French Open Date Demands Spur Network Congestion Fix

By Marie Mawad - Jun 6, 2012 5:01 AM GMT+0700

While tennis fans watch the action on the courts at the French Open this week, Jean-Luc Vuillemin is more focused on what’s happening in the stands. Across the Roland Garros complex in Paris, fans use mobile devices to keep an eye on matches other than the one they’re attending -- potentially overloading parts of the France Telecom SA (FTE) wireless network that Vuillemin oversees.

“More and more spots just like this one are going to pop up,” Vuillemin said. “Our networks overall have enough capacity, but we face challenges where large crowds connect in one place and generate loads of traffic.”

From stadiums to airports, train stations to business centers, wireless networks worldwide get bogged down when thousands of users packed into tight spaces reach for their handsets to video chat, watch movies and play games online.

Ericsson AB, Alcatel-Lucent SA and Huawei Technologies Co. say they have a solution: downsized antennas, smaller and cheaper, made to hang on lamp posts, traffic lights or on the side of buildings where networks need the boost and full-blown gear can’t fit.

While no widespread installation of these new “small cells” has been announced, manufacturers have high hopes for the technology. The market may triple to $10.1 billion by 2015 from 2012, according to ABI Research. In contrast, capital spending by phone companies worldwide this year could expand 3 percent to $314 billion, researcher Ovum predicts, after half a decade of average annual growth of 6.5 percent.

Alcatel’s Cube

“Vendors are betting they can sell ten times the volume if they turn to small cells,” said Dimitris Mavrakis, an analyst at Informa Telecoms & Media in Athens. “In comparison, developed markets are already saturated with macro cells.”

Alcatel-Lucent last year released an early version of its lightRadio miniature antenna, a 5-centimeter-tall cube. The Paris company has been working to improve it with seven customers including Verizon Communications Inc. (VZ), France Telecom, Telefonica SA (TEF) and China Mobile Ltd. (941)

Ericsson’s smallest product is about the size of a four- slice toaster. The world’s biggest maker of wireless-network equipment bought Canadian company BelAir Networks in April to broaden its reach into offloading data.

Small-cell equipment is eight to 12 times cheaper than larger gear, according to Nick Marshall, an analyst with ABI Research in Austin, Texas. Marshall said prices are set to fall about 18 percent in the next three years as the number of antennas sold globally more than triples to 1.6 million.

How Profitable?

“I doubt that there will be more profit,” Marshall said. “Second and third-tier vendors will also enter this market and prices will go down.”

The new technology isn’t the only option carriers are trying as they seek to keep up with surging mobile traffic. In the U.S., Verizon Wireless and AT&T Inc. (T) have capped data speeds for users of unlimited wireless packages, and some carriers are trying to offload traffic to Wi-Fi. AT&T has teamed up with the likes of Starbucks Corp. (SBUX) to build connection spots in coffee shops and similar locales.

European carriers have some of the most ambitious experiments with small-cell technology. Nokia (NOK1V) Siemens Networks plans to team up with a French mobile-phone company to roll out dozens of mini-antennas starting next year to beef up capacity in Paris’s La Defense, an area notorious for poor wireless signals.

Mounir Bougrine, a 41-year-old technical engineer at Societe Generale SA, says that whenever he wants to surf the Web on his mobile phone he has to step out of the investment bank’s skyscraper, walk some 200 meters and hope for the best.

‘Hundred Times’

“I’m out here a hundred times a day looking for a spot with a proper working signal,” said Bougrine, one of 160,000 people who work in the west-side district that is home to some of France’s biggest banks and companies.

The need to place them accurately because of narrow range coverage may hinder a quick deployment of small cells, said Emin Gurdenli of consulting firm Azenby. In a test in Milan, Vodafone Group Plc (VOD) says its small cells suffered from interference and dropped connections.

“It was crashing everything,” Chief Technology Officer Steve Pusey said during an analyst presentation last month.

French carrier SFR, a unit of Vivendi SA (VIV) and competitor to France Telecom, has set up 4 million Wi-Fi hot spots for its subscribers by beaming wireless signals from set-top boxes. To offload pressure on its network, SFR this month plans to start offering technology that can shift smartphone signals to Wi-Fi and back.

Vuillemin, the France Telecom network chief, says the carrier sees the French Open as an ideal testing ground for new technologies. The company offers a special iPhone and Android app for the tournament that features scores, player stats and live broadcasts of matches, creating just the kind of network congestion that keeps Vuillemin up at night.

And since it was downloaded 800,000 times last year, it gives him plenty of incentive to find new solutions. ’’Small cells,’’ he said, ’’could be part of the fix.’’

To contact the reporter on this story: Marie Mawad in Paris at mmawad1@bloomberg.net

To contact the editor responsible for this story: Kenneth Wong at kwong11@bloomberg.net

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U.S. Stocks Gain as ISM Services Index Unexpectedly Rises

By Rita Nazareth - Jun 6, 2012 3:28 AM GMT+0700

The Standard & Poor’s 500 Index (SPX) rose, amid the cheapest valuation in six months, after an unexpected increase in a measure of service industries and as a report said Europe’s bailout fund was preparing a credit line for Spain.

Financial, commodity and technology shares had the biggest gains in the S&P 500 among 10 groups. JPMorgan Chase & Co. (JPM) and Hewlett-Packard Co. (HPQ) climbed at least 2.9 percent. A gauge of homebuilders in S&P indexes rallied 4 percent as Lennar (LEN) Corp. and PulteGroup Inc. (PHM) surged more than 5.9 percent. Facebook Inc. (FB) retreated 3.8 percent, extending its decline since the company’s initial public offering last month to 32 percent.

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A trader works at the New York Stock Exchange (NYSE) in New York.. Photographer: Scott Eells/Bloomberg

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June 5 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. The Standard & Poor’s 500 Index rose, amid the cheapest valuation in six months, after an unexpected increase in a measure of service industries and as a report said Europe’s bailout fund was preparing a credit line for Spain. (Source: Bloomberg)

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June 5 (Bloomberg) -- Bloomberg’s Trish Regan, Matt Miller and Alix Steel report on today’s ten most important stocks including JPMorgan, Akamai and Fastenal. (Source: Bloomberg)

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June 5 (Bloomberg) -- Hank Smith, chief investment officer of Haverford Trust Co., talks about the outlook for U.S. stocks, monetary and fiscal policies, and the impact of regulation and debt on the economy. He talks with Matt Miller and Trish Regan on Bloomberg Television's "Street Smart." (Source: Bloomberg)

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June 5 (Bloomberg) -- John Manley, chief equity strategist for Wells Fargo Advantage Funds, talks about financial markets, money flows, investment strategy and the U.S. economy. Manley speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

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June 6 (Bloomberg) -- William Smead, chief investment officer at Smead Capital Management in Seattle, talks about the outlook for the U.S. economy, and stocks, and his investment strategy. Smead also discusses China's economy and Europe's sovereign debt crisis. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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June 5 (Bloomberg) -- Gary Shilling, president of A. Gary Shilling & Co., and a Bloomberg View columnist, talks about the outlook for the U.S. economy, housing prices and Federal Reserve monetary policy. Shilling, speaking with Erik Schatzker, Sara Eisen, Scarlet Fu and Stephanie Ruhle on Bloomberg Television's "InsideTrack," also discusses investment strategy for Treasuries and the European financial crisis. (Shilling is a Bloomberg View columnist. The opinions expressed are his own. Source: Bloomberg)

The S&P 500 rose 0.6 percent to 1,285.50 at 4 p.m. New York time. The Dow Jones Industrial Average added 26.49 points, or 0.2 percent, to 12,127.95. It snapped a four-day drop. The Russell 2000 Index of small companies gained 1.2 percent to 746.09. About 6.1 billion shares changed hands on U.S. exchanges today, or 9.3 percent below the three-month average.

“I’d be a buyer of stocks,” John Manley, chief equity strategist for Wells Fargo Advantage Funds in New York, said in a telephone interview. His firm oversees $205 billion. “The U.S. economy is doing OK. Obviously, there are lots of things that could go wrong. We’re going to have to see more agreements in Europe. Yet valuation is attractive, the market is cheap.”

The S&P 500 started the day trading at 12.9 times its companies’ reported earnings, the lowest valuation since November, according to data compiled by Bloomberg. Yesterday, the index briefly extended a drop from its April peak to more than 10 percent amid disappointing economic data.

Economic Data

Equities reversed early losses today as the Institute for Supply Management’s index of non-manufacturing businesses, which covers about 90 percent of the economy, unexpectedly rose to 53.7 last month from April’s 53.5. The median forecast of 75 economists surveyed by Bloomberg News projected 53.4. Finance ministers and central bank governors from the world’s leading economies agreed to coordinate their response to Europe’s crisis on a conference call that dealt with Spain and Greece.

Spain called for outside support for the first time to battle the financial (S5FINL) crisis as Budget Minister Cristobal Montoro said European institutions should help shore up the nation’s lenders. The country may receive a precautionary credit line from the European Financial Stability Facility, Germany’s Die Welt newspaper reported in a preview of a story that will run tomorrow, citing unidentified people familiar with talks about the possible option.

‘Bipolar’ Market

“We’re going to continue to see a bipolar financial market until the European situation gets sorted out,” said Chad Morganlander, a Florham Park, New Jersey-based money manager at Stifel Nicolaus & Co., which oversees $127 billion of assets. “The U.S. economy is growing at a glacial pace. This growth rate could sustain market valuations.”

Eight out of 10 groups in the S&P 500 gained. The KBW Bank Index (BKX) added 1.5 percent. JPMorgan climbed 3.2 percent to $31.99. Hewlett-Packard, the world’s largest personal-computer maker, rose 2.9 percent to $21.68. Homebuilder Lennar jumped 6.7 percent to $25.27, after slumping 13 percent in two days. PulteGroup increased 6 percent to $8.16.

Prudential Financial Inc. (PRU) led a rally of life insurers as investors bet the company’s agreement to handle pension obligations for General Motors Co. may signal more opportunities for the industry. Prudential, the second-largest U.S. life insurer, advanced 2.8 percent to $45.99. No. 1 MetLife Inc. (MET) climbed 2.1 percent to $28.39.

SanDisk Corp. (SNDK) surged 5.5 percent to $33.41. The company, which makes memory chips used in mobile devices, was rated outperform in new coverage at Pacific Crest Securities.

Facebook Slumps

Facebook slid 3.8 percent to $25.87, the lowest since it went public last month at $38. A Reuters/Ipsos poll showed sagging interest in the site and a minority of users being influenced by ads and comments when making purchasing decisions.

Starbucks Corp. (SBUX) dropped 2.8 percent to $52.41. The world’s largest coffee-shop operator agreed to buy Bay Bread LLC for $100 million in cash, making its largest acquisition to further expand its offering of food with pastries and sandwiches.

Dollar General Corp. (DG) declined 3.6 percent to $46.76. The discount-retail chain said Buck Holdings LP, along with Chief Executive Officer Richard Dreiling and other executives, plans to sell a total of 25 million shares.

W.W. Grainger Inc. dropped 5.1 percent to $177.95. The supplier of industrial goods from tools to paper fell after an MKM Partners analyst said the growth phase of the manufacturing cycle is over.

‘Selling Climax’

The S&P 500 may extend its decline from its April peak to 15 percent in a “selling climax” that would deplete bears, according to StockCharts.com Inc. The index dropped 9.9 percent to 1,278.18 through yesterday from its 2012 high on April 2 as concern grew that global economic growth is slowing and Europe’s debt crisis is worsening.

While the gauge will likely be supported at 1,250, further selling may push it as low as 1,200, a level where the S&P 500 would retrace 61.8 percent its advance since October, said Arthur Hill, a technical analyst at Redmond, Washington-based StockCharts.com.

“Economic reports have been largely below expectations the last two months and the stock market is pricing in this information,” Hill wrote in a note yesterday. While the S&P 500 will probably find support at 1,250, “we could even see an overshoot because some sort of selling climax is possible before all selling is exhausted,” he said.

The S&P 500 slumped 6.3 percent in May, the most since September, amid concern Greece would exit the euro area and as data on U.S. jobs and manufacturing missed forecasts. The index on June 1 dropped below its 200-day average for the first time since December after a Labor Department report showed the economy added the fewest jobs in a year.

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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Paulson Buys Saudi Prince’s Ranch in $49M Deal

By Oshrat Carmiel and Kelly Bit - Jun 6, 2012 12:35 AM GMT+0700

Billionaire John Paulson bought Hala Ranch, a 90-acre (36-hectare) property in Aspen, Colorado, that belonged to Saudi Prince Bandar bin Sultan, and a separate site in the town for $49 million.

The ranch, built by the prince about 20 years ago, is Aspen’s largest residential property and includes a 55,000- square-foot (5,000-square-meter) main house, according to Tim Estin, a broker with Coldwell Banker Mason Morse Real Estate in Aspen. It was initially marketed for $135 million, making it the most expensive U.S. home listing, the Aspen Times said in 2006.

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John A. Paulson, president of Paulson & Co., arrives at the Spanish ambassador's residence for a meeting with Spanish Prime Minister Jose Luis Rodriguez Zapatero in New York in September 2010. Photographer: Andrew Harrer/Bloomberg

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The backyard of Hala Ranch, a 95-acre estate in Aspen, Colo., built in 1991 for the family of Saudi Prince Bandar bin Sultan, in 2007. Photographer: Michael Brands/The New York Times/Redux

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“Hala Ranch is one of the most beautiful properties in Aspen,” Paulson & Co., the hedge-fund manager’s investment firm, said in a statement. “The purchase price represents a substantial discount to the asking price.”

Paulson also bought Bear Cabin, located on a separate 38- acre parcel that was never previously offered for sale, according to the statement.

The statement didn’t disclose the exact price for the transactions, which were reported yesterday by CNBC. Land records in Pitkin County reflect two sales totaling $49 million to an entity called Starwood Mountain Ranch LLC.

Aspen Sales

The dollar volume of Aspen home sales declined 27 percent this year through May from the same period in 2011, to $277 million, according to Estin, publisher of the Estin Report, a monthly analysis of the Aspen home market. He wasn’t involved in the Paulson transactions.

The dollar volume fell as fewer homes priced above $10 million changed hands, Estin said. The tally doesn’t include Paulson’s purchase, which was completed in June, according to property records. The deals for Hala Ranch and another $30 million home that went into contract last week will bring sales volume in line with a year ago, he said.

After the prince built the ranch, Pitkin County limited home sizes to 15,000 square feet, according to Estin.

Paulson, directly or through his funds, owns real estate across the U.S. including properties in Colorado, Arizona, California, Nevada, Florida and Hawaii, according to the statement.

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

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net

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Japan’s Debt Sustains a Deflationary Depression

Illustration by Kiji McCafferty

By A. Gary Shilling Jun 5, 2012 6:01 AM GMT+0700

Markets have reacted dramatically to the Bank of Japan’s recent efforts to stimulate the economy with loans to high-growth sectors; an expansion of its asset-purchase program; and a new 1 percent inflation target to combat chronic deflation.

Japanese stocks, especially of major exporters, soared and the yen tanked, starting in early February. Yet the spurring effects of monetary easing on Japanese stocks and the depressing influence on the yen didn’t last long. Since mid-March, the currency has resumed its role as a haven from euro-area turmoil. The “risk off” trade is back in favor. Still, I continue to believe that fundamental changes are occurring in Japan that will weaken the yen considerably in future years.

About Gary Shilling

A. Gary Shilling, a Bloomberg View columnist, is president of A. Gary Shilling & Co., a consultancy in Springfield, New Jersey. He is the author of “The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation.”

More about Gary Shilling

Last year, Japan’s gross government debt was 220 percent of gross domestic product, according to the International Monetary Fund, by far the largest ratio of any Group of Seven country. All governments lend back and forth among official entities so that their gross debt is bigger than the net debt held by non-government investors, and Japan does this more than other developed countries. Still, on a net basis, Japan’s government-debt-to-GDP ratio is rivaled only by Italy’s and leaped to 113 percent in 2011 from 11.5 percent in 1991.

Ratings Downgrade

Standard & Poor’s has cut the Japanese government-debt rating to AA minus and Moody’s Investors Service cut its rating to Aa3. On May 22, Fitch Ratings reduced Japan’s sovereign grading to A+ and said the government is taking a “leisurely” approach to dealing with the nation’s debt. Meanwhile, loans from Japanese banks have dropped precipitously since the early 1990s. That was partly due to the write-offs of bad real-estate loans. Even so, the revival of borrowing in recent years has been minimal.

Japan’s traditionally low unemployment rate jumped from 2 percent in the early 1990s to 4.6 percent in April of this year. The male labor-force participation rate ceased its post- World War II decline in the bubble 1980s, though the downward trend has accelerated again since the early 1990s. The female participation rate rose from the late 1970s until the early 1990s as many women decided that working and remaining single were preferable to being confined to the home and rearing children in a male-dominated culture.

Despite aggressive monetary policy since the early 1990s, Japan has suffered bouts of deflation. The two decades of economic stagnation were compounded by the huge earthquake and devastating tsunami last year. The economic disruptions and loss of nuclear-power generation remain considerable. Rebuilding will create jobs and economic activity, but it will simply take things back to where they were, and at tremendous cost to the government, insurers and those who lost property, income and jobs, to say nothing of the thousands of lost lives.

Japan seemed poised to take over the world in the late 1980s at the height of its real-estate and stock-market booms, but it has undergone a huge reversal. Back then, many Americans believed they would soon be working for Japanese companies or would be run out of business by them. Japan’s exports of vehicles, consumer electronics and other goods achieved global dominance from standing starts after World War II, and the Japanese used their export earnings to buy Midwest farmland, Pebble Beach and Rockefeller Center. Japan remains the world’s biggest creditor country with net foreign assets of $3.19 trillion.

Wealthy Country

Does all this mean that Japan is finished as a major economy? Hardly. Despite little growth in GDP per capita since 1995, it is a wealthy country. In 2010, GDP per capita was still more than that of France, Germany, the U.K. and Italy. And China’s economy is now larger than Japan’s because of its huge population, 1.3 billion compared with 128 million, though China’s $5,414 GDP per capita is only 12 percent of Japan’s $45,920.

The Japanese are tough and will rebuild their economy in the aftermath of the earthquake and tsunami. The destruction, excluding the nuclear ramifications, was initially estimated at only 4 percent of GDP.

The nation is well-educated and dedicated. The group decision-making process, called “ringi-sho,” is slow and laborious, but once the group makes up its collective mind, it turns to the task at hand with resolution. This dedication in the face of adversity is summed up by the phrase, “fukutsu no seishin,” or “never give up.”

That attitude revived a largely destroyed economy after 1945, and made it the envy of the world in the 1980s. The World War II defeat was a psychological disaster for the Japanese who previously viewed unconditional surrender and foreign occupation of their country as unthinkable. In the late 1900s, this mentality was responsible for the rapid conversion from a primitive, feudal nation to a modern industrial economy.

This perseverance has driven efforts by the government and central bank to resurrect the economy for two decades, but with little success. Instead, these attempts have set up Japan for a slow-motion train wreck, characterized by leaping interest rates on government debt and a collapsing yen.

The Bank of Japan helped pop the 1980s housing and stock bubbles by raising interest rates starting May 31, 1989. After the bubbles burst, the central bank slashed its reference overnight rate to zero and has kept it close to that level ever since. That pumped money into the economy, to no avail. In any case, even if nominal rates are zero, borrowers are discouraged by positive real rates in periods of deflation. And zero is usually as low as central banks can go, though the U.S. Treasury is considering issuing bills at premiums with the resulting negative returns. Japan’s financial system remains in the classic liquidity trap where no interest rate is low enough to encourage scared borrowers to borrow or reluctant lenders to lend.

Quantitative Easing

Substantial quantitative easing by the BOJ through purchases of government bonds didn’t help much, either. Nor did the 3 percent annual increase in M2 money supply over the last two decades. And so far, the central bank’s attempts to promote borrowing haven’t worked: The trend since the mid-1990s has been to repay loans that weren’t written off. Nevertheless, competitive quantitative easing by central banks is now the order of the day, and the BOJ is being outrun. Last year, it expanded its balance sheet by 11 percent, while the Federal Reserve’s increased 19 percent, the European Central Bank’s rose 36 percent and the Swiss National Bank’s grew 33 percent.

Government deficits are supposed to stimulate the economy, yet the composition of Japanese public spending isn’t particularly helpful. Debt service and social-security payments -- generally non-stimulative -- are expected to consume 53.5 percent of total outlays for 2012, compared with 54.4 percent for 2011. In addition, the gap between public spending and revenue was 9.3 percent of GDP for 2010, the latest data available, so debt service now accounts for 43 percent of government revenue, up from about 4 percent in the early 1970s. More than half of public spending is financed by new debt issues. As a result, the government borrows heavily just to service debt.

Japan wants to double the 5 percent sales tax in two stages by 2015 to help pay for increasing welfare costs as the population ages. The country’s leaders also want to demonstrate some control over the deficit and curtail further rating downgrades. They also want to prevent a sell-off of government bonds: In late March, foreigners sold more than 2 trillion yen ($25 billion) in Japanese obligations, one of the biggest outflows since the collapse of Lehman Brothers Holdings Inc. in September 2008.

But when the government last raised the sales tax to 5 percent in 1997, a recession followed. Furthermore, the military rise of China in Asia, North Korea’s nuclear ambitions and the planned reduction of U.S. defense expenditures have increased pressure on Japan to boost military spending. At $59 billion in 2011, the defense budget was already 5.2 percent of total government outlays, making it the sixth-largest in the world.

(A. Gary Shilling is president of A. Gary Shilling & Co. and author of “The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation.” The opinions expressed are his own. This is the second in a five-part series. Read Part 1.)

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 pressuring Russia to pressure Syria; Margaret Carlson on the Wisconsin recall election; Jeffrey Goldberg on winning the Six-Day War; Ramesh Ponnuru on the wayward Obama campaign; William Pesek on India’s faltering market reforms.

To contact the writer of this article: A. Gary Shilling at insight@agaryshilling.com

To contact the editor responsible for this article: Max Berley at mberley@bloomberg.net

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