Wall Street Shrugs as JPMorgan Trades Lop Off $27 Billion

By Max Abelson - Jun 12, 2012 2:14 AM GMT+0700

JPMorgan Chase & Co. (JPM) Chief Executive Officer Jamie Dimon plans to testify before Congress this week about his firm’s $2 billion trading loss. His Wall Street colleagues don’t understand why.

“Occasional losses are inevitable,” said Blackstone Group LP (BX)’s Stephen A. Schwarzman, 65, CEO of the largest private- equity firm. “Publicly excoriating JPMorgan serves no purpose except to reduce people’s confidence in the financial system.”

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JP Morgan Chase Chairman Jamie Dimon. Photographer: Spencer Platt/Getty Images

The loss sliced $27 billion from JPMorgan’s market value in the month after the May 10 disclosure, while triggering at least five federal probes and two planned Capitol Hill hearings with Dimon. It also renewed debate about whether curbs on trading by bankers were tightened enough after their wrong-way bets pushed the system to the brink of collapse in 2008.

Executives, lobbyists and analysts said in more than a dozen interviews that the public stir is an overreaction to a minor misstep.

“I kind of shrug,” said Bill Archer, 58, a former co- chairman of Goldman Sachs Group Inc. (GS)’s capital markets committee and now a partner at buyout firm Veronis Suhler Stevenson LLC in New York. “That’s just the way the world is.”

JPMorgan shares dropped 17 percent through last week after the New York-based bank, the largest in the U.S., disclosed the losses on credit derivatives held by its chief investment office. Dimon, 56, had shifted the unit from a conservative manager of unused cash into a profit center that bet on riskier assets, former employees have said. Some wagers became so large that they were driving prices in the $10 trillion market and couldn’t easily be unwound, Bloomberg News reported.

Bigger or Safer

U.S. banks can be tiny and safe or big global competitors that make mistakes, Archer said. “There are wrongs that come with too-big-to-fail, but there are a lot of rights,” he said.

Executives who say the loss is small for a firm that earned $19 billion last year are missing the warning it represents about unwieldy large lenders, said Richard Sylla, a financial historian at New York University’s Stern School of Business.

“Even a great banker like James Dimon can’t really manage such a huge operation,” Sylla said. “They convince themselves that everything is fine because they’re making money.”

U.S. Comptroller of the Currency Thomas J. Curry told the Senate Banking Committee last week that the loss raises “questions about the adequacy and rigor” of the bank’s risk management. Treasury Secretary Timothy F. Geithner last month called it a “pretty significant risk-management failure.”

U.S. Probes

Government investigations include the Federal Reserve studying organizational issues, the comptroller looking into trading, and the Securities and Exchange Commission examining why the bank changed internal risk gauges earlier this year. The Department of Justice and the Commodity Futures Trading Commission are also conducting inquiries, Bloomberg reported.

Joseph Evangelisti, a JPMorgan spokesman, declined to comment for this article.

Dimon, who averaged more than $1.9 million a month in salary and bonuses in 2010 and 2011, dismissed initial concerns and news reports as “a complete tempest in a teapot” on an April 13 call with analysts. Dimon later said on May 10 when he disclosed the loss that he should have paid more attention.

The market’s response and media coverage since then have been overwrought considering the size of the loss and its actual impact, said a JPMorgan executive who wasn’t authorized to speak on internal views. Quarterly profit is projected at $3.7 billion, according to the average estimate of analysts surveyed by Bloomberg.

‘Everyone Screams’

“If they had made $4 billion no one would have noticed, but everyone screams when they lose $2 billion,” said Jay Dweck, who led a modeling group for sales and trading at New York-based Morgan Stanley until last year. The alarm “is irrational and unfair,” he said.

Richard Marin, former head of asset management at Bear Stearns Cos., which was taken over by JPMorgan during the 2008 financial crisis, would recommend shares of the bank to anyone who has traded them away. “If you sold the crisis, buy the reality,” Marin said. “Lapses do occur.”

Losses come and go every few years, said Philip Keevil, a former head of European mergers at Citigroup Inc. (C) Advocates of tightening the so-called Volcker rule, which restricts banks’ proprietary trading, want “to use it for their own ends” and have been “piling on,” said Keevil, now a partner at Compass Advisers Group LLC in New York.

‘Small Beer’

“I don’t think it’s a big issue,” BlackRock Inc. Chairman Larry Fink told CNBC June 7. Steven Rattner, co-founder of private-equity firm Quadrangle Group LLC, mentioned his friendship with Dimon in a May 14 Financial Times commentary before calling the JPMorgan loss “small beer.”

The bank still has support of analysts including Wells Fargo & Co.’s Matthew Burnell, who affirmed his buy rating the day of the loss announcement. A 6 percent after-hours drop in the stock price was “somewhat outsized,” he said then. In the days that followed, Credit Suisse Group AG and Royal Bank of Canada labeled the loss a “blemish,” with RBC and Goldman Sachs repeating their buy ratings in reports that both called JPMorgan “down but not out.”

“Anyone can run the numbers and see,” Citigroup said in a May 21 report, calling JPMorgan an “absolute buy.” Estimates of losses more than doubling are “getting a bit carried away.”

Regulatory Reaction

Investors and bankers, including Dimon, have speculated that the loss may hurt efforts to soften restrictions imposed by the 2010 Dodd-Frank Act and its Volcker rule, which were designed to head off a repeat of the financial crisis. Dimon will face the Senate Banking Committee on June 13 and the House Financial Services Committee June 19.

“Everyone needs to take a half step back,” said Rob Nichols, CEO of the Financial Services Forum, a Washington-based lobbying organization. “Since the crisis there have been numerous reforms that have improved the safety, the soundness, that make our system more safe and more secure.”

His group, led by Goldman Sachs CEO Lloyd C. Blankfein, includes heads of 20 global financial firms. Dimon is a member.

The market’s punishment of JPMorgan’s stock is effective and an “argument for less regulation,” Hester Peirce, a researcher at the Mercatus Center at George Mason University, wrote last month. Mercatus is funded by billionaire Charles Koch, according to the Koch Family website.

Losses Happen

“There is no law that says you can’t lose money,” said H. Frederick Krimendahl II, chairman of New York-based real estate investor Petrus Partners Ltd. and a former Goldman Sachs management-committee member. “The reason that I shrug is that I don’t think anybody got badly hurt in this” except JPMorgan.

Schwarzman, New York-based Blackstone’s chief, said losses can’t be prevented “by legislation, regulation, supervision or other forms of planning.” JPMorgan’s loss amounts to about 7 percent of its pretax earnings expected this year, he said.

Dismissiveness is dangerous, according to Simon Johnson, a former International Monetary Fund chief economist who teaches at the Massachusetts Institute of Technology.

“Complacency was at the heart of the problems that almost brought down the system,” he said. “No one considered that there was a serious problem.”

Analysts who’ve expressed concern include Chris Wheeler at Mediobanca SpA, the Milan-based investment bank, which downgraded JPMorgan to neutral on June 6. Bank analysts tend to be positive about the industry because they work in it, said Wheeler, who co-wrote the Mediobanca report.

“I’m not screaming from the hilltops that Jamie Dimon has major problems,” he said. “But, in this particular case, something went very badly wrong.”

To contact the reporter on this story: Max Abelson in New York at mabelson@bloomberg.net.

To contact the editor responsible for this story: David Scheer at dscheer@bloomberg.net.

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Italy Moves Into Debt-Crisis Crosshairs After Spain

By Andrew Davis and Nadine Skoczylas - Jun 12, 2012 12:48 AM GMT+0700

The 100 billion-euro ($126 billion) rescue for Spain’s banks moved Italy to the front line of Europe’s debt crisis, as the country’s bonds and equities slumped on concern it may be the next to succumb.

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Demonstrators face riot policemen as they try to enter the offices of Equitalia, Italy's tax collection agency during a protest against the government's austerity measures and the wave of suicide committed by businessmen in Naples. Photographer: Carlo Hermann/AFP/Getty Images

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June 11 (Bloomberg) -- Nicholas Spiro, managing director of Spiro Sovereign Strategy, talks about efforts to resolve the banking crisis in Spain. Spiro speaks with Erik Schatzker and Scarlet Fu on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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June 11 (Bloomberg) -- Arnab Das, managing director of market research and strategy at Roubini Global Economics, talks about solvency issues in Portugal, Ireland, Italy, Greece and Spain. Das speaks with Erik Schatzker and Sara Eisen on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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June 11 (Bloomberg) -- Spain asked euro-region governments for a bailout worth as much as 100 billion euros ($125 billion) to rescue its banking system as the country became the biggest euro economy so far to seek international aid. Linzie Janis and David Tweed report on Bloomberg Television's "First Look." (Source: Bloomberg)

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Traffic passes in front of the Colosseum, in Rome. Photographer: Alessia Pierdomenico/Bloomberg

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Italy moves into the frontline of Europe's debt crisis after Spain's $125 bailout. Photographer: Alessia Pierdomenico/Bloomberg

Italy’s 10-year bonds reversed early gains today in the first trading after the Spanish bailout. Their yield rose by the most in a day since Dec. 8, adding 27 basis points to 6.04 percent. Shares of UniCredit SpA (UCG), the country’s largest bank, had their steepest decline in five months.

“The scrutiny of Italy is high and certainly will not dissipate after the deal with Spain,” Nicola Marinelli, who oversees $153 million at Glendevon King Asset Management in London, said in an interview. “This bailout does not mean that Italy will be under attack, but it means that investors will pay attention to every bit of information before deciding to buy or to sell Italian bonds.”

Italy has 2 trillion euros of debt, more as a share of its economy than any developed nation other than Greece and Japan. The Treasury has to sell more than 35 billion euros of bonds and bills per month -- more than the annual output of each of the three smallest euro members, Cyprus, Estonia and Malta.

Spanish Economy Minister Luis de Guindos said on June 9 that he would request as much as 100 billion euros in emergency loans from the euro area to shore up a banking system hobbled by more than 180 billion euros of bad assets. Mounting concern about the state of Spain’s banks and public finances drove the country’s borrowing costs to near euro-era records last month, pushing up Italian rates in the process.

Reversing Gains

The euro initially gained as much as 1 percent before erasing the advance and weakening 0.2 percent to $1.2493 at 6:30 p.m. in Rome. The yield on 10-year Italian bonds fell as much as 15 basis points before rising, widening the spread with benchmark German notes by 28 basis points to 473 basis points.

UniCredit shares declined 8.8 percent, leading a 2.8 percent drop in the FTSE MIB Index. (FTSEMIB)

“The problem for Italy is that where Spain goes, there’s always the perception that Italy could follow,” Nicholas Spiro, managing director at Spiro Sovereign Strategy in London, said in an interview. “There is insufficient differentiation within the financial markets. It is clear as the light of day and has been that Spain’s fundamentals are a lot direr than Italy’s. That hasn’t stopped Italy suffering from Spanish contagion.”

Italy is on track to bring its budget deficit within the European Union limit of 3 percent of gross domestic product this year and the country is already running a surplus before interest payments, meaning its debt will soon peak at about 120 percent of GDP. The jobless rate is less than half of Spain’s 24 percent, and Italy didn’t suffer a real estate bust, leaving its banks healthy by southern European standards. The budget deficit was 3.9 percent of GDP last year, less than half that of Spain.

Economy Contracting

Italy’s total debt of more than twice Spain’s has given investors pause, especially in a country where economic growth has lagged the EU average for more than a decade. The euro region’s third-biggest economy, Italy is set to contract 1.7 percent this year, more than the 1.6 percent in Spain, the Organization for Economic Cooperation and Development estimates.

Italy’s debt load had traditionally led the country to be perceived as a bigger credit risk than Spain. At the start of this year, Italy’s 10-year bond yielded 202 basis points more than that of Spain. As the extent of Spain’s banking woes became more evident and the country was forced to raise its deficit target, that spread reversed and now Spain’s 10-year yields 48 points more than Italy’s.

Foreign Exodus

Debt agency head Maria Cannata last week said that fewer foreign investors were turning up at Italian auctions in recent months and that the country could still finance at yields as high as 8 percent.

The exodus of foreign buyers has left the Treasury more dependent on Italian banks, which in turn have been among the biggest borrowers in the European Central Bank’s three-year lending operations. Italy returns to markets before Spain does, selling as much 6.5 billion euros of treasury bills on June 13, followed by a bond auction the next day.

“If Italy has a problem with accessing the markets because investors lose confidence in the Italian ability to do the right thing, the ECB will be drawn into the fire,” Thomas Mayer, an economic adviser to Deutsche Bank AG, said in a telephone interview. “That could pose a potentially lethal threat to European monetary union.”

ECB Firepower

Given the size of Italy’s debt, only the ECB has the firepower to rescue the country and yet deploying that ammunition -- through buying back bonds or making more long-term loans -- may prove unacceptable to Germany and its allies in northern Europe, Mayer said.

“The ECB will probably have to restart buying bonds but there will be a lot of sellers into that of people who are worried that Spain is the next Greece and Italy the next Spain,” said Lex Van Dam, who manages $500 million at Hampstead Capital LLC in London.

There may be little Italy can do on its own to protect itself. Prime Minister Mario Monti, appointed by the president to succeed Silvio Berlusconi in November when Italy’s 10-year yield exceeded 7 percent, has implemented 20 billion euros of austerity measures, overhauled the pensions system and revamped the county’s labor markets and service industries.

Monti’s efforts helped shave more than 200 basis points off the 10-year yield by February, before the turmoil in Greece and Spain’s banking woes began driving up rates. Now with final passage of some of his reforms bogging down in parliament, Monti is pressing European allies to pivot from austerity to pro- growth policies.

“Mr. Monti seems to be infinitely more concerned about what’s going on abroad than what’s going on in parliament,” Spiro said. “Understandably so, because Italy has not been a master of its own fate for a long time. He’s perfectly aware that in order to fix Italy, they have to fix the euro zone.”

To contact the reporters on this story: Andrew Davis in Rome at abdavis@bloomberg.net; Nadine Skoczylas in Rome at nelsibai@bloomberg.net

To contact the editors responsible for this story: James Ludden at jludden@bloomberg.net; Tim Quinson at tquinson@bloomberg.net

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U.S. Stocks Drop as Optimism About Spain Bailout Fades

By Rita Nazareth - Jun 12, 2012 3:35 AM GMT+0700

U.S. stocks fell, following the biggest weekly rally in the Standard & Poor’s 500 Index this year, as optimism over Spain’s bailout plan gave way to skepticism it will succeed in halting the debt crisis.

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Traders work at the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

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June 11 (Bloomberg) -- Scott Sutherland, an analyst at Wedbush Securities Inc., talks about Apple Inc.'s World Wide Developers Conference, the outlook for the company's shares and its products. Sutherland speaks with Scarlet Fu on Bloomberg Television's "InBusiness." (Source: Bloomberg)

Equities extended losses as Apple Inc. (AAPL), the world’s most valuable company, slumped 1.6 percent after updating its MacBook line of laptops and announcing new iPhone features. Bank of America Corp. (BAC) and Morgan Stanley slid at least 2.4 percent. AK Steel Holding Corp. lost 14 percent as Goldman Sachs Group Inc. said there is “no relief in sight” for a drop in the metal.

The S&P 500 fell 1.3 percent to 1,308.93 at 4 p.m. New York time, after futures on the index surged as much as 1.5 percent following Spain’s request. It climbed 3.7 percent last week. The Dow Jones Industrial Average lost 142.97 points, or 1.1 percent, to 12,411.23. The Russell 2000 Index of small companies slid 2.4 percent. The Nasdaq Composite Index lost 1.7 percent. Trading volume for exchange-listed stocks in the U.S. was about 6.1 billion shares, 9.5 percent below the three-month average.

“The uncertainty remains,” John Carey, who helps oversee about $220 billion at Pioneer Investments in Boston, said in a telephone interview. “People are looking at the Spanish action as the first of what might be a number of steps or just a partial response to the needs of Europe’s debt crisis.”

Spain requested as much as 100 billion euros ($125 billion) of European bailout funds to shore up its banking system. The crisis in Spain, coinciding with the prospect of Greece leaving the euro after elections on June 17, roiled markets around the world, sending the euro to an almost two-year low on June 1 and pushing Spanish borrowing costs to near euro-era records.

Bear Market

European officials have failed to control the debt crisis that started in Greece at the end of 2009 and has now required a bailout of the euro area’s fourth-largest economy. Concern about a deepening of the region’s turmoil almost drove the S&P 500 into a bear market last year as the index tumbled more than 19 percent between April 29 and Oct. 3. Since then, the index surged as much as 29 percent to a four-year high in April. It’s down 7.8 percent from that peak.

“The Spanish deal is another Band-Aid,” said Matt McCormick, who helps oversee $6.2 billion at Bahl & Gaynor Inc. in Cincinnati. He spoke in a telephone interview. “Many investors are viewing this with skepticism. The problem is not going to be fixed by this amount. It’s not a solution, and people know the difference. Expect more volatility not less.”

Nine out of 10 groups in the S&P 500 retreated as financial, commodity and technology shares had the biggest declines. The Morgan Stanley (MS) Cyclical Index of companies most- tied to the economy sank 2.6 percent.

Apple Slumps

Apple dropped 1.6 percent to $571.17. It unveiled the next version of its mobile software, adding maps and integration with Facebook Inc., to extend its lead over Google Inc. in the market for handheld devices and downloadable applications. It also upgraded its MacBook computers, adding faster chips and sharper displays to the high-end Pro model months before competing devices with Microsoft Corp.’s Windows arrive on store shelves.

Facebook fell 0.4 percent to $27.01, after slumping for three straight weeks since it went public in May. Apple’s iOS 6 will have more than 200 new features, including turn-by-turn navigation and tools that make it easier to access Facebook (FB) from iPhones and iPads, Apple said today.

Nvidia Corp. (NVDA) gained 1.2 percent to $12.26. The MacBook Pros feature a graphics processor made by the company.

The KBW Bank Index (BKX) lost 2.3 percent, reversing an earlier gain of as much as 1.4 percent. Bank of America declined 3.7 percent to $7.28. Morgan Stanley lost 2.5 percent to $13.37.

Stress Tests

A group of U.S. bankers that advises the Federal Reserve urged the central bank last month to reduce the “uncertainty and confusion” posed by the most recent test of banks’ ability to weather financial turmoil, according to a memo released today.

Tension between banks and regulators has grown as agencies begin to implement new rules under the Dodd-Frank Act requiring banks to raise capital, curtail risk and rein in compensation. The Fed in March completed its most recent stress test, which it calls the Comprehensive Capital Analysis and Review or “CCAR,” and published its own test results for the 19 largest U.S. financial institutions.

AK Steel (AKS) paced a plunge in steelmakers. The shares fell 14 percent to $4.99, the lowest price since 2004. Sal Tharani, an analyst at Goldman Sachs, cut his rating to sell. Hot-rolled steel, a benchmark product used in autos and appliances, will fall below $600 a ton, he said in a note published yesterday.

‘No Sign’

“Gloomy industry fundamentals keep us on the sideline,” Tharani said. Goldman Sachs sees AK Steel falling to $5 in the next six months because of low steel prices and “no sign of a turnaround” in the electrical steel market.

U.S. Steel Corp. (X), the country’s largest producer of the metal by volume, retreated 6.5 percent to $17.89.

Green Mountain Coffee Roasters Inc. (GMCR), the maker of Keurig one-cup brewing machines and coffee pods, slumped 7.8 percent to $21.32. Kroger Co., the largest U.S. operator of grocery stores, plans to sell its own version of the pods used in Green Mountain’s Keurig brewers later this year, Keith Dailey, a spokesman for Cincinnati-based Kroger, said via e-mail today. The company may also make pods for other such brewers, he said.

Diamond Foods Inc. (DMND) slid 7.6 percent to $18.63. The maker of Kettle Chips and Emerald snack nuts said it won’t file its quarterly results on time to meet an extension granted by the Nasdaq Stock Market.

CEO Resigns

Omnicare Inc. decreased 8.9 percent, the most since Oct. 4, to $30.40. The supplier of drugs to nursing homes said Chief Executive Officer John Figueroa resigned, effective immediately. John Workman, Omnicare’s president and chief financial officer, will take over as interim CEO while the company looks for a permanent replacement. Figueroa, 49, had held the position for 18 months.

Health insurer Centene Corp. (CNC) tumbled 22 percent, the most since 2008, to $27.58 after cutting its profit forecast because of higher-than-expected medical costs.

Progress Energy Inc. (PGN) rallied 2.5 percent to $59.60, the highest price since at least 1980. Federal regulators conditionally approved Duke Energy Corp.’s proposal to ease market concentration, clearing the way for its acquisition.

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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Bond Bubble Dismissed as Low Yields Echo Pimco’s New Normal

By Daniel Kruger and Anchalee Worrachate - Jun 12, 2012 12:14 AM GMT+0700

Mohamed El-Erian knows why bond markets from the U.S. to Germany to Brazil, where yields have dropped to record lows even though debt has ballooned to more than $40 trillion worldwide, aren’t a bubble waiting to burst.

“We may be in a synchronized slowdown” in global economic growth, El-Erian, who as chief executive officer of Pacific Investment Management Co. oversees $1.77 trillion, said in a June 6 telephone interview. “We could stay here for a while.”

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Mohamed Aly El-Erian, Pacific Investment Management Company, LLC, PIMCO, Chief Executive Officer. Photographer: Oliver Ruether/laif/Redux

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June 7 (Bloomberg) -- Marc Faber, publisher of the Gloom, Boom & Doom report, talks about his strategy for global stocks, bonds, commodities and currencies. Faber speaks with Sara Eisen on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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Mohamed El-Erian, chief executive officer and co-chief investment officer of Pacific Investment Management Co. (PIMCO) Photographer: T.J. Kirkpatrick/Bloomberg

The average yield on bonds issued by the Group of Seven nations has fallen to 1.120 percent from 3 percent in 2007, Bank of America Merrill Lynch index data show. Germany’s two-year note yield fell below zero for the first time on June 1, while Switzerland’s has been negative since April 24, meaning investors are paying for the right to lend the nation money.

Those rates suggest that bondholders don’t expect growth to exceed 3 percent, said John Lonski, chief economist at Moody’s Capital Markets Group in New York. The rate had represented the dividing line between growth and recession as recently as 2009, according to the International Monetary Fund, and compares with an average of 4.7 percent in the five years before the financial crisis took root in 2008.

Yields on government securities in the U.S., Germany, the U.K., Austria, the Netherlands, Finland and Australia tumbled to all-time lows this month as Europe’s debt crisis intensified, manufacturing worldwide slowed and unemployment in the U.S. unexpectedly rose. Even in emerging markets, such as Brazil and India, engines of growth in recent years, yields signal a slowdown and less inflation.

Slower Growth

Spain became the fourth euro member to seek a bailout since the start of the region’s debt crisis more than two years ago with a request two days ago for as much as 100 billion euros ($126 billion) in loans to rescue its banking system.

“As far as developed economies are concerned, the credit market is coming to the conclusion that real economic growth will be slower than what we’ve become accustomed to since the Second World War,” Lonski said in a June 5 telephone interview.

Treasury 10-year yields closed at 1.64 percent on June 8. German bunds of similar maturity finished at 1.33 percent and Japan finished at 0.85 percent. All are below the 3 percent rise in consumer prices worldwide forecast for this year by the investment banking unit of London-based Barclays Plc.

No ‘Bubble’

“You’re not talking about a bubble because a bubble is about greed,” Jeffrey Rosenberg, chief investment strategist for fixed income at BlackRock Inc. in New York, which has $3.68 trillion under management, said in a June 6 telephone interview. “That’s not a reflection of ‘I expect prices to go higher and I have to jump in,’ that’s a reflection of ‘I want to preserve my principal.’ Negative yields reflect fear.”

Government bonds have returned about 2.5 percent since mid- March, including reinvested interest, according to the Bank of America Merrill Lynch Global Sovereign Broad Market Plus Index. At the same time the MSCI All-Country World Index (MXWD) of stocks lost 9.3 percent with dividends, while the Standard & Poor’s GSCI Total Return Index of metals, fuels and agricultural products fell 16 percent.

After shooting to as high as 2.4 percent on March 20, yields on 10-year Treasuries fell as low as 1.44 percent on June 1, when the U.S. Labor Department said the unemployment rate rose to 8.2 percent in May from 8.1 percent in April. Today, the yield on the benchmark 1.75 percent note due May 2022 dropped two basis points to 1.61 percent at 1:08 p.m. in New York, following an 18 basis-point increase last week. The yield fell as low as 1.59 percent after trading as high as 1.73 percent.

Central Banks

Policy makers are taking action amid the steepest slowdown since the recession ended in 2009. Australia’s central bank cut interest rates on June 5, and two days later China made its first reduction in more than three years.

European Central Bank President Mario Draghi left the door open for a rate cut at a June 6 press conference, while highlighting the limitations of the ECB’s tools in countering the region’s financial turmoil. Federal Reserve Chairman Ben S. Bernanke told a Congressional committee last week that policy makers will discuss whether to do more to spur growth after flooding the financial system with $2.3 trillion by purchasing bonds, though he said the steps they could take may have “diminishing returns.”

The slowdown matches the prediction by El-Erian of Pimco in 2009 for a “new normal” in global economies characterized by a slower pace of expansion, higher unemployment and a greater role for governments in private markets following the worst financial crisis since the Great Depression.

‘Turning Japanese’

Pimco officials point to Japan, which has been in and out of recession since the mid-1990s, as what the new normal would look like. Even though it has the world’s largest debt load at more than $11 trillion, Japan has some of the world’s lowest bond yields because of years of below-average growth.

Japanese 10-year yields fell to 2 percent in late 1997 from about 5.7 percent eight years earlier when the country’s stock and real estate markets collapsed. They haven’t closed at or above 2 percent since 2006. The U.S. 10-year yield tumbled below that level about four years after rising to 5.29 percent in June 2007.

Global “bond markets are turning Japanese,” Bill Gross, who manages the world’s biggest bond fund as co-chief investment officer with El-Erian at Newport Beach, California-based Pimco, said in a June 4 Twitter posting.

Too Low

“In many ways, we are replicating the Japanese experience,” George Magnus, senior economic adviser in London at UBS AG, said in a June 5 telephone interview. “Banks and households have become overextended, and now we know governments have also become overextended. The problem is that the deleveraging means people are saving more. There is no sufficient spending and lending to boost the economy.”

Investors from Leon Cooperman, founder of equity hedge fund Omega Advisors Inc., to Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc., have said that investors should avoid bonds. Most bears say the easy money policies of central banks combined with the rising amount of debt will eventually spark a rapid acceleration in inflation.

“The government bond bubble will burst,” Marc Faber, author of the Gloom, Boom & Doom report, told Sara Eisen on Bloomberg Television’s “Inside Track” on June 7. “I don’t know whether it’s going to be tomorrow or in three months. But I suspect that it will happen sooner rather than later because the consensus now is to buy U.S. Treasuries.”

Central Banks

The supply of bonds has swelled as governments borrowed to stimulate their economies. The Bank of America Merrill Lynch Global Broad Market Index tracks debt issues with a face value of $40 trillion, up from $24 trillion in June 2007 and $15 trillion a decade ago.

Central banks, including the Fed, ECB and Bank of Japan (8301), have helped soak up the extra supply as policy makers injected money into their economies by purchasing government securities. The balance sheets of the world’s six biggest central banks have more than doubled since 2006 to $13.2 trillion, according to Chicago-based Bianco Research LLC.

“A lot of people from Warren Buffett on down would say the bond market has no value, be careful of bonds, when rates go up you’ll lose a lot of money,” James Bianco, president of the firm, said in a June 7 telephone interview. “And they’re right, but the buyer of bonds doesn’t care about value right now. The buyer of bonds is the central bank of Japan, the central bank of China.”

Auction Bids

Financial institutions are also contributing to demand, buying from a shrinking supply of the highest quality debt to meet capital requirements set by the Basel, Switzerland-based Bank for International Settlements. The Basel III rules will “increase the price of safety” embedded in assets deemed a reliable store of value, the IMF wrote in an April 18 report.

Investors have bid $3.19 for each dollar of the $903 billion of notes and bonds auctioned by the U.S. Treasury Department this year, above the record $3.04 in all of 2011, data compiled by Bloomberg show.

Yields that are negative after accounting for inflation may be a sign that investors expect the pace of consumer price gains to slow, or fall like the deflation in Japan. Copper has declined 18 percent in the past 12 months, aluminum has tumbled 23 percent, cotton plunged 47 percent and oil has dropped about 14 percent.

A measure of investor expectations for inflation used by the Fed to set policy, the five-year, five-year forward break- even rate, which gauges the average increase in prices between 2017 and 2022, dropped to 2.56 percent on June 4, from a 2012 high of 2.78 percent on March 19.

Japan’s Experience

Emerging market sovereign yields fell to 5.33 percent last month, within two basis points of the record low reached in November 2010, according to the JPMorgan Emerging Bond Index Global Sovereign Yield.

Brazil will expand 2.72 percent this year, according to a central bank survey of analysts published on June 4. That would follow growth of 2.73 percent in 2011, the second-worst performance in eight years.

Two-year bond yields in Brazil fell to a record low of 8.4 percent on May 18, from about 12.6 percent a year earlier, as the central bank cut its benchmark rate seven times since August to bolster the economy. A bond market measure that reflects investors’ expectations for inflation plunged to a three-year low of 4.7 percentage points last week.

In India, where 10-year yields fell for the sixth-straight week, the longest run of declines since December, interest-rate swaps show the central bank will cut borrowing costs for a second time this year. Asia’s third-largest economy grew 5.3 percent in the first quarter from a year earlier, a nine-year low, the government said May 31.

“Yields are extremely low for a very good reason, and that’s fear,” Stuart Thomson, a money manager at Ignis Asset Management in Glasgow, which oversees about $115 billion, said in an interview on June 1. “I don’t see us heading into a bear market.”

To contact the reporters on this story: Daniel Kruger in New York at dkruger1@bloomberg.net; Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editors responsible for this story: Dave Liedtka at dliedtka@bloomberg.net; Daniel Tilles at dtilles@bloomberg.net

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Fed Says U.S. Wealth Fell 38.8% in 2007-2010 on Housing

By Jeff Kearns - Jun 12, 2012 7:27 AM GMT+0700

The median net worth of U.S. families plunged 38.8 percent from 2007 to 2010, with the biggest losses concentrated among households with the most assets tied to their homes, a Federal Reserve study shows.

Median household net worth declined to $77,300 in 2010, an 18-year low, from $126,400 in 2007, the central bank said in its Survey of Consumer Finances. Mean net worth fell 14.7 percent to a nine-year low of $498,800 from $584,600, the central bank said today in Washington.

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A homeowner is trying to sell her townhouse for less then she owes on her mortgage in Virginia. Photographer: Dayna Smith/The Washington Post via Getty Images

“The impact has been a massive destruction of wealth all across the board,” said Lance Roberts, who oversees $500 million as chief executive officer of Streettalk Advisors LLC in Houston. “What you see is an economy that’s really very, very stressed for the bottom 60 to 70 percent of the population that’s struggling just to make ends meet.”

The declines in household wealth in the course of the longest and deepest recession since the Great Depression have held back the consumer spending that makes up about 70 percent of the economy. Fed policy makers led by Chairman Ben S. Bernanke meet next week to consider whether the central bank needs to add to its record stimulus after employment grew at the slowest pace in a year in May.

The Fed has already taken unprecedented steps to boost the economy as it battled the 18-month recession that ended in June 2009, slashing its key interest rate almost to zero and purchasing $2.3 trillion in debt to lower long-term borrowing costs. Even so, the jobless rate has stayed above 8 percent since February 2009, compared with the central bank’s long-range goal of 4.9 percent to 6 percent.

Housing Collapse

“Although declines in the values of financial assets or business were important factors for some families, the decreases in median net worth appear to have been driven most strongly by a broad collapse in house prices,” Fed economists wrote in the report released today.

The S&P/Case-Shiller U.S. Home Price Index fell 23 percent in the three years through December 2010. The Standard & Poor’s 500 Index lost 14 percent in the same period.

Fed economists conduct the surveys every three years to produce a snapshot of household balance sheets, pensions, income, and demographics that’s more detailed than broader reports about the economy. The surveys allow comparisons over time, with a consistent methodology since 1989.

Wage Dependence

Declines in average income were greatest in the wealthiest 10 percent families and for higher education or wealth groups, the survey showed. The housing slump and financial crisis also boosted the dependence on wages as a percentile of net worth for the wealthiest 10 percent.

The top 10 percent by wealth got 55.8 percent of their pre- tax family income from wages in 2010, up from 46.2 percent in 2007, the survey found. The portion earned from capital gains plunged to 2.3 percent from 14.4 percent.

Debt as a share of family assets rose to 16.4 percent from 14.8 percent as asset values declined, the Fed said. For those households with debt in 2010, the median value of debt was unchanged from 2007, while the share of families having debt fell to about 75 percent from 77 percent. Debt payments more than 60 days overdue were reported by 10.8 percent of families in 2010, up from 7.1 percent in the prior survey.

Debt, Income

“Measures of debt payments relative to income might have been expected to increase,” Fed economists wrote. “In fact, total payments relative to total income increased only slightly, and the median of payments relative to income among families with debt fell after having risen between 2004 and 2007. The share of families with high payments relative to their incomes also fell after rising substantially between 2001 and 2007.”

The survey was compiled by Fed economists Jesse Bricker, Arthur Kennickell, Kevin Moore and John Sabelhaus in Washington. All dollar figures are expressed in 2010 dollars.

The proportion of families with retirement accounts decreased 2.6 points to 50.4 percent during the period, wiping out much of the 3.1 percentage-point increase over the prior three years.

“The most noticeable drops in ownership were among families in the middle-income, middle-wealth, and middle-age groups,” the economists said. “Retirement accounts had been growing in importance as a supplement to Social Security and other types of retirement income, and the decrease in ownership in the past three years may represent a setback.”

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

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

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Apple Adds Software Features to Stay Ahead of Google in Apps

By Adam Satariano and Peter Burrows - Jun 12, 2012 7:24 AM GMT+0700

Apple Inc. (AAPL) unveiled the next version of its mobile software, adding maps and integration with Facebook Inc. (FB) to ratchet up pressure on Google Inc. (GOOG) in the market for handheld devices and online applications.

Apple’s iOS 6 will have more than 200 new features, including turn-by-turn map navigation and tools to make it easier to access Facebook from iPhones and iPads, Cupertino, California-based Apple said today. The company also upgraded its MacBook computers, adding faster chips and sharper displays to the high-end Pro model months before competing devices with Microsoft Corp. (MSFT)’s Windows arrive in stores.

Enlarge image

Tim Cook, chief executive officer of Apple Inc., speaks at the Apple Worldwide Developers Conference in San Francisco, California, U.S. Photographer: David Paul Morris/Bloomberg

Play Video

June 11 (Bloomberg) -- Tim Cook, chief executive officer of Apple Inc., speaks about the company's App Store and work with software developers. Cook, speaking at Apple's annual Worldwide Developers Conference in San Francisco, said the company has paid developers $5 billion, sharing a portion of the revenue raised from 30 billion application downloads from its online store. (This is an excerpt. Source: Bloomberg)

Play Video

June 11 (Bloomberg) -- Brian Blair, an analyst at Wedge Partners Corp., talks about Apple Inc.'s changes to its MacBook computers and its mobile software. He speaks with Jon Erlichman at Apple's Worldwide Developers Conference in San Francisco on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

Play Video

June 11 (Bloomberg) -- Shaw Wu, an analyst at Sterne Agee & Leach Inc., talks about the next version of Apple Inc.'s mobile software and MacBook computers, and the outlook for the company's share price and China strategy. Apple's iOS 6 will have more than 200 new features, including turn-by-turn navigation and tools that make it easier to access Facebook Inc's social networking site from iPhones and iPads. The company unveiled the new software and computers at its annual Worldwide Developers Conference. Wu speaks with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

Play Video

June 11 (Bloomberg) -- Brian White, an analyst with Topeka Capital Markets, talks about Apple Inc.'s World Wide Developers Conference and outlook for company's new products. White speaks with Betty Liu and Sheila Dharmarajan on Television's "In the Loop." (Source: Bloomberg)

Play Video

June 11 (Bloomberg) -- Scott Sutherland, an analyst at Wedbush Securities Inc., talks about Apple Inc.'s World Wide Developers Conference, the outlook for the company's shares and its products. Sutherland speaks with Scarlet Fu on Bloomberg Television's "InBusiness." (Source: Bloomberg)

Enlarge image

Phil Schiller, senior vice president worldwide marketing of Apple Inc., with the new MacBook Pro laptop computer during the Apple Worldwide Developers Conference in San Francisco on June 11, 2012. Photographer: David Paul Morris/Bloomberg

Chief Executive Officer Tim Cook is using new software, unveiled at the company’s annual Worldwide Developers Conference, to widen Apple’s user base and woo developers who can add to a store that has more than 650,000 downloadable games, magazines and productivity tools. The new mapping service, which replaces Google Maps, and new voice-recognition tools that make it easier to bypass traditional search engines, reflect Apple’s efforts to diminish Google on its devices.

“The rift between Google and Apple couldn’t be clearer than it was today,” said Gene Munster, an analyst with Piper Jaffray Cos. “They just keep raising the temperature.”

The rivalry has grown as Google puts its software on machines made by Samsung Electronics Co. (005930) and other electronics companies to challenge the iPhone and iPad.

Facebook Integration

Smartphones running Google’s Android operating system combined accounted for 56 percent of global sales in the first three months of the year, compared with 23 percent for the iPhone, according to Gartner Inc. The iPhone is the best-selling smartphone.

Apple announced today that it’s working more closely with Facebook, another big rival to Google. The new features make it easier for iPhone and iPad users to post pictures and other content to the social network. Apple also is adding Facebook “like” buttons to the App Store and iTunes. Google introduced its own Facebook competitor, Google+, this year.

Apple is also adding Baidu Inc. (BIDU)’s search engine as an alternative to Google for iPhone, iPad and Mac users in the world’s most populous country. In another move to appeal to Chinese users, Apple is updating its voice-recognition service Siri to work for Mandarin and Cantonese speakers.

Strengthening Siri

Apple announced several other changes to Siri. The company is making the service available for iPad users and added the ability use voice commands to search for sports scores and make reservations through OpenTable Inc. (OPEN)’s service. Apple said that it’s working with carmakers, including Bayerische Motoren Werke AG (BMW), General Motors Co. (GM), Honda Motor Co. and Toyota Motor Corp. (7203), to add a button to car steering wheels to quickly activate Siri.

Another new feature is called Passbook, an application that organizes electronic gift cards, boarding passes or movie tickets. The feature could eventually include credit-card data and may mark an early step toward wireless payments for iPhone, said Ross Rubin, an analyst at NPD Group.

Apple has more than 400 million credit cards on file via iTunes and the App Store.

The mobile software upgrades will be part of Apple’s next iPhone, which analysts including Munster have predicted will be released by October. The iPhone is Apple’s best-selling product, accounting for 58 percent of its revenue last quarter.

Mountain Lion

Apple also showed off its upcoming Mountain Lion operating system for the Mac, which will be released next month for $19.99. The software includes many features from the iPhone and iPad, including a notification system so text messages sent to an iPhone or iPad will show up on the Mac as well.

The changes to the mobile and Mac software underscore a broader push by Apple to make its products work more seamlessly together, encouraging customers to purchase multiple devices. Users can safeguard documents and files on Apple’s iCloud storage service and access them from whichever machine.

That fosters “stickiness” so that users won’t want to switch to another product because of all the time and effort they have invested with Apple’s gadgets, said Chris Jones, an analyst at market researcher Canalys.

Today’s event highlighted the difficulty Apple has keeping new product details secret. Many of the biggest announcements from the day had leaked out in the weeks leading up to the developer conference.

MacBook Revisions

Case in point: an updated MacBook Pro. Apple is tweaking its laptops as other computer makers such as Hewlett-Packard Co. (HPQ) prepare machines that feature the new version of Microsoft’s Windows this year. Apple introduced a thinner, lighter MacBook Pro that boasts high-definition screens and sells for at least $2,199. It starts shipping today, Apple said. The MacBook Pros feature more powerful chips from Intel Corp. (INTC), graphics capabilities from Nvidia Corp. (NVDA) and an HDMI port for playing videos to TVs.

The MacBook Pro will boast 7 hours of battery life and as much as 768 gigabytes of flash memory, Apple said. The company updated the existing line of MacBook Pros, which will also boast faster chips. These will sell for $1,199 to $2,199.

New MacBook Airs -- which are thinner and less pricey than Pros -- will sell for $999 to $1,499, Apple said today.

“While they’re not dramatic new hardware, these were important improvements to make for Apple to be ahead of the competition,” said Walter Piecyk, an analyst with BTIG LLC in New York. “These incremental improvements are going to further integrate the Apple experience into the user’s life.”

Facebook Apps

The event kicked off Apple’s weeklong conference for developers who make the software that populates its App Store. More than 30 billion apps have been downloaded from Apple digital store, and developers have received $5 billion from the sales, Apple said today. Apple keeps 30 percent of the revenue raised from app-store sales and developers get the rest.

The success of Apple’s App Store has helped create a market for applications that will reach $58 billion in 2014, according to Gartner Inc.

“The products we make, combined with the apps you create, can fundamentally change the world,” Cook said.

Fellow technology companies also are trying to lure the developers. Even as Apple works more closely with Facebook, it will also compete with the owner of the world’s most popular social network in sales of apps.

Facebook opened an online bazaar last week. Google’s store has more than 500,000 apps, while Microsoft has lined up design firms, recruited interns and sent engineers on an around-the- world road show to line the shelves of its app store. Google hosts its own developers conference in San Francisco June 27-29.

This is Apple’s first developer conference since co-founder Steve Jobs died in October. Last year’s event, where he introduced Apple’s iCloud service, was the last Apple event he led. Jobs had used previous conferences to introduce such products as earlier iPhone models.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

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

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Apple Adds Software Features to Stay Ahead of Google in Apps

By Adam Satariano and Peter Burrows - Jun 12, 2012 7:24 AM GMT+0700

Apple Inc. (AAPL) unveiled the next version of its mobile software, adding maps and integration with Facebook Inc. (FB) to ratchet up pressure on Google Inc. (GOOG) in the market for handheld devices and online applications.

Apple’s iOS 6 will have more than 200 new features, including turn-by-turn map navigation and tools to make it easier to access Facebook from iPhones and iPads, Cupertino, California-based Apple said today. The company also upgraded its MacBook computers, adding faster chips and sharper displays to the high-end Pro model months before competing devices with Microsoft Corp. (MSFT)’s Windows arrive in stores.

Enlarge image

Tim Cook, chief executive officer of Apple Inc., speaks at the Apple Worldwide Developers Conference in San Francisco, California, U.S. Photographer: David Paul Morris/Bloomberg

Play Video

June 11 (Bloomberg) -- Tim Cook, chief executive officer of Apple Inc., speaks about the company's App Store and work with software developers. Cook, speaking at Apple's annual Worldwide Developers Conference in San Francisco, said the company has paid developers $5 billion, sharing a portion of the revenue raised from 30 billion application downloads from its online store. (This is an excerpt. Source: Bloomberg)

Play Video

June 11 (Bloomberg) -- Brian Blair, an analyst at Wedge Partners Corp., talks about Apple Inc.'s changes to its MacBook computers and its mobile software. He speaks with Jon Erlichman at Apple's Worldwide Developers Conference in San Francisco on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

Play Video

June 11 (Bloomberg) -- Shaw Wu, an analyst at Sterne Agee & Leach Inc., talks about the next version of Apple Inc.'s mobile software and MacBook computers, and the outlook for the company's share price and China strategy. Apple's iOS 6 will have more than 200 new features, including turn-by-turn navigation and tools that make it easier to access Facebook Inc's social networking site from iPhones and iPads. The company unveiled the new software and computers at its annual Worldwide Developers Conference. Wu speaks with Pimm Fox on Bloomberg Television's "Taking Stock." (Source: Bloomberg)

Play Video

June 11 (Bloomberg) -- Brian White, an analyst with Topeka Capital Markets, talks about Apple Inc.'s World Wide Developers Conference and outlook for company's new products. White speaks with Betty Liu and Sheila Dharmarajan on Television's "In the Loop." (Source: Bloomberg)

Play Video

June 11 (Bloomberg) -- Scott Sutherland, an analyst at Wedbush Securities Inc., talks about Apple Inc.'s World Wide Developers Conference, the outlook for the company's shares and its products. Sutherland speaks with Scarlet Fu on Bloomberg Television's "InBusiness." (Source: Bloomberg)

Enlarge image

Phil Schiller, senior vice president worldwide marketing of Apple Inc., with the new MacBook Pro laptop computer during the Apple Worldwide Developers Conference in San Francisco on June 11, 2012. Photographer: David Paul Morris/Bloomberg

Chief Executive Officer Tim Cook is using new software, unveiled at the company’s annual Worldwide Developers Conference, to widen Apple’s user base and woo developers who can add to a store that has more than 650,000 downloadable games, magazines and productivity tools. The new mapping service, which replaces Google Maps, and new voice-recognition tools that make it easier to bypass traditional search engines, reflect Apple’s efforts to diminish Google on its devices.

“The rift between Google and Apple couldn’t be clearer than it was today,” said Gene Munster, an analyst with Piper Jaffray Cos. “They just keep raising the temperature.”

The rivalry has grown as Google puts its software on machines made by Samsung Electronics Co. (005930) and other electronics companies to challenge the iPhone and iPad.

Facebook Integration

Smartphones running Google’s Android operating system combined accounted for 56 percent of global sales in the first three months of the year, compared with 23 percent for the iPhone, according to Gartner Inc. The iPhone is the best-selling smartphone.

Apple announced today that it’s working more closely with Facebook, another big rival to Google. The new features make it easier for iPhone and iPad users to post pictures and other content to the social network. Apple also is adding Facebook “like” buttons to the App Store and iTunes. Google introduced its own Facebook competitor, Google+, this year.

Apple is also adding Baidu Inc. (BIDU)’s search engine as an alternative to Google for iPhone, iPad and Mac users in the world’s most populous country. In another move to appeal to Chinese users, Apple is updating its voice-recognition service Siri to work for Mandarin and Cantonese speakers.

Strengthening Siri

Apple announced several other changes to Siri. The company is making the service available for iPad users and added the ability use voice commands to search for sports scores and make reservations through OpenTable Inc. (OPEN)’s service. Apple said that it’s working with carmakers, including Bayerische Motoren Werke AG (BMW), General Motors Co. (GM), Honda Motor Co. and Toyota Motor Corp. (7203), to add a button to car steering wheels to quickly activate Siri.

Another new feature is called Passbook, an application that organizes electronic gift cards, boarding passes or movie tickets. The feature could eventually include credit-card data and may mark an early step toward wireless payments for iPhone, said Ross Rubin, an analyst at NPD Group.

Apple has more than 400 million credit cards on file via iTunes and the App Store.

The mobile software upgrades will be part of Apple’s next iPhone, which analysts including Munster have predicted will be released by October. The iPhone is Apple’s best-selling product, accounting for 58 percent of its revenue last quarter.

Mountain Lion

Apple also showed off its upcoming Mountain Lion operating system for the Mac, which will be released next month for $19.99. The software includes many features from the iPhone and iPad, including a notification system so text messages sent to an iPhone or iPad will show up on the Mac as well.

The changes to the mobile and Mac software underscore a broader push by Apple to make its products work more seamlessly together, encouraging customers to purchase multiple devices. Users can safeguard documents and files on Apple’s iCloud storage service and access them from whichever machine.

That fosters “stickiness” so that users won’t want to switch to another product because of all the time and effort they have invested with Apple’s gadgets, said Chris Jones, an analyst at market researcher Canalys.

Today’s event highlighted the difficulty Apple has keeping new product details secret. Many of the biggest announcements from the day had leaked out in the weeks leading up to the developer conference.

MacBook Revisions

Case in point: an updated MacBook Pro. Apple is tweaking its laptops as other computer makers such as Hewlett-Packard Co. (HPQ) prepare machines that feature the new version of Microsoft’s Windows this year. Apple introduced a thinner, lighter MacBook Pro that boasts high-definition screens and sells for at least $2,199. It starts shipping today, Apple said. The MacBook Pros feature more powerful chips from Intel Corp. (INTC), graphics capabilities from Nvidia Corp. (NVDA) and an HDMI port for playing videos to TVs.

The MacBook Pro will boast 7 hours of battery life and as much as 768 gigabytes of flash memory, Apple said. The company updated the existing line of MacBook Pros, which will also boast faster chips. These will sell for $1,199 to $2,199.

New MacBook Airs -- which are thinner and less pricey than Pros -- will sell for $999 to $1,499, Apple said today.

“While they’re not dramatic new hardware, these were important improvements to make for Apple to be ahead of the competition,” said Walter Piecyk, an analyst with BTIG LLC in New York. “These incremental improvements are going to further integrate the Apple experience into the user’s life.”

Facebook Apps

The event kicked off Apple’s weeklong conference for developers who make the software that populates its App Store. More than 30 billion apps have been downloaded from Apple digital store, and developers have received $5 billion from the sales, Apple said today. Apple keeps 30 percent of the revenue raised from app-store sales and developers get the rest.

The success of Apple’s App Store has helped create a market for applications that will reach $58 billion in 2014, according to Gartner Inc.

“The products we make, combined with the apps you create, can fundamentally change the world,” Cook said.

Fellow technology companies also are trying to lure the developers. Even as Apple works more closely with Facebook, it will also compete with the owner of the world’s most popular social network in sales of apps.

Facebook opened an online bazaar last week. Google’s store has more than 500,000 apps, while Microsoft has lined up design firms, recruited interns and sent engineers on an around-the- world road show to line the shelves of its app store. Google hosts its own developers conference in San Francisco June 27-29.

This is Apple’s first developer conference since co-founder Steve Jobs died in October. Last year’s event, where he introduced Apple’s iCloud service, was the last Apple event he led. Jobs had used previous conferences to introduce such products as earlier iPhone models.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

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

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Apple Combats Google-Microsoft-Facebook Troika in App Race: Tech

By Adam Satariano - Jun 11, 2012 8:33 PM GMT+0700

Apple Inc. (AAPL) is releasing a fresh lineup of computers and software tools to woo consumers and keep developers making applications amid accelerating rivalry from Google Inc. (GOOG), Microsoft Corp. (MSFT) and, now, Facebook Inc.

Apple will use the Worldwide Developers Conference starting today in San Francisco to debut Mac computers with high- definition screens, as well as features for the software that powers its iPhone and iPad. Phil Schiller, Apple’s senior vice president of product marketing, will probably emcee the keynote.

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Apple Inc. Chief Executive Officer Tim Cook speaks at the Apple Worldwide Developers Conference in San Francisco. Photographer: David Paul Morris/Bloomberg

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Attendees line up to enter Moscone West ahead of the Apple Worldwide Developers Conference in San Francisco. Photographer: David Paul Morris/Bloomberg

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Apple Inc. Chief Executive Officer Tim Cook speaks at the Apple Worldwide Developers Conference in San Francisco. Photographer: David Paul Morris/Bloomberg

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Attendees walk inside Moscone West ahead of the Apple Worldwide Developers Conference in San Francisco. Photographer: David Paul Morris/Bloomberg

Leadership in the consumer-electronics industry hinges on a company’s ability to get developers to put its products first when building the next big application, such as “Angry Birds” or “Shazam.” With more than 600,000 downloadable games, magazines and productivity tools, Apple is the application leader. Microsoft is playing catch-up before the release of its next operating system, Google will host a developers conference this month and Facebook just opened its own store.

“It’s not just a battle for consumers’ hearts and minds -- it’s a battle for developers to get that next great application to be available first and foremost on their platform,” said Charles Golvin, an analyst at Forrester Research Inc. who studies the mobile technology industry. “These companies are duking it out.”

The success of Apple’s App Store has helped create an economy for downloading mobile applications that will reach $58 billion in sales in 2014, according to Gartner Inc. More than 25 billion apps have been downloaded from Apple’s store, and developers have received $4 billion from the sales, according to Cupertino, California-based Apple.

Bigger iPhone

Facebook is the latest to join the mobile app-store craze, opening an online bazaar last week. The Google Play store boasts more than 500,000 apps, while Microsoft has lined up design firms, recruited interns and sent engineers on an around-the- world road show to line the shelves of its app store.

At this week’s event, Apple will probably signal a bigger screen for the next iPhone, its best-selling product, by telling developers to write future applications that can work on a larger surface, said Andy Hargreaves, an analyst at Pacific Crest Securities Inc. in Portland, Oregon.

Apple also plans to announce a deal that lets users quickly post pictures and other content from phones and tablets to the profiles on Facebook Inc. (FB)’s social network, people with knowledge of the matter said.

Trudy Muller, a spokeswoman for Apple, declined to comment, as did Derick Mains, a spokesman for Menlo Park, California- based Facebook.

Cook’s Turn

Last year’s event, where co-founder Steve Jobs introduced Apple’s iCloud service, was the last Apple event he led before he died in October. He had used previous conferences to introduce such products as earlier iPhone models.

This year’s conference, running June 11-15, will give Chief Executive Officer Tim Cook a chance to outline his vision for why developers should continue to build for Apple rather than competitors, said Carl Howe, an analyst at Yankee Group.

Developers will look for signs that Apple will announce added uses for Siri, its voice-recognition technology, said Corey Reese, the CEO and co-founder of Ness Computing Inc.

“Everybody in the industry pays very close attention to what direction they go,” said Reese, who will be attending the event and whose company makes an application that provides restaurant recommendations.

Apple will use the event to introduce a new mapping application that would replace Google Maps, which it has used since 2007, a person familiar with the plans said.

Google Standoff

The change may help shunt advertising revenue toward Apple and away from Google, said Forrester’s Golvin. Apple also is adding Baidu Inc. (BIDU)’s search engine as an alternative to Google for iPhone users in China, people said last week.

The changes highlight Apple’s growing rivalry with Google, which has joined companies including Samsung Electronics Co. (005930) to challenge the iPhone and iPad. Smartphones running Google’s Android operating system accounted for 56 percent of global sales in the first three months of the year, compared with 23 percent for the iPhone, according to Gartner. Google hosts its own developers conference at the same location in San Francisco June 27-29.

At today’s event, Cook and other Apple executives also will showcase the latest lineup of Mac computers, including MacBook Pro laptops that will sport high-definition screens and speedier chips made by Intel Corp. (INTC), people familiar with the plans said last month.

Outpacing Hewlett-Packard

Releasing the new computers puts Apple ahead of rival PC makers such as Hewlett-Packard Co. (HPQ) and Dell Inc. (DELL), which will introduce machines later in the year to work with Microsoft’s coming Windows 8 release.

Apple rose 1.2 percent to $587.28 at 9:32 a.m. in New York. Through yesterday, the shares had increased 43 percent this year.

After today’s announcements, starting at 10 a.m. in San Francisco, the weeklong event is closed to the public and media. Developers pay about $1,600 apiece to attend and spend the week meeting with Apple engineers to learn about new features that are being introduced and how they can integrate them into their applications. More than 5,200 people attended Apple’s developers conference last year.

“This is when Apple releases their information and it’s the one time of year when you know you’re going to get more of an idea about what they are up to,” said Matt Murphy, a partner at Kleiner Perkins Caufield & Byers, which invests in companies that make mobile applications.

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

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

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