network, announced last month it renewed 18 programs for next season, more than three- fourths of its prime-time schedule, including “The Big Bang Theory.” Four comedies, nine dramas, three reality series and two news-magazine shows will return for the 2012-2013 television season, which starts in September.

The network, which will pitch the schedule to big advertisers next month, expects to obtain “double-digit” increases in ad rates to lead its competitors, CBS Chief Executive Officer Leslie Moonves said on March 10 at a conference at the University of California, Los Angeles.

CBS is averaging 12 million prime-time viewers in the season that began in September, a 1.4 percent gain from last season and more than any of its competitors, according to data from Nielsen. The broadcaster ranks second to News Corp. (NWSA)’s Fox in viewers ages 18 to 49, a group targeted by advertisers, according to audience data from Nielsen.

CBS, controlled by Chairman Sumner Redstone, rose 0.4 percent to $33.88 at the close in New York. The stock has gained 25 percent this year.

To contact the reporters on this story: Andy Fixmer in Los Angeles at afixmer@bloomberg.net; Edmund Lee in New York at elee310@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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Fed Signals No Need for More Easing Unless Growth Falters

By Joshua Zumbrun and Jeff Kearns - Apr 4, 2012 3:28 AM GMT+0700

The Federal Reserve is holding off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its 2 percent target.

“A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum or if inflation seemed likely to remain below” 2 percent, according to minutes of their March 13 meeting released today in Washington. That contrasts with the assessment at the FOMC’s January meeting in which some Fed officials saw current conditions warranting additional action “before long.”

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Federal Reserve Board Chairman Ben Bernanke before the Senate Banking, Housing and Urban Affairs Committee hearing on 'the Semiannual Monetary Policy Report to the Congress', on Capitol Hill ion March 1, 2012. Photographer: Michael Reynolds/EPA/Corbis

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April 3 (Bloomberg) -- Allen Sinai, chief global economist at Decision Economics Inc., talks about the minutes of the Federal Reserve's March 13 meeting released today and the outlook for monetary policy. Sinai speaks with Mark Crumpton and Michael McKee on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

Stocks slumped while the dollar and Treasury yields rose. The Standard & Poor’s 500 Index lost 0.4 percent to 1,413.31 as of 4:12 p.m. in New York, retreating from yesterday’s highest close since May 2008. Yields on 10-year Treasury notes increased 11 basis points to 2.3 percent. The Dollar Index, a gauge of the currency against six major peers, rallied 0.7 percent.

The March minutes show decreased urgency to add stimulus with no sentiment expressed for additional easing without a deterioration in economic conditions. The central bank also affirmed its plan, first announced in January, to hold interest rates near zero through late 2014 as the economy’s improvement may not be sufficient to lower the outlook for coming years.

‘Positive Enough’

“I would have to see some pretty severe circumstances before I endorse for another round of quantitative easing,” Atlanta Fed President Dennis Lockhart said today on Bloomberg Radio’s “Hays Advantage” with Kathleen Hays. “The outlook is positive enough that I am not sure I see the need for it.”

Lockhart, a voting member on monetary policy this year, has never dissented from a decision of the FOMC since becoming president of the Atlanta Fed in March 2007.

Markets reacted sharply because investors expected a signal for new rounds of quantitative easing, said Michael Gapen, a former Fed economist who is a senior U.S. economist at Barclays Capital Inc. in New York.

“There were others who were convinced the Fed was going to have to do it and some QE was still priced in,” Gapen said. Today’s minutes don’t “rule out QE3 - the Fed still thinks there are downside risks to remain concerned about -- but the trends right now don’t suggest they need to do more,” he said.

Affirmed Plan

The central bank first said in January that it may hold interest rates near zero through at least late 2014 as the economy may fail to grow fast enough to continue bringing down the unemployment rate. Fed Chairman Ben S. Bernanke has defended the pledge as appropriate since the meeting, saying that despite some improvement in the economy it’s “far too early to declare victory.”

The FOMC said in March that unemployment is still “elevated” even after recent improvements in the job market. Richmond Fed President Jeffrey Lacker dissented because he doesn’t anticipate that economic conditions will warrant exceptionally low rates for so long.

Fed policy makers also discussed the conditions under which they’d alter their 2014 interest rate plan. That commitment is conditional on the performance of the economy “and members concurred that the date given in the statement would be subject to revision in response to significant changes in the economic outlook,” the minutes said.

Employment

“A number” of policy makers did not see that threshold being met and said that “while recent employment data had been encouraging” there was a “nonnegligible risk that improvements in employment could diminish as the year progressed,” the minutes said.

Bernanke highlighted those risks in a March 27 television interview with ABC News.

“We need to be cautious and make sure this is sustainable,” he said in the interview. “We haven’t quite yet got to the point where we can be completely confident that we’re on a track to full recovery.”

Asked if another round of quantitative easing, or large- scale bond purchases, remains “on the table,” the 58-year-old Fed chief said, “we don’t take any options off the table.”

“We have to be prepared to respond to however the economy evolves,” he said.

Those remarks expanded on a speech by Bernanke on March 26 in Arlington, Virginia, in which he said the fall in the jobless rate may reflect “a reversal of the unusually large layoffs that occurred during late 2008 and over 2009.” Significant improvement in reducing unemployment will probably require faster growth, he said.

Raise Forecasts

In their March discussion policy makers did not see the economy growing so strongly that they would have to raise their forecasts in coming years.

“Most participants did not interpret the recent economic and financial information as pointing to a material revision to the outlook for 2013 and 2014,” the minutes said.

FOMC participants also discussed additional steps they could take to better explain to the public how changes in the economic outlook affect monetary policy decisions, such as what qualitative or quantitative data would prompt which actions, according to the minutes.

“Several participants suggested that it could be helpful to discuss at a future meeting some alternative economic scenarios and the monetary policy responses that might be seen as appropriate under each one,” according to the minutes, which noted no decision was made on future steps on the Fed’s communication strategy.

Higher Gas Price

The best six months of job growth since 2006, unemployment at a three-year low, and stock-market gains are giving Americans the means to withstand a higher gasoline price. A March 30 report from the Commerce Department said Americans increased their spending by the most in seven months, with purchases climbing 0.8 percent in February.

“Consumers are becoming a little bit more resilient to fuel prices,” Don Johnson, U.S. sales chief for General Motors Co., said yesterday on Bloomberg Television’s “In The Loop With Betty Liu.” More consumers will be spurred to replace old cars, he said, “as the economy continues to strengthen, which it has been recently, more and more of that pent-up demand will be released into the market.”

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net Jeff Kearns in Washington at jkearns3@bloomberg.net;

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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U.S. Stocks Fall as Fed Minutes Damp Stimulus Expectation

By Lu Wang and Inyoung Hwang - Apr 4, 2012 3:42 AM GMT+0700

U.S. stocks fell, a day after the Standard & Poor’s 500 Index rose to the highest level since 2008, as minutes from the Federal Reserve’s latest policy meeting damped expectations for more monetary stimulus.

Companies whose earnings are most tied to economic swings led the retreat, with S&P 500 indexes tracking energy, financial and raw-materials stocks falling at least 0.7 percent. Transocean Ltd. and Newmont Mining Corp. (NEM) declined more than 2.8 percent as oil and gold prices slid. General Motors Co. sank 4.6 percent after posting vehicle sales that trailed estimates. Apple (AAPL) Inc. advanced 1.7 percent to a record after two analysts said the stock could surge to $1,000.

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April 3 (Bloomberg) -- Bloomberg's Pimm Fox and Deborah Kostroun report on the performance of the U.S. equity market today. U.S. stocks fell, a day after the Standard & Poor’s 500 Index rose to the highest level since 2008, as minutes from the Federal Reserve’s latest policy meeting damped expectations for more monetary stimulus. (Source: Bloomberg)

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April 3 (Bloomberg) -- Joseph McAlinden, chief investment officer at Catalpa Capital Management, talks about the outlook for U.S. corporate earnings and equities. He speaks with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart." Anthony Dwyer, chief equity strategist at Canaccord Genuity Securities LLC, also speaks. (Source: Bloomberg)

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April 3 (Bloomberg) -- Howard Ward, a portfolio manager at Gamco Investors Inc., and John Miller, co-head of fixed income at Nuveen Asset Management, talk about investing in dividend-paying stocks versus bonds. They speak with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart." Anthony Dwyer, chief equity strategist at Canaccord Genuity Securities LLC also speaks. (Source: Bloomberg)

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April 3 (Bloomberg) -- Anthony Dwyer, chief equity strategist at Canaccord Genuity Securities LLC, talks about the outlook for Federal Reserve policy and the U.S. stock market. He speaks with Adam Johnson, Trish Regan and Michael McKee on Bloomberg Television's "Street Smart." (Source: Bloomberg)

The S&P 500 dropped 0.4 percent to 1,413.38 today. The Dow Jones Industrial Average lost 64.94 points, or 0.5 percent, to 13,199.55 after reaching the highest level since December 2007 yesterday. About 6.8 billion shares changed hands on U.S. exchanges, compared to the one-year average of 7.5 billion.

“Everybody would like a little more stimulus,” James Dunigan, who helps oversee $107 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a telephone interview. “It reiterates what the chairman’s been saying that they saw continuously moderate economic growth and they stand ready to do something but at the moment, there’s no immediate need to do any additional stimulus.”

Equities extended losses as the minutes of the March 13 meeting showed a decreased urgency to add monetary stimulus. The Fed indicated that it is holding off on increasing monetary accommodation unless the U.S. economic expansion falters or prices rise at a rate slower than its 2 percent target. The central bank last month affirmed its plan, first announced in January, to hold interest rates near zero through late 2014.

Factory Orders

Stocks fell earlier as figures from the Commerce Department showed factory bookings in February rose 1.3 percent after a revised 1.1 percent decline in January. The median of 60 economists’ projections in a Bloomberg News survey called for a 1.5 percent advance. Orders excluding transportation equipment increased by the most in five months.

The S&P 500 climbed to the highest level since May 2008 yesterday after a report showed stronger-than-forecast growth in U.S. manufacturing. The index rose 12 percent from January through March for the best first-quarter rally since 1998 as economic data surpassed estimates and investors speculated that the euro area would contain its sovereign-debt crisis.

‘Over-Optimistic’

“The market is over-optimistic about corporate profit and GDP growth for the rest of the year,” David Pearl, who oversees $21 billion in assets as co-chief investment officer at New York-based Epoch Investment Partners, said in a telephone interview. “We’re in a recovery, but the market has pretty much discounted that.”

Investors sold shares of companies tied to the economy. The Morgan Stanley (MS) Cyclical Index lost 0.8 percent. The Dow Jones Transportation Average, a proxy for economic growth, erased 0.2 percent.

S&P 500 indexes tracking energy and raw-materials producers dropped 1 percent and 0.9 percent, respectively. Transocean fell 2.8 percent to $53.64. Newmont Mining slipped 3.4 percent to $50.34. Valero Energy Corp. (VLO) slumped 3.5 percent to $25.40.

The KBW Bank Index (BKX) retreated 0.3 percent. JPMorgan Chase & Co. (JPM) declined 1.5 percent to $45.42 while Goldman Sachs Group Inc. (GS) fell 1.8 percent to $122.71. Morgan Stanley dropped 2.2 percent to $19.37.

General Motors sank 4.6 percent to $25.54 after posting gains in U.S. vehicle sales that trailed analysts’ estimates. GM sales of cars and light trucks rose 12 percent, according to company statements. The average of 10 analysts’ estimates was for gains of 19 percent at GM.

Beer Brands

Molson Coors Brewing Co. (TAP) fell 5.4 percent to $43.18. The U.S. maker of Carling lager agreed to buy StarBev LP for 2.65 billion euros ($3.54 billion) to add beer brands such as Staropramen and provide a route into central and eastern Europe.

Apple advanced 1.7 percent to $629.32. The world’s most valuable company could surge to $1,000 by 2014, Gene Munster, an analyst at Piper Jaffray Cos., said in a note to clients today. He raised his 12-month price target to $910 from $718. Brian White, an analyst at Topeka Capital Markets, yesterday set an estimate of $1,001.

Wall Street strategists cut their recommended holdings in U.S. equities to almost the lowest level since 1998, a sign that the six-month stock rally may have more room to go, according to Bank of America Corp.

Strategists’ Advice

Strategists advised investors to reduce equity allocations in six out of the past eight months, with money earmarked to stocks falling to 55.8 percent in March. The level was the lowest since January 1998, except for the seven months ended July 2009, and compared with a 15-year average of 60.7 percent, according to data compiled by Bloomberg and Bank of America.

Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America, said the decline in recommended stock holdings signaled rising pessimism that she considers as a contrarian indicator because investors who have sold shares now have more money to purchase stocks.

“We take some comfort in Wall Street’s lack of optimism,” Subramanian wrote in a note yesterday. “It has historically been a bullish signal when Wall Street was extremely bearish.”

To contact the reporters on this story: Lu Wang in New York at lwang8@bloomberg.net; Inyoung Hwang in New York at ihwang7@bloomberg.net

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

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Home Prices Seen Dropping 10% in U.S. on Foreclosures: Mortgages

By Kathleen M. Howley - Apr 4, 2012 4:27 AM GMT+0700

As many as 1.25 million of America’s least cared for homes are headed for auction after a year-long probe into foreclosure practices kept them off the market.

Sales of repossessed properties probably will rise 25 percent this year from 1 million in 2011, according to Moody’s Analytics Inc. Prices for the homes could drop as much as 10 percent because they deteriorated as they were held in reserve during investigations by state officials resolved in February, according to RealtyTrac Inc. That month, 43 percent of foreclosures were delinquent for two or more years, from a 21 percent share in 2010, according to Lender Processing Services Inc. in Jacksonville, Florida.

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A dispossessory (eviction) notice after the Gwinnett County Sheriff's Office civil court division carried out a foreclosure eviction in Bethlehem, Georgia. Photographer: Erik S. Lesser/EPA/Landov

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April 3 (Bloomberg) -- Thomas Shapiro, founder, president and chief investment officer of GTIS Partners, talks about the firm's strategy and the U.S. housing market. He speaks with Betty Liu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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April 2 (Bloomberg) -- Christopher Whalen, a senior managing director at Tangent Capital Partners LLC and author of "Inflated: How Money and Debt Built the American Dream," talks about the U.S. housing market. Whalen speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

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Keith Ritter, left, moves belongings from a home he once owned. Photographer: Michael S.Williamson/The Washington Post/Getty Images

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Prices for repossessed properties could drop as much as 10 percent because they deteriorated as they were held in reserve during investigations by state officials resolved in February, according to RealtyTrac Inc. Photographer: Victor J. Blue/Bloomberg

“The longer a foreclosed home is in the mill, the bigger the losses,” said Todd Sherer, who manages distressed mortgage investments for Dalton Investments LLC, a Los Angeles-based hedge fund that oversees $1.5 billion. “We have a bulge of these properties coming through the system.”

Homes stockpiled less than a year sell for about 35 percent below the value set by lenders, according to a March 15 report by the Federal Reserve Bank of Cleveland. At two years, the loss is close to 60 percent. A surge of cheap foreclosures may erode prices in the broader real estate market, even as the economy expands and residential building increases, said Karl Case, one of the creators of the S&P/Case-Shiller home-price index.

‘Complete Losses’

“The question on these aging foreclosures is how many are going to be sold and affect prices and how many will be complete losses,” said Case, professor emeritus at Wellesley College in Wellesley, Massachusetts. “Depending on their condition, they could have a big impact on home prices.”

The best measure of the influence foreclosures have on the broader market is the 20-city S&P/Case-Shiller home-price index that tracks deeds, including homes sold directly by banks and deals that don’t use mortgages, said Patrick Newport, an economist at IHS Global Insight in Lexington, Massachusetts. The index probably will fall 5 percent to 10 percent this year, a range that depends on the condition of the mothballed homes, he said.

That compares with a forecast for a 2.9 percent decline by Celia Chen, a housing economist at Moody’s Analytics in West Chester, Pennsylvania, and a prediction of a 3.9 percent decline by Diane Swonk, chief economist of Mesirow Financial Inc. in Chicago.

Building Permits

While foreclosures slowed, the wider real estate market improved. As banks held onto properties, the supply of homes for sale dropped to 2.3 million in December, the lowest since 2005, before rising 4.7 percent the following two months, according to the National Association of Realtors. Spurred by low inventory, building permits that signal future housing demand rose 4.8 percent in February, from the prior month, to the highest level since 2008, according to the Commerce Department.

The Standard & Poor’s 1500 Homebuilding Index rose 0.4 percent today and has gained 23 percent this year.

The S&P/Case-Shiller index fell 3.8 percent in January from a year earlier, slowing from December’s decline of 4.1 percent, a sign of stabilization. The measure has dropped 34 percent from its 2006 peak to the lowest level in almost a decade.

“A lot of people look at bumps in the monthly data and say we’re reaching a bottom,” said Joshua Shapiro, chief U.S. economist at MFR Inc. in New York. “We won’t be there until this supply of foreclosures clears.”

The National Association of Realtors predicts a 0.01 percent gain in prices for homes sold through multiple listing services, which includes some though not all foreclosures.

Need to be Bulldozed

The Federal Housing Finance Agency’s price index measures sales of homes with loans backed by Fannie Mae or Freddie Mac. That gauge likely will rise 0.7 percent, according to a forecast by the Mortgage Bankers Association in Washington.

A quarter of homes in long-term foreclosure may need to be bulldozed, according to the Cleveland Fed’s report. About 500,000 foreclosures in the U.S. are vacant, according to a housing study Fed Chairman Ben Bernanke sent to Congress in January. Many of them are “badly damaged,” he said.

Gloria Washington, 80, knows about dilapidated foreclosures first-hand. There are four of them on her block on the south side of Chicago. When she applied for a home equity loan last year to fix up her front walkway, she was turned down because her home’s value had plummeted.

“This used to be a good neighborhood, but now all our homes are almost worthless,” she said.

‘They Lack Money’

Whether a foreclosed property is occupied or not, its value is deteriorating, said Tom Popik, research director for Campbell Surveys, a real estate data firm in Washington. The mortgage servicers that oversee the homes aren’t likely to do major repairs, he said. Residents probably would solve a problem like a leaky roof by nailing a sheet of plywood over it, Popik said.

“They lack money -- that’s why they’re in foreclosure --so maintenance isn’t going to get done, and that’s going to hurt the value of the house,” Popik said. “Some of them feel abused by the system and are going to strip the fixtures, the hot water heater and even the kitchen cabinets when they go.”

Aging foreclosures also erode values in higher-priced neighborhoods, such as a community in Tampa, Florida, where properties sell for up to $500,000. A three-bedroom house with a double garage and a pool came on the market in January for $139,900 after being in foreclosure for almost three years, according to court records. When the case was finalized in December, the unpaid amount owed on the mortgage was $403,000, the records show.

Preserving Value

In 2008 the same owner, a real estate investor, went through a foreclosure on a similar home located less than a mile away. In that situation, the foreclosure lasted six months, helping to preserve the value of the property. The house sold for $305,000 that same year and now is worth about $429,000, according to an estimate by Zillow Inc. (Z), a real estate data company in Seattle.

“You can easily strip $100,000 or more off the value of a property by letting it sit in foreclosure for an extended period of time,” said Dean Baker, co-director of the Center for Economic and Policy Research in Washington. “You’ve got to fill that home as quickly as possible.”

In Ohio, $75 million of an estimated $335 million it received from the Feb. 9 settlement between state attorneys general and servicers will be used to tear down vacant foreclosures, the state’s Attorney General Mike DeWine announced the same day. Banks held back on processing home seizures during the probe to avoid potential liabilities. U.S. Representatives Marcia Fudge and Steve LaTourette, both from Ohio, last month said they would introduce a bill to provide $4 billion to issue 30-year bonds to demolish foreclosures.

‘Have to be Dumped’

“Any homeowner knows that housing depreciates pretty rapidly if you don’t take care of it,” said Case, who created the index with Yale University professor Robert Shiller. “Some of the supply in the bin is going to have to be dumped.”

The average price of a repossessed property has dropped 22 percent to $146,285 since 2008, according to RealtyTrac, a foreclosure data firm in Irvine, California.

The age of the foreclosure backlog complicates 2012 price- forecasting, said Newport at IHS Global. The share of homes in the legal process of being seized was 3.5 percent in 2011 compared with 3.2 percent in 2010, according to CoreLogic Inc. in Santa Ana, California. Completed foreclosures fell to 870,000 in 2011 from 1.1 million a year earlier, the firm’s data shows.

“We don’t know how much damage has happened to these homes,” Newport said. The properties “are going to have a lot of wear and tear in an already weak housing market.”

Even if the sale prices of long-term foreclosures affect the value of homes in the wider market, it’s still better to get rid of the properties as quickly as possible, said Stan Humphries, Zillow’s chief economist.

“We deferred a lot of the pain of foreclosure during the post-robo-signing period,” Humphries said, referring to the fraudulent signing of affidavits that sparked the servicer probe. “Getting those homes onto the market and getting them sold is the only way through it.”

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net.

To contact the editor responsible for this story: Rob Urban at robprag@bloomberg.net.

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