Treasury Yields Fall to Records as Stocks Cap May Slump

By Michael P. Regan and Susanne Walker - Jun 1, 2012 3:42 AM GMT+0700

Treasury note yields fell to record lows, while U.S. stocks capped the worst monthly drop since September, amid concern over Europe’s debt crisis and a slowdown in American economic growth. Oil extended the biggest monthly decline since 2008.

The 10-year note’s rate decreased as much as nine basis points to an all-time low of 1.53 percent and rates on five-year and seven-year U.S. debt also dropped to records. The Standard & Poor’s 500 Index closed down 0.2 percent, paring a plunge of as much as 1.1 percent following a report that the International Monetary Fund was discussing potential plans to help Spain. Oil lost 1.5 percent to $86.53 a barrel and sank 17 percent this month. The euro was little changed near a two-year low of less than $1.24. German 30-year yields fell to a record 1.74 percent and slid below Japanese rates for the first time.

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Traders work at the New York Stock Exchange (NYSE) in New York. Photographer: Scott Eells/Bloomberg

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May 31 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks fell, capping the biggest monthly decline for the Standard & Poor’s 500 Index since September, as disappointment with American economic reports overshadowed optimism that Greece will stay in the euro. (Source: Bloomberg)

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May 31 (Bloomberg) -- Bloomberg’s Trish Regan, Adam Johnson and Matt Miller report on today’s ten most important stocks including Caterpillar, Tivo and the CBOE Volatility Index or VIX. (Source: Bloomberg)

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May 31 (Bloomberg) -- Bill Gross, who runs the world’s biggest bond fund at Pacific Investment Management Co., talks about the U.S. Treasury market and the global monetary system. Gross, speaking with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart," also discusses the outlook for Greece's memberhsip in the euro zone. Michael Holland, chairman of Holland & Co., also speaks. (Source: Bloomberg)

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June 1 (Bloomberg) -- E. William "Bill" Stone, chief investment strategist at PNC Wealth Management in Philadelphia, talks about the impact of Europe's debt crisis on stock markets, the U.S. economic outlook and his investment strategy. Stone speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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May 31 (Bloomberg) -- Doug Dachille, chief executive officer of investment firm First Principles Capital Management LLC, and Stephen Wood, chief market strategist at Russell Investments, talk about the European debt crisis, the U.S. economy and the bond market. They speak with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

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Treasuries rallied this month while global stock markets lost more than $4 trillion amid concern Greece will exit the euro and Spain’s finances will deteriorate further, while U.S. economic data trailed forecasts. First-time claims for U.S. jobless benefits unexpectedly increased and a separate report today showed the U.S. economy grew at a 1.9 percent annual rate in the first quarter, down from a 2.2 percent prior estimate.

“One of the questions that I’ve been getting is ’is this all about Europe?’” Ira Jersey, director of U.S. rates strategy at Credit Suisse Securities USA, told Bloomberg Television. “It’s not now. It’s about global growth, including U.S. growth, and that’s clearly one of the reasons you’re seeing the rally today” in Treasuries, he said.

Rates Slide

Seven-year note yields pared losses after sliding to a record for a second day, trading down four basis points at 1.02 percent after dropping as low as 0.98 percent. The rate on 30- year bonds fell as low as 2.58 percent, the lowest since December 2008.

“If you look at the global marketplace, we are the supermarket of safety,” said William Larkin, a fixed-income money manager who helps oversee $500 million at Cabot Money Management Inc. in Salem, Massachusetts. “We’re talking about an elevated level of fear. This is mainly driven by growing uncertainty in Europe. People are saying ’I can buy the Treasury and I know my money will be returned to me.’”

Losses in the S&P 500 today were led by commodity and technology companies. The same groups led the slump in May, along with financial companies, with each group tumbling more than 7.8 percent in the month. The S&P 500 lost 6.3 percent in May, trimming its year-to-date gain to 4.2 percent.

Market Leaders

Caterpillar Inc., Exxon Mobil Corp. and Intel Corp. lost at least 1 percent to lead the Dow Jones Industrial Average down 26.41 points to 12,393.45. The Dow fell 6.2 percent in the month and is up 1.4 percent in 2012.

Joy Global Inc. sank 5.4 percent as the mining equipment company cut forecasts. Facebook Inc. rallied 5 percent, paring its plunge since it went public on May 18 to 22 percent. Talbots Inc. surged 89 percent as it agreed to be bought by Sycamore Partners.

Stocks tumbled in morning trading after initial jobless claims grew by 10,000 to 383,000 last week, topping the median estimate of 370,000 in a Bloomberg survey of economists. Companies added 133,000 workers in May, according to figures from ADP Employer Services, trailing the median economist forecast for a 150,000 advance, the same as estimated for tomorrow’s monthly government jobs report.

The Institute for Supply Management-Chicago Inc. said today its business barometer decreased to 52.7, the lowest since September 2009, and below the median economist estimate of 56.8.

Losses Pared

U.S. equities pared losses in mid-day trading after the slide briefly dragged the S&P 500 below 1,300, a technical level watched by traders as a potential area of support.

The S&P 500 recovered further as the Wall Street Journal reported that the International Monetary Fund is discussing contingency plans to aid Spain in the event the country can’t afford to bail out Bankia group. The IMF is not preparing financial aid for Spain, nor has the country asked for a loan, a spokesman for the fund said.

“There’s been no request for financial assistance from Spain and the IMF is not making plans for financial assistance to Spain,” Gerry Rice, the IMF’s director of external relations, told reporters in Washington today.

Equities also pared losses as a Greek poll showed New Democracy, the largest pro-bailout party, taking a lead over anti-bailout party Syriza.

Sell in May

This month’s slide in stocks echoed losses in the previous two years when declines of as much as 19 percent began after April peaks. For the third straight year, concern Europe’s debt crisis will curb the global economic recovery is driving stocks down, with investors speculating Greece may leave the euro and Spanish banks will need a bailout.

The S&P 500 may rebound almost 3 percent in June based on the average size of moves following past May declines of 4 percent or more, Bespoke Investment Group said.

The benchmark gauge has fallen 4 percent or more in May on 15 occasions since 1928, followed by an average June increase of 2.8 percent, according to data compiled by Bespoke. The index rose in June 60 percent of the time following such moves, the data show.

The Stoxx Europe 600 Index retreated 0.4 percent today to extend its May drop to 6.8 percent, the biggest monthly decline since August. ABB Ltd. fell 2.9 percent after the head of the company’s low-voltage subsidiary said demand from China and Italy was lackluster. Holcim Ltd. tracked European construction stocks lower on concern that China’s economy is slowing. Logica Plc surged 69 percent after CGI Group Inc. agreed to buy the computer-services provider for 1.7 billion pounds ($2.6 billion).

German Rates

The yield on the German 10-year bund decreased seven basis points to a record 1.20 percent, with the two-year rate holding near zero. Greece’s 10-year yield jumped 70 basis points to 30.83 percent, rising for the third straight day. Spain’s 10- year yield decreased 10 basis points to 6.56 percent after yesterday reaching a record high above benchmark German bunds.

Soybeans, coffee, wheat gasoline and oil led losses in 19 of 24 commodities tracked by the S&P GSCI Index, which sank 1.2 percent to the lowest level since October. The dollar strengthened against 13 of 16 major peers, while the euro retreated against eight and advanced against eight.

Asian Markets

The MSCI Asia-Pacific Index slid 0.3 percent today and fell 10 percent in May, its biggest monthly loss since October 2008. The Nikkei 225 Stock Average (NKY) dropped 1.1 percent as Japan’s factory output gained 0.2 percent in April from the previous month, missing the median estimate of 26 economists surveyed by Bloomberg for a 0.5 percent increase.

The MSCI Emerging Markets Index slipped 0.1 percent today and slumped 12 percent this month, its worst May performance since a 14 percent slide in May 1998.

The BSE India Sensitive Index declined 0.6 percent after government data showed the economy grew 6.5 percent in the year ended March 31, less than the 6.7 percent projection in a Bloomberg survey. The Shanghai Composite Index fell 0.5 percent. Indonesia’s Jakarta Composite index tumbled 2.2 percent, the most among Asian benchmark indexes. The BUX Index surged 2.2 percent in Budapest.

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Susanne Walker in New York at swalker33@bloomberg.net

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

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JPMorgan CIO Swaps Pricing Said to Differ From Bank

By Matthew Leising, Mary Childs and Shannon D. Harrington - Jun 1, 2012 12:27 AM GMT+0700

The JPMorgan Chase & Co. (JPM) unit responsible for at least $2 billion in losses on credit derivatives was valuing some of its trades at prices that differed from those of its investment bank, according to people familiar with the matter.

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The JPMorgan Chase & Co. unit responsible for at least $2 billion in losses on credit derivatives was valuing some of its trades at prices that differed from those of its investment bank. Photographer: Peter Foley/Bloomberg

The discrepancy between prices used by the chief investment office and JPMorgan’s credit-swaps dealer, the biggest in the U.S., may have obscured by hundreds of millions of dollars the magnitude of the loss before it was disclosed May 10, said one of the people, who asked not to be identified because they aren’t authorized to discuss the matter.

“I’ve never run into anything like that,” said Sanford C. Bernstein & Co.’s Brad Hintz in New York, ranked by Institutional Investor magazine as the top analyst covering brokerage firms. “That’s why you have a centralized accounting group that’s comparing marks” between different parts of the bank “to make sure you don’t have any outliers,” said the former chief financial officer of Lehman Brothers Holdings Inc.

The biggest U.S. bank by assets is facing regulatory scrutiny and criminal probes over losses in the CIO, which Chief Executive Officer Jamie Dimon pushed in recent years to make bigger and riskier bets with the bank’s money. The loss, which Dimon said stemmed from positions that were “poorly monitored,” prompted calls from Congress for tighter bank regulation and triggered criminal investigations by the U.S. Department of Justice and Federal Bureau of Investigation.

Credit Tranches

Jennifer Zuccarelli, a spokeswoman for New York-based JPMorgan, declined to comment on whether the CIO and investment bank were using different prices.

“All components of the synthetic credit portfolio in the chief investment office were mark-to-market,” she said.

The trades in question, made by a CIO group that included Bruno Iksil, nicknamed the London Whale because his positions grew so large, were on so-called tranches of credit-swap indexes, the people said.

Tranches allow investors to wager on varying degrees of risk among a pool of companies. Credit swaps pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt.

Because JPMorgan had amassed such large positions, even a small change in how the prices were marked may have generated a big difference in the value of the trades, one of the people said.

Not ‘Normal’

“It would not be normal to book it at levels that were better than the dealer desk,” said Peter Tchir, founder of New York-based hedge fund TF Market Advisors. “That would strike me as a very big issue.”

Bloomberg News first reported April 5 that Iksil had built positions that were so large he was driving price moves in the $10 trillion market for credit-swap indexes. About a week later, on a conference call to announce quarterly results, Dimon, 56, called news about the trades a “complete tempest in a teapot.”

On the May 10 conference call briefing analysts on the $2 billion trading loss, Dimon said the trades, which he said initially had been a hedge against the bank’s credit exposure, turned out to be “riskier, more volatile and less effective as an economic hedge than we thought.”

“We were reducing that hedge,” he said. “But in hindsight, the new strategy was flawed, complex, poorly reviewed, poorly executed and poorly monitored.”

Dimon said on the call the CIO, with more than $300 billion in its investment portfolio, had unrealized gains of $8 billion at the end of March.

VaR ‘Inadequate’

Dimon also said on the call that the bank changed how it calculates the CIO unit’s so-called value at risk, or VaR, a measure of how much the company estimates it could lose on securities on 95 percent of days.

The bank increased its VaR for the first quarter, previously disclosed at $67 million, to $129 million. JPMorgan used a new model for calculating its trading risk in the first quarter that Dimon said was “inadequate.” The bank didn’t disclose any change to its model for the investment bank.

The U.S. Securities and Exchange Commission is reviewing the accuracy and timing of JPMorgan’s disclosure of those changes, Chairman Mary Schapiro said May 22 before the Senate Banking Committee in Washington. The bank changed its VaR model for the chief investment office during the first quarter without telling investors.

Dimon has agreed to testify June 13 before the Senate committee in a hearing on the trading loss, Sean Oblack, a spokesman for the panel, said today in an e-mailed statement.

The net amount of credit-swaps protection sold by JPMorgan soared eight-fold to $97.4 billion in the three months ended March 31, Federal Reserve data show. The bank held total credit swaps contracts on $6.05 trillion, the biggest among the six- largest U.S. bank holding companies, the data show.

To contact the reporters on this story: Matthew Leising in New York at mleising@bloomberg.net; Mary Childs in New York at mchilds5@bloomberg.net; Shannon D. Harrington in New York at sharrington6@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net.

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Spain’s Banking Rescue Should Become Example for Europe

Illustration by Bloomberg View

By the Editors May 31, 2012 6:00 AM GMT+0700

Europe’s leaders can’t save their currency union without figuring out a way to salvage the region’s banks. Spain is a perfect place to start.

Perhaps no country better illustrates the mutually reinforcing links among the euro area’s banking, sovereign-debt and economic crises than Spain. Its banks are largely paralyzed amid concerns about heavy losses on real estate loans that, by various estimates, could require as much as 120 billion euros ($150 billion) in fresh capital to offset. Tight bank credit has in turn deepened the country’s economic slump, increasing banks’ potential losses and fueling fears that bailout costs will overwhelm the Spanish government’s already stretched finances. The longer the situation lasts, the worse it gets: Nervous investors pushed Spain’s 10-year borrowing rate as high as 6.7 percent Wednesday, up from less than 5 percent in early March.

Spain’s response has been far from adequate. Government- induced bank mergers haven’t reduced the system’s capital needs. Last week, the country’s third-largest bank, Bankia SA, said it would require 19 billion euros in fresh capital to cover losses -- far more than the resources available in the country’s bailout fund. A bank run of sorts has already begun: Central- bank data suggest that, in the first four months of this year, more than 100 billion euros in private money has fled Spain for other euro-area countries, an amount roughly equal to a 10th of the country’s annual economic output. A European Central Bank measure of deposits in Spain’s banks declined by 31.5 billion euros in April.

Downward Spiral

It’s imperative that Europe step in to break Spain’s fall, lest the country’s problems topple the euro area’s banking system. Europe’s banks have about 672 billion euros in claims on Spain’s banks, government and companies, according to the Bank for International Settlements. Germany’s claims alone add up to about 186 billion euros, or nearly half of German banks’ aggregate capital.

How, then, can Europe draw the line at Spain? Dire as the country’s predicament may seem, it offers an opportunity to create a model for bank recapitalizations throughout the euro area. One crucial element, as indicated Wednesday in a European Commission proposal, would be to allow the euro area’s bailout funds to provide capital directly to individual banks, a route now closed to the rescue funds. The quid pro quo should be a measure of European control over how the money is used, burden- sharing among the banks’ creditors, the ejection of entrenched management and steps toward a unified banking authority with the power to take over failing banks anywhere in the euro area. In short, the type of housecleaning and regulatory framework that many European banks have been avoiding for decades.

Let’s say Spain’s banks need 120 billion euros in new equity -- or capital -- to cover losses and restore confidence. The first place to look for the money would be the banks’ own subordinated creditors, whose claims aren’t secured against any of the institutions’ assets. These investors, who received a higher return to compensate for their low position in the pecking order of creditors, have often been made whole in bank bailouts. Instead, their claims should be converted into equity -- a “bail-in” that could cut 30 billion euros or so off the price tag of recapitalization.

Of the remaining 90 billion, the first 25 billion could come from the Spanish government in the form of equity that would protect other contributors from losses. The rest -- about 65 billion -- could come from the euro-area’s bailout funds. In return, the funds would gain a presence on the boards of the recipient banks. Voting power would allow them to make sure that the managers responsible were replaced and that the compensation of executives and shareholders stayed in check until Europe’s money had been paid back.

Such a recapitalization plan would be a radical move for the euro area. By accepting joint responsibility for injecting capital into a single country’s banks, the nations of the currency zone would be taking another step toward financial federalism and collectively backed euro bonds. The sooner they realize that this is the only viable direction to go, the greater the currency union’s chances of survival.

Read more opinion online from Bloomberg View. Subscribe to receive a daily e-mail highlighting new View columns, editorials and op-ed articles.

Today’s highlights: the View editors on turmoil at the Nuclear Regulatory Commission; Michael Kinsley on intervening in Syria; Haresh Sapra on stress-test results; Amity Shlaes on corporate sexual harassment; Luigi Zingales on competition and inequality; Steven Greenhut on California referendums; Matthew Schoenfeld on staving off the next AIG.

To contact the Bloomberg View editorial board: view@bloomberg.net.

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BMW Apple-Like Geniuses Sell Luxury Models with Tablets: Cars

By Chris Reiter - Jun 1, 2012 5:00 AM GMT+0700

Oliver Watkins struggles to explain to car shoppers that his job is to be a genius for Bayerische Motoren Werke AG. (BMW)

“We tell them we work for BMW in a new, exciting role, and we sometimes refer to ourselves as the ‘geeks’ of BMW,” said the 21-year-old, who joined Cooper Norwich, a BMW dealer in eastern England in September as one of the carmaker’s first two geniuses. More are on their way.

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In the new 800-square-meter Paris boutique, the four cars in the showroom are displayed beneath a light screen that can simulate conditions like driving through a forest. Photographer: Balint Porneczi/Bloomberg

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April 5 (Bloomberg) -- Bayerische Motoren Werke AG displays its 2013 BMW 6 Series Gran Sport luxury sedan at the 2012 New York International Auto Show. (Source: Bloomberg)

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April 9 (Bloomberg) -- Bayerische Motoren Werke AG displays its BMW i8 and i3 all-electric concept vehicles at the 2012 New York International Auto Show. (Source: Bloomberg)

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April 4 (Bloomberg) -- Ian Robertson, global head of sales and marketing at Bayerische Motoren Werke AG, talks about the automaker's first-quarter sales record, the importance of the U.S. and emerging markets to the company, the evolution of the BMW 3 Series line of cars, technology to boost vehicle fuel efficiency and customer behavior. He speaks with Bloomberg's Jamie Butters at the 2012 New York International Auto show. (Source: Bloomberg)

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Models stand at the entrance as guests arrive for the opening of the first brand store for Bayerische Motoren Werke AG in Paris. Photographer: Balint Porneczi/Bloomberg

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BMW's head of sales and marketing Ian Robertson said, “We want to bring the car environment into the shopping environment.” Photographer: Balint Porneczi/Bloomberg

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Guests look at a BMW 353i automobile, produced by Bayerische Motoren Werke AG, during the opening of the company's new brand store in Paris. Photographer: Balint Porneczi/Bloomberg

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A set of BMW branded golf balls for Bayerische Motoren Werke AG, are seen on display inside the company's new brand store in Paris. Photographer: Balint Porneczi/Bloomberg

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A BMW M6 convertible, produced by Bayerische Motoren Werke AG, is seen on display inside the company's new store in Paris. Photographer: Balint Porneczi/Bloomberg

Borrowing an idea from Apple Inc. (AAPL)’s stores, BMW plans to add tablet-toting product experts to the staff of its 3,000 dealers worldwide. Watkins and his colleagues will help customers link a car with an iPhone and sort through options like Night Vision and Active Steering without selling pressure.

Seeking to defend its lead in luxury-car sales, BMW will add geniuses to outlets in France, the U.K., China and the Netherlands this year and later in the U.S. The extra showroom staff are part of an overhaul of BMW’s retail approach as competition with Volkswagen AG (VOW)’s Audi and Daimler AG (DAI)’s Mercedes- Benz for wealthy car buyers intensifies.

The strategy kicked off last week when BMW opened a new store near the Champs-Elysees in Paris. The site is the first of a series of shops that focus on showcasing the brand to casual shoppers to broaden its appeal. Audi is joining BMW in introducing less-pushy sales tactics, which include a focus on urban buyers and better integration of showrooms with the web and smartphone presentations. The goal is to win new fans and catch up with Mercedes in retaining customers.

Brand Loyalty

“Loyalty is key because the market is saturated,” said Andy Turton, global development director at consumer-research company TNS in London. “The only way to grow is to take customers from others, but you have to hold on to your own first. Otherwise, it’s like pouring water into a leaky bucket.”

About 47 percent of BMW buyers stuck with the brand last year, compared with an industry-leading 62 percent for Mercedes, according to market research company Strategic Vision in San Diego. Audi’s retention was 37 percent last year.

“The traditional showroom model, where you’ve got a sales hustler closing deals, doesn’t work well in the luxury segment,” TNS’s Turton. “Customers in this space are looking for an experience.”

BMW, which is targeting a 20 percent increase in car sales to 2 million vehicles by 2016, is projected to have its lead over Mercedes tumble 72 percent to 30,400 vehicles in 2013 from 109,500 this year, according to figures from IHS Automotive.

Mercedes in Manhattan

Mercedes, which is seeking to retake the luxury-car sales lead from BMW by the end of the decade, sparked the retail battle after opening a store focused on promoting the brand more than selling cars in March 2009 in central Munich, BMW’s hometown. That was followed in June last year by a $220 million dealership in Manhattan, a few blocks from BMW’s new store.

The Stuttgart-based carmaker also attracted more than 410,000 visitors to a showroom that opened in Tokyo in July. The store, which includes a coffee bar and Mercedes merchandise, marked the first of about 10 urban outlets targeted at boosting the brand’s appeal with younger consumers.

“Mercedes has continued to find increased retention, partially due to a wide range of product choices and consistently better messaging” about the brand’s attributes, said Alexander Edwards, head of the automotive practice at Strategic Vision. “It is easier for customers to be loyal because there are so many opportunities to be loyal.”

Those possibilities will increase as the brand adds more entry-level models like the CLA compact coupe and doubles the variants of the S-Class flagship to six.

Audi is upgrading its store concept to target high-end neighborhoods in large cities, said Moritz Drechsel, a spokesman for the Ingolstadt, Germany-based brand. The focus of the approach is on the combination of web-based services with the personal touch and knowhow of a dealer, he said.

Larger Line-Up

In addition to adapting to changing buying habits, BMW’s retail strategy is also a reaction to a lineup that’s outgrowing most showrooms. Since 1999, when BMW’s range consisted of three sedans and a roadster, the brand has added four sport-utility vehicles, the 6-Series coupe and the 1-Series compact. More models are on their way, including the i8 plug-in hybrid supercar, the X4 SUV and a line of front-wheel-drive vehicles.

In the new 800-square-meter (8,600-square-foot) Paris boutique, the four cars in the showroom are displayed beneath a light screen that can simulate conditions like driving through a forest. The music is computer generated and changes based on the activity in the wood-framed space, while mirrors reflect the two cars in the display windows to passersby. The store is flanked by a Cartier and a Hermes shop and is down the street from Louis Vuitton’s mega store.

“We want to bring the car environment into the shopping environment,” Ian Robertson, head of sales and marketing for the BMW brand, said at the opening, which was attended by Monaco princess Charlotte Casiraghi. “There’s no doubt that the retail experience will play a huge role in being successful. The car industry is about 100 years old and basically hasn’t changed. The future could look very, very different.”

The investment in the retail strategy, which will include about 20 brand stores in major cities such as London, New York and Shanghai as well as the addition of geniuses, is “significant,” Robertson said, declining to provide figures.

For Watkins, the BMW pioneer from Norwich, it gave him a chance to pursue his passions for cars and gadgets after previously working at a PC World computer store.

“I love the interaction with the people and helping them better understand the cars and the technology,” he said. Also, his mom’s “very proud” to have a BMW genius in the family.

To contact the reporter on this story: Chris Reiter in Berlin at creiter2@bloomberg.net.

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net.

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Gold Poised for Worst Monthly Run in 11 Years on Europe

By Debarati Roy and Maria Kolesnikova - Jun 1, 2012 1:33 AM GMT+0700

Gold futures fell in New York, capping the longest monthly slump since 2000, as Europe’s worsening debt crisis and signs of a U.S. economic slowdown crimped demand for the precious metal.

Higher borrowing costs in Spain are putting pressure on Mariano Rajoy’s five month-old government to join Greece, Portugal and Ireland in seeking a rescue that would be the European Union’s biggest. First-time claims for U.S. jobless benefits rose by 10,000 to 383,000 last week, the Labor Department reported today. The Standard & Poor’s GSCI index of 24 raw materials fell as much as 1.5 percent and was headed for its biggest monthly drop since the recession in October 2008.

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“There’s definitely been a flight to the dollar rather than gold as a shelter from the crisis in Europe , which doesn’t look like it will abate soon,” said Wang Xiaoli, chief investment strategist at CITICS Futures Co., a unit of China’s biggest listed brokerage. “We’re encouraged by the gains made by gold yesterday even as the dollar strengthened.” Photographer: Victor J. Blue/ Bloomberg

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May 31 (Bloomberg) -- Dominic Schnider, Singapore-based global head of commodity research at UBS AG's wealth management unit, talks about the outlook for gold prices and demand. Schnider speaks with Zeb Eckert on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

“Gold is behaving like a classic commodity and declining along with the pack,” Adam Klopfenstein, a market strategist at Archer Financial Services Inc. in Chicago, said in a telephone interview. “It’s like the dead man walking.”

Gold futures for August delivery retreated 0.1 percent to settle at $1,564.20 an ounce at 2 p.m. on the Comex in New York. The precious metal retreated 6 percent this month, the biggest drop this year as the dollar rallied 5.4 percent. Holdings in the bullion-backed exchange-traded products are set for a third monthly decline, data compiled by Bloomberg show.

“Investors don’t have the same strategic approach to gold as before,” Edel Tully, an analyst at UBS AG, said in a report today. “Much of the exposure to gold has been on an intra-day bias of late. The market is too highly correlated with risk for many participants’ liking.”

Silver futures for July delivery fell 0.8 percent to $27.757 an ounce on the Comex, extending the month’s loss to 11 percent. The metal’s third monthly loss is the longest slump since 2008.

On the New York Mercantile Exchange, platinum futures for July delivery jumped 1.2 percent to $1,417.60 an ounce, helping narrow the month’s loss to 9.8 percent. Palladium futures for September delivery rose 1.2 percent to $613.90 an ounce. Still, prices fell 10 percent in May, the biggest monthly drop since September.

To contact the reporters on this story: Maria Kolesnikova in London at mkolesnikova@bloomberg.net; Debarati Roy in New York at droy5@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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Merkel’s Isolation Deepens as Draghi Criticzes Strategy

By James G. Neuger - Jun 1, 2012 5:01 AM GMT+0700

German Chancellor Angela Merkel was besieged by critics for letting the euro crisis smolder, with the leaders of Italy and the European Central Bank demanding bolder steps to stabilize the 17-nation economy.

Italian Prime Minister Mario Monti and ECB President Mario Draghi pushed Germany to give up its opposition to direct euro- area aid for struggling banks. Monti further antagonized Germany by urging a roadmap to common borrowing.

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German Chancellor Angela Merkel at the 2012 Council of Baltic Sea States Summit. Photographer: Sean Gallup/Getty Images

Calling himself a devotee of German-style budgetary rigor, Monti told a Brussels conference yesterday that Merkel’s vision of a stable economy “risks being undermined because of lack of promptness in setting up the necessary instruments to limit the contagion.”

Financial markets offered a snapshot of Europe’s stresses after more than two years of crisis, with the euro close to its weakest in two years against the dollar. Investors seeking shelter from the market mayhem afflicting Italy and Spain sent yields on French and German debt to record lows.

Draghi told a European Parliament committee in Brussels yesterday that it wasn’t his job to make up for the failures of policy makers. When pressed on whether the ECB can step up action to tame financial turmoil and help cap widening bond spreads, Draghi said that “it’s not our duty, it’s not in our mandate” to “fill the vacuum left by the lack of action by national governments on the fiscal front,” on “the structural front, and on the governance front.”

Bank Aid

His comments came the day after the European Commission proposed European-financed bank recapitalizations and a timetable for euro bonds. Those ideas were rejected by Germany, Europe’s biggest economy and the chief underwriter of 386 billion euros ($477 billion) in aid offered since 2010.

Merkel put some nuance into the German position yesterday. While promising “no taboos” in attacking the crisis, she floated a timeline of “five to 10 years” for fixing flaws in a currency shared by countries with divergent wealth and attitudes toward taxing and spending.

Merkel lost her chief crisis-fighting ally last month when French President Nicolas Sarkozy was defeated by Francois Hollande, a Socialist who challenged the pro-austerity doctrine and called for a more activist central bank.

Monti joined Hollande in cornering Merkel in a conference call this week with U.S. President Barack Obama, who has criticized Europe for failing to get to grips with the crisis. The four-way call focused on “developments in Europe,” the White House said in a statement.

Election Loss

Merkel’s international isolation goes along with a state of political siege at home after her party was routed in elections in Germany’s largest state. In office since 2005, she is one of only five euro-area leaders to hold on to power since the crisis broke out.

Monti, Draghi and Bank of Italy Governor Ignazio Visco prodded Germany to back the proposal by the Brussels-based commission, the EU’s executive branch, to allow the euro-area bailout fund to support banks directly instead of channelling the money via governments. The permanent fund, the European Stability Mechanism, is due to come on line in July.

“People are actually working on finding ways that the ESM could be used to recapitalize banks,” Draghi said. “The issue is not so much the use of ESM money to recapitalize banks but whether this could be done directly without having to go to governments.”

‘Big Pot’

With creditor countries including Germany and Finland insisting they must be consulted before such funds are deployed, Draghi said there is a risk that “we have a big pot of money but nobody can touch it.”

A former economics professor who fought against Italy’s culture of spending and inflation in the 1980s and served for a decade on the commission in Brussels, Monti said it is in Germany’s own interest to shed its crisis-fighting inhibitions.

“Maybe I’m too German” in economic and fiscal policy, Monti said. That credo and the imposition of budget cuts that will put Italy in structural surplus next year give the non- partisan Monti -- heading a technocratic government that will expire in 2013 -- leverage in dealing with Merkel.

Italy’s extra 10-year borrowing costs over German levels reached 470 basis points yesterday, the highest since January. Monti said Italy is being punished for mistakes made elsewhere - - and by prior Italian leaders that left him with debt of 123.5 percent of gross domestic product to work off.

“Countries that are at the core of the system and which have had the huge merit of instilling the culture of stability to the European Union in the first place, most notably Germany, should really reflect deeply but quickly,” Monti said via video link to the Brussels conference. “Europe should really accelerate the efforts, as the European Commission is doing, in order to limit the contagion.”

To contact the reporter on this story: James G. Neuger in Brussels at jneuger@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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S&P 500 Caps Worst Monthly Drop Since September on Data

By Rita Nazareth - Jun 1, 2012 4:01 AM GMT+0700

U.S. stocks fell, capping the biggest monthly decline for the Standard & Poor’s 500 Index since September, as disappointment with American economic reports overshadowed optimism that Greece will stay in the euro.

Energy (S5ENRS) shares dropped the most among 10 groups in the S&P 500, while the Bloomberg U.S. Airlines Index (BUSAIRL) jumped 3.1 percent as oil had the biggest monthly decline in more than three years. Joy Global Inc. (JOY) sank 5.4 percent as the maker of mining equipment cut forecasts. Bank of America Corp. (BAC) rallied 2.1 percent to pace gains in financial shares. Facebook Inc. (FB) climbed 5 percent, rebounding from an earlier slump of 4.8 percent.

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Traders work at the New York Stock Exchange (NYSE) on May 30, 2012. Photographer: Scott Eells/Bloomberg

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May 31 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks fell, capping the biggest monthly decline for the Standard & Poor’s 500 Index since September, as disappointment with American economic reports overshadowed optimism that Greece will stay in the euro. (Source: Bloomberg)

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May 31 (Bloomberg) -- Bloomberg’s Trish Regan, Adam Johnson and Matt Miller report on today’s ten most important stocks including Caterpillar, Tivo and the CBOE Volatility Index or VIX. (Source: Bloomberg)

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May 31 (Bloomberg) -- Michael Holland, chairman of Holland & Co., talks about the U.S. stock market, and the U.S. and Chinese economies. He speaks with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

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June 1 (Bloomberg) -- E. William "Bill" Stone, chief investment strategist at PNC Wealth Management in Philadelphia, talks about the impact of Europe's debt crisis on stock markets, the U.S. economic outlook and his investment strategy. Stone speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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May 31 (Bloomberg) -- The number of Americans applying for unemployment insurance payments rose last week to a one-month high, a sign that progress in reducing joblessness may be stalling. First-time claims for jobless benefits increased by 10,000 to 383,000 in the week ended May 26 from a revised 373,000 the prior week, the Labor Department said today. Betty Liu, Dominic Chu and Michael McKee report on Bloomberg Television's "In the Loop." (Source: Bloomberg)

The S&P 500 decreased 0.2 percent to 1,310.33 at 4 p.m. New York time, after falling below 1,300 earlier today. The benchmark gauge has dropped 6.3 percent in May. The Dow Jones Industrial Average retreated 26.41 points, or 0.2 percent, to 12,393.45. About 8 billion shares changed hands on U.S. exchanges today, or 21 percent above the three-month average.

“There’s less of a growth backstop to the global economy,” said Alan Gayle, a senior strategist at RidgeWorth Capital Management in Richmond, Virginia, which oversees about $47 billion. “The U.S. has held the position of stabilizing factor amid all the concern about Europe’s crisis. To the extent that the latest numbers suggest that momentum in the U.S. is slowing, that will make investors more nervous.”

Equities fell as data showed the U.S. economy grew more slowly in the first quarter than previously estimated and business activity expanded in May at the slowest pace in more than two years. The number of Americans applying for unemployment benefits rose. A Labor Department report due tomorrow is projected to show unemployment held at 8.1 percent.

Greek Polls

Benchmark gauges briefly rose today as two polls showed that the anti-austerity Greek Syriza party is likely to win second place. An inconclusive election on May 6 has stoked concern that Greece will be unable to form a government willing to implement austerity measures reached with the European Union as part of an international bailout. MSCI Inc. and Standard & Poor’s announced contingency plans for calculating their equity indexes should Greece leave the euro currency union.

“This is a chokepoint for Greece,” said Peter Sorrentino, who helps oversee $14.7 billion at Huntington Asset Advisors in Cincinnati. “The question gets pushed to a resolution. It would be expensive for the rest of Europe to have Greece exit.”

Stocks also rebounded after the Wall Street Journal reported that the International Monetary Fund’s European department started contingency plans for a rescue loan to Spain should the country fail to find funds to bail out Bankia group. The IMF said it is not preparing financial aid for Spain and the country denied any talks about a bailout.

Biggest Losses

Concern about Europe’s debt crisis sent the S&P 500 (SPX) lower for a second month, following the best first-quarter gain since 1998. Commodity, financial and technology companies fell at least 7.8 percent in May.

Energy shares in the S&P 500 dropped 0.9 percent today, the most among 10 groups, as oil sank after the U.S. Energy Department said stockpiles increased to a 22-year high.

Options traders are paying the most ever to protect against losses in Exxon Mobil Corp. (XOM), spurred by concern expanding U.S. stockpiles and slowing economic growth will drive down the largest energy producer by market value. Exxon retreated 1.5 percent to $78.63, the lowest level since November.

Joy Global tumbled 5.4 percent to $55.86, driving industrial shares lower. The maker of P&H and Joy mining equipment cut forecasts for full-year earnings and revenue as mining companies ease capital expenditure amid concern over the slowdown in China. Caterpillar Inc. (CAT), the largest maker of construction and mining equipment, slid 2.8 percent to $87.62.

Wider Loss

TiVo Inc. (TIVO) retreated 4.7 percent to $8.54. The company reported a first-quarter loss, citing hardware costs, and said legal expenses in the current period would lead to a wider loss than analysts expected.

Kohl’s Corp. (KSS) dropped 6.2 percent to $45.82 after the retailer said May same-store sales decreased 4.2 percent. That compares with the average estimate for a 1.1 percent decline.

Banks had the biggest gain in the S&P 500 among 24 groups, adding 1 percent. The KBW Bank Index added 1.1 percent, reversing a loss of 1 percent. Bank of America gained 2.1 percent, the most in the Dow, to $7.35.

Facebook, which this week fell below $30 for the first time, rallied 5 percent to $29.60. The shares dropped earlier today amid concern that the world’s largest social-networking service will struggle to wring profit from its 901 million users.

Ciena’s Results

Ciena (CIEN) Corp. climbed 14 percent, the most since September, to $13.55. The maker of networking equipment rose after second- quarter sales and earnings topped analysts’ estimates. Ciena is capitalizing on demand for speedy fiber-optic networks, which transmit data in the form of light over fiber strands.

Talbots Inc. (TLB) soared 89 percent, the most ever, to $2.44. The women’s clothing retailer trying to reverse falling sales agreed to be bought by private-equity firm Sycamore Partners for a reduced price of $369 million, including debt.

TJX Cos. (TJX) rose 2.7 percent to $42.46. The owner of the T.J. Maxx and Marshalls retail chains posted an 8 percent increase in May same-store sales, topping analysts’ estimates of 5.1 percent as warm weather and lower gasoline prices boosted consumer spending. Target Corp. (TGT), which also beat estimates, added 0.2 percent to $57.91.

“Traffic trends have picked up as hot summer weather spread over the majority of the nation,” Adrienne Tennant, an analyst at Janney Montgomery Scott LLC in Washington, wrote.

The S&P 500 may rebound almost 3 percent in June based on the average size of moves following past May declines of 4 percent or more, Bespoke Investment Group said.

Historical Moves

The benchmark gauge has fallen 4 percent or more in May on 15 occasions since 1928, followed by an average June increase of 2.8 percent, according to data compiled by Bespoke. The index rose in June 60 percent of the time following such moves.

The last time the S&P 500 slid more than 4 percent during May of a U.S. presidential election year was in 1984, when it tumbled 5.9 percent before rebounding 1.8 percent in June. This year’s slide may also mark a bottom for the market followed by a June rally, Justin Walters, Bespoke’s co-founder, said in a phone interview yesterday.

“The data certainly leans positive,” Walters said. “Along with the election analysis and the big down Mays, the risk-reward favors the market going positive here.”

The S&P 500 has averaged a gain of 0.51 percent in June following an increase in May, the Bespoke report showed, and the index has risen 0.96 percent in June after May declines. Its performance next month ultimately will be determined by Europe’s handling of the government-debt crisis, according to Walters.

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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Chinatown Bus Companies Shut Down in Federal Safety Sweep

By Jeff Plungis - Jun 1, 2012 12:52 AM GMT+0700

The U.S. Transportation Department shut down 26 bus companies as imminent safety hazards, closing dozens of routes out of New York’s Chinatown in the government’s largest safety sweep of the motor-coach industry.

The Federal Motor Carrier Safety Administration’s enforcement action primarily targeted three Chinatown operations in New York and Philadelphia: Apex Bus Inc., I-95 Coach Inc. and New Century Travel Inc. The government ordered 10 bus company owners, managers and employees to cease all passenger transportation business, including selling tickets, according to a Transportation Department statement.

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A pedestrian walks past a sign that reads "No Buses" on the shuttered offices of Apex Bus Inc. in New York. Photographer: Scott Eells/Bloomberg

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Preparing to board a bus leaving Manhattan for Boston in New York's Chinatown. Photographer: Chris Hondros/Getty Images

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Signs informing customers that today's buses are canceled hang in the front window of the I-95 Coach Inc. bus stop at 87 Chrystie Street in New York, on May 31, 2012. Photographer: Esme E. Deprez/Bloomberg

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“If you put passengers’ safety at risk, we will shut you down," Transportation Secretary Ray LaHood said. Photographer: Andrew Harrer/Bloomberg

“By ignoring safety rules, these operators put passengers and other motorists at risk,” Transportation Secretary Ray LaHood said in a phone news conference today. “This is a notice to every bus company out there. Follow the rules and keep people safe, or we will shut you down.”

The bus crackdown follows a yearlong investigation that began shortly after a series of fatal crashes last year, Federal Motor Carrier Administration chief Anne Ferro said today.

Fatal crashes surged last year as intercity bus travel became the fastest-growing U.S. mode of commercial transportation. In 2011, at least 28 people died in eight fatal crashes, including three in an 11-week period involving carriers operating out of, or carrying passengers between, Chinatown neighborhoods in East Coast cities.

Curbside Operators

Curbside bus operators, which typically sell tickets online and pick up and discharge passengers on the sidewalk, have a fatal crash rate seven times higher than terminal-based operations, the U.S. National Transportation Safety Board reported in October.

The three primary targets in the U.S. crackdown controlled a network of other companies, leading to the 26 separate shutdown orders, the transportation department said. The companies’ networks included one ticket seller, nine active bus companies, 13 companies already ordered out of service that were continuing to operate and three companies applying for permission to operate.

East Coast

The department’s actions cover companies operating in New York, Pennsylvania, North Carolina, Georgia, Maryland and Indiana. Besides New York and Philadelphia, there are affected routes in Washington; Atlanta; Richmond, Virginia; Charlotte, North Carolina; Orlando, Florida and more than 20 other locations, according to a Transportation Department fact sheet.

The carriers involved had multiple safety violations, including drivers without valid commercial licenses and drivers violating federal driving-time limits; failure to test for drugs and alcohol; and vehicles that hadn’t been regularly inspected or repaired.

Transportation Department officials handed out summaries of their shutdown orders to company officials in English and Chinese. Passengers received notices advising them to follow instructions from law enforcement officers and providing directions on how to apply for refunds. The notices were printed in English, Chinese, Korean, Vietnamese and Spanish.

“The U.S. Transportation Department’s Federal Motor Carrier Safety Administration is placing this bus out of service,” the passenger notice says. “We understand this is an inconvenience, but your safety is our top priority.”

Newspaper Pictures

Sophia Xu, who sells tickets at I-95 Coach in New York’s Chinatown at 87 Chrystie Street, said Transportation Department officials came to the shop yesterday and said the company needed to close, without explaining why.

Signs posted on the glass outside and inside at the ticket counter give a phone number to call for online ticket refunds and say people who paid cash can get refunds at the counter.

Chen Chen, a fellow ticket seller, said Chinatown buses are being unfairly targeted.

“This doesn’t happen to Greyhound,” he said, holding a Chinese-language newspaper with pictures from the shop of police he said were rude.

The buses are safe, the two workers said.

A few people wandered to the New Century’s Washington office on H Street to find a handwritten sign taped to the front gate, “Don’t go upstairs -- Close.”

For Link Wolford, 46, the shutdown delays the start of his summer caring for his sister’s three daughters in Philadelphia. He called his mother to see if she could find him another ticket online. Wolford said he doesn’t expect he will ever see the $9 paid online for the ticket.

“This is an example of government agencies shutting down small businesses on a whim,” Wolford said. “We need to start up businesses.”

Yearlong Investigation

If New Century gets back in business, Oliver Oree said he wouldn’t hesitate to use the line again. The 56-year-old retired plumber bought tickets twice a month for trips from Washington to New York, preferring the $20 one-way fare to $70 on Greyhound.

“I don’t know what their problem is with safety,” Oree said. “I take my grandkids on it all the time. I’ve never had any difficulties.”

The FMCSA shut down some curbside bus companies last summer. Follow-up investigations found safety defects with other carriers operating on the Interstate 95 corridor, and agency investigators worked to establish links between bus networks.

Rule Change

An agency rule change that took effect May 29 enabled officials to expand their sweep in an unprecedented way, Ferro said. The FMCSA built a more extensive legal case against each company and is acting on all known affiliates simultaneously.

“We’ve closed each gap where entities may have been able to reincarnate in the past,” Ferro said. “All of this will be followed by continuous enforcement action.”

Retired naval serviceman Derrick Overbey, 50, had been planning to take an I-95 bus from New York to Hampton, Virginia for $35 today. On an earlier trip in March, government inspectors took a coach out of service, causing a 2.5-hour delay, he said.

“There could have been something wrong with that bus,” Oberbey said. “That’s something you think about.”

The American Bus Association, whose members include FirstGroup Plc’s Greyhound Lines Inc. and Stagecoach Group Plc (SGC)’s Megabus, has been calling for a crackdown on unsafe bus operators and strongly supports the Transportation Department’s effort, said Dan Ronan, a spokesman for the Washington-based group.

‘Whac-a-Mole’

“It’s almost been a game of ‘whac-a-mole,’” Ronan said. “The federal and state government go in, try to shut these carriers down. The owners transfer the DOT numbers, repaint the buses, and in a few hours they’re back on the road.”

The NTSB, in a separate investigation of the March 12, 2011 crash that killed 15 people in the Bronx, found the driver had been hired even though his license had been suspended 18 times and he’d been fired from two previous transportation jobs, according to documents released earlier this month. The board is holding a hearing to discuss its investigation of that crash June 5.

“With these actions today, the DOT and its state partners are telling bus operators to put safety first or get put out of business,” NTSB Chairman Deborah Hersman said today. “We’ve seen the tragic results of rogue operators too many time in our investigations.”

In its report last year, the safety board found that curbside operators, which offer fares as low as $1, outnumbered traditional terminal-based companies like FirstGroup Plc (FGP)’s Greyhound Lines Inc., 71 to 51.

The FMCSA, which regulates the trucking and bus industries, doesn’t have enough people to do adequate oversight, the NTSB said in its October report. The 878 FMCSA and state inspectors are responsible for 765,000 motor carriers, a ratio of 1.15 investigators for every 1,000 companies, it said.

“Today is a watershed day for America’s bus passengers,” Ferro said. “Passengers expect and deserve to arrive safely at their destinations, every trip, every time.”

To contact the reporter on this story: Jeff Plungis in Washington at jplungis@bloomberg.net

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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