Bernanke Says ‘Prepared to Do More’ as Policy Unchanged

By Caroline Salas Gage and Joshua Zumbrun - Apr 26, 2012 3:22 AM GMT+0700

Federal Reserve Chairman Ben S. Bernanke said the central bank stands ready to add to its stimulus if necessary even after leaving its policy unchanged today and upgrading its view of the economy for this year.

“We remain prepared to do more as needed to make sure that this recovery continues and that inflation stays close to target,” he said at a press conference today following a meeting of the Federal Open Market Committee in Washington. Additional bond-buying is still “very much on the table.”

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Ben S. Bernanke, chairman of the Federal Reserve, at a Federal Open Market Committee (FOMC) meeting in Washington on April 25, 2012. Photographer: Andrew Harrer/Bloomberg

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April 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke speaks about the central bank's monetary policy and the U.S. economy. He speaks a news conference following a meeting of the Federal Open Market Committee in Washington. (Source: Bloomberg)

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April 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the central bank remains prepared to take additional action if needed to boost the economy. Bernanke spoke at a news conference following a meeting of the Federal Open Market Committee. (This is an excerpt. Source: Bloomberg)

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April 25 (Bloomberg) -- Federal Reserve Chairman Ben Bernanke says the economy will expand moderately over coming quarters and then pick up "gradually." He spoke at a news conference following a meeting of the Federal Open Market Committee. (This is an excerpt. Source: Bloomberg)

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April 25 (Bloomberg) -- Bloomberg's Peter Cook reports that Federal Reserve policy makers said they expect growth to gradually accelerate, while refraining from new actions to lower borrowing costs. He speaks on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

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April 25 (Bloomberg) -- David Trone, an analyst at JMP Securities LLC, and Bloomberg's Michael McKee talk about Federal Reserve monetary policy and transparency, Chairman Ben S. Bernanke's remarks at a news conference today and the outlook for the U.S. economy. They speak with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

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April 25 (Bloomberg) -- Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., talks about Federal Reserve monetary policy and the outlook for the membership of the Federal Open Market Committee. Feroli speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

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April 25 (Bloomberg) -- Federal Reserve policy makers said they expect growth to slowly accelerate, while refraining from new actions to lower borrowing costs. Mesirow Financial's Diane Swonk and Bloomberg's Joseph Brusuelas report on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

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April 25 (Bloomberg) -- John Silvia, chief economist at Wells Fargo Securities LLC, talks about the Federal Reserve's policy statement, Richmond Fed President Jeffrey Lacker's dissent and the outlook for the U.S. economy. Silvia, speaking with Tom Keene on Bloomberg Television's "Surveillance Midday," also discusses the U.S. labor and housing markets. (Source: Bloomberg)

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April 25 (Bloomberg) -- Dean Curnutt, chief executive officer of Macro Risk Advisors LLC, talks about the impact of Federal Reserve monetary policy and U.S. fiscal policy on risk management by investors and companies. Curnutt, speaking with Deirdre Bolton on Bloomberg Television's "Money Moves," also discusses gold and European sovereign-debt spreads as hedges against risk. (Source: Bloomberg)

Treasuries pared losses after Bernanke kept speculation alive that the Fed might embark on a third round of monetary easing after expanding its balance sheet to a record of almost $3 trillion. Central bankers today raised their forecasts for growth and the labor market this year while repeating that borrowing costs are likely to remain “exceptionally low” at least through late 2014.

The FOMC “expects economic growth to remain moderate over coming quarters and then to pick up gradually,” it said in a statement after a two-day meeting. The statement pointed to “some signs of improvement” in housing while saying the industry at the heart of the financial crisis “remains depressed.”

Policy makers are holding off on additional steps to boost the economy amid signs the more than two-year expansion is gaining strength. Still, the jobless rate isn’t declining fast enough to satisfy central bankers, who are also concerned about potential shocks from the European debt crisis.

Global Strains

“Strains in global financial markets continue to pose significant downside risks to the economic outlook,” according to today’s statement. The Fed has cited the risk in its previous five meetings. In March it said those strains had “eased.”

The yield on the benchmark 10-year note was little changed at 1.99 percent at 4:15 p.m. in New York, according to Bloomberg Bond Trader prices, after rising as high as 2.04 percent.

Stocks rose for a second day after Bernanke’s comments and as earnings beat estimates at companies from Apple Inc. to Boeing Co. The Standard & Poor’s 500 Index climbed 1.4 percent to 1,390.7.

Bernanke said that fiscal tightening may weigh on growth as lawmakers seek an agreement to narrow the budget deficit by year-end, before a deficit-reduction law requiring cutbacks takes effect.

‘Bar Is High’

“The bar is high, but it is still on the table given uncertainty with Europe and fiscal policy in the U.S.,” said Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago, speaking about the prospects for new easing.

Policy makers today upgraded their forecasts for growth and unemployment this year. They now see the jobless rate at between 7.8 percent and 8 percent, compared with January estimates of 8.2 percent to 8.5 percent. The economy is forecast to expand at 2.4 percent to 2.9 percent, compared with 2.2 percent to 2.7 percent.

They also raised their projections for the inflation rate this year, as measured by the personal consumption expenditures index (SPX), to 1.9 percent to 2 percent, from 1.4 percent to 1.8 percent. The forecasts reflect the so-called central tendency, which excludes the three highest and three lowest projections of 17 policy makers.

Inflation “has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline,” the Fed said today. Gas prices will affect inflation “only temporarily,” it said.

Oil prices have declined since the Fed’s March meeting, and the national average cost of gasoline has fallen to $3.84 a gallon from a 2012 peak of $3.94 on April 4, according to the American Automobile Association.

Inflation Goal

Bernanke rejected suggestions that the Fed should allow inflation to rise above its 2 percent goal in order to stimulate growth, saying such a move would undercut the Fed’s credibility.

“To risk that asset for what I think would be quite tentative and perhaps doubtful gains on the real side would be unwise to do,” the Fed chairman said. It would be “very reckless” to “actively seek a higher inflation rate in order to achieve a slightly” faster reduction in unemployment.

The central bank said it would continue its swap of $400 billion of short-term debt with long-term debt to lengthen the average maturity of its holdings, a move dubbed Operation Twist. The Fed is scheduled to complete the program at the end of June. The Fed also didn’t alter its policy of reinvesting its portfolio of maturing housing debt into agency mortgage-backed securities.

Echoes Yellen

Bernanke echoed Vice Chairman Janet Yellen’s April 11 remarks that the end of Operation Twist won’t amount to a tightening of policy. The benefits of the plan stem from the total amount of new purchases, rather than the “flow” of such buying, he said.

“If that theory is correct, then at such a time that our purchases come to an end, there should be relatively minimal effects on interest rates,” Bernanke said.

Richmond Fed President Jeffrey Lacker dissented for the third meeting in a row. Lacker has said he believes the first increase in interest rates will likely be necessary in 2013.

Fed policy makers met amid renewed concern over Europe’s fiscal crisis. The benchmark Stoxx Europe 600 Index of European countries hit a three-month low on April 23 and has since rallied as companies, including Electrolux AB (ELUXB), posted earnings that beat estimates.

In the U.S., consumer spending is starting to power growth as business investment cools. A report today showed orders for durable goods fell in March by the most in three years, indicating manufacturing will contribute less to growth this year.

Retail Sales

Retail sales rose more than forecast in March as Americans snapped up everything from cars and furniture to clothes and electronics. The 0.8 percent gain was almost three times as large as projected and followed a 1 percent advance in February, Commerce Department figures showed April 16.

An April 27 government report may show that gross domestic product rose at a 2.5 percent annual rate in the first quarter, according to the median forecast in a Bloomberg News survey of economists, driven by the biggest increase in household demand in a year.

While Fed officials raised their projections for growth in 2012, they lowered their estimates for next year and 2014. The economy will expand by 2.7 percent to 3.1 percent in 2013 and 3.1 percent to 3.6 percent in 2014, they projected. In January, they predicted growth of 2.8 percent to 3.2 percent next year and 3.3 percent to 4 percent in 2014.

Fiscal Impact

Bernanke said that the lower forecasts may reflect the impact from fiscal tightening, and that Congress needs to reach an agreement to address shortfalls. Bush-era tax cuts are set to expire at the end of the year.

“If no action were to be taken by the fiscal authorities, the size of the fiscal cliff is such that there’s no chance that the Federal Reserve could or would have any ability whatsoever to offset that effect on the economy,” Bernanke said.

Corporate earnings and an improving economic outlook are powering stock-market gains. The S&P 500 is up more than 10 percent this year.

“Despite its struggle with the sustained period of relative high unemployment, we’re pleased to see some early signs of a slowly improving macroeconomic environment” in the U.S., Muhtar Kent, president and chief executive of Coca-Cola Co. (KO), the world’s largest soft-drink maker, said in an April 17 earnings call.

More than 82 percent of companies in the S&P 500 that reported quarterly results since April 10 topped the average analyst earnings estimate, according to data compiled by Bloomberg as of yesterday. Companies from AT&T Inc. to 3M Co. beat analysts’ earnings projections. International Business Machines Corp. boosted a stock buyback by $7 billion and increased its dividend yesterday.

To contact the reporters on this story: Caroline Salas Gage in New York at salas1@bloomberg.net; Joshua Zumbrun in Washington at jzumbrun@bloomberg.net;

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

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Iran Says It May Halt Nuclear Program Over Sanctions

By Stepan Kravchenko and Henry Meyer - Apr 26, 2012 2:32 AM GMT+0700

Iran is considering a Russian proposal to halt the expansion of its nuclear program in order to avert new sanctions, the country’s envoy in Moscow said.

“We need to study this proposal and to establish on what basis it has been made,” Ambassador Mahmoud-Reza Sajjadi said in an interview at the Iranian embassy in Moscow today. The Russian plan, announced by Deputy Foreign Minister Sergei Ryabkov last week, would let Iran avoid a European Union ban on its crude that is scheduled to come into force in July.

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Tugboats escort the BP Plc British Pride oil tanker into the harbor in Long Beach, California. Photographer: Jonathan Alcorn/Bloomberg

Iran will ensure it maintains its right to produce nuclear energy, Sajjadi said. The U.S. and European Union allege Iran is seeking to build a bomb, not just make fuel for electricity production and medical research, as the country maintains.

The EU is planning on July 1 to impose an embargo on crude from Iran, which accounts for about 4 percent of the world’s supply, as it works with the U.S. to ratchet up pressure on the Persian Gulf state. Oil prices retreated from a one-week high, dropping more than $1 today on the report.

In Washington, State Department spokeswoman Victoria Nuland dismissed Sajjadi’s remarks, saying the Iranian is “not a central player” in international talks over Iran’s nuclear program. “Frankly, what’s most important is what Iran says and does at the negotiating table,” Nuland said at briefing with journalists.

The U.S. and EU have imposed financial sanctions on Iran and are pressuring nations including China to buy less of its oil as they seek to curtail its nuclear activities.

Mutual Concessions

Ryabkov, who leads Prime Minister and President-elect Vladimir Putin’s delegation to the Iran talks, said the Russian proposal would be the first in a series of mutual concessions designed to end in an accord that would remove suspicions about Iranian intent regarding atomic weapons.

Iran might also be willing to ratify the so-called Additional Protocol, a step urged by the United Nations Security Council that includes more thorough inspections of Iranian facilities, as part of a wider settlement, Sajjadi said.

Under the Russian proposal, Iran would stop building centrifuges, machines used to enrich uranium, and mothball ones that haven’t been put into use yet.

“At that stage, as part of the step-by-step approach, the other side could announce that it will refrain from introducing new sanctions,” Ryabkov said April 17 after the latest round of talks in Istanbul between Iran and the five permanent Security Council members -- the U.S., U.K., China, Russia and France -- plus Germany. Those talks were the first Iran held with the so- called 5+1 group in 15 months. The next round, in Baghdad, is scheduled for May 23.

The EU will complicate efforts to resolve the feud if the 27-nation bloc goes ahead with the oil ban, Sajjadi said.

‘Not Serious’

“If they actually impose the embargo, it will mean that they’re not serious about resolving the nuclear issue,” the Iranian ambassador said. “How can they want to pursue nuclear talks on the one hand and introduce sanctions on the other? What meaning will these talks have then?”

The UN’s nuclear watchdog said in February that the number of centrifuges at Iran’s underground Natanz facility had grown 14 percent to 9,156 from 8,000 in November, of which 8,808 were operating. Iran began enriching uranium with more than 300 centrifuges at a different underground site, Fordo, the International Agency for Atomic Energy said in a Feb. 24 report.

The IAEA report said Iran had tripled monthly output of enriched uranium from November to 31 pounds (14 kilograms). The country may be able to produce bomb-grade uranium in a matter of months, Olli Heinonen, the IAEA’s former top inspector for Iran, said on April 12.

‘A Big Step’

“The proposed plan will keep the capacity to enrich uranium at the current level,” said Elena Sokova, executive director at the Center for Disarmament & Non-Proliferation in Vienna, by e-mail. “Thus it helps to avoid the expansion of enrichment but not to scale it back. In other words, no buildup of the program in exchange for no new sanctions.”

If Iran then ratified the Additional Protocol to the Nuclear Non-Proliferation Treaty it would be “a big step forward as it would allow for much better transparency of the Iranian nuclear program and for the IAEA to carry out rather intrusive inspections,” Sokova said.

The Iranian nuclear program is an “imaginary threat,” Sajjadi said, adding that he was astonished by comments made by Nikolai Makarov, head of the Russian military’s General Staff, warning about the risk of a nuclear-armed Iran in an interview with state broadcaster RT.

Won’t Benefit

Russia won’t benefit by cooperating with the U.S. and Europe, and the threatened EU oil embargo will damage the world economy by squeezing global supplies, the ambassador said.

Iran’s oil production, currently about 3.4 million barrels a day, may decline by as much as 950,000 barrels a day by the middle of this year as EU and U.S. embargoes take effect, the International Energy Agency said in its monthly Oil Market Report on April 12.

Crude oil for June delivery slipped 22 cents to $103.33 a barrel at 11:27 a.m. on the New York Mercantile Exchange. The contract earlier touched $104.49, the highest intraday level since April 18. Brent oil traded 31 cents lower at $117.83 in London after reaching $119.25.

Tensions over the Iranian program, including Israel and the U.S. leaving open the possibility of a military attack, helped drive Brent crude prices to about $125 a barrel last month, the highest level in more than 3 1/2 years. Prices fell more than 2 percent on the next trading day after the April 14 talks in Istanbul, which the U.S. and EU said made progress.

“There are two ways we can proceed after the Istanbul talks,” said Sajjadi. “Either the West understands that it’s pointless to use the language of force with Iran or their flexibility is a temporary phenomenon. I hope the first is true as we would like to see a resolution.”

To contact the reporters on this story: Stepan Kravchenko in Moscow at skravchenko@bloomberg.net Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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Arizona’s Immigration Crackdown Gets Support at Top Court

By Greg Stohr - Apr 26, 2012 2:12 AM GMT+0700

U.S. Supreme Court justices spanning the ideological divide signaled they were prepared to uphold the core of Arizona’s trailblazing crackdown on illegal immigrants in what would be a blow to President Barack Obama.

Both Republican and Democratic appointees, hearing arguments today in Washington in a case with ramifications for this year’s elections and for laws across the country, aimed skeptical questions at U.S. Solicitor General Donald Verrilli as he argued that the measure would lead to the harassment of U.S. citizens and legal residents.

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Arizona Gov. Jan Brewer with the media after arguments at the U.S. Supreme Court, on April 25, 2012 in Washington. Photographer: Mark Wilson/Getty Images

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April 24 (Bloomberg) -- Arizona Governor Jan Brewer, a Republican, Todd Landfried, executive director of Arizona Employers for Immigration Reform, Todd Sanders, president and chief executive officer of the Greater Phoenix Chamber of Commerce, and Lisa Urias, co-founder of the Real Arizona Coalition, talk with Bloomberg's Amanda J. Crawford about Arizona's 2010 immigration law. The U.S. Supreme Court tomorrow will hear arguments on whether the measure, known as Senate Bill 1070, goes too far by requiring police to check the status of those they suspect are in the U.S. illegally. (Source: Bloomberg)

“You can see it’s not selling very well,” Justice Sonia Sotomayor, the first Hispanic named to the high court, told Verrilli half way through his presentation.

Like the health-care case argued last month, the immigration dispute pits the Obama administration against Republican-controlled states over the federal-state balance of power. The court’s decision, likely to come in June, may affect laws enacted during the past two years in Alabama, South Carolina, Georgia, Utah and Indiana.

Both cases have placed the court in the middle of a campaign. Mitt Romney, who along with Obama is vying for Hispanic votes, has taken a tough stance on illegal immigration in his bid for the Republican presidential nomination even with a report this week that the wave of illegal immigrants from Mexico has ended as many return to their native country.

Activists on both sides demonstrated outside the court as the justices heard the case.

Defending the Borders

Inside, court members voiced skepticism about parts of the Arizona law, including penalties on illegal immigrants who seek jobs. Still, the justices made clear they see states as having a role to play in addressing the presence of what the government has estimated is 11.5 million unauthorized aliens in the U.S.

“What does sovereignty mean if it does not include the ability to defend your borders?” Justice Antonin Scalia said during the 80-minute session, which ran 20 minutes beyond its scheduled time.

The central legal question is whether the U.S. Immigration and Nationality Act, which says states may cooperate in enforcing federal law, pre-empts the Arizona law.

The administration sued to challenge four provisions in the 2010 Arizona law, known as S.B. 1070. Probably the measure’s most contentious part says police officers must check immigration status when they arrest or stop someone and have “reasonable suspicion” that the person is in the U.S. illegally. The disputed provisions haven’t taken effect.

Playing Down Impact

Early on, Paul Clement, representing Arizona, sought to minimize the provision’s impact. Answering questions from Sotomayor, Clement -- who argued against Verrilli in the health- care case as well -- said if federal officials said they didn’t want to take custody of an illegal immigrant, Arizona police officers would have to release the person unless they had a basis under state law for making an arrest.

That statement set the tone for much of the rest of the session, undercutting Verrilli’s contention that the law encroaches on the exclusive federal right to set immigration policy.

Chief Justice John Roberts repeatedly said federal officials would make the final call about whether a person should be deported or prosecuted for violating federal law.

“All it does is notify the federal government, ‘Here is someone who is here illegally,’” Roberts said. “The discretion to prosecute for federal immigration offenses rests entirely with the attorney general.”

Don’t Want to Know

Later, Roberts said, “It seems to me that the federal government just doesn’t want to know who is here illegally or not.”

Two Democratic appointees -- Sotomayor and Justice Stephen Breyer -- joined in that line of questioning. Breyer raised the possibility of upholding the provision with the understanding that it wouldn’t cause people to be detained “significantly longer” than they would have been previously.

“If that were the situation, and we said it had to be the situation, then what in the federal statute would that conflict with?” Breyer asked Verrilli.

The Obama administration says the measure would undermine its efforts to give highest priority to illegal aliens who threaten public safety and those who belong to gangs that smuggle other aliens, drugs and weapons.

“These decisions have to be made at the national level,” Verrilli argued.

‘Unusual Theory’

Clement said many Arizona police officers already are routinely checking immigration status when they stop a person or make an arrest. The new law would simply extend those “ad hoc” checks into a statewide policy, he said.

“The government’s rather unusual theory that something that’s OK when done ad hoc becomes pre-empted when it’s systematic, I think that theory largely refutes itself,” Clement argued.

One issue not directly before the justices is the contention that the law will lead to racial profiling by police officers. That claim is part of a separate lawsuit being waged by civil rights advocates against the Arizona measure.

‘Probable Cause’

In addition to the status-check provision, Arizona’s law would authorize officers to arrest anyone they have “probable cause” to believe is eligible to be deported.

The law also would bar aliens without proper papers from seeking or performing work. It would be a state criminal offense for a foreigner to be in Arizona without correct documentation, subjecting violators to as much as 30 days in prison.

Roberts suggested he was skeptical about the employment provision. Federal law punishes employers that hire illegal aliens rather than focusing on workers seeking jobs.

The Arizona employment provision “does seem to expand beyond the federal government’s determination about the types of sanctions that should govern the employment relationship,” he said.

Verrilli was making his first appearance before the justices since he argued the health-care case in March, squaring off again against Clement, the former solicitor general who represented 26 states challenging the health-care law.

Justice Elena Kagan didn’t take part today’s case. She played a role in the litigation as Obama’s top Supreme Court lawyer before her 2010 appointment to the court.

4-4 Split?

Her disqualification creates the possibility that the court might divide 4-4 on some aspects of the law. That would leave intact a lower court ruling blocking those provisions, without setting a nationwide precedent.

Arizona says its 370-mile border with Mexico is the crossing point for half the nation’s illegal immigrants, giving it the right to tackle a problem the national government has failed to address.

Arizona had 360,000 unauthorized immigrants in 2011, according to the U.S. Homeland Security Department. During the last four decades, 12 million immigrants came to the U.S. from Mexico, most illegally, according to a report released April 23 by the Pew Hispanic Center, a nonpartisan research group in Washington. Net Mexican migration to the U.S. has now stopped and may have reversed, the report said.

The court last year upheld a separate Arizona law that threatens companies with loss of their corporate charters if they hire illegal immigrants. The 5-3 ruling said a federal law governing immigrant hiring leaves room for states to impose their own penalties for non-compliance.

The current case is Arizona v. United States, 11-182.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

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Coke’s Stock Split Recalls Buffett’s Pickpocket Warning

By Andrew Frye and Duane D. Stanford - Apr 26, 2012 3:45 AM GMT+0700

Coca-Cola Co. (KO) Chairman Muhtar Kent, who pushed for the beverage maker’s 11th stock split with an appeal for greater market liquidity, may be philosophically at odds with his biggest investor, Warren Buffett.

Buffett, who controls a Coca-Cola stake of almost $15 billion, has resisted splitting Class A shares of his Berkshire Hathaway Inc. (BRK/A), which closed yesterday at $119,700. Splits, he said in a 1984 letter, may encourage short-term investment strategies that enrich brokers at the expense of the business.

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Cans of Coca-Cola Co. soda move along a conveyor belt at the company's Swire bottling plant in Salt Lake City, Utah. Photographer: George Frey/Bloomberg

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Muhtar Kent, chief executive officer of Coca-Cola Co., at the World Economic Forum (WEF) in Davos. Photographer: Simon Dawson/Bloomberg

“I don’t know what he would say about this one,” said Howard Buffett, the investor’s son and a director at Atlanta- based Coca-Cola. Howard Buffett, who spoke today on the sidelines of the soft-drink maker’s annual meeting, said he voted for the 2-for-1 split and had not discussed the transaction with his father. “Every situation is different.”

The transaction will halve the price of Coca-Cola, which ended yesterday at $74.12, making it more affordable for retail investors, said Jack Russo, an analyst at Edward Jones & Co. It “reflects our desire to share value with an ever-growing number of people and organizations around the world,” Kent, also the chief executive officer, said today in a statement.

“It’s somewhat ironic that a stock that’s been part of the Buffett portfolio all these years is playing that stock- splitting game,” said David Rolfe, chief investment officer of Berkshire shareholder Wedgewood Partners Inc. “Be careful what you wish for. Is it more and better shareholders that are going to have a long term view? I doubt it.”

Coca-Cola rose 1.1 percent to $74.93 at 4 p.m. in New York. Berkshire, where Buffett is chairman and CEO, accumulated its stake in the world’s largest soft-drink maker from 1988 to 1994 at a cost of about $1.3 billion.

‘Pickpocket of Enterprise’

Coca-Cola split its stock in 2-for-1 transactions three times while Buffett, a Coca-Cola director from 1989 to 2006, was on the board. Howard Buffett, also a director at Berkshire, joined the Coca-Cola board in 2010.

“One of the ironies of the stock market is the emphasis on activity,” Warren Buffett said in the 1984 letter. “But investors should understand that what is good for the croupier is not good for the customer. A hyperactive stock market is the pickpocket of enterprise.”

Shareholders at today’s annual meeting stood and applauded when Kent told them of the newly proposed split. Warren Buffett didn’t mention the action in a video he taped to open the meeting.

‘Never Sold a Share’

“I’ve had a relationship with Coke for over 70 years,” Buffett, who drinks Cherry Coke, said in the video. “Today we own 200 million shares. We’ve never sold a share of Coca-Cola.”

Kent Landers, a spokesman for Coca-Cola, declined to comment about the statements in Buffett’s letter. Warren Buffett didn’t return a message seeking comment.

Buffett, who holds more than $40 billion in Berkshire stock, has said gains represent a barrier to entry for short- term investors and encourage shareholders to think like owners. Berkshire shares cost a minimum of $33,200 each 16 years ago. The cost of entry fell as Buffett added a second class of stock and, two years ago, split the B shares to facilitate the $26.5 billion cash-and-stock takeover of railroad Burlington Northern Santa Fe.

‘One Opinion’

Berkshire Class B shares rose 15 cents to $79.94. Buffett split the B shares 50 for 1 in 2010, and said it enabled Burlington Northern investors to convert more of their holdings into Berkshire shares, reducing cash proceeds and tax costs. Howard Buffett said his father has “one opinion about how Berkshire should handle a stock split and another about how Coke would handle it.” The stock split requires shareholder approval.

Coca-Cola’s quarterly dividend has advanced more than 10- fold since Berkshire began buying shares, and Buffett said in 2011 that he expected the payouts to double in the next 10 years. Berkshire’s share of the quarterly payout rose to $102 million this year.

“Time is the friend of the wonderful business,” Buffett said of Coca-Cola in his letter to shareholders last year.

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Duane D. Stanford in Atlanta at dstanford2@bloomberg.net.

To contact the editors responsible for this story: Dan Kraut at dkraut2@bloomberg.net; Kevin Orland at korland@bloomberg.net.

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Nasdaq-100 Has Biggest Advance in 2012 as Apple Jumps

By Rita Nazareth - Apr 26, 2012 3:39 AM GMT+0700

U.S. stocks advanced, giving the Nasdaq-100 Index (NDX) its biggest gain this year, as Apple Inc.’s earnings almost doubled and Federal Reserve Chairman Ben S. Bernanke said he’s prepared to do more to stimulate growth.

Apple, the most valuable company, surged 8.9 percent for the biggest gain since November 2008. Boeing Co. (BA) added 5.3 percent as earnings beat estimates after the company delivered more commercial jets while pushing production to record levels. Caterpillar Inc. (CAT), the world’s largest maker of construction equipment, slumped 4.6 percent as revenue missed projections.

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Apple , the most valuable company, surged 10 percent after reporting that robust demand for the iPhone in China fueled a 94 percent jump in quarterly profit. Photographer: David Paul Morris/Bloomberg

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April 25 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks advanced, giving the Nasdaq-100 Index its biggest gain this year, as Apple Inc.’s earnings almost doubled and Federal Reserve Chairman Ben S. Bernanke said he’s prepared to do more to stimulate growth. (Source: Bloomberg)

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April 26 (Bloomberg) -- James Haynie, a senior equity portfolio manager at BNP Paribas Investment Partners, talks about the U.S. stock market, economy, and Federal Reserve monetary policy. Haynie also discusses Apple Inc.'s stock valuation. He speaks in Hong Kong with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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April 25 (Bloomberg) -- Bloomberg’s Trish Regan, Adam Johnson and Matt Miller report on today’s ten most important stocks including Sears, Panera Bread and Apple. (Source: Bloomberg)

The Nasdaq-100 Index jumped 2.7 percent to 2,709.62 at 4 p.m. New York time. The Standard & Poor’s 500 Index added 1.4 percent to 1,390.69. The Dow Jones Industrial Average rose 89.16 points, or 0.7 percent, to 13,090.72. Apple (AAPL) is not a member of the 30-stock gauge. About 6.8 billion shares changed hands on U.S. exchanges, almost in line with the three-month average.

“It’s encouraging,” James Swanson, who oversees about $250 billion as chief investment strategist at Boston-based MFS Investment Management, said in a telephone interview. “The earnings season shows that companies can have good profitability in a low growth environment. As long as these earnings hold up, I’d say that’s a bright sign for the market.”

The S&P 500 has risen 11 percent in 2012 on better-than- estimated economic and corporate data. U.S. companies are beating earnings estimates at the highest rate in two years as economic growth at home helps counter a drag from Europe. Profits have topped forecasts at 80 percent of S&P 500 (SPX) companies reporting since April 10.

Earnings Growth

Earnings rose 11 percent on average, exceeding the 0.6 percent increase analysts projected when reporting began, according to data compiled by Bloomberg. All 10 industry groups in the S&P 500 delivered better-than-forecast results, with financial, telephone and technology companies leading with a positive rate of more than 10 percent, the data showed.

Stocks also rallied as policy makers said they expect growth to gradually accelerate, while refraining from new actions to lower borrowing costs. Central bankers today upgraded their forecasts for economic growth and unemployment while repeating their view that borrowing costs are likely to remain “exceptionally low” at least through late 2014.

“The Fed is providing an insurance policy to the economy,” said Ann Miletti, senior portfolio manager for Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin. Her firm manages $213 billion. “There’s a sense that things are improving, yet there’s some instability. The Fed is saying that it will be there to help keep things going. Earnings have been strong. The market likes it.”

Technology Gains

All 10 groups in the S&P 500 rallied today as gains were led by technology, which comprises 20 percent of the index. The group jumped 3.2 percent, the biggest advance since November. The Morgan Stanley Cyclical Index of companies most-tied to the economy increased 1.6 percent. The Russell 2000 Index of small companies rallied 1.8 percent to 812.12.

Apple surged 8.9 percent to $610. Demand from Chinese consumers helped Apple sell a higher-than-predicted 35.1 million iPhones last quarter and made the world’s most populous country responsible for 20 percent of sales. Chief Executive Officer Tim Cook said there will be “a lot more opportunity” in China as he introduces the iPad and expands operations there.

Before today, the company’s shares had tumbled $75.95 since a record close of $636.23 on April 9 amid reports that indicated a possible shortage in key components for Apple’s mobile devices and showed a quarter-over-quarter decline in iPhone sales at wireless carriers.

Erasing Doubts

“This report should erase any doubt in investors’ minds that this company can’t continue to deliver,” said Jack Ablin, chief investment officer of Harris Private Bank in Chicago, which oversees about $60 billion, including Apple shares.

Boeing gained 5.3 percent to $77.08. It shipped 137 jetliners last quarter, compared with 131 deliveries by rival Airbus SAS. Boeing is boosting output by more than 60 percent in the four years through 2014 to pare a record order backlog from customers seeking more fuel-efficient jets.

Aflac Inc. (AFL) jumped 7.8 percent to $45.26. The world’s biggest seller of supplemental health insurance said first- quarter profit doubled as investment results improved.

Coca-Cola Co. (KO) rose 1.1 percent to $74.93 after voting to recommend a 2-for-1 stock split to keep the shares available to smaller investors. Chairman Muhtar Kent, who pushed for the company’s 11th stock split, may be philosophically at odds with his biggest investor, Warren Buffett.

1984 Letter

Buffett, who controls a Coca-Cola stake of almost $15 billion, has resisted splitting Class A shares of his Berkshire Hathaway Inc. Splits, he said in a 1984 letter, may encourage short-term investment strategies that enrich brokers at the expense of the business.

“I don’t know what he would say about this one,” said Howard Buffett, the investor’s son and a director at Atlanta- based Coca-Cola. Howard Buffett, who spoke today on the sidelines of the soft-drink maker’s annual meeting, said he voted for the 2-for-1 split.

Exxon Mobil Corp. (XOM) rose 0.6 percent to $86.85, after swinging between gains and losses today. The energy company raised its quarterly dividend to 57 cents a share from 47 cents a share, according to an e-mailed statement.

Caterpillar slumped 4.6 percent, the most in the Dow, to $103.44. The company says sales in developing nations this year will be lower than anticipated, a reversal after 2011 growth in Latin America and the Asia-Pacific region outpaced North America, helping to drive record revenue and profit.

Sales in China

The company is the latest manufacturer to report sales in China have been curbed. United Technologies Corp. yesterday posted a drop in Chinese orders while 3M Co. (MMM) forecast below- trend growth in the country.

Goldman Sachs Group Inc. (GS) Chairman and Chief Executive Officer Lloyd C. Blankfein said he’s more optimistic about markets than some economists and investors.

“I tend to be a little more positive than what I’m hearing from other people,” Blankfein, 57, told Bloomberg Television today in an interview at the investment bank’s New York headquarters. “One of the big risks that people have to contemplate is that things go right.”

U.S. stocks look reasonably priced when the value of companies is measured against the size of the country’s economy, said David R. Kotok, Cumberland Advisors Inc.’s chairman and chief investment officer. He made a comparison between the total market capitalization of companies in the S&P 500 and nominal gross domestic product, which isn’t adjusted for inflation.

Bull Market End

Yesterday’s ratio was 83 percent, according to data compiled by Bloomberg. The gauge peaked at 101 percent in May 2007, near the end of a five-year bull market, and 131 percent in August 2000, when the Internet bubble of the 1990s had begun to burst. The earlier readings are circled in the chart.

“We are still two years away from a new high” for the S&P 500, Kotok wrote in the report. The prediction stems from the outlook for corporate profits and labor costs along with the index’s ratio to GDP, he wrote.

The S&P 500 may climb in 2014 to 1,600, which would lift the total market value of its companies to 90 percent of GDP, according to Kotok. His estimate for the index exceeds the record close of 1,565.15 on Oct. 9, 2007.

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

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

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Drop in U.S. Durables Orders Masks Investment Gain: Economy

By Timothy R. Homan - Apr 26, 2012 3:24 AM GMT+0700

Orders for U.S. durable goods fell in March by the most in three years, depressed by a pullback in demand for aircraft that masked gains in business investment.

Bookings for goods meant to last at least three years dropped 4.2 percent, more than forecast and the biggest decrease since January 2009, Commerce Department data showed today in Washington. Sales of non-military capital equipment excluding planes climbed for a second month, prompting some economists to raise first-quarter forecasts for gross domestic product.

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The final inspection area of the General Motors Co. (GM) assembly plant in Lake Orion, Michigan, on Feb. 21, 2012. Photographer: Jeff Kowalsky/Bloomberg

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April 25 (Bloomberg) -- Orders for U.S. durable goods fell 4.2 percent in March, the biggest decrease since January 2009, after a revised 1.9 percent gain the prior month, data from the Commerce Department showed today in Washington. Michael McKee and Betty Liu report on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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A Boeing Co. 787 Dreamliner awaits final details to be completed, before delivery to launch customer All Nippon Airways Co. (ANA), at the company's facility in Everett, Washington. Photographer: Stuart Isett/Bloomberg

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Seth Baker uses a dolly to move a General Electric washing machine at Wind Power Electric in Princeton, Illinois. Photographer: Daniel Acker/Bloomberg

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A Cub Cadet lawn mower in a shipping container at Diller-Rod Inc. in Princeton, Illinois. Photographer: Daniel Acker/Bloomberg

Demand for cars and auto supplies is supporting companies from 3M Co. (MMM) to Texas Instruments Inc., showing manufacturing will underpin the world’s largest economy. At the same time, factories may give way to service industries as a pillar of the expansion as a slowdown in global growth curbs exports.

“There’s some caution looking ahead,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets LLC in New York. “The new orders would suggest that there’s perhaps a modest reassessment taking place.” The shipments figure “actually bodes well for GDP” in the first quarter, he said.

Federal Reserve policy makers said at the conclusion today of their meeting that they expect the economy to expand gradually, refraining from new actions to lower borrowing costs.

The central bank “expects economic growth to remain moderate over coming quarters and then to pick up gradually,” the Federal Open Market Committee said in a statement after the two-day meeting in Washington. Unemployment has fallen, “but remains elevated,” policy makers said.

Stocks Higher

Stocks rose, sending benchmark indexes higher for a second day, after better-than-estimated earnings from Apple Inc. to Boeing Co. (BA) The Standard & Poor’s 500 Index climbed 1.4 percent, the most in almost two weeks, to 1,390.69 at the close in New York.

Elsewhere today, a report showed the U.K. economy shrank 0.2 percent in the first quarter after contracting 0.3 percent in the prior three months as Britain slid into its first double- dip recession since the 1970s.

Estimates of 81 economists surveyed by Bloomberg News projected U.S. durable goods orders would fall 1.7 percent last month. Projections ranged from a drop of 4 percent to a gain of 2.2 percent.

Demand for transportation equipment dropped 12.5 percent, the most since November 2010, led by a 48 percent plunge in civilian aircraft bookings. Boeing said it received orders for 53 planes last month after demand surged to 237 in February.

Boeing Profit

Chicago-based Boeing today posted a first-quarter profit that beat analysts’ estimates and raised its 2012 forecast as it delivered more commercial jets while pushing production to record levels. The world’s biggest aerospace company is boosting output by more than 60 percent in the four years through 2014 to pare a record order backlog.

Bookings for automobiles and parts increased 0.1 percent after a 2 percent rise the previous month, today’s durable goods report showed.

Auto manufacturing has been bolstering factory growth. Cars last quarter sold at the fastest pace in four years, according to industry data.

3M, the maker of fuel system tuneup kits and Post-it Notes, yesterday jumped the most since January after posting a first- quarter profit that beat analysts’ estimates because of rising U.S. auto and industrial demand. The St. Paul, Minnesota-based company’s industrial and transportation unit posted sales of $2.66 billion, an 8.6 percent increase.

Business Equipment

Today’s report showed shipments of non-defense capital goods excluding aircraft, used in calculating GDP, increased 2.6 percent in March after rising 1.4 percent the previous month.

Bookings for such goods, a proxy for future business investment in items like computers, engines and communications gear, decreased 0.8 percent after a revised 2.8 percent increase the prior month. The February gain was previously estimated at 1.7 percent.

The gain in shipments prompted economists at Morgan Stanley in New York to raise their tracking estimate for growth in the first quarter to 2.9 percent from 2.7 percent before the data were released. At the same time, the drop in orders is “pointing to softer investment spending going forward,” Morgan Stanley economist Ted Wieseman said in a note to clients.

A Commerce Department report in two days will show the economy grew at a 2.5 percent annual rate from January through March after expanding at a 3 percent pace in the previous three months, according to the median forecast of economists surveyed by Bloomberg. The strongest gain in consumer spending in more than a year will probably be offset by a smaller contribution from inventory restocking, economists said.

Caterpillar

Caterpillar Inc. (CAT), the world’s largest maker of construction and mining equipment, is among companies still seeing gains in demand. The Peoria, Illinois-based company today raised its earnings forecast and posted first-quarter profit that topped analysts’ estimates.

Manufacturers mentioned gains in automotive and high- technology industries, the Fed said in its Beige Book business survey, published two weeks before today’s meeting in Washington. The firms “expressed optimism about near-term growth prospects, but they are somewhat concerned about rising petroleum prices,” the Fed said in the report.

To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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

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