Oil Rises a Second Day as Investors Seek Haven From Turmoil

By Christian Schmollinger

Sept. 18 (Bloomberg) -- Crude oil rose in New York, the biggest two-day gain in three months, as investors purchased commodities as a safe haven in the midst of Wall Street turmoil.

Oil climbed and gold surged the most in eight years yesterday as Goldman Sachs Group Inc. and Morgan Stanley plunged the most ever. Prices were supported by a fifth day of militant attacks in Nigeria, Africa's largest crude producer, that have disrupted 280,000 barrels a day of production.

``Oil has got a better chance than other commodities to stay strong,'' said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp. in Tokyo. ``Commodities, especially oil, are where people want to put their money because we have structural supply problems.''

Crude for October delivery rose as much as 98 cents, or 1 percent, to $98.14 a barrel on the New York Mercantile Exchange. It was trading at $97.40 a barrel at 9:56 a.m. in Singapore. Oil has declined 34 percent from the record $147.27 a barrel reached on July 11.

Yesterday, oil rose $6.01, or 6.6 percent, to $97.16 a barrel. The two-day gain was the biggest since June 6. Oil futures tumbled more than $10 a barrel in the first two days of the week on concern financial-market disruptions may weaken the global economy and cut fuel consumption.

Gold Rally

Gold climbed for a second day, extending its biggest jump in 26 years, as investors sought a haven from the credit crisis that's sent equity markets tumbling. Silver also rose.

Gold for immediate delivery rose 0.6 percent to $868.65 an ounce at 9:20 a.m. in Sydney. The metal jumped 11 percent yesterday, its biggest gain since Sept. 3, 1982. Silver rose 1.7 percent to $12.16 an ounce.

U.S. crude-oil stockpiles fell 6.33 million barrels to 291.7 million barrels last week, according to the Energy Department. It was the fourth straight inventory decline. A drop of 3.5 million barrels was forecast, according to the median of responses by 11 analysts surveyed by Bloomberg News.

Prices also advanced after a U.S. government report yesterday showed that crude oil stockpiles dropped the most since May because of disruptions from Hurricane Ike.

U.S. fuel demand averaged 19.9 million barrels a day during the past four weeks, down 4.4 percent from a year earlier, the department said. Gasoline consumption averaged 9.21 million barrels a day over the period, down 2.6 percent.

Nigeria Militants

Nigeria lost 280,000 barrels daily of its crude output to attacks launched by armed militants in the Niger Delta oil region in the past five days, bringing currently shut output to about 1 million barrels a day, the state-run oil company said.

``Current shut-in production stands at about 1 million barrels a day, but it's not necessarily due to militant attacks,'' Levi Ajuonuma, a spokesman for the Nigerian National Petroleum Corp., said by phone from the country's capital, Abuja. ``Only 28 percent is because of militant action.''

The Movement for the Emancipation of the Niger Delta, the main militant group in the oil region, said it declared an ``oil war'' in the southern delta that accounts for nearly all of the country's oil after the military launched an offensive on Sept. 13 on its positions.

In the last five days the militant group, also known as MEND, has attacked pipelines and oil pumping stations run by the Nigerian units of Royal Dutch Shell Plc, Chevron Corp. and Eni SpA.

Brent crude oil for November settlement rose as much as $1.05, or 1.1 percent, to $95.51 a barrel on London's ICE Futures Europe exchange. It was at $95.18 a barrel at 9:58 a.m. Singapore time.

The contract yesterday rose $5.62, or 6.3 percent, to settle at $94.84 a barrel. Prices dropped the previous 14 days, the longest stretch since the contract was introduced in 1988.

To contact the reporter on this story: Christian Schmollinger in Singapore at christian.s@bloomberg.net.

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Asia Stocks Tumble to 3-Year Low on Bank Woes; Gold, Bonds Jump

By Patrick Rial and Shani Raja

Sept. 18 (Bloomberg) -- Asian stocks tumbled to the lowest in three years while gold and U.S. Treasuries surged as concerns mounted more financial firms will collapse.

Macquarie Group Ltd., Australia's largest investment bank, plunged 17 percent after lending seized up following the U.S. government's takeover of American International Group Inc. Newcrest Mining Ltd. led a rally by gold producers while U.S. three-month Treasury yields fell to the lowest since World War II as investors fled stocks in search of safe havens.

``Confidence has been shattered,'' said Nader Naeimi, a Sydney-based senior investment strategist at AMP Capital Investors, which manages about $108 billion. ``The market is worried about a domino effect in the financial sector, with no one sure who's going to fall next.''

The MSCI Asia Pacific Index dropped 2.4 percent to 107.90 as of 10:40 a.m. in Tokyo, the lowest since October 2005.

Japan's Nikkei 225 Stock Average lost 2.7 percent to 11,431.17. Equity benchmarks throughout the region declined, with Taiwan shares falling 4.2 percent.

More than $19 trillion has been wiped off global stock market value since a high on Oct. 31 as the worst U.S. housing recession since the Great Depression and a resulting global credit crisis slowed the world economy. This week, Lehman Brothers Holdings Inc. filed for bankruptcy and the U.S. government had to take over AIG.

U.S. stocks slumped to the lowest in three years yesterday, with the Standard & Poor's 500 Index sliding 4.7 percent.

Bank Lending Freezes

Macquarie slid 17 percent to A$28.11, taking its loss since a May 2007 high to 70 percent. The outlook on Macquarie's credit rating was yesterday lowered to negative from stable by Standard & Poor's, implying a one-in-three chance of a cut to the rating.

Babcock & Brown Ltd., Australia's second-biggest investment bank, retreated 17 percent to 76.5 cents. Babcock has plunged 97 percent this year, making it the third-largest loser in 2008 on the MSCI World Index behind Fannie Mae and Freddie Mac.

Kookmin Bank, South Korea's largest lender, declined 6.1 percent to 52,800 won. Sumitomo Mitsui Financial Group Inc., Japan's No. 3 listed bank, slumped 5.9 percent to 586,000 yen.

In a sign that banks have lost confidence in the solvency of their competitors, the London interbank offered rate, or Libor, rose 19 basis points to 3.06 percent yesterday, the biggest advance since Sept. 29, 1999.

``This is a major real event where the epicenter is financial firms,'' said Hans Kunnen, head of investment market research in Sydney at Colonial First State Global Management, which holds about $128 billion of assets. ``Because it is banking and banking lies at the heart of all economies, it's disruptive to the real economy as well.''

Unprecedented

The perceived risk of U.S. government debt, long held to be absent of any default risk, also climbed to a record yesterday as the government's involvement in bailing out financial markets weighed on its own financial standing.

``People want to avoid any type of risk,'' said Satoshi Okumoto, a general manager in Tokyo at Fukoku Mutual Life Insurance Co., with $54.6 billion in assets. ``I've never seen this kind of crisis before,'' said Okumoto, who has been in the financial-services industry for 23 years.

U.S. Treasury three-month bill rates were 0.071 percent as of 9:21 a.m. in Tokyo. They dropped 65 basis points yesterday to close at 0.04 percent. Two-year yields were 1.65 percent, near the lowest since April.

The dollar fell for a second day against the euro.

``You can't choose the dollar when the world's financial problems radiate from the U.S.,'' said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust & Banking Co., a unit of Japan's largest brokerage. ``Credit markets show no signs of settling down and traders are focused on whether other banks will fail.''

Safe Haven?

Newcrest Mining Ltd. paced gains in Australian gold stocks after the price of gold surged the most in 26 years and silver rose the most since 1979 yesterday.

Newcrest, Australia's largest gold producer, climbed 14 percent to A$24.34, the biggest gain since September 1999. Lihir Gold Ltd. jumped 18 percent, the most in 8 years, to A$2.53 and Sino Gold Mining Ltd. gained the most on record. Sumitomo Metal Mining Co., the biggest in Japan, gained 5.8 percent to 1,104 yen.

Sony Corp., the maker of the PlayStation 3 game console, lost 7.8 percent to 3,300 yen, a level not seen since June 2003. JPMorgan Chase & Co. and Goldman Sachs Group Inc. cut their investment ratings on Sony.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net. Shani Raja in Sydney at sraja4@bloomberg.net.

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Japan's Stocks Tumble, Nearing Four-Year Low, on Bank Concern

By Masaki Kondo

Sept. 18 (Bloomberg) -- Japanese stocks fell toward a four- year low on concern more global financial firms will collapse after the U.S. government took over American International Group Inc. and reports Morgan Stanley is seeking a buyer.

Mizuho Financial Group Inc., Japan's second-biggest listed bank, sank 7 percent, while brokerage Nomura Holdings Inc. lost 6.1 percent. Sony Corp. headed for a five-year low after Goldman Sachs Group Inc. cut its rating. Sumitomo Metal Mining Co., Japan's biggest gold producer, jumped 3.5 percent after prices for the precious metal surged the most in nine years.

``Amid confusion and anxiety in financial markets, investors are more and more reluctant to take risk,'' Yoshinori Nagano, a Tokyo-based senior strategist at Daiwa Asset Management Co., which manages $94 billion, said in an interview with Bloomberg Television. ``Everything hangs on U.S. financial firms.''

The Nikkei 225 Stock Average declined 364.10, or 3.1 percent, to 11,385.69 as of 9:32 a.m. in Tokyo, set for the lowest close since June 2005. The broader Topix index fell 35.86, or 3.2 percent, to 1,085.57, a level not seen since December 2004. All but one of 33 industry groups on the Topix retreated.

Lehman Brothers Holdings Inc. filed for bankruptcy this week and the U.S. government had to bail out largest U.S. insurer AIG, raising concern more global financial companies will fail. Morgan Stanley is weighing a merger with Wachovia Corp. and several other banks, people familiar with the matter said, which would follow the sale of rival brokerage Merrill Lynch & Co. to Bank of America Corp.

More than $19 trillion has been wiped off global stock market values since a high on Oct. 31 as the worst U.S. housing recession since the Great Depression and a resulting global credit crisis slowed the world economy.

Sony Sinks

Mizuho dived 7 percent to 386,000 yen, while market leader Mitsubishi UFJ Financial Group Inc. declined 4.6 percent to 763 yen. Nomura, Japan's biggest brokerage, slumped 6.1 percent to 1,196 yen. Three of the five biggest losers among Topix groups were financial stocks.

Sony dived 6.7 percent to 3,340 yen, headed for the lowest since June 2003. Goldman analyst Yuji Fujimori cut his rating on the electronics maker to ``neutral'' from ``buy.''

The deepening credit crisis spurred investors to seek the relative safety of commodities. Gold futures for December delivery surged 9 percent yesterday, the most since September 1999, while crude oil for October delivery soared 6.6 percent, the biggest gain since June 6, to $97.16 a barrel.

Sumitomo Metal Mining jumped 3.5 percent to 1,081 yen, making it the biggest winner on the Nikkei.

Nikkei futures expiring in December retreated 3.4 percent to 11,330 in Osaka and slumped 3.1 percent to 11,330 in Singapore.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net.

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Japan Corporate Dividend Yields Offer Buy Signal: Chart of Day

By Patrick Rial

Sept. 18 (Bloomberg) -- Rising dividend payments from Japanese companies increased the difference between stock and government bond yields to a record. The last time the gap was close to this level, the equity market began a four-year rally.

The CHART OF THE DAY shows the spread between an index of yields on shares listed on the main board of the Tokyo Stock Exchange and the payout for 10-year Japanese government bonds. Corporate dividend yields were 2.13 percent today on a trailing basis, giving investors 63 basis points more than the 1.5 percent they receive for bonds, data compiled by Bloomberg show.

``Buying when the spread is where it is has historically been a smart move for intermediate-term investors,'' said John Vail, who helps oversee about $106 billion as head of global strategy at Nikko Asset Management Co. ``Japanese individuals look for high yields and now they're getting very little in bank deposits and not much in bonds, so eventually the market will seek an equilibrium and companies with high dividend yields will be pursued.''

Improving profitability and low debt levels boosted cash on hand at Japanese companies, allowing them to respond to investors' calls for higher dividends. The payout ratio, the percentage of net income distributed as dividends, among Topix index companies has climbed to 28 percent from 16 percent in 2003, according to data from Nikko.

Corporate dividend yields have exceeded long-term bonds three times in Japan's history. In June 2003, when the yield spread reached a maximum of 60.5 basis points, the Topix rallied by almost a third in the following 12 months and more than doubled during the next four years. In the 12 months following October 1998 and July 2005 the Topix climbed at least 30 percent, according to data compiled by Bloomberg.

To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net.

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Will A Rebound In U.K. Retail Sales Boost the Pound?

Daily Forex Fundamentals | Written by DailyFX | Sep 18 08 01:40 GMT |

Trading the News: U.K. Retail Sales What's Expected Time of release: 09/18/2008 08:30 GMT, 04:30 EST Primary Pair Impact : GBPUSD Expected: -0.5% Previous: 0.8% How To Trade This Event Risk U.K. retail sales are expected to falter after last month's unexpected improvement. Market participants anticipate a 0.5% decline in spending as rampant inflation continues sap purchasing power. Consumer price inflation surged to a fresh record high of 4.7% from 4.4% in July, which only suggests that private sector consumption will remain relatively weak as prices continue to rise. Meanwhile, the labor market has weakened considerably as jobless claims surged to a record high of 32.5K from a revised reading of 27.8K in July. The claimant count rate increased as well in August, rising to 2.8% from 2.7%, the ILO unemployment rate ticked higher to 5.5% from 5.4% in June. The U.K. labor market has clearly deteriorated throughout the year, and strengthens the argument that retail sales will falter as the economy is on the brink of a recession. Furthermore, the BoE Minutes for the September 4th meeting showed that the MPC voted 8-1 in to hold the benchmark interest rate steady at 5.00%, with David Blanchflower voting for a 50bp rate cut. Meanwhile, Tim Besley did not vote for a rate hike this time around, which suggests that the central bank has softened their hawkish bias. As the BoE shifts their focus to the downside growth risks for the economy, a fall in retail spending could lead the bank to lower the benchmark interest rate ahead of schedule. A surprising rebound in retail spending could fuel bullish sentiment for the British pound as it holds against significant support levels, and may lead the central bank to hold a neutral policy stance going forward. Therefore, we will look for a green, five-minute candle to confirm an entry on two lots of GBPUSD. We will setup our initial stop at the nearby swing low (or reasonable distance) and this risk will determine our first target. Our second target will be purely based on discretion, and we will move the stop on the second lot to break even when the first half of the trade reaches its target in order to preserve our profits. On the other hand, fading growth prospects paired with an acceleration in unemployment suggests that consumers will cutback on spending as they face higher living costs. A fall in private-sector consumption would trigger a short trade for the GBPUSD, and we will follow the same strategy as the long position listed above, just in reverse. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.

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US Dollar Vulnerable To Weakness On Fed Cut Expectations, Financial Instability

Daily Forex Fundamentals | Written by DailyFX | Sep 18 08 01:34 GMT |

US Dollar Vulnerable To Weakness On Fed Cut Expectations, Financial Instability British Pound: Banking Consolidations Not Contained To the US, UK Retail Sales Likely to Drop Euro Surges Despite Widening Trade Deficit, Swiss National Bank Expected to Leave Rates at 2.75% Japanese Yen Mixed as Risk Aversion Rattles Risky Assets US Dollar Vulnerable To Weakness On Fed Cut Expectations, Financial Instability The US dollar fell sharply on Wednesday as the markets are now weighing the odds of a rate cut before the end of the year. This is exactly the sort of trigger I was talking about yesterday when I cited by my bearish fundamental bias for the US dollar, as the previous rally was fueled by expectations of future interest rate increases. However, with the FOMC now signaling no change in rates going forward and possibly considering cutting rates, that impetus has been removed. Indeed, much to the dismay of the Fed, their intervention in AIG failed to soothe investors' fears about the health of the markets, as indicated by the 4% or more drops in the DJIA and S&P 500. These moves were led by declines in financials, as shares of the two remaining 'big 5' investment banks fell by the most on record. This risk aversion also translated into massive flight-to-safety toward US Treasuries, as yields on 3-month Treasury bills fell to a 54-year low. (Check out our US Trading Summary). Putting the focus back on the Federal Reserve, fed fund futures are fully pricing in a 25bp cut on October 29 and a 34 percent chance of a 50bp cut. Meanwhile, Credit Suisse overnight index swaps are close to pricing in a 25bp cut within the next 12 months, compared to expectations for a 25bp hike just last Friday. Clearly, the markets have taken the Fed's more neutral stance to heart following the FOMC rate decision and policy statement on Tuesday, and as a result, the US dollar will remain vulnerable to additional decline. Thus, my fundamentals bias for the US dollar remains bearish. British Pound: Banking Consolidations Not Contained To the US, UK Retail Sales Likely to Drop The US is not alone in experiencing massive banking consolidations, such as the sale of Merrill Lynch to Bank of America, as UK bank Lloyds TSB will reportedly acquire HBOS, which is the nation's biggest mortgage lender. Indeed, after the nationalization of Northern Rock earlier in the year, the UK government is surely looking to avoid having to take such measures once again. Meanwhile, the minutes from the Bank of England's September meeting revealed an 8-1 vote in favor of leaving rates steady, with one dissent in favor of 50bp cut. With UK CPI well above the BOE's 2 percent target and 3 percent ceiling, the central bank really has limited room to consider cutting rates despite obvious signs of a sharp economic slowdown in the country. Furthermore, since CPI has held above the 3 percent ceiling for 3 months, BOE Governor Mervyn King had to pen yet another letter to Chancellor of the Exchequer Alistair Darling explaining the inflation situation. In it, Mr. King suggested that the BOE would leave rates unchanged at 5.00 percent, and allow the economic slowdown to bring inflation pressures down on their own. However, given the significant turmoil in the financial markets, it remains to be seen how long they will maintain this stance. Looking ahead to Thursday, UK consumer spending is anticipated to have slowed in August, as retail sales are forecasted to fall 0.5 percent, dragging the annual rate to a more than two year low of 1.6 percent. The latest BRC retail sales numbers support the case for such a move, as their measure of same-store sales plunged 1.0 percent in August from a year earlier. However, this is not the most reliable leading indicator: last month, the BRC's figures reflected a 0.9 percent decline from a year earlier, while the UK government's statistics showed a 0.8 percent monthly gain and a 2.1 percent annualized rise. That said, the Bank of England has noted in the past that they may focus more on private surveys over government statistics, as the latter tends to be extremely volatile. As a result, traders should keep in mind that regardless of this upcoming number, the BOE likely still holds a bearish view of UK consumer spending. Euro Surges Despite Widening Trade Deficit, Swiss National Bank Expected to Leave Rates at 2.75% The euro rocketed against the US dollar on Wednesday due to a variety of factors, including a 6.4 percent jump in WTI crude oil futures (dollar bearish) and shift in Federal Reserve interest rate expectations to price in at least a 25bp cut by December (dollar bearish). Meanwhile, Credit Suisse overnight index swaps are still pricing in just over 50bps worth of rate cuts by the European Central Bank within the next 12 months. However, I do not expect them to do so before the end of 2008 unless CPI falls significantly lower from current levels. Keeping in mind the potential for US dollar weakness, my bias for the euro remains bullish, barring a drop below 1.3880. Meanwhile, the Swiss National Bank (SNB) is anticipated to leave rates unchanged at 2.75 percent tomorrow morning, as the Swiss economy holding up fairly well thanks to robust domestic demand and price pressures still strong. What about the incredibly instability in the markets? The SNB has tried to address liquidity issues in a one-day operations on Tuesday and Wednesday, as SNB Vice-Chairman Philipp Hildebrand said, "The current events in the United States show that it is still too early to say the storm is over.' Nevertheless, like the low-yielding Japanese yen, my bias is in favor of Swiss franc strength amidst broad-based risk aversion in the markets. Japanese Yen Mixed as Risk Aversion Rattles Risky Assets The Japanese yen experienced wild volatility on Wednesday as the DJIA plummeted over 4 percent while flight-to-safety sent yields on 3-month Treasury bills to 54 year lows. Indeed, the low-yielder plunged nearly 1 percent against the British pound, but jumped over 2 percent versus the Australian dollar. Looking ahead to the remainder of the week, traders should keep an eye on risk trends as this should remain the predominany driver of Japanese yen price action. Furthermore, in the long-term, my fundamental bias for the Japanese yen is bullish, as risk aversion is unlikely to fade completely anytime soon. DailyFX Disclaimer Investment in the currency exchange is highly speculative and should only be done with risk capital. Prices rise and fall and past performance is no assurance of future performance. This website is an information site only. Accordingly we make no warranties or guarantees in respect of the content. The publications herein do not take into account the investment objectives, financial situation or particular needs of any particular person. Investors should obtain individual financial advice based on their own particular circumstances before making an investment decision on the basis of the recommendations in this website. While we try to ensure that all of the information provided on this website is kept up-to-date and accurate we accept no responsibility for any use made of the information provided. All intellectual property rights are the property of Daily FX. Daily FX and its affiliates, will not be held responsible for the reliability or accuracy of the information available on this site. The content herein is provided in good faith and believed to be accurate, however, there are no explicit or implicit warranties of accuracy or timeliness made by Daily FX or its affiliates. The reader agrees not to hold Daily FX or any of its affiliates liable for decisions that are based on information from this website. Daily FX highly recommends that before making a decision, the reader collects several opinions related to the decision and verifies facts from at least several independent sources.

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Dollar Falls As Credit Crisis Deepens

Daily Forex Fundamentals | Written by CMS Forex | Sep 18 08 01:17 GMT |

The dollar fell against most key currencies Wednesday as inter-bank lending seized up. Yesterday's US announcement of an emergency rescue of American International Group Inc. (AIG) with an $85 billion bridge loan signals US intensifing concerns that a collapse could jeopadize the financial system. The TED spread rose to the highest level since the 1987 stock-market crash as investors fled to the relative safety of treasury and gold. The AUD/USD fell as the global credit crisis intensified. The high-yielding Australian dollar suffered from increased risk aversion as investors unwound riskier assets. The aussie has been falling for eight straight weeks against the dollar and has been declining for nine consecutive weeks against the yen. There is strong support at 0.78 and 0.75 areas. Financial and Economic News and Comments US & Canada US home construction plummeted to the lowest level in 17 years. US housing starts tumbled 6.2% m/m in August to a seasonally adjusted 895,000 annual rate, the Commerce Department said, well below the consensus expected 950,000 rate. Housing starts dropped 33.1% y/y. Most of the decline was due to multipleunit starts, which fell 15.1% m/m. Single-family starts were down 1.9% m/m in August, down 34.9% y/y. Housing starts fell in the Northeast, Midwest, and South but increased in the West. US new building permits fell 8.9% m/m in August to an 854,000 annual rate, versus the consensus expected 925,000 rate. Single-family permits were down 5.1% m/m in August, down 40.3% y/y. Mortgage refinance applications spiked 88.1% last week, to the highest level since May, with the average refi loan size surging 12.6%, the Mortgage Bankers Association reported. Today's housing figures show a continued deterioration in the US housing market. The number of homes under construction is likely to fall through the end of the year and national average home prices are likely to drop further by mid-2009. The US current-account deficit rose to $183.1 billion (preliminary) in Q2 2008 from $175.6 billion (revised) in Q1, the Commerce Department said. The rise was due to a decline in the surplus on income and an increase in the deficit on goods. The Q2 surplus on income declined to $27.3 billion from $33.2 billion in Q1. The Q2 deficit on goods increased to $216.3 billion from $211.0 billion in Q1. In contrast, the surplus on services rose to $35.8 billion from Q1's $33.9 billion. Europe The UK jobless claimant count rose 32,500 to 904,900 in August, indicating UK unemployment jumped the most since December 1992, the Office for National Statistics said. The claimant count jobless rate rose to 2.8% in August from July's 2.7%. The unemployment rate, as measured by the International Labour Organization, was 5.5% for the three months to July, up 0.2 over both the previous quarter and over the year. The number of unemployed people increased 81,000 over the quarter and 72,000 over the year, to reach 1.72 million. The figures indicate the UK labor market is deteriorating at a rapid rate and the UK economy is heading toward a recession. The Bank of England Monetary Policy Committee voted 8-1 on September 4 to keep interest rates unchanged, according to BOE minutes released today. Lloyds, the UK's biggest provider of checking accounts, is in 'advanced talks' to buy UK mortgage lender HBOS, Edinburgh-based HBOS said. Asia-Pacific Australia's Westpac leading economic index rose to 0.2% m/m in July after increasing 0.1% m/m in June, Westpac reported. Annually, the index was 3.7% in July following June's revised 4.0% growth, below the longterm trend of 4.2%, and the annualized growth rate of the coincident index was 1.4%, also below trend. The report read: 'These developments in the Index highlight the puzzle for the Australian economy. Growth is clearly slowing and even the revised Index read is consistent with that message. But the sheer dominance of the mining sector softens that message. Without the boost to profits and productivity from the mining sector in particular, growth in the Index would have been around 2% and prospects for the economy would be decidedly bleaker.' Overall, the LEI points to decelerating Australian economic growth with a risk for a recession. FX Strategy Update EUR/USD USD/JPY GBP/USD USD/CHF USD/CAD AUD/USD EUR/JPY Primary Trend Negative Neutral Negative Neutral Negative Neutral Neutral Secondary Trend Negative Negative Negative Positive Positive Negative Neutral Outlook Negative Negative Negative Positive Positive Negative Negative Action Sell Sell Sell None None None None Current 1.4291 104.25 1.8132 1.1034 1.0725 0.7836 149.11 Start Position 1.5312 109.45 1.9790 N/A N/A N/A N/A Objective N/A N/A N/A N/A N/A N/A N/A Stop 1.4840 111.90 1.8620 N/A N/A N/A N/A Support 1.3900 104.00 1.7900 1.1000 1.0300 0.7800 148.00 1.3500 101.00 1.7500 1.0600 1.0100 0.7500 144.00 Resistance 1.4300 108.50 1.8500 1.1400 1.0800 0.8500 154.00 1.4700 110.50 1.8700 1.1500 1.1000 0.9000 159.00 Hans Nilsson Capital Market Services, L.L.C. www.cmsfx.com ©C2004-2005 Globicus International, Inc. and Capital Market Services, L.L.C. Any information in this report is based on data obtained from sources considered to be reliable, but no representations or guarantees are made by Capital Market Services, L.L.C. with regard to the accuracy of the data. The opinions and estimates contained herein constitute our best judgment at this date and time, and are subject to change without notice. Capital Market Services, L.L.C. accepts no responsibility or liability whatsoever for any expense, loss or damages arising out of, or in any way connected with, the use of all or any part of this report. No part of this report may be reproduced or distributed in any manner without the permission of Capital Market Services, L.L.C.

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U.S. August Housing Starts and Permits: Summary (Table)

By Kristy Scheuble

Sept. 17 (Bloomberg) -- Following is a summary of the Aug. housing starts report from the Commerce Department.

===========================================================================
                   Aug.   July   June    May  April  March   Feb.   Jan.
                   2008   2008   2008   2008   2008   2008   2008   2008
===========================================================================
Housing starts     0.895  0.954  1.089  0.982  1.004  0.988  1.107  1.064
3-mo. average      0.979  1.008  1.025  0.991  1.033  1.053  1.057  1.081
Single family     0.630  0.642  0.663  0.682  0.681  0.711  0.722  0.750
Multi-family      0.265  0.312  0.426  0.300  0.323  0.277  0.385  0.314
--------------------------------------------------------------------------
Housing permits    0.854  0.937  1.138  0.978  0.982  0.932  0.981  1.052
3-mo. average      0.976  1.018  1.033  0.964  0.965  0.988  1.048  1.117
Single family     0.554  0.584  0.616  0.635  0.649  0.621  0.646  0.675
Multi-family      0.300  0.353  0.522  0.343  0.333  0.311  0.335  0.377
--------------------------------------------------------------------------
Under construction 0.947  0.956  0.977  0.989  1.006  1.013  1.024  1.034
3-mo. average      0.960  0.974  0.991  1.003  1.014  1.024  1.038  1.055
===========================================================================
                   Aug.   July   June    May  April  March   Feb.   Jan.
                   2008   2008   2008   2008   2008   2008   2008   2008
===========================================================================
Single family     0.485  0.492  0.511  0.530  0.550  0.563  0.580  0.590
Multi-family      0.462  0.464  0.466  0.459  0.456  0.450  0.444  0.444
--------------------------------------------------------------------------
Housing completed  0.961  1.065  1.131  1.144  1.033  1.192  1.251  1.331
3-mo. average      1.052  1.113  1.103  1.123  1.159  1.258  1.304  1.355
Single family     0.676  0.814  0.844  0.877  0.808  0.909  0.906  0.998
Multi-family      0.285  0.251  0.287  0.267  0.225  0.283  0.345  0.333
                       ----------------------MOM%----------------- -YOY%-
Housing starts     -6.2% -12.4%  10.9%  -2.2%   1.6% -10.7%   4.0% -33.1%
Single family     -1.9%  -3.2%  -2.8%   0.1%  -4.2%  -1.5%  -3.7% -34.9%
Multi-family     -15.1% -26.8%  42.0%  -7.1%  16.6% -28.1%  22.6% -28.2%
--------------------------------------------------------------------------
Housing permits    -8.9% -17.7%  16.4%  -0.4%   5.4%  -5.0%  -6.7% -36.4%
Single family     -5.1%  -5.2%  -3.0%  -2.2%   4.5%  -3.9%  -4.3% -40.3%
Multi-family     -15.0% -32.4%  52.2%   3.0%   7.1%  -7.2% -11.1% -27.7%
--------------------------------------------------------------------------
Under construction -0.9%  -2.1%  -1.2%  -1.7%  -0.7%  -1.1%  -1.0% -15.8%
===========================================================================
                   Aug.   July   June    May  April  March   Feb.   Aug.
                   2008   2008   2008   2008   2008   2008   2008  YOY%
===========================================================================
Single family     -1.4%  -3.7%  -3.6%  -3.6%  -2.3%  -2.9%  -1.7% -29.0%
Multi-family      -0.4%  -0.4%   1.5%   0.7%   1.3%   1.4%   0.0%   4.5%
--------------------------------------------------------------------------
Housing completed  -9.8%  -5.8%  -1.1%  10.7% -13.3%  -4.7%  -6.0% -35.8%
Single family    -17.0%  -3.6%  -3.8%   8.5% -11.1%   0.3%  -9.2% -44.8%
Multi-family      13.5% -12.5%   7.5%  18.7% -20.5% -18.0%   3.6%   4.0%
--------------------------------------------------------------------------
Ratio M/S Starts   42.1%  48.6%  64.3%  44.0%  47.4%  39.0%  53.3%  41.9%
Ratio M/S Permits  54.2%  60.4%  84.7%  54.0%  51.3%  50.1%  51.9%  55.9%
===========================================================================
NOTE:  All figures in millions of units and seasonally
adjusted at an annual rate. Percent changes are seasonally
adjusted.

SOURCE: U.S. Commerce Department.

To contact the reporter on this story: Kristy Scheuble in Washington at kmckeaney@bloomberg.net

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U.S. Builders Began Work on Fewer Homes Than Forecast

By Bob Willis

Sept. 17 (Bloomberg) -- Builders in the U.S. broke ground on fewer houses than forecast in August, signaling the worst housing recession in a generation will continue to weigh on growth in coming months.

Housing starts fell 6.2 percent in August to an annual rate of 895,000, the fewest since January 1991, from a revised 954,000 pace in July, the Commerce Department said in Washington. Building permits, a sign of future construction, dropped 8.9 percent to an 854,000 pace.

Builders are scaling back as stricter lending and record foreclosures swell the number of properties on the market. The housing and credit meltdowns that led to the collapse of Lehman Brothers Holdings Inc. may continue to subtract from economic growth for the rest of the year and into next.

``The home-construction industry is still in a deep recession and will remain there probably for the rest of the year,'' said Patrick Newport, an economist at Global Insight Inc. in Lexington, Massachusetts, who forecast a decline to 893,000. ``There are just too many houses on the market.''

Treasuries rose after the report, with 10-year notes yielding 3.39 percent at 9:35 a.m. in New York, down from 3.44 percent late yesterday. Stocks dropped after the government took control of American International Group Inc., the nation's largest insurer by assets. The Standard & Poors' 500 index was down 2.2 percent to 1187.27

Starts were projected to fall to a 950,000 annual pace, according to the median forecast of 74 economists polled by Bloomberg News. Estimates ranged from 893,000 to 1.04 million.

Larger Than Expected

The decrease in permits was also larger than anticipated.

Compared with August 2007, work began on 33 percent fewer homes.

Construction of single-family homes declined 1.9 percent to a 630,000 rate, today's report showed. Work on multifamily homes, such as townhouses and apartment buildings, dropped 15 percent from the prior month to an annual rate of 265,000.

Starts decreased in three of four regions, led by a 15 percent slump in the Northeast. Construction was down 14 percent in the Midwest and 7.4 percent in the South. The West showed an 11 percent gain.

Builders completed 961,000 homes at an annual rate last month, the fewest since September 1982.

Combined existing and new-home sales have declined 36 percent from their 2005 peaks. Nationwide, home prices have fallen 19 percent on average from their peak in July 2006, according to the S&P/Case Shiller index of 20 cities.

Credit Crunch

The credit crunch spawned by the subprime mortgage crisis forced Lehman Brothers Holdings Inc. this week to file for bankruptcy, just a week after the government took over Fannie Mae and Freddie Mac, the two biggest buyers of mortgages.

Federal Reserve policy makers yesterday left the benchmark interest rate unchanged at 2 percent for a third consecutive meeting. Chairman Ben S. Bernanke and his colleagues signaled they will continue to address market turmoil with emergency lending.

As banks tighten lending standards and confidence slumps, consumer spending is faltering. Retail sales in August dropped for a second month, Commerce reported last week.

Homebuilders remain gloomy. A report yesterday from the National Association of Home Builders/Wells Fargo showed confidence among U.S. homebuilders this month held near the lowest level since records began in 1985.

Forced Into Foreclosure

As home prices continue to fall, more and more Americans a forced into foreclosure as they owe more than their homes are worth. Stricter lending rules also limit opportunities to refinance out of adjustable-rate mortgages before they reset higher.

Foreclosure filings rose to a record in August, RealtyTrac Inc. said Sept. 12. One in 416 U.S. households got a default notice, was warned of a pending auction or was foreclosed upon.

Toll Brothers Inc., the largest U.S. luxury homebuilder, o Sept. 4 reported a fourth straight quarterly loss.

``Explosive energy price increases, rising unemployment an severe mortgage and credit'' conditions cut demand, Chief Executive Officer Robert Toll said on a conference call. ``Weak consumer confidence has kept many potential buyers from taking advantage of the current buyers' market.''

To contact the reporter on this story: Bob Willis in Washington bwillis@bloomberg.net.

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GM, Domino's, Comcast Say Wall Street Woes Spreading

By Mike Ramsey, Greg Bensinger and Mark Clothier

Sept. 17 (Bloomberg) -- Executives at companies from General Motors Corp. to Domino's Pizza Inc. and Comcast Corp. say Wall Street's upheaval may stunt consumer demand as a credit crunch ripples through the U.S. economy.

The cost of borrowing in U.S. dollars surged to the highest level since 2001 following Lehman Brothers Holdings Inc.'s collapse, Merrill Lynch & Co.'s takeover by Bank of America Corp. and a cash shortage at American International Group Inc. that threatened to plunge the insurer into bankruptcy. The U.S. government agreed late yesterday to lend AIG as much as $85 billion in exchange for a 79.9 percent stake in the company.

``Lending has come to about a screeching halt as the industry itself is trying to sort this out,'' said David Brandon, chief executive officer of Domino's Pizza in Ann Arbor, Michigan. He said his company doesn't currently need access to debt markets.

GM CEO Rick Wagoner said consumer financing is now ``much tighter'' and urged the Federal Reserve to cut interest rates. Fed Chairman Ben S. Bernanke and colleagues left the main rate unchanged at 2 percent yesterday and signaled they will continue to monitor the market turmoil.

``We'll have to see the impact from all the bad news out of Wall Street in terms of the consumer psyche,'' Wagoner said in an interview on Bloomberg Television yesterday. ``But right now we are watching every day and reading the markets. Sales this month are OK. I would say more like August and July.''

GM, the biggest U.S. automaker, is pushing for $25 billion in government loans for the industry to help it convert to more fuel-efficient vehicles in a bid to stem losses.

Ford, Comcast

Ford Motor Co., the second-biggest U.S. automaker, said in a filing yesterday that it's assessing the impact of Lehman's bankruptcy on $1.13 billion in loan agreements with the New York- based investment bank.

Comcast, the largest U.S. cable-television provider, is watching how consumers weather the credit crunch, its chief financial officer told investors today.

Turmoil in the credit markets ``doesn't impact us really dramatically,'' Michael Angelakis said at a conference sponsored by Goldman Sachs Group Inc. in New York. ``We're very concerned about the ripple effect that that may have in the consumer market.''

U.S. stocks tumbled today as bank lending seized up in the wake of the government's takeover of American International Group Inc. and investors fled to the relative safety of Treasuries.

Evaluating Debt

Qwest Communications International Inc., the third-largest local phone company, may pay off more debt instead of refinancing it because of ``shaky'' credit markets, Chief Executive Officer Edward Mueller said today at the Goldman conference in New York.

``The markets today will make us have to evaluate any debt,'' Mueller said. ``We're really comfortable with our cash flow, and being that comfortable gives us a lot of flexibility here to make sure we do what's right for the long term.''

The cost of borrowing in dollars for three months jumped the most since 1999 today as banks hoarded cash amid concern more financial institutions will fail. The London interbank offered rate, or Libor, rose 19 basis points to 3.06 percent, the British Bankers' Association said. The overnight dollar rate soared 3.33 percentage points yesterday, the largest increase in its history. It fell 1.41 to 5.03 percent today.

`Downward Spiral'

By pushing up the price of money, the meltdown may further depress consumer spending that was propped up last quarter by tax rebates.

Tim Manganello, CEO of BorgWarner Inc., said the Lehman bankruptcy and Merrill takeover will have ``a significant global impact.'' BorgWarner, based in Auburn Hills, Michigan, makes automotive turbochargers. Manganello said he expects automotive sales in North America and Europe to be hurt as credit likely will become tougher to obtain and consumer confidence will fall.

``This could be a significant downward spiral caused as much by perception as reality,'' Manganello said. ``Nobody feels comfortable if they think their savings are at risk.''

The fallout on Wall Street will probably have the biggest impact on New York, said Brad Anderson, CEO of Richfield, Minnesota-based Best Buy Co.

``You've got high-income people who have kind of a scary ride right now in terms of what's happening with their careers,'' Anderson said. ``I would expect you would see an effect on the whole community, as has happened historically in New York.''

Borrowing Costs

Banks have already tightened credit for consumers and companies this year after $515 billion of asset writedowns and credit losses since the start of 2007 amid the worst housing slump since the Great Depression.

Lehman's bankruptcy will make it harder for corporations and individuals to borrow money, hurting the economy for ``an extended period,'' said Richard Bove, an analyst at Ladenburg Thalmann & Co.

``We are in uncharted territory,'' Bove, based in Lutz, Florida, wrote in a Sept. 14 note. ``It seems likely that all financial firms that extend credit will be pulling back on their credit lines.''

Film studio Lions Gate Entertainment Corp. shouldn't be adversely affected by Wall Street's crisis after raising money for films last year, Vice Chairman Michael Burns said in an interview. The company also has a $340 million credit facility with JPMorgan Chase & Co. and Wachovia Corp., and more than $250 million in cash and cash equivalents.

Lions Gate, based in Vancouver and run from Santa Monica, California, has become more conservative with how it invests its money and sticks to government securities, Burns said.

``There's too much volatility in the marketplace,'' he said. ``Now we only park money in places that closely resemble Caesar's wife -- beyond reproach.''

To contact the reporters on this story: Mike Ramsey in Southfield, Michigan, at mramsey6bloomberg.net; Greg Bensinger in New York at gbensinger1@bloomberg.net; Mark Clothier in Atlanta at mclothier@bloomberg.net

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Treasury to Sell Bills to Bolster Fed Balance Sheet

By Rebecca Christie and John Brinsley

Sept. 17 (Bloomberg) -- The Treasury will sell more debt to enable the Federal Reserve to expand its balance sheet, a sign of the strains created by the biggest extension of central-bank credit to financial companies since the Great Depression.

The program starts today with a $40 billion auction of 35- day bills, a day after the government agreed to take over American International Group Inc., the Treasury said in a statement in Washington.

The proceeds will ``provide cash for use'' by the Fed as it seeks to boost liquidity in credit markets struggling from $515 billion in writedowns and losses since the start of last year. The announcement illustrates the potential drain on the government's finances in taking over AIG, Fannie Mae and Freddie Mac, and taking on $29 billion in Bear Stearns Cos. assets.

``It is becoming imperative for the Fed to take actions to enlarge its balance sheet,'' said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. in New York.

Yesterday the Fed announced an $85 billion loan to AIG, in exchange for a 79.9 percent government stake in the largest U.S. insurer. The Fed also has set up several other emergency lending programs to provide Wall Street firms with ready access to funding.

``The program will consist of a series of Treasury bills, apart from Treasury's current borrowing program'' and ``will provide cash for use in the Fed initiatives,'' the department's statement said.

Paulson's Role

Treasury Secretary Henry Paulson has worked with the Fed to manage the financial sector's cash crunch. The new bill auctions will help to ensure financial institutions have ready access to Treasury securities, which have been in short supply recently as firms try to maintain liquidity.

Arguing before Congress in July for unlimited authority to help mortgage companies Fannie Mae and Freddie Mac, Paulson said ``if you have a bazooka in your pocket and people know it, you probably won't have to use it.''

``This is Hank Paulson making sure that there are extra bazooka shells sitting at the Fed,'' said Adam Posen, deputy director of the Peterson Institute for International Economics in Washington. Treasury is ``hoping this convinces people that'' the Fed won't have to use them, Posen said.

The Fed will offset the impact of the new bill sales on its balance sheet so as not to affect the stance of monetary policy. The federal funds rate target will remain at 2 percent.

The Treasury said it will sell the new bills using its existing auction procedures, giving ``as much advance notification as possible.'' The bills will not have a uniform fixed term, giving the Treasury the same duration flexibility that it has with cash-management bills.

Fed holdings of Treasury securities have fallen to $478 billion as of Sept. 10, from $741 billion at the beginning of the year, as the central bank has made room on its balance sheet for the new lending facilities.

To contact the reporter on this story: Rebecca Christie in Washington at rchristie4@bloomberg.netJohn Brinsley in Washington at jbrinsley@bloomberg.net



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Sevan Marine Jumps on Report of Financing for Vessels

By Vibeke Laroi

Sept. 17 (Bloomberg) -- Sevan Marine ASA gained in Oslo trading after Dagens Naeringsliv said the builder of offshore floating units for the oil industry is close to securing financing for two vessels.

Sevan Marine jumped 1.4 kroner, or 6.2 percent, to 24.1 kroner, after climbing as much as 20 percent in earlier trading, the most since the shares were first sold in November 2004.

Dagens Naeringsliv said the company had secured commitments from General Electric Co. and BNP Paribas SA to finance two of its vessels, citing Chief Executive Officer Jan Erik Tveteraas. Sevan Marine expects to reach an agreement ``shortly,'' he said, according to the Oslo-based newspaper.

The cost of upgrading Sevan's two vessels for drilling operations would be $1.4 billion to $1.5 billion, of which 70 percent is expected to be financed through borrowing and the remainder through equity, the newspaper reported. The vessels have been hired by India's Oil & Natural Gas Corp. and Brazil's Petroleo Brasileiro SA, Dagens Naeringsliv said.

Tveteraas wasn't immediately available for comment when contacted by Bloomberg News.

Sevan Marine plunged as much as 28 percent yesterday before closing down 18 percent at 22.7 kroner as crude oil slumped to a seven-month low amid the worsening global credit crisis. The shares are down 68 percent this year.

Turnaround

``An announcement of an industrial partner and debt facilities could trigger a turnaround,'' Carnegie ASA analyst Frederik Lunde wrote in a note today.

The shares were also boosted by a report in The Economic Times of India that Jindal Drilling & Industries Ltd. is in talks with Sevan to form a $700 million joint venture to construct a deepwater rig, according to Lunde.

If the deal goes through, Sevan Marine would hold a 75 percent stake in the venture while Jindal would own the remainder, the newspaper reported on its Web site.

``This implies a $50 million equity infusion from Jindal,'' Lunde wrote in the research note. New Delhi-based Jindal drills for oil and gas.

To contact the reporter on this story: Vibeke Laroi in Oslo at vlaroi@bloomberg.net



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Global Confidence Falls as Lehman, AIG Roil Financial Markets

By Ben Sills

Sept. 17 (Bloomberg) -- Confidence in the global economy fell in September as financial turmoil deepened in the U.S., a survey of Bloomberg users on five continents showed.

The Bloomberg Professional Global Confidence Index fell to 11.3, from 14.1 in August. Confidence among U.S. respondents fell to 10.6 from 18.2, while the Western European measure was at 12.6 after 12.9. A reading below 50 indicates pessimism.

A yearlong credit squeeze culminated in the past two weeks with the bankruptcy of Lehman Brothers Holdings Inc. and the bailout out of Fannie Mae, Freddie Mac and American International Group Inc. Overnight borrowing costs soared as banks hoarded cash.

``We moved from Fannie and Freddie to Lehman to AIG, and even today, one question is: who is going to be next?'' said Simon Barry, an economist at Ulster Bank in Dublin, who participated in the survey. ``A lot of these risks haven't gone away.''

The MSCI index of global financial shares has declined 10 percent since early last week. The U.S. Federal Reserve yesterday said it would lend the country's biggest insurer, American International Group Inc., $85 billion to avert the worst financial collapse in history. A day earlier, Lehman Brothers filed for bankruptcy and Merrill Lynch & Co. agreed to be taken over by Bank of America Corp.

About 3,500 Bloomberg users from Tokyo to New York posted responses between Sept. 8 and Sept. 12 as investors absorbed U.S. Treasury Secretary Henry Paulson's decision to bail out Fannie Mae and Freddie Mac, the lenders which own or guarantee $12 trillion of U.S. mortgages.

Credit Losses

Banks worldwide have tallied more than $500 billion in losses and writedowns since credit markets seized up a year ago.

``We haven't experienced anything like this since 1929,'' Former European Central Bank chief economist Otmar Issing, 72, said in a Bloomberg Television interview yesterday. ``Global growth will slow and is already slowing. But overall, the risks have mostly been confined to a few industrialized countries.''

Bloomberg users increased expectations that lower oil prices will allow central bankers to pare interest rates as the economic outlook deteriorates. In Germany, the measure for central bank- rate expectations fell to 34.1 from 42.7, signaling respondents in Europe's biggest economy now anticipate that the European Central Bank may cut its key rate in the coming six months. The gauges also declined in the U.S., Japan, and the rest of the euro region.

The price of oil fell by a third since touching a record $147.27 in July and traded at $93.26 a barrel in New York at 10:42 a.m. Central European Time today.

Timing of Recovery

``For global business confidence to improve two things are needed: the U.S. housing market to bottom out and a sign that the financial turmoil is nearing an end,'' said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo. ``That won't be until around the second quarter in 2009.''

The cost of borrowing in dollars overnight more than doubled yesterday as banks hoarded cash amid speculation more financial institutions will fail. The overnight dollar rate soared 333 basis points to 6.44 percent, its biggest jump, according to the British Bankers' Association.

The euro region and the Japanese economies both contracted in the second quarter, while the European Union says the U.K. will suffer a recession in the second half of the year. In the U.S., unemployment jumped to 6.1 percent in August, the highest in five years.

Respondents in Japan were the most pessimistic about the global outlook. Participants in Spain, which the EU says faces its first recession in 15 years, were the gloomiest about their economy, with a reading of 4.1, followed by the U.K. Participants in Brazil remained the most optimistic about their economy, at 58.2.

To contact the reporter on this story: Ben Sills in Madrid at bsills@bloomberg.net

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Black Swans Become Norm, Instead of Exception: William Pesek

Commentary by William Pesek

Sept. 17 (Bloomberg) -- The cottage industry that Nassim Taleb created with his book ``The Black Swan: The Impact of the Highly Improbable'' has gone beyond global.

The options-trader-turned-author is concerned with rare, major events that humans argue were predictable in hindsight. It's a kind of philosophical Murphy's Law for investors, and one increasingly hears folks from New York to Ulaanbaatar buzzing about black-swan events.

Taleb's 2007 book, named after a bird once thought not to exist, was itself a black swan -- an unexpected hit with great impact. It ranks much higher on Amazon.com's sales charts than Alan Greenspan's 2007 memoirs, ``The Age of Turbulence.''

That, too, gets into black-swan territory. Who would have expected a year ago that Taleb would be outselling the man dubbed ``Maestro'' in a gushing 2000 book by Bob Woodward?

Taleb's insight that we are all blind to rare events and fool ourselves into thinking we can predict risks and rewards proved more prescient. Former Federal Reserve Chairman Greenspan helped fuel the bubbles and set the weak regulatory stage for the U.S. financial crisis. Taleb shed light on why few saw it coming.

It gets you wondering what other unexpected, high-impact events are ahead.

Japan's Lead

Who would have predicted the great Bear Stearns Cos. would collapse? Or that Lehman Brothers Holdings Inc., founded in 1850, would be next? Or that the Fed would follow Japan's lead and shore up a cracking system with ultra-low interest rates? Or that the U.S. financial crisis -- featuring zombies such as Fannie Mae and Freddie Mac -- might be worse than Japan's?

Who would have thought five years ago that Russia would be calling the shots in 2008? Or that the wealth of Singapore, population 4.7 million, would be integral to keeping the $14 trillion U.S. economy afloat?

Would you have believed North Korea experts would be wondering if the son who got caught trying to visit Tokyo Disneyland with a forged Dominican Republic passport might replace Kim Jong Il? Or that South Korea would turn the tables on Wall Street with Lehman going hat-in-hand to Korea Development Bank for capital?

Perhaps the most disorienting change in the global order is the shift in power from West to East.

Black Swans

Black-swan enthusiasts will point out that some of the above examples don't exactly fit Taleb's definition. Yet the power shift to Asia and the Middle East is occurring faster than seemed possible. It has markets considering how countries could use the phenomenon to their advantage.

So what do newly rich, often autocratic countries want and how can they get it?

Just think how surprised we'll all be when the United Arab Emirates, awash in petrodollars, undertakes an emergency takeover of Citigroup Inc., Morgan Stanley and Washington Mutual Inc. Think of how New Yorkers will react when U.A.E. officials announce plans to move Wall Street to a man-made island in the Persian Gulf.

Julian Barnes laid out the plan in his 1998 novel ``England, England.'' It chronicled the creation of a U.K.-themed amusement park that Britons and tourists like better than the country itself. Given the U.S.'s crumbling airports, bridges and dodgy broadband speeds, financiers may like the new Wall Street more than the old one.

Using Power

What else haven't we thought of? Perhaps China will agree to increase purchases of U.S. Treasury bonds and not dump U.S. agency debt in exchange for Taiwan. Maybe China wants to buy Australia, where the stock market is about 30 percent cheaper this year.

Russian tourists love visiting London. Oil-rich Russia may want to buy the city, and with the housing slump, it may get it on the cheap. Perhaps the Middle East will seek to buy every football team in the English Premier League.

Or after Singapore's sovereign wealth fund owns a piece of all major banks, it might be able to get them to shut their Hong Kong operations and relocate to new office buildings in the island-nation's own central business district.

Yes, this all sounds nuts, kind of like a woman running for prime minister in male-dominated Japan, as Yuriko Koike is. It sounds crazy, like China controlling the weather at the Olympics, or some scientists fearing an experiment at a laboratory near Geneva would destroy our planet.

White Is Black

Pure lunacy -- like a politician twice accused of sodomy being on the verge of leading Muslim-majority Malaysia. Or Japanese and American voters thinking old-school politicians Taro Aso, 67, and John McCain, 72, are the agents of change that their sputtering economies need.

I'm getting fanciful here for a reason. The rhythm of this column moves from the serious to the seemingly absurd because that's what has become of global markets.

Lots of bright people tried to call the bottom in markets. The normal goalposts of analysis and financial models have proven useless. The more certainty with which so-called experts tell you what will happen, the faster you should run in the other direction.

These days, up really does seem to be down and white really does seem to be black, at least where swans and prognosticators' eyes are concerned.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)

To contact the writer of this column: William Pesek in Tokyo at wpesek@bloomberg.net



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Natural Gas Futures Gain as AIG Rescue May Aid U.S. Economy

By Reg Curren

Sept. 17 (Bloomberg) -- Natural gas futures advanced as the Federal Reserve's rescue of American International Group Inc. eased concern of a U.S. economic slowdown.

Gas rose as much as 5.8 percent after the government took control of AIG, the country's biggest insurer. The futures have lost almost half their value since early July on speculation that demand from utilities and factories would drop because of a weakening economy.

``With AIG being supported by the government, there is upside for the entire energy complex,'' said Chris Jarvis, president of Caprock Risk Management in Hampton Falls, New Hampshire. ``It alleviates the need for people to sell at all costs and speculators are back in buying.''

Natural gas for October delivery gained 35.6 cents, or 4.9 percent, to $7.635 per million British thermal units at 10:55 a.m. on the New York Mercantile Exchange. Prices are up 15 percent from a year ago.

``Once people's risk aversion dissipates and the fear factor drops, they'll put money back into commodities,'' Jarvis said. ``Commodities have come off so far that if you want exposure it's a good time to get back in. I expect natural gas to be a leader.''

A decline in gas output from the Gulf of Mexico caused by hurricanes Ike and Gustav has slowed the rebuilding of stockpiles for the cold-weather season, helping lift prices, Jarvis said.

U.S. gas inventories rose 64 billion cubic feet in the week ended Sept. 12, according to the median of 10 analyst estimates compiled by Bloomberg. Supplies in the same week over the past five years advanced an average 88 billion cubic feet, according to the Energy Department.

Supply Estimates

Inventories are probably going to be near the five-year average of 3.4 trillion cubic feet for the coming winter, Jarvis said. Supplies rose to a record 3.545 trillion last Nov. 1.

``The sentiment in the market is maybe we'll fall a little behind on storage, with a gain in the high 50s or low 60s'' last week, said Tom Orr, director of research at Weeden & Co. in Greenwich, Connecticut. ``We might find ourselves 150 billion cubic feet less than where we were last year in the next couple of weeks because of shut-ins.''

Gulf production has been mostly shut this month because of hurricanes Ike and Gustav, boosting expectations that winter inventories will be pinched. Supplies normally gain before November, when demand for the heating fuel begins its rise to a winter peak.

About 84 percent of the Gulf's daily production of 7.4 billion cubic feet was shut in as of yesterday, the U.S. Minerals Management Service said.

`Base at $7'

Technical analysis of the natural gas price chart also suggests a ``more constructive'' outlook for the heating and industrial fuel, Orr said.

``Gas is hanging in there and has been building a base at $7 for close to a month,'' said Orr. ``If you go back and look at the chart last year it ground down in November and December to that $7 level and then started to shoot up. You need time and price to set a bottom.''

Technical traders watch for patterns on daily charts for clues to price direction, and will sell or buy commodities or equities based on those indicators.

To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net.



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Petro-Canada Sees Surging Costs at Fort Hills Project

By Stephen Bierman

Sept. 17 (Bloomberg) -- Petro-Canada and partners estimated investments to develop the Fort Hills oil sands project in Alberta may be more than 50 percent higher than forecast last year as labor, materials and construction costs climb.

The estimate has risen to C$23.8 billion ($25.5 billion), excluding some costs such as feed engineering, from C$14.1 billion, Martin Sandell, a vice president at Calgary-based UTS Energy Corp., which holds 20 percent of the project, said on a conference call today. Petro-Canada owns 60 percent and Teck Cominco Ltd. owns the rest.

``The numbers are still a moving target in terms of final dollars,'' Peter Symons, a Petro-Canada spokesman, said by telephone from Calgary. ``The scope of the project, the targets remains the same.''

An investment decision will be made in the fourth quarter after completion of the engineering and design plan. The project targets production of 280,000 barrels of crude a day by 2015. By, comparison, Petro-Canada expects output of 420,000 barrels of oil equivalent a day this year.

Moving Target

The company, in the first stage, has aimed to produce 140,000 barrels a day of synthetic crude from the fields, with initial output from the Sturgeon upgrader in the second quarter of 2012. It estimates associated bitumen production of 160,000 barrels a day with initial production in the fourth quarter of 2011, Petro-Canada said.

The project will also require regulatory permits for mines and the Sturgeon upgrader located near Edmonton, Symons said.

UTS Chief Executive Officer William Roach said the cost increased is ``of great concern,'' according to a statement. ``The partnership is working together constructively to examine all options available to the project, including re-phasing with UTS' specific objective to reduce the capital exposure prior to first oil,'' he said.

UTS shares plunged 38 percent to C$1.48 as of 11:19 a.m. in Toronto. Petro-Canada fell 2.9 percent to C$38.5. Teck Cominco fell 3.3 percent to C$34.25.

``Financing was already a concern in the current credit market,'' UBS AG analyst Andrew Potter wrote in a research report. ``With the mounting cost escalation and a sum of $3 billion of additional financing, UTS faces considerable headwinds moving forwards.''

To contact the reporter on this story: Stephen Bierman in London ext 4139 sbierman1@bloomberg.net.



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Nigerian Militants Step Up `Oil War' With Niger Delta Attacks

By Karl Maier and Dulue Mbachu

Sept. 17 (Bloomberg) -- Nigeria's main militant group in the Niger River delta intensified its ``oil war'' for a fifth day, claiming to have destroyed an oil-pumping station and a pipeline operated by a unit of Royal Dutch Shell Plc.

The Movement for the Emancipation of the Niger Delta, in an e-mailed statement today, said it attacked the Orubiri pumping station in Rivers state at 10 p.m. yesterday. A Nigerian military spokesman confirmed the raid. MEND later said it destroyed an oil pipeline at Rumuekpe, also in Rivers state.

``The political mood in the capital Abuja is shifting away from negotiation and dialogue towards a tough military response,'' Antony Goldman, an independent analyst specializing in Nigeria, said by phone from London. ``If militants can take the violence beyond Rivers, it will represent a setback for what appears to be the military's new strategy.''

Attacks by armed groups in the Niger delta region have cut more than 20 percent of Nigeria's crude exports since 2006. Nigeria was Africa's top oil producer last month.

``MEND seem the most organized they have been for almost two years, yet the Federal Government is lacking leadership on this crucial issue in how to find a resolution in the Delta,'' Thomas Pearmain, a London-based energy analyst at Global Insight, said in an e-mailed response to questions.

Shell is aware of reports of sabotage at Rumuekpe and is investigating, company spokesman Precious Okolobo said in a telephone interview today.

Shell, the biggest international operator in Nigeria's oil industry, has borne the brunt of the attacks. The company runs 6,000 kilometers (3,720 miles) of pipelines, 87 oil pumping stations, 10 gas plants and two main oil export terminals, according to its Web site.

`Oil War'

The latest spate of attacks began on Sept. 13 when Nigerian soldiers and militants clashed in the Elem-Tombia district, south of Port Harcourt, the hub of Nigeria's oil industry. MEND said troops had launched an air and marine offensive against its positions and declared an ``oil war'' targeting installations in the region, which produces almost all of Nigeria's crude.

MEND today threatened to broaden its range of attacks beyond Rivers to other states and deep offshore oilfields such as Shell's Bonga and Chevron Corp.'s Agbami facilities.

``The whole Delta region appears to be under attack as MEND has promised to move across the delta after completing their attacks in Rivers State,'' Pearmain of Global Insight said.

MEND says it's fighting on behalf of the inhabitants of the Niger Delta who have yet to share in the oil wealth of the 70,000-square kilometer region.

Stolen Crude

The government and independent analysts say many of the armed groups in the Niger delta are involved in selling stolen crude and kidnapping.

``Armed groups are well resourced and have a lucrative illicit trade to protect,'' Goldman said.

The attackers of the Orubiri pumping station arrived in eight speed boats and targeted a naval vessel with 10 people on board, said Lieutenant-Colonel Sagir Musa, a spokesman for the region's joint military task force. No naval personnel were killed in the attack, he said.

``Militants detonated dynamite, bombs and lobbed some pieces of hand grenades on the facility,'' Musa said in a mobile-phone text message. ``It is feared that the facility might have caught fire due to intense sporadic gunshots and massive dynamite and bomb explosions.''

MEND said it had teamed up for the Orubiri raid with the Niger Delta People's Volunteer Force, which first took up arms in 2004 before reaching a peace deal with the government a year later.

Volunteer Force

The volunteer force's leader, Mujahid Dokubu Asari, issued a statement with other delta militant leaders yesterday condemning the government's military actions in the oil region.

``It should be a major worry to oil companies and the government that MEND formed an alliance with another militant group to attack and destroy the Orubiri flow station,'' Pearmain said. ``MEND has previously tended to work on its own.''

On Sept. 15, MEND attacked a Shell-run pipeline at Bakana in Rivers state and the company's Alakiri flow station the night before. Militants also clashed with soldiers near a Chevron oil field yesterday.

Chevron spokesman Scott Walker said yesterday that the incident near the Idama oil field had no impact on production, which was already shut-in for pipeline repairs.

Nigeria pumped 1.9 million barrels of oil a day last month, according to Bloomberg estimates, which is 263,000 barrels a day less than its quota from the Organization of Petroleum Exporting Countries.

To contact the reporter on this story: Dulue Mbachu via the Johannesburg bureau at abolleurs@bloomberg.net



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