By Theresa Barraclough
Oct. 25 (Bloomberg) -- Japan's 10-year bonds yesterday capped the biggest weekly gain since June as investors sought to preserve their capital amid a global stocks rout that wiped out more than $10 trillion of market value this month.
The securities yesterday climbed for a fourth day after Sony Corp. cut its annual earnings target by more than half, sending the Nikkei 225 Stock Average down to the brink of 1982 levels. Demand for shorter-maturity debt increased on mounting speculation the Bank of Japan will lower interest rates this year to prevent a prolonged recession.
``JGBs are relatively attractive,'' said Eiji Dohke, chief strategist at UBS Securities Japan Ltd. in Tokyo. ``The decline in corporate-sector performance will weigh on domestic stocks.''
The yield on the 1.5 percent bond due September 2018 fell 9 basis points this week to 1.48 percent in Tokyo at Japan Bond Trading Co., the nation's largest interdealer debt broker. The price rose 0.773 yen on the week to 100.172 yen. A basis point is 0.01 percentage point.
Five-year yields declined 11.5 basis points since last week to 1.025 percent. Ten-year bond futures for December delivery gained 1.95 to 137.70 as of the afternoon close at the Tokyo Stock Exchange yesterday.
Sony, the world's second-biggest maker of consumer electronics, on Oct. 23 slashed its forecast for annual operating profit by 57 percent, citing the stronger yen and worsening market conditions for televisions and digital cameras.
The yen has climbed 13 percent against the dollar over the past three months, the sole gainer among the 16 most-actively traded currencies. The Nikkei yesterday dropped below 8,000 for the first time since May 2003, finishing at 7,649.08 in Tokyo, just 41 points shy of the lowest close since 1982.
Stock Losses
Japan's bonds often move in the opposite direction to stocks. Benchmark 10-year yields had a correlation of 0.97 with the Nikkei 225 this week, according to data compiled by Bloomberg. A value of 1 means the two moved in lockstep.
The gain in longer-dated bonds was limited on speculation the government will issue debt to finance an economic stimulus package, according to Principal Global Investors. Twenty-year yields increased 3 basis points this week to 2.175 percent.
``People are staying away from the long end,'' said Guthrie Williamson, portfolio manager in Sydney at PGI, which manages $244.9 billion in assets globally. ``The absorption will drive the market in the short term.''
The government will compile a second economic stimulus package by the end of the month, having drafted a 2 trillion yen ($20.8 billion) plan in August. Finance Minister Shoichi Nakagawa said on Oct. 21 that selling bonds to pay for an additional package remains an option.
Rate-Cut Odds
There was a 26 percent chance yesterday the Bank of Japan will lower its benchmark rate to 0.25 percent from 0.5 percent by year-end, up from 3 percent odds a month ago, according to calculations by JPMorgan Chase & Co. using overnight interest- rate swaps.
``With the yen advancing and stocks falling, concerns about Japan's financial system and economy are mounting,'' said Jun Fukashiro, senior fund manager at Toyota Asset Management Co. in Tokyo. ``A rate cut seems unavoidable.''
The government this week acknowledged Japan has probably entered its first recession in six years after the economy shrank in the second quarter and factory output, machine orders and household spending fell in August.
To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.
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Saturday, October 25, 2008
Malaysia Holds Rate, Pledges `Swift' Action to Support Growth
By Shamim Adam
Oct. 25 (Bloomberg) -- Malaysia's central bank pledged it will take action to prevent the economy from deteriorating after keeping the benchmark interest rate unchanged for the 20th straight meeting.
``In the face of diminishing inflationary pressures, and in the event of heightened downside risks to growth, the bank will take swift monetary policy action to provide support to the economy,'' Bank Negara Malaysia said yesterday, after maintaining the overnight policy rate at 3.5 percent.
The decision contrasts with cuts by central banks in China, India and Australia, which have lowered borrowing costs in recent weeks to spur growth amid a looming global recession. Malaysia's inflation has started to ease from a 26-year high and that may give the central bank room to reduce interest rates should the economy slump.
``Bank Negara will look to ease policy, possibly as soon as the next meeting, especially if the growth risks become clearer and inflation risks diminish,'' said Mark Tan, an economist at Goldman Sachs Group Inc. in Hong Kong. ``The main factor that will influence future rate decisions would be how fast they expect the growth outlook to unravel.''
Earlier this year, the central bank had held off from raising rates to cool inflation as challenges to Prime Minister Abdullah Ahmad Badawi's leadership threatened to hurt consumer confidence and economic growth. Opposition Leader Anwar Ibrahim, who had said he wanted to topple the government by September, said this week that goal is now harder to achieve.
Inflation Peaks
The central bank said yesterday inflation has peaked and risks to global growth have increased ``significantly.'' Consumer-price gains slowed to 8.2 percent last month from 8.5 percent in August.
Bank Negara expects inflation to slow to below 4 percent before the second half of 2009, Governor Zeti Akhtar Aziz said last week. The government cut gasoline prices three times since late August as crude oil fell from a record in July.
``An increasing number of indicators now signal an easing of inflationary pressures,'' the central bank said yesterday. ``Lower cost pressures and moderating domestic demand are expected to reduce inflation in 2009.''
Central banks around the world are shifting their focus to supporting growth from damping inflation as the global credit crisis escalates. The turmoil has led to the collapse of banks and forced some countries to approach the International Monetary Fund for loans, while more nations are reporting a contraction in their economies, increasing the risk of a world recession.
Global Downturn
``The greater focus of policy makers is now towards restoring the functioning of the international financial markets and towards avoiding a sharp global economic downturn,'' Bank Negara said.
Malaysia will cut its 2009 economic-growth forecast on Nov. 4, from the current estimate of 5.4 percent, Finance Minister Najib Razak said this week.
``The slower global growth and the decline in commodity prices will affect the performance of the export sector and consequently, the overall economic growth in 2009,'' the central bank said.
Other central banks have already cut interest rates. The Reserve Bank of India lowered its benchmark by 1 percentage point on Oct. 20, while China has cut borrowing costs twice in the past six weeks.
To contact the reporter on this story: Shamim Adam in Singapore sadam2@bloomberg.net
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Oct. 25 (Bloomberg) -- Malaysia's central bank pledged it will take action to prevent the economy from deteriorating after keeping the benchmark interest rate unchanged for the 20th straight meeting.
``In the face of diminishing inflationary pressures, and in the event of heightened downside risks to growth, the bank will take swift monetary policy action to provide support to the economy,'' Bank Negara Malaysia said yesterday, after maintaining the overnight policy rate at 3.5 percent.
The decision contrasts with cuts by central banks in China, India and Australia, which have lowered borrowing costs in recent weeks to spur growth amid a looming global recession. Malaysia's inflation has started to ease from a 26-year high and that may give the central bank room to reduce interest rates should the economy slump.
``Bank Negara will look to ease policy, possibly as soon as the next meeting, especially if the growth risks become clearer and inflation risks diminish,'' said Mark Tan, an economist at Goldman Sachs Group Inc. in Hong Kong. ``The main factor that will influence future rate decisions would be how fast they expect the growth outlook to unravel.''
Earlier this year, the central bank had held off from raising rates to cool inflation as challenges to Prime Minister Abdullah Ahmad Badawi's leadership threatened to hurt consumer confidence and economic growth. Opposition Leader Anwar Ibrahim, who had said he wanted to topple the government by September, said this week that goal is now harder to achieve.
Inflation Peaks
The central bank said yesterday inflation has peaked and risks to global growth have increased ``significantly.'' Consumer-price gains slowed to 8.2 percent last month from 8.5 percent in August.
Bank Negara expects inflation to slow to below 4 percent before the second half of 2009, Governor Zeti Akhtar Aziz said last week. The government cut gasoline prices three times since late August as crude oil fell from a record in July.
``An increasing number of indicators now signal an easing of inflationary pressures,'' the central bank said yesterday. ``Lower cost pressures and moderating domestic demand are expected to reduce inflation in 2009.''
Central banks around the world are shifting their focus to supporting growth from damping inflation as the global credit crisis escalates. The turmoil has led to the collapse of banks and forced some countries to approach the International Monetary Fund for loans, while more nations are reporting a contraction in their economies, increasing the risk of a world recession.
Global Downturn
``The greater focus of policy makers is now towards restoring the functioning of the international financial markets and towards avoiding a sharp global economic downturn,'' Bank Negara said.
Malaysia will cut its 2009 economic-growth forecast on Nov. 4, from the current estimate of 5.4 percent, Finance Minister Najib Razak said this week.
``The slower global growth and the decline in commodity prices will affect the performance of the export sector and consequently, the overall economic growth in 2009,'' the central bank said.
Other central banks have already cut interest rates. The Reserve Bank of India lowered its benchmark by 1 percentage point on Oct. 20, while China has cut borrowing costs twice in the past six weeks.
To contact the reporter on this story: Shamim Adam in Singapore sadam2@bloomberg.net
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Asian Currencies Drop in Week, Led by Won, on Recession Concern
By Anil Varma and Kim Kyoungwha
Oct. 25 (Bloomberg) -- Asian currencies slumped this week, led by South Korea's won and Indonesia's rupiah, as stocks slid on concern a global recession will damp demand for the region's exports.
The won had a sixth weekly decline as the central bank said Asia's fourth-largest economy grew 0.6 percent last quarter, the slowest pace in four years. Choi Chun Sin, director general of the Bank of Korea's statistics department, said yesterday growth is slowing ``faster than expected'' and will fall short of the bank's forecast of 4.6 percent for 2008. Nine of the 10 most- active Asian currencies Bloomberg tracks fell this week.
``Sentiment is really fragile,'' said Jo Hyun Suk, a currency dealer at Korea Exchange Bank in Seoul. ``The foreign exchange is being easily swayed by any bad news in a market whose volume shrank sharply of late.''
The won dropped 6.3 percent this week to close at 1,424 per dollar in Seoul, near the lowest level in a decade, according to Seoul Money Brokerage Services Ltd. The rupiah touched 10,315 a dollar, the weakest since October 2005.
The South Korean currency extended its loss this year to 35 percent, making it Asia's worst performer. The Kospi stock index lost 20.5 percent this week as overseas funds sold more of the nation's shares than they bought for an eighth day, according to Korea Exchange.
The MSCI Asia-Pacific Index of shares dropped 5 percent yesterday after Sony Corp. cut its earnings estimates and Korea's economic growth slowed. Japan's Nikkei 225 Stock Average plunged 9.6 percent.
Carry Trades
The yen climbed to a 13-year high yesterday against the dollar as the risk of a global recession prompted investors to slash carry trades, in which they fund purchases of higher- yielding assets with the Japanese currency. The dollar rose to a two-year high versus the euro.
The yen also surged to the strongest in six years versus the euro after Belarus, Ukraine, Hungary and Iceland joined Pakistan in requesting at least $20 billion of emergency loans from the International Monetary Fund. Standard & Poor's Ratings Services yesterday threatened to cut Russia's debt ratings.
``I can't rule out the scenario where the yen rises even faster than anticipated,'' said Toru Umemoto, chief currency analyst in Tokyo at Barclays Capital. ``Speculators are unwinding carry trades. This risk aversion is coming from the credit crunch and the chance of a global recession.''
The yen rose as high as 90.93 per dollar, the highest level since August 1995, before trading at 93.29 yesterday. Against the euro, it climbed to 113.81 yen before trading at 118.66 yen versus 125.89 yen. The euro bought $1.2703 from $1.2934.
`Bad Sentiment'
Indonesia's rupiah rounded off a weekly loss on speculation investors sold the nation's assets. The currency has dropped 6.8 percent this month as the central bank was forced to rescue its Dutch commercial banking unit to prevent the collapse of the lender from affecting its credibility.
``It's a story of bad sentiment'' locally and in other emerging markets, said Enrico Tanuwidjaja, an economist at Oversea-Chinese Banking Corp. in Singapore.
Bank Indonesia will intervene although it can't defy ``big'' capital outflows, Governor Boediono said yesterday. Central banks intervene in currency markets by arranging sales or purchases of foreign exchange.
The rupiah fell 4.1 percent this week to 10,225 per dollar in Jakarta, according to data compiled by Bloomberg.
Taiwan's dollar completed its biggest weekly loss in 10 years after a government report showed the export outlook worsened more than economists expected last month.
`Contagion'
The currency fell for an eighth day yesterday, the longest losing streak since August, after the Ministry of Economic Affairs said export orders grew at the slowest pace in six years in September as demand from the U.S. and China cooled. The central bank sold about $500 million on Oct. 23 to help slow the local dollar's loss, the Commercial Times reported yesterday, citing traders it didn't identify.
``Taiwan is very exposed to the rest of the world,'' said Sean Callow, a senior currency strategist at Westpac Banking Corp. in Sydney. ``Obviously the central bank is slowing the move somewhat but it's a contagion.''
The island's currency slumped 2.65 percent this week to NT$33.412 against the U.S. dollar, the biggest five-day loss since the period ended Jan. 10, 1998, according to Taipei Forex Inc. The local dollar lost 0.4 percent yesterday.
India's rupee fell for an 11th week after the central bank cut the economic growth outlook for the year ending March 31 to as little as 7.5 percent from an earlier estimate of 8 percent.
The currency slid as much as 0.7 percent to 50.165 per dollar, an all-time low, before closing at 49.985 in Mumbai yesterday, data compiled by Bloomberg show. The currency has lost more than 21 percent this year and is headed for its worst year since 1991.
`Troubling Sign'
The Philippine peso fell for a fifth week as manufacturers bought fewer electronic parts for a sixth month in August, suggesting exports of laptops and mobile-phone chips will extend declines.
``The continued drop in electronics imports is symptomatic of the weakening global demand and a troubling sign that exports will slow,'' said David Cohen, an economist with Action Economics in Singapore. ``In this environment, the peso will remain under pressure.''
The peso lost 1.9 percent in the week to close at 48.991 per dollar in Manila, according to Bankers Association of the Philippines. Exports make up about 40 percent of the Philippine economy.
Elsewhere, the Thai baht fell 1.3 percent versus the dollar this week to 34.70 and the Singapore dollar dropped 1.9 percent to S$1.5105. Vietnam's dong weakened 1.5 percent to 16,848.
To contact the reporter on this story: Anil Varma in Mumbai at avarma3@bloomberg.net; Kim Kyoungwha in Beijing at kkim19@bloomberg.net.
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Asian Stocks Retreat for Seventh Week in Eight on Weak Profits
By Patrick Rial and Satoshi Kawano
Oct. 25 (Bloomberg) -- Asian stocks dropped for the seventh week in eight, sending the region's benchmark index to the lowest level since 2004, on signs profits are declining as the credit crisis worsens.
Sony Corp., maker of the Playstation2 game console, slumped 19 percent to the lowest in 13 years after slashing its profit forecast on weaker demand for electronics and the surging yen. Samsung Electronics Co. led South Korea's Kospi Index to its biggest weekly drop in at least two decades after its profit tumbled and as the government stepped up measures to shore up the nation's financial system. Newcrest Mining Ltd., Australia's largest gold producer, led a drop by commodities producers as oil, gold and copper all recorded new lows for the year.
``Financial markets have crashed and are out of control,'' said Yuji Ogino, an executive director at Meiji Dresdner Asset Management Co., which manages the equivalent of $28 billion in Tokyo. ``This crash is different from anything I've experienced since getting into this business in the late 1980s and it's hard to find ways to ride out the situation.''
The MSCI Asia Pacific Index lost 7.9 percent to 80.40 this week, bringing the index to its lowest close since May 2004. Measures of commodity and electronics companies posted the steepest declines among the index's 10 industry groups as only utilities recorded gains.
The MSCI gauge has lost 49 percent this year and is on track for its worst annual performance since it was created in 1987. About half the value of global equities has been erased in the last year, with almost $30 trillion in value lost.
South Korea, Japan
Japan's Nikkei 225 Stock Average dropped 12 percent to 7,649.08, bringing it less than 50 points away from a level last seen in 1982. The yen soared to as high as 90.93 versus the dollar as investors sought a safe haven from the financial crisis, which conversely exacerbated losses by exporters dependent on overseas sales for their profit.
Sony dropped 19 percent to 1,972 yen, the lowest since June 1995. The consumer electronic giant slashed its full-year profit forecast by 58 percent as digital camera and television sales are likely to miss previous estimates.
Samsung retreated 19 percent to 407,500 won. Third-quarter net income declined 44 percent to the lowest level since 2003 and the company abandoned a takeover bid for memory maker SanDisk Corp.
South Korea's Kospi index sank 20 percent as the government proposed a $130 billion bailout package for the nation's banks after Standard & Poor's said it may cut their credit ratings.
Singapore Telecommunications Ltd. fell 18 percent to S$2.06 after announcing job cuts and as partners withdrew from a SingTel-led group bidding to build Australia's national high- speed Internet network.
Hedge Funds Redemptions?
Shares also dropped amid speculation hedge funds are being forced to sell shares as clients put in redemption requests amid losses. Hedge funds worldwide posted an average monthly loss of 4.7 percent in September, a record, according to Eurekahedge Pte.
``Investors are fleeing risky assets,'' said Paul Joseph Garcia, who helps manage $1.33 billion as chief investment officer at ING Investment Management Ltd.'s Manila unit. ``After the hedge funds, long-term funds are now taking their turn and pulling money off the table to meet redemptions.''
Newcrest slumped 23 percent to A$17.45. Inpex Corp., Japan's biggest oil explorer, retreated 14 percent to 518,000 yen. Posco, Asia's third-largest steelmaker, lost 20 percent to 242,000 won as the company announced production cuts due to weakening steel demand.
Crude oil for November delivery dropped as low as $62.65 this week, down by more than half from a July record. Gold futures slumped to the lowest in more than a year, while copper prices retreated for the fifth time in six weeks.
Citic Pacific Ltd. lost 65 percent to HK$5.06 after saying it may have lost about $2 billion on wrong-way currency bets and its debt ratings were cut.
To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Satoshi Kawano in Tokyo at Skawano1@bloomberg.net.
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Oct. 25 (Bloomberg) -- Asian stocks dropped for the seventh week in eight, sending the region's benchmark index to the lowest level since 2004, on signs profits are declining as the credit crisis worsens.
Sony Corp., maker of the Playstation2 game console, slumped 19 percent to the lowest in 13 years after slashing its profit forecast on weaker demand for electronics and the surging yen. Samsung Electronics Co. led South Korea's Kospi Index to its biggest weekly drop in at least two decades after its profit tumbled and as the government stepped up measures to shore up the nation's financial system. Newcrest Mining Ltd., Australia's largest gold producer, led a drop by commodities producers as oil, gold and copper all recorded new lows for the year.
``Financial markets have crashed and are out of control,'' said Yuji Ogino, an executive director at Meiji Dresdner Asset Management Co., which manages the equivalent of $28 billion in Tokyo. ``This crash is different from anything I've experienced since getting into this business in the late 1980s and it's hard to find ways to ride out the situation.''
The MSCI Asia Pacific Index lost 7.9 percent to 80.40 this week, bringing the index to its lowest close since May 2004. Measures of commodity and electronics companies posted the steepest declines among the index's 10 industry groups as only utilities recorded gains.
The MSCI gauge has lost 49 percent this year and is on track for its worst annual performance since it was created in 1987. About half the value of global equities has been erased in the last year, with almost $30 trillion in value lost.
South Korea, Japan
Japan's Nikkei 225 Stock Average dropped 12 percent to 7,649.08, bringing it less than 50 points away from a level last seen in 1982. The yen soared to as high as 90.93 versus the dollar as investors sought a safe haven from the financial crisis, which conversely exacerbated losses by exporters dependent on overseas sales for their profit.
Sony dropped 19 percent to 1,972 yen, the lowest since June 1995. The consumer electronic giant slashed its full-year profit forecast by 58 percent as digital camera and television sales are likely to miss previous estimates.
Samsung retreated 19 percent to 407,500 won. Third-quarter net income declined 44 percent to the lowest level since 2003 and the company abandoned a takeover bid for memory maker SanDisk Corp.
South Korea's Kospi index sank 20 percent as the government proposed a $130 billion bailout package for the nation's banks after Standard & Poor's said it may cut their credit ratings.
Singapore Telecommunications Ltd. fell 18 percent to S$2.06 after announcing job cuts and as partners withdrew from a SingTel-led group bidding to build Australia's national high- speed Internet network.
Hedge Funds Redemptions?
Shares also dropped amid speculation hedge funds are being forced to sell shares as clients put in redemption requests amid losses. Hedge funds worldwide posted an average monthly loss of 4.7 percent in September, a record, according to Eurekahedge Pte.
``Investors are fleeing risky assets,'' said Paul Joseph Garcia, who helps manage $1.33 billion as chief investment officer at ING Investment Management Ltd.'s Manila unit. ``After the hedge funds, long-term funds are now taking their turn and pulling money off the table to meet redemptions.''
Newcrest slumped 23 percent to A$17.45. Inpex Corp., Japan's biggest oil explorer, retreated 14 percent to 518,000 yen. Posco, Asia's third-largest steelmaker, lost 20 percent to 242,000 won as the company announced production cuts due to weakening steel demand.
Crude oil for November delivery dropped as low as $62.65 this week, down by more than half from a July record. Gold futures slumped to the lowest in more than a year, while copper prices retreated for the fifth time in six weeks.
Citic Pacific Ltd. lost 65 percent to HK$5.06 after saying it may have lost about $2 billion on wrong-way currency bets and its debt ratings were cut.
To contact the reporter for this story: Patrick Rial in Tokyo at prial@bloomberg.net; Satoshi Kawano in Tokyo at Skawano1@bloomberg.net.
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Paulson Weighs Stakes in Insurers, Regional Lenders
By Robert Schmidt
Oct. 24 (Bloomberg) -- The U.S. Treasury is considering taking stakes in insurers, as it prepares a new round of capital injections to target regional banks and other financial companies, a person briefed on the plan said.
A final decision hasn't been made on whether insurers will be included in the government's purchases of preferred equity, said the person, who spoke on the condition of anonymity. The Treasury, which had planned to announce investments in about 20 banks, reversed course and will let firms disclose their own share sales in coming days, the person said.
An initial $125 billion out of $700 billion approved by Congress was allocated last week to buy shares of nine of the largest U.S. banks and another $125 billion was set aside for smaller lenders. Investments in insurance companies would widen the scope of Secretary Henry Paulson's Troubled Asset Relief Program as the credit crisis deepens.
``Capital adequacy has been a major concern among investors'' in insurance companies, said Nigel Dally, an analyst at Morgan Stanley in New York, in a note to investors today. ``If the Treasury were to purchase preferred equity stakes in some insurers, it would help calm these concerns.''
Paulson has shifted the government's financial rescue program to focus on equity purchases after markets deteriorated faster than policy makers anticipated. The strategy offers a quicker way to deploy taxpayer funds, Neel Kashkari, the Treasury official running the bailout plan, told lawmakers yesterday.
Mandatory Participation
A group of insurance companies -- primarily life insurers -- asked the Treasury earlier this week if they would be eligible to participate in the program, said an industry official with knowledge of the discussion.
Some life insurers have asked the government to make the participation of life companies mandatory because firms don't want to identify themselves as needing funds, the person said.
Earlier today, PNC Financial Services Group Inc. said it is acquiring National City Corp. for about $5.2 billion in stock after getting a $7.7 billion infusion from the Treasury.
Regions Financial Corp. and First Horizon National Corp., the biggest banks in Alabama and Tennessee, respectively, said today they received preliminary approval to receive capital from the Treasury. Regions is selling $3.5 billion in preferred stock and warrants and First Horizon is slated for an $866 million injection, the companies said. Other regional banks may say that they have sold shares to the government in the coming days.
Banking Units
Under the Treasury's rules for the capital injection program, some U.S. insurance companies -- those with a banking business -- are eligible to request an equity investment from the TARP.
The rescue law requires that Treasury's investments be publicly revealed within 48 hours. It isn't clear whether that means from the time the bank is approved or from when it receives the funds.
Today, the Financial Services Roundtable, a trade association of the 100 largest banks, securities firms and insurers, asked Treasury to broaden its guidelines so that insurance companies, broker-dealers, automobile companies and institutions controlled by foreign banks could also sell stakes to the government.
``The institutions that are excluded play a vital role in the U.S. economy by providing liquidity to the market,'' wrote Steve Bartlett, the group's president in a letter today to Kashkari.
45% Plunge
U.S. life insurance stocks have plunged about 45 percent in the past month on concern that losses on corporate debt and mortgage-backed securities will squeeze the firms' liquidity and force them to raise capital.
The Standard & Poor's 500 Insurance Index today rose 2.31, or 1.7 percent, to 139.66. The broader S&P 500 Index fell 31.34, or 3.5 percent, to 876.77.
MetLife Inc., the biggest U.S. life insurer, raised about $2.3 billion this month in a stock offering, and Hartford Financial Services Group Inc. said it would raise $2.5 billion from Allianz SE.
The largest insurers in the U.S. and Bermuda posted more than $93 billion in writedowns and unrealized losses on holdings tied to the collapse of the U.S. subprime mortgage market since the beginning of last year. Insurers invest policyholder premiums in bonds before paying claims.
AIG's Decline
American International Group Inc., once the world's largest insurer, accounts for about $48 billion of the declines.
AIG, which posted three straight unprofitable quarters because of bad bets on the housing market, agreed last month to turn over an 80 percent stake to the U.S. in exchange for an $85 billion loan. The New York-based insurer subsequently tapped a second federal credit line and has borrowed $90.3 billion.
AIG may need more than the $122.8 billion available, Chief Executive Officer Edward Liddy said Oct. 22 on PBS's ``The NewsHour With Jim Lehrer.''
Insurers including Allstate Corp., Prudential Financial Inc., Lincoln National Corp., MetLife and Travelers Cos. have suspended or scaled back share buybacks to shepherd capital as losses from fixed-income investments mount.
To contact the reporter on this story: Robert Schmidt in Washington at rschmidt5@bloomberg.net
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U.S. Economy: Home Resales Rose More Than Forecast
By Bob Willis
Oct. 24 (Bloomberg) -- Home resales in the U.S. rose more than forecast in September, aided by foreclosure-driven declines in prices that indicated the market was stabilizing before the latest slump in financial markets.
Purchases of existing homes jumped 5.5 percent last month to a 5.18 million annual pace, the highest level in a year, the National Association of Realtors said today in Washington. The median price dropped 9 percent.
Economists said sales figures for this month and next will be critical in determining whether sales have reached a bottom as predicted by the Realtors' group. Federal Reserve Chairman Ben S. Bernanke earlier this month said even households with ``good credit'' were finding it tough to get mortgages.
``This may be a temporary bump as we clear out these foreclosed properties,'' said Adam York, an economist at Wachovia Corp. in Charlotte, North Carolina. ``As the meltdown really hits these figures in late October and November, that's when we could see some retracement.''
Stocks tumbled as concern grew that the credit crisis has infected the broader economy. The Standard & Poor's 500 index dropped down 3.5 percent to close at 876.8. Treasuries rose.
Resales were forecast to rise to a 4.95 million annual rate from a 4.91 million pace in August, according to the median estimate of 66 economists in a Bloomberg News survey. Projections ranged from 4.7 million to 5.11 million.
One-Year Increase
Sales rose 1.4 percent compared with a year earlier, the first year-over-year increase since November 2005. Resales totaled 5.65 million in 2007.
Today's figures compare with the 4.86 million level reached in June, the lowest in a decade and 33 percent down from the record reached in September 2005.
Foreclosure-related sales accounted for 35 percent to 40 percent of last month's total, the agents' group said. Of those, about 80 percent were for primary residence, higher than the average of about 75 percent and signaling that investors are not a primary reason for the jump, said Lawrence Yun, the group's chief economist.
``In terms of sales, I think we have bottomed out,'' Yun said in a press conference. ``The first step to housing-market stabilization is rising home sales. Hopefully, this trend can continue.''
Less Supply
The number of previously owned unsold homes on the market at the end of September represented 9.9 months' worth at the current sales pace, the fewest since February and down from 10.6 months' at the end of the prior month.
Inventories need to continue dropping in order to stabilize prices, and that will take more time, Yun also said. In the past, the Realtors' group has said a five to six month's supply represents a stable market.
The median price of an existing home dropped from a year ago to $191,600, the lowest since April 2004. Falling home prices make it harder to refinance mortgages, pushing up foreclosures in the third quarter to the highest since record-keeping began in 2005, according to Realtytrac.com.
Resales account for about 90 percent of the market, while purchases of new homes make up the rest. Sales of existing homes are compiled from contract closings and may reflect contracts signed one or two months earlier.
Today's report showed resales of single-family homes climbed 6.2 percent to an annual rate of 4.62 million. Sales of condos and co-ops were unchanged at a 560,000 rate.
Purchases increased in three of four regions, led by a 17 percent surge in the West as distressed sales jumped in California and Nevada. In the Northeast, sales fell 1.2 percent.
Less Equity
Declines in home equity have undermined consumer spending as owners have less cash to tap. A cascade of bank losses and failures has led to the most severe financial crisis in seven decades. Most economists are forecasting a recession in the U.S. and a global slowdown.
As home sales shrank, builders scaled back construction projects by 64 percent through September from a peak in January 2006, the biggest decline since at least 1959. Work began last month on the fewest single-family homes in 26 years, the Commerce Department reported last week. The number of building permits issued also fell, a sign that declines in construction will continue to hurt the economy.
``The housing downswing is really not exactly even nearing a bottom at this point,'' David Seiders, chief economist at the National Association of Homebuilders said Oct. 17 in an interview with Bloomberg Television. ``The core problem in the economy is still housing, and house prices are decimating the financial markets.''
Construction companies continue to struggle. Pulte Homes Inc., the third-largest U.S. builder, this week reported a net loss of $280.4 million for the third quarter, more than double what analysts had projected.
``A bottom in the housing market may not come for some time,'' Chief Executive Officer Richard Dugas said on a conference call yesterday.
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
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Oct. 24 (Bloomberg) -- Home resales in the U.S. rose more than forecast in September, aided by foreclosure-driven declines in prices that indicated the market was stabilizing before the latest slump in financial markets.
Purchases of existing homes jumped 5.5 percent last month to a 5.18 million annual pace, the highest level in a year, the National Association of Realtors said today in Washington. The median price dropped 9 percent.
Economists said sales figures for this month and next will be critical in determining whether sales have reached a bottom as predicted by the Realtors' group. Federal Reserve Chairman Ben S. Bernanke earlier this month said even households with ``good credit'' were finding it tough to get mortgages.
``This may be a temporary bump as we clear out these foreclosed properties,'' said Adam York, an economist at Wachovia Corp. in Charlotte, North Carolina. ``As the meltdown really hits these figures in late October and November, that's when we could see some retracement.''
Stocks tumbled as concern grew that the credit crisis has infected the broader economy. The Standard & Poor's 500 index dropped down 3.5 percent to close at 876.8. Treasuries rose.
Resales were forecast to rise to a 4.95 million annual rate from a 4.91 million pace in August, according to the median estimate of 66 economists in a Bloomberg News survey. Projections ranged from 4.7 million to 5.11 million.
One-Year Increase
Sales rose 1.4 percent compared with a year earlier, the first year-over-year increase since November 2005. Resales totaled 5.65 million in 2007.
Today's figures compare with the 4.86 million level reached in June, the lowest in a decade and 33 percent down from the record reached in September 2005.
Foreclosure-related sales accounted for 35 percent to 40 percent of last month's total, the agents' group said. Of those, about 80 percent were for primary residence, higher than the average of about 75 percent and signaling that investors are not a primary reason for the jump, said Lawrence Yun, the group's chief economist.
``In terms of sales, I think we have bottomed out,'' Yun said in a press conference. ``The first step to housing-market stabilization is rising home sales. Hopefully, this trend can continue.''
Less Supply
The number of previously owned unsold homes on the market at the end of September represented 9.9 months' worth at the current sales pace, the fewest since February and down from 10.6 months' at the end of the prior month.
Inventories need to continue dropping in order to stabilize prices, and that will take more time, Yun also said. In the past, the Realtors' group has said a five to six month's supply represents a stable market.
The median price of an existing home dropped from a year ago to $191,600, the lowest since April 2004. Falling home prices make it harder to refinance mortgages, pushing up foreclosures in the third quarter to the highest since record-keeping began in 2005, according to Realtytrac.com.
Resales account for about 90 percent of the market, while purchases of new homes make up the rest. Sales of existing homes are compiled from contract closings and may reflect contracts signed one or two months earlier.
Today's report showed resales of single-family homes climbed 6.2 percent to an annual rate of 4.62 million. Sales of condos and co-ops were unchanged at a 560,000 rate.
Purchases increased in three of four regions, led by a 17 percent surge in the West as distressed sales jumped in California and Nevada. In the Northeast, sales fell 1.2 percent.
Less Equity
Declines in home equity have undermined consumer spending as owners have less cash to tap. A cascade of bank losses and failures has led to the most severe financial crisis in seven decades. Most economists are forecasting a recession in the U.S. and a global slowdown.
As home sales shrank, builders scaled back construction projects by 64 percent through September from a peak in January 2006, the biggest decline since at least 1959. Work began last month on the fewest single-family homes in 26 years, the Commerce Department reported last week. The number of building permits issued also fell, a sign that declines in construction will continue to hurt the economy.
``The housing downswing is really not exactly even nearing a bottom at this point,'' David Seiders, chief economist at the National Association of Homebuilders said Oct. 17 in an interview with Bloomberg Television. ``The core problem in the economy is still housing, and house prices are decimating the financial markets.''
Construction companies continue to struggle. Pulte Homes Inc., the third-largest U.S. builder, this week reported a net loss of $280.4 million for the third quarter, more than double what analysts had projected.
``A bottom in the housing market may not come for some time,'' Chief Executive Officer Richard Dugas said on a conference call yesterday.
To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net
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IMF Mulls Emergency Lending; Iceland Gets $2 Billion
By Christopher Swann and Tasneem Brogger
Oct. 24 (Bloomberg) -- The International Monetary Fund is considering an emergency program to prevent a collapse of emerging markets by almost doubling borrowing limits for members and waiving its standard demands for economic austerity measures.
The fund is discussing plans to offer so-called hard- currency loans of three to six months, two IMF officials informed of the matter said. Separately, the Washington-based agency agreed today to lend Iceland $2.1 billion in accordance with existing rules after the island nation's banking system collapsed, threatening a prolonged economic contraction.
Managing Director Dominique Strauss-Kahn's proposal to give backstop funding to emerging markets represents an unprecedented effort by the IMF, which typically negotiates loans on a case- by-case basis and imposes policy conditions such as cutting spending or adjusting interest rates. The new plan echoes initiatives in the U.S. and Europe to provide funding to arrays of banks to avert a financial-system collapse.
``Strauss-Kahn wants to throw a lifeline to emerging markets,'' said Phil Suttle, director of economics at the Institute for International Finance in Washington, who used to work at the Bank of England. Like U.S. Treasury Secretary Henry Paulson, he is ``moving from ad-hoc responses to each crisis to a more general systemic response.''
Under the new program, countries would be able to borrow as much as 500 percent of their quota -- the capital they agree to contribute to the IMF, the officials said. Normally, they may borrow as much as three times their quota. The standard IMF loan term is three to five years.
Five Times Quotas
South Korea's IMF quota is $4.4 billion, meaning it could get as much as $21.8 billion under the program. Mexico might qualify for $23.5 billion, with $22.6 billion for Brazil and $10 billion for Poland.
Iceland today became the first western nation to seek aid from the IMF since the U.K. in 1976. The nation's economy will shrink as much as 10 percent next year, Paul Thomsen, head of the IMF delegation to Iceland, said at a press conference today.
The government took control of the island's three biggest banks, Kaupthing Bank hf, Landsbanki Islands hf and Glitnir Bank hf this month after they were unable to secure short-term funding. That precipitated the collapse of the krona, with the central bank attempting a currency peg, only to abandon the measure the following day.
The three banks together amassed debt worth $61 billion, equivalent to about 12 times the size of the economy.
Fed, ECB
Emerging-market central banks have been left out of agreements between the U.S. Federal Reserve and its European and Japanese counterparts to provide unlimited funds of dollars to stabilize money markets. The reverberation of the financial crisis through the global economy has driven the premiums on emerging-market government bonds to six-year highs.
``A short-term liquidity line from the IMF could really help developing countries and would put the fund right at the heart of efforts to solve the financial crisis,'' said Win Thin, a senior currency strategist at Brown Brothers Harriman & Co. in New York.
Emerging-market currencies and bonds have also been hammered amid an investor exodus from riskier assets. The Polish zloty and Hungarian forint headed for their biggest weekly declines on record, while South Africa's rand extended its slump this year to 37 percent against the dollar.
Yield premiums on emerging-market dollar bonds over U.S. Treasuries swelled 22 basis points, or 0.22 percentage points, today to 8.79 percentage points, the widest since October 2002, according to JPMorgan Chase & Co.'s EMBI+ index. The spread has jumped 7.3 percentage points from a record low of 1.49 percentage points in June 2007.
Board Meeting
The fund is considering tight qualification criteria for the short-term financing program to ensure that it helps nations facing liquidity, rather than solvency, problems, one of the officials said.
Strauss-Kahn made the proposal two days ago at a meeting of the fund's 24-member executive board -- which represents the lender's 185 member countries, the officials said. Additional research on the plan may be available to the board as early as today, they added.
Demand for the fund's emergency loans -- which had dried up over the past five years as developing nations boomed -- is now soaring. Hungary, Ukraine, Belarus, Iceland and Pakistan have all announced this month that they are seeking financial support from the IMF.
$209 Billion
The fund has about $209 billion available to help emerging markets. Strauss-Kahn said earlier this month the IMF could raise more money if necessary by tapping agreements to borrow from industrial countries.
``The fund has the resources to be able to support the needs of our membership, Strauss-Kahn said in Washington Oct. 9 at the fund's annual meeting. ``If these resources were all used and there was a need to increase resources, we have a different way, we know a different procedure to increase the resources.''
The fund's resources could be supplemented by the world's major central banks, and Japan has indicated a willingness to participate, the officials said.
To contact the reporters on this story: Christopher Swann in Washington at cswann1@bloomberg.net; Tasneem Brogger in Copenhagen at tbrogger@bloomberg.net
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Petroplus Shuts Coryton Refinery After Disruption
By Aaron Clark and Robert Tuttle
Oct. 24 (Bloomberg) -- Petroplus Holdings AG, Europe's largest independent oil refiner by capacity, said it shut the Coryton refinery in England after an operational disruption.
The plant was shut down safely, affected areas were evacuated and no one was injured, said a refinery official who declined to give his name. The plant is in the preliminary process of restarting, the official said.
The incident happened at 4:51 p.m. today, when steam was pumped into a naphtha unit boiler, causing the boiler to malfunction, the Essex County Fire & Rescue Service said in a press release. Fire crews responded to the incident.
The Coryton refinery can process 172,000 barrels of oil a day, according to data compiled by Bloomberg.
Thirty-six percent of the refinery's output is gasoline and 27 percent is diesel, according to AA, the U.K.'s biggest motoring club. About 80 percent of the gasoline produced is delivered to U.K. filling stations.
To contact the reporter on this story: Aaron Clark in New York at aclark27@bloomberg.netRobert Tuttle in New York at rtuttle@bloomberg.net
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Oct. 24 (Bloomberg) -- Petroplus Holdings AG, Europe's largest independent oil refiner by capacity, said it shut the Coryton refinery in England after an operational disruption.
The plant was shut down safely, affected areas were evacuated and no one was injured, said a refinery official who declined to give his name. The plant is in the preliminary process of restarting, the official said.
The incident happened at 4:51 p.m. today, when steam was pumped into a naphtha unit boiler, causing the boiler to malfunction, the Essex County Fire & Rescue Service said in a press release. Fire crews responded to the incident.
The Coryton refinery can process 172,000 barrels of oil a day, according to data compiled by Bloomberg.
Thirty-six percent of the refinery's output is gasoline and 27 percent is diesel, according to AA, the U.K.'s biggest motoring club. About 80 percent of the gasoline produced is delivered to U.K. filling stations.
To contact the reporter on this story: Aaron Clark in New York at aclark27@bloomberg.netRobert Tuttle in New York at rtuttle@bloomberg.net
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Natural Gas Drops on Outlook for Weaker Economy, Lower Demand
By Reg Curren
Oct. 24 (Bloomberg) -- Natural gas futures fell in New York, dropping along with crude oil and gasoline, on concern demand for energy will decline as the world economy slows.
About 40 percent of natural gas demand in the U.S. originates with commercial and industrial consumers, who tend to cut back in times of economic weakness. Crude declined after OPEC's decision to cut oil output did little to shake the perception that there's enough oil to meet demand.
``The economic news out of the U.K. and with crude down to a new low, gas has to go to a new low,'' said Tom Orr, research director at Weeden & Co. in Greenwich, Connecticut.
Natural gas for November delivery fell 18 cents, or 2.8 percent, to settle at $6.239 per million British thermal units at 3:02 p.m. on the New York Mercantile Exchange. The futures haven't settled this low since Sept. 21, 2007, when they closed at $6.08. Prices had their fourth weekly decline in five weeks.
``Gas may go and test the $5.30 level from late August 2007,'' Orr said. ``There's a big, mass, coordinated slowdown. No one wants to own anything and panic abounds.''
Economists at Deutsche Bank AG expect the Group of Seven economies, which includes the U.S. and U.K., to contract 1.1 percent next year. The U.K. government said today the country's economy shrank more than forecast in the third quarter as the financial crisis mounted, putting the country on course for its first recession since 1991.
``Equity markets are the big gorilla in the room and commodities are following them as a beacon on the economy,'' said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire. ``Global recession fears are at an apex right now.''
Falling Stocks
Stocks slumped around the world amid speculation the slowdown reduce earnings. The Standard & Poor's 500 Index slid as much as 6.1 percent and the Dow Jones Industrial Average dropped almost as much. The U.K.'s FTSE 100 Index sank 5 percent.
A slowing economy may push oil as low as $50 a barrel and that will drag other energy prices, including natural gas, lower, said Jarvis.
``This is all recession-based fear,'' he said. ``Everybody is trying to ascertain the degree of the slowdown.''
Crude oil futures in New York declined $3.69, or 5.4 percent, to $64.15 a barrel, the lowest since May 31, 2007.
U.S. petroleum-fuel demand fell 8.5 percent last week from a year earlier, the Energy Department said Oct. 22.
OPEC's Decision
The Organization of Petroleum Exporting Counties decided to cut production targets by 1.5 million barrels a day, the first reduction in almost two years, in an attempt to stem the decline in oil prices.
``Gas storage is less than last year's record, though more than adequate, particularly with the expectation that industrial demand will take a hit,'' Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York, said in a note today.
Stockpiles advanced 70 billion cubic feet in the week ended Oct. 17 to 3.347 trillion cubic feet, the Energy Department said yesterday. Sufficient supplies in storage help utilities and large industrial consumers meet demand during the cold-weather season, when usage outstrips production.
Supplies now top the five-year average of 3.327 trillion cubic feet that's on hand at the start of the heating season in early November, when 52 percent of U.S. homes count on gas to keep them warm. Inventories reached a record 3.545 trillion cubic feet a year earlier.
EnCana Corp., Canada's biggest natural gas producer, said pipelines in British Columbia damaged in bombings earlier this month have been repaired and shipments on them have resumed.
A 12-inch pipe able to send 60 million cubic feet of gas a day, and an 8-inch line, moving 40 million a day, returned to service over the past few days after testing, Alan Boras, a spokesman for the Calgary-based company, said today in an interview.
To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net.
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Oct. 24 (Bloomberg) -- Natural gas futures fell in New York, dropping along with crude oil and gasoline, on concern demand for energy will decline as the world economy slows.
About 40 percent of natural gas demand in the U.S. originates with commercial and industrial consumers, who tend to cut back in times of economic weakness. Crude declined after OPEC's decision to cut oil output did little to shake the perception that there's enough oil to meet demand.
``The economic news out of the U.K. and with crude down to a new low, gas has to go to a new low,'' said Tom Orr, research director at Weeden & Co. in Greenwich, Connecticut.
Natural gas for November delivery fell 18 cents, or 2.8 percent, to settle at $6.239 per million British thermal units at 3:02 p.m. on the New York Mercantile Exchange. The futures haven't settled this low since Sept. 21, 2007, when they closed at $6.08. Prices had their fourth weekly decline in five weeks.
``Gas may go and test the $5.30 level from late August 2007,'' Orr said. ``There's a big, mass, coordinated slowdown. No one wants to own anything and panic abounds.''
Economists at Deutsche Bank AG expect the Group of Seven economies, which includes the U.S. and U.K., to contract 1.1 percent next year. The U.K. government said today the country's economy shrank more than forecast in the third quarter as the financial crisis mounted, putting the country on course for its first recession since 1991.
``Equity markets are the big gorilla in the room and commodities are following them as a beacon on the economy,'' said Chris Jarvis, president of Caprock Risk Management LLC in Hampton Falls, New Hampshire. ``Global recession fears are at an apex right now.''
Falling Stocks
Stocks slumped around the world amid speculation the slowdown reduce earnings. The Standard & Poor's 500 Index slid as much as 6.1 percent and the Dow Jones Industrial Average dropped almost as much. The U.K.'s FTSE 100 Index sank 5 percent.
A slowing economy may push oil as low as $50 a barrel and that will drag other energy prices, including natural gas, lower, said Jarvis.
``This is all recession-based fear,'' he said. ``Everybody is trying to ascertain the degree of the slowdown.''
Crude oil futures in New York declined $3.69, or 5.4 percent, to $64.15 a barrel, the lowest since May 31, 2007.
U.S. petroleum-fuel demand fell 8.5 percent last week from a year earlier, the Energy Department said Oct. 22.
OPEC's Decision
The Organization of Petroleum Exporting Counties decided to cut production targets by 1.5 million barrels a day, the first reduction in almost two years, in an attempt to stem the decline in oil prices.
``Gas storage is less than last year's record, though more than adequate, particularly with the expectation that industrial demand will take a hit,'' Michael Fitzpatrick, vice president for energy risk management at MF Global Ltd. in New York, said in a note today.
Stockpiles advanced 70 billion cubic feet in the week ended Oct. 17 to 3.347 trillion cubic feet, the Energy Department said yesterday. Sufficient supplies in storage help utilities and large industrial consumers meet demand during the cold-weather season, when usage outstrips production.
Supplies now top the five-year average of 3.327 trillion cubic feet that's on hand at the start of the heating season in early November, when 52 percent of U.S. homes count on gas to keep them warm. Inventories reached a record 3.545 trillion cubic feet a year earlier.
EnCana Corp., Canada's biggest natural gas producer, said pipelines in British Columbia damaged in bombings earlier this month have been repaired and shipments on them have resumed.
A 12-inch pipe able to send 60 million cubic feet of gas a day, and an 8-inch line, moving 40 million a day, returned to service over the past few days after testing, Alan Boras, a spokesman for the Calgary-based company, said today in an interview.
To contact the reporter on this story: Reg Curren in Calgary at rcurren@bloomberg.net.
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California Big Rigs Face First U.S. Emission Curbs
By Adam Satariano
Oct. 24 (Bloomberg) -- The first U.S. rules regulating diesel pollution spewed from ``big rigs'' were released by California regulators, affecting roughly 1 million trucks carrying goods around the state.
The California Air Resources Board measures would require trucks operating in the state to install technology that improves efficiency and reduces smog-forming emissions. The rules, which would take effect in 2010, are opposed by the trucking industry because of its estimated $5.5 billion cost.
Heavy-duty rigs are the largest remaining source of unregulated diesel emissions, responsible for 32 percent of smog- forming pollution in California, the board said. Diesel exhaust is associated with cancer as well as cardiovascular and respiratory problems. The board said the rules are expected to save 9,400 lives from 2010 to 2025.
``These regulations will ultimately help improve both public health and the economy, especially when you account for the reduced health care costs we will see thanks to fewer hospital visits,'' Mary Nichols, the chairwoman of the Air Resources Board, said in a statement.
The regulations are expected to affect more than 400,000 trucks registered in the state, 500,000 out-of-state vehicles that do business in California and more than a half million trailers. The state last year required new emission-reduction technology on trucks that operate at ports and for off-road vehicles.
Cost to Truckers
More than $1 billion in funding assistance will be made available to the truckers to help cover the costs of cleaning-up and revamping the vehicles, the agency said.
That won't be enough for truckers in the state who will have to pay $80,000 to $150,000 to get their big-rigs retrofitted, said Julie Sauls, a spokeswoman for the California Trucking Association. The cost, which could be triple the $5.5 billion estimated by the state, is compounded by the economic slowdown, she said.
``When people are buying less and aren't building homes, we aren't transporting as many goods,'' Sauls said. ``We aren't generating the kind of revenue we would normally use to upgrade our fleets.''
State officials say the rules are necessary for Los Angeles and San Joaquin Valley to meet federal air quality standards that they are now violating. A final vote by the board on the regulatory changes is slated for mid-December.
To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net
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Oct. 24 (Bloomberg) -- The first U.S. rules regulating diesel pollution spewed from ``big rigs'' were released by California regulators, affecting roughly 1 million trucks carrying goods around the state.
The California Air Resources Board measures would require trucks operating in the state to install technology that improves efficiency and reduces smog-forming emissions. The rules, which would take effect in 2010, are opposed by the trucking industry because of its estimated $5.5 billion cost.
Heavy-duty rigs are the largest remaining source of unregulated diesel emissions, responsible for 32 percent of smog- forming pollution in California, the board said. Diesel exhaust is associated with cancer as well as cardiovascular and respiratory problems. The board said the rules are expected to save 9,400 lives from 2010 to 2025.
``These regulations will ultimately help improve both public health and the economy, especially when you account for the reduced health care costs we will see thanks to fewer hospital visits,'' Mary Nichols, the chairwoman of the Air Resources Board, said in a statement.
The regulations are expected to affect more than 400,000 trucks registered in the state, 500,000 out-of-state vehicles that do business in California and more than a half million trailers. The state last year required new emission-reduction technology on trucks that operate at ports and for off-road vehicles.
Cost to Truckers
More than $1 billion in funding assistance will be made available to the truckers to help cover the costs of cleaning-up and revamping the vehicles, the agency said.
That won't be enough for truckers in the state who will have to pay $80,000 to $150,000 to get their big-rigs retrofitted, said Julie Sauls, a spokeswoman for the California Trucking Association. The cost, which could be triple the $5.5 billion estimated by the state, is compounded by the economic slowdown, she said.
``When people are buying less and aren't building homes, we aren't transporting as many goods,'' Sauls said. ``We aren't generating the kind of revenue we would normally use to upgrade our fleets.''
State officials say the rules are necessary for Los Angeles and San Joaquin Valley to meet federal air quality standards that they are now violating. A final vote by the board on the regulatory changes is slated for mid-December.
To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net
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Brazil Oil Debate May Delay Exploration by 2 Years, Bueno Says
By Jeb Blount
Oct. 24 (Bloomberg) -- Exploration of new offshore oil fields in Brazil may be hindered for two years because the government is having trouble writing rules to govern the finds, Julio Bueno, Rio de Janeiro state's industry secretary, said.
``The political discussions will immobilize exploration in Brazil,'' Bueno, former head of BR Distribuidora, the fuels distribution arm of Petroleo Brasileiro SA, Brazil's state- controlled oil company, said in an interview in his office in Rio de Janeiro. ``I'm very cynical about anything getting done in the next two years.''
Exxon Mobil Corp., OGX Petroleo e Gas SA and other foreign and domestic oil companies are waiting to find out if they can take part in future oil-rights auctions. A review of the oilfield rules is two months late and may be further slowed by President Luiz Inacio Lula da Silva's looming ``lame-duck'' status ahead of elections in 2010, Bueno said.
Last November, the government removed blocks near the recently discovered Tupi field from auction and began studying whether Brazil needs a batch of more-restrictive rules governing foreign companies' participation.
Tupi, which may contain as many as 8 billion barrels, is the largest discovery in the Americas since 1976.
``They are only putting up the least attractive and most risky fields,'' Bueno said. ``We are having a debate that will go nowhere and can only hurt the Brazilian people.''
As industry secretary, Bueno tries to promote economic growth in the state of Rio de Janeiro, whose waters hold most of Brazil's oil.
The committee is likely to recommend that Brazil end its oil-lease auction system for the fields near Tupi, which may reduce investment by foreign and domestic oil companies, he said.
Lula has said that existing concession contracts held by companies such as Exxon, BG Group Plc, Repsol YPF SA, Hess Corp. and Galp Energia SGPS SA will be respected.
To contact the reporter on this story: Jeb Blount in Rio de Janeiro at jblount@bloomberg.net
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Mexico Peso Trades Near Record Low on Economic Growth Prospects
By Valerie Rota
Oct. 24 (Bloomberg) -- Mexico's peso traded near a record low on concern the global economic slowdown will deepen, sapping demand for developing-nation exports.
The peso has plunged 18 percent in October, heading for its worst monthly performance since December 1994, when Mexico devalued its currency to keep the nation from depleting its foreign reserves. The peso has weakened as deepening financial turmoil pushes the world toward a recession and lowers the price of oil, Mexico's biggest source of dollars.
``Nobody knows how deep and how long this recession will be,'' said Mario Copca, a currency strategist at Mexico City- based Metanalisis SA. ``This uncertainty is making investors pull out of emerging markets.''
The peso fell as much as 5 percent to 14.0999 per dollar, from 13.4170 yesterday, when it touched a record low of 14.3017. It was little changed at 13.3842 at 5 p.m. New York time.
The peso's decline so far this month is the worst since the Mexican currency fell 48 percent in December 1994, sparking capital outflows in what became known as the ``Tequila Crisis.''
In an effort to stem the peso's rout, Banco de Mexico has bought $13.1 billion worth of pesos since Oct. 8. The peso snapped a four-day losing streak yesterday after the bank bought $1.1 billion worth of pesos in two separate auctions, its biggest single-day purchase in a week.
Mexico's peso will likely appreciate to as much as 12 per dollar by the end of this year, said Juan Carlos Lopez, head currency trader at Intercam Casa de Cambio SA in Mexico City.
Peso Demand
Investors will increase their demand for pesos through year-end as the U.S. Federal Reserve cuts its key lending rate, widening the spread with Mexico's benchmark, and after legislators agree to allow oil monopoly Petroleos Mexicanos to hire private companies to explore and drill for oil, Lopez said.
Mexican senators yesterday passed all seven bills based on an initiative proposed by President Felipe Calderon that aims to reverse declining production of crude. The lower house of Congress plans to vote on the measures next week.
The oil initiative allows companies that sign contracts for exploration and production to receive performance-based incentives, though it won't allow them to own Mexican oil or book reserves. The measures also don't change current laws that prohibit private companies from refining oil.
``This was a light reform,'' Copca at Metanalisis said. ``Its not going to substantially help even though it was a needed first step.''
Traders trimmed bets that the peso will gain against the dollar, figures from the U.S. Commodity Futures Trading Commission today showed. The difference in the number of wagers on an advance in the peso compared to those on a drop was 429 on Oct. 21, compared with 3,101 a week earlier.
Yields on Mexico's benchmark local-currency security rose for a ninth straight day, climbing to a 3 1/2-year high.
Bond Yields
The yield on the 10 percent security maturing in December 2024 increased 38 basis points, or 0.38 percentage point, to 11.4 percent, the highest since April 2005. The bond's price fell 2.63 centavo to 89.69 centavos per peso, according to Banco Santander SA.
Foreign holdings of Mexican fixed-rate securities maturing in a year or more have fallen 6.5 percent to 277 billion pesos ($21 billion) as of Oct. 15 from a record high on Aug. 12, according to the latest data posted on the central bank's Web site. Foreigners own one-fourth of the country's bonds, making them the biggest holders of the debt.
To contact the reporter on this story: Valerie Rota in Mexico City at vrota1@bloomberg.net
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Brazil's Real Falls as Global Stocks Drop, Carry Trades Unwind
By Jamie McGee
Oct. 24 (Bloomberg) -- Brazil's real fell as global equities declined and investors pulled money from emerging markets on concern economic growth is slowing.
The currency dropped 2 percent to 2.3075 per U.S. dollar at 3:36 p.m., from 2.2608 yesterday. The decline pares almost in half yesterday's 5.2 percent gain after the central bank announced plans to offer $50 billion in currency swaps. The currency has weakened 8.2 percent this week.
The decline was prompted by ``risk aversion and unwinding of trades as we approach the year end,'' said Francisco Diez director of emerging-market trading at RBC Capital Markets in New York. ``It's an extremely sensitive market to any news headlines and any new movement in the equities market.''
The real has fallen 17.5 percent this month against the dollar and is trading weaker against 13 of the 16 most-actively traded currencies. In the first eight months of the year, the real had appreciated the most of these 16 currencies.
The Standard & Poor's 500 Index declined 1.6 percent, while Brazil's Bovespa stock index fell 5.9 percent.
The central bank bought reais today at a rate of 2.3 per dollar to stem losses. The bank also said it sold 50,360 out of 70,000 currency swap contracts offered at two auctions today. In the contracts, the bank sells the U.S. currency in the futures market, allowing investors to hedge against a weaker real.
Brazil eliminated its financial tax on foreign investments yesterday to further support the currency.
`Long Way to Go'
``All the central bankers have a long way to go before investors return not only to Brazil, but to other countries as well,'' said Bartosz Pawlowski, a strategist at Toronto Dominion Bank in London. He estimated that the real could strengthen to 2 by the end of 2009. ``Once the global situation calms down, the underlying strengths of Brazil's economy will lure at least some international investors.''
The bank's interventions this week could ``at least temporarily placate'' Brazil's foreign exchange market, Alvise Marino, an emerging-markets analyst at IDEAglobal in New York, wrote in a note after markets closed yesterday.
The cash injection will ``channel higher inflation expectations, which could exert downward pressure on the real if the Banco Central do Brasil finds itself in a few months from now in the position to not be able to hike rates due to still tight lending conditions,'' Marino wrote.
The central bank raised its interest rate in September to 13.75 percent from 13 percent and is scheduled to hold its next policy meeting on Oct. 28-29. The central bank will leave its rate unchanged at the meeting, according to the median estimate of 25 analysts in a Bloomberg survey.
Argentina
Expectations the International Monetary Fund will lend money to developing nations tempered losses in the real, Diez said.
``It hasn't weakened as much as you think it would have, given where equities are trading today,'' he said.
The IMF is considering loans of up to five times the quota contributions of member nations, in an unprecedented effort to avert an economic collapse in emerging markets.
The Washington-based lender is discussing plans to offer so- called hard currency loans of three-to-six months that wouldn't carry usual fund demands for policy changes, two IMF officials informed of the matter said.
In Argentina, one of Brazil's biggest trading partners, the government has proposed a plan to take control of pension funds, an announcement that has stirred concerns of its ability repay debt.
``Obviously the Argentina situation weighs on the region,'' Pawlowski said. ``The probability of any contagion is very low.''
The yield on Brazil's overnight futures contract for January 2009 delivery rose 115 basis points, or 1.15 percentage points, to 16.9 percent. The yield on the government's zero-coupon bonds due in January 2010 rose 2 basis points to 15.81 percent, according to Banco Votorantim.
To contact the reporter on this story: Jamie McGee in New York at jmcgee8@bloomberg.net
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Oct. 24 (Bloomberg) -- Brazil's real fell as global equities declined and investors pulled money from emerging markets on concern economic growth is slowing.
The currency dropped 2 percent to 2.3075 per U.S. dollar at 3:36 p.m., from 2.2608 yesterday. The decline pares almost in half yesterday's 5.2 percent gain after the central bank announced plans to offer $50 billion in currency swaps. The currency has weakened 8.2 percent this week.
The decline was prompted by ``risk aversion and unwinding of trades as we approach the year end,'' said Francisco Diez director of emerging-market trading at RBC Capital Markets in New York. ``It's an extremely sensitive market to any news headlines and any new movement in the equities market.''
The real has fallen 17.5 percent this month against the dollar and is trading weaker against 13 of the 16 most-actively traded currencies. In the first eight months of the year, the real had appreciated the most of these 16 currencies.
The Standard & Poor's 500 Index declined 1.6 percent, while Brazil's Bovespa stock index fell 5.9 percent.
The central bank bought reais today at a rate of 2.3 per dollar to stem losses. The bank also said it sold 50,360 out of 70,000 currency swap contracts offered at two auctions today. In the contracts, the bank sells the U.S. currency in the futures market, allowing investors to hedge against a weaker real.
Brazil eliminated its financial tax on foreign investments yesterday to further support the currency.
`Long Way to Go'
``All the central bankers have a long way to go before investors return not only to Brazil, but to other countries as well,'' said Bartosz Pawlowski, a strategist at Toronto Dominion Bank in London. He estimated that the real could strengthen to 2 by the end of 2009. ``Once the global situation calms down, the underlying strengths of Brazil's economy will lure at least some international investors.''
The bank's interventions this week could ``at least temporarily placate'' Brazil's foreign exchange market, Alvise Marino, an emerging-markets analyst at IDEAglobal in New York, wrote in a note after markets closed yesterday.
The cash injection will ``channel higher inflation expectations, which could exert downward pressure on the real if the Banco Central do Brasil finds itself in a few months from now in the position to not be able to hike rates due to still tight lending conditions,'' Marino wrote.
The central bank raised its interest rate in September to 13.75 percent from 13 percent and is scheduled to hold its next policy meeting on Oct. 28-29. The central bank will leave its rate unchanged at the meeting, according to the median estimate of 25 analysts in a Bloomberg survey.
Argentina
Expectations the International Monetary Fund will lend money to developing nations tempered losses in the real, Diez said.
``It hasn't weakened as much as you think it would have, given where equities are trading today,'' he said.
The IMF is considering loans of up to five times the quota contributions of member nations, in an unprecedented effort to avert an economic collapse in emerging markets.
The Washington-based lender is discussing plans to offer so- called hard currency loans of three-to-six months that wouldn't carry usual fund demands for policy changes, two IMF officials informed of the matter said.
In Argentina, one of Brazil's biggest trading partners, the government has proposed a plan to take control of pension funds, an announcement that has stirred concerns of its ability repay debt.
``Obviously the Argentina situation weighs on the region,'' Pawlowski said. ``The probability of any contagion is very low.''
The yield on Brazil's overnight futures contract for January 2009 delivery rose 115 basis points, or 1.15 percentage points, to 16.9 percent. The yield on the government's zero-coupon bonds due in January 2010 rose 2 basis points to 15.81 percent, according to Banco Votorantim.
To contact the reporter on this story: Jamie McGee in New York at jmcgee8@bloomberg.net
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Wheat Price Falls to 16-Month Low as Traders Sell to Raise Cash
By Tony C. Dreibus
Oct. 24 (Bloomberg) -- Wheat extended a decline to a 16- month low as investors sold commodities to raise capital during a plunge in world equity markets.
Overnight trading of futures on the Standard and Poor's 500 Index were limited to prevent contracts from falling more than 6 percent. Equities have plunged on concern a deepening global economic slump will hurt company earnings. In the past three months, the stock benchmark has fallen 30 percent, and wheat has dropped 34 percent.
``The equity markets and what's going on over there, that's going to trump anything fundamental,'' said Jason Britt, president of Central States Commodities in Kansas City, Missouri. ``The issue is preservation of capital or getting down in risk, which is what everybody wants to do. That means selling, and people wanting to get small.''
Wheat futures for December delivery fell 6.75 cents, or 1.3 percent, to $5.1625 a bushel on the Chicago Board of Trade. Earlier, the price touched $4.965, the lowest since May 30, 2007. Wheat has plummeted 62 percent from a record $13.495 on Feb. 27.
The Reuters/Jefferies CRB Index of 19 raw materials tumbled 9.3 percent this week and is down 46 percent from a record in July.
Some investors who held long wheat positions, or bet prices would rise, are selling wheat contracts instead of boosting payments, known as margin calls, to maintain holdings obtained using borrowed money, Britt said.
``The margin clerk is in control,'' Britt said. ``Whether it be the pension-fund money or index-fund money, all these funds that have been trading commodities are getting out.''
Retain Holdings
Still, hedge funds and long-only index funds won't sell all their commodity holdings, he said.
``Is all that money going to come out of commodities and not going to be any hedge funds left? No,'' Britt said. ``But too much money ran into the commodities that shouldn't have been there. They were sold on the idea of diversification, and in this environment, capital is being destroyed.''
Hedge-fund managers and other large speculators increased their net-short position in Chicago wheat futures in the week ended Oct. 21, Commodity Futures Trading Commission data showed after the CBOT closed.
Speculative short positions, or bets prices will fall, outnumbered long positions by 17,010 contracts. Net-short positions rose by 2,872 contracts, or 20 percent, from a week earlier.
Wheat is the fourth-biggest U.S. crop, valued at $13.7 billion in 2007, behind corn, soybeans and hay, government data show.
To contact the reporter on this story: Tony C. Dreibus in Chicago at Tdreibus@bloomberg.net.
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Oct. 24 (Bloomberg) -- Wheat extended a decline to a 16- month low as investors sold commodities to raise capital during a plunge in world equity markets.
Overnight trading of futures on the Standard and Poor's 500 Index were limited to prevent contracts from falling more than 6 percent. Equities have plunged on concern a deepening global economic slump will hurt company earnings. In the past three months, the stock benchmark has fallen 30 percent, and wheat has dropped 34 percent.
``The equity markets and what's going on over there, that's going to trump anything fundamental,'' said Jason Britt, president of Central States Commodities in Kansas City, Missouri. ``The issue is preservation of capital or getting down in risk, which is what everybody wants to do. That means selling, and people wanting to get small.''
Wheat futures for December delivery fell 6.75 cents, or 1.3 percent, to $5.1625 a bushel on the Chicago Board of Trade. Earlier, the price touched $4.965, the lowest since May 30, 2007. Wheat has plummeted 62 percent from a record $13.495 on Feb. 27.
The Reuters/Jefferies CRB Index of 19 raw materials tumbled 9.3 percent this week and is down 46 percent from a record in July.
Some investors who held long wheat positions, or bet prices would rise, are selling wheat contracts instead of boosting payments, known as margin calls, to maintain holdings obtained using borrowed money, Britt said.
``The margin clerk is in control,'' Britt said. ``Whether it be the pension-fund money or index-fund money, all these funds that have been trading commodities are getting out.''
Retain Holdings
Still, hedge funds and long-only index funds won't sell all their commodity holdings, he said.
``Is all that money going to come out of commodities and not going to be any hedge funds left? No,'' Britt said. ``But too much money ran into the commodities that shouldn't have been there. They were sold on the idea of diversification, and in this environment, capital is being destroyed.''
Hedge-fund managers and other large speculators increased their net-short position in Chicago wheat futures in the week ended Oct. 21, Commodity Futures Trading Commission data showed after the CBOT closed.
Speculative short positions, or bets prices will fall, outnumbered long positions by 17,010 contracts. Net-short positions rose by 2,872 contracts, or 20 percent, from a week earlier.
Wheat is the fourth-biggest U.S. crop, valued at $13.7 billion in 2007, behind corn, soybeans and hay, government data show.
To contact the reporter on this story: Tony C. Dreibus in Chicago at Tdreibus@bloomberg.net.
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Gold Climbs in N.Y. as Investors Seek Haven From Falling Shares
By Pham-Duy Nguyen
Oct. 24 (Bloomberg) -- Gold climbed in New York, erasing earlier losses, as equities tumbled worldwide, boosting demand for the precious metal as a safe harbor. Silver fell.
U.S. Treasuries rose as investors bought government securities amid a worldwide collapse in shares. The dollar climbed as much as 1.9 percent against a weighted basket of six major currencies before paring gains.
``You're seeing some people buy gold because the panic about the stock market is setting in,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``Gold's rallied more than $30 off its lows for the day.''
Gold futures for December delivery gained $15.60, or 2.2 percent, to $730.30 an ounce on the Comex division of the New York Mercantile Exchange. The metal declined 7.3 percent this week and is heading for a 17 percent drop this month, the worst such performance since March 1980.
Silver for December delivery fell 20.5 cents, or 2.2 percent, to $9.295 an ounce. The most-active contract has dropped 38 percent this year, after seven straight annual gains, and is down 24 percent in October.
The outlook for silver is ``moderately bearish'' while for gold, it is ``bearish, as inflation risk is moving away and all indicators are red,'' Frederic Lasserre, the global head of commodities research at Societe Generale SA in Paris, and Stephanie Aymes, an analyst, said today in a report. ``A global recession is confirmed by weak corporate results.''
Market Turmoil
The MSCI World Index of developed markets has dropped 8.1 percent this week. Russia's Micex Stock Exchange stopped trading until Oct. 28 after shares slumped 14 percent. The Standard & Poor's 500 Index lost as much as 6.1 percent and the Dow Jones Industrial Average fell as much as 5.8 percent.
The euro touched $1.2497 today, a two-year low, before paring losses. It reached a record $1.6038 on July 15.
Earlier, gold dropped as much as 4.7 percent and was headed for the biggest weekly decline since Jan. 25, 1980.
``People are short covering,'' said Joel Crane, metals strategist for Deutsche Bank AG in New York. ``Some funds are forced to cover their positions after this week's unexpected drop.''
After the collapse of Lehman Brothers Holdings Inc. on Sept. 15 triggered a $700 billion bailout package by the U.S. government, gold traded as high as $936.30 on Oct. 10 as investors sought a haven. The metal also touched $681 today as investors sold futures to cover losses in other markets.
``The market wants to liquidate everything, everywhere,'' said Dennis Gartman, an economist and editor of the Suffolk, Virginia-based Gartman Letter.
Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, fell to 747.1 metric tons yesterday. It reached a record 770.6 tons on Oct. 10.
Outlook
Gold may fare better than other commodities as a global slowdown reduces demand for raw materials. The Reuters/Jefferies CRB Index of 19 commodities is down 29 percent this year, paced by a 33 percent decline in crude oil. Gold has lost 13 percent.
``There's some value going into the metal,'' said Frank McGhee, head dealer at Integrated Brokerage Services LLC in Chicago. ``Gold's overall value is holding. Investors should be safe-haven buying here but not using leveraged money. Gold can scream out and turn higher any time, but investors need to be comfortable that gold can go down before it goes higher.''
Gold may trade at $600 to adjust for the value of the dollar, analysts at Deutsche Bank said today in a report.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Oct. 24 (Bloomberg) -- Gold climbed in New York, erasing earlier losses, as equities tumbled worldwide, boosting demand for the precious metal as a safe harbor. Silver fell.
U.S. Treasuries rose as investors bought government securities amid a worldwide collapse in shares. The dollar climbed as much as 1.9 percent against a weighted basket of six major currencies before paring gains.
``You're seeing some people buy gold because the panic about the stock market is setting in,'' said Leonard Kaplan, president of Prospector Asset Management in Evanston, Illinois. ``Gold's rallied more than $30 off its lows for the day.''
Gold futures for December delivery gained $15.60, or 2.2 percent, to $730.30 an ounce on the Comex division of the New York Mercantile Exchange. The metal declined 7.3 percent this week and is heading for a 17 percent drop this month, the worst such performance since March 1980.
Silver for December delivery fell 20.5 cents, or 2.2 percent, to $9.295 an ounce. The most-active contract has dropped 38 percent this year, after seven straight annual gains, and is down 24 percent in October.
The outlook for silver is ``moderately bearish'' while for gold, it is ``bearish, as inflation risk is moving away and all indicators are red,'' Frederic Lasserre, the global head of commodities research at Societe Generale SA in Paris, and Stephanie Aymes, an analyst, said today in a report. ``A global recession is confirmed by weak corporate results.''
Market Turmoil
The MSCI World Index of developed markets has dropped 8.1 percent this week. Russia's Micex Stock Exchange stopped trading until Oct. 28 after shares slumped 14 percent. The Standard & Poor's 500 Index lost as much as 6.1 percent and the Dow Jones Industrial Average fell as much as 5.8 percent.
The euro touched $1.2497 today, a two-year low, before paring losses. It reached a record $1.6038 on July 15.
Earlier, gold dropped as much as 4.7 percent and was headed for the biggest weekly decline since Jan. 25, 1980.
``People are short covering,'' said Joel Crane, metals strategist for Deutsche Bank AG in New York. ``Some funds are forced to cover their positions after this week's unexpected drop.''
After the collapse of Lehman Brothers Holdings Inc. on Sept. 15 triggered a $700 billion bailout package by the U.S. government, gold traded as high as $936.30 on Oct. 10 as investors sought a haven. The metal also touched $681 today as investors sold futures to cover losses in other markets.
``The market wants to liquidate everything, everywhere,'' said Dennis Gartman, an economist and editor of the Suffolk, Virginia-based Gartman Letter.
Investment in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, fell to 747.1 metric tons yesterday. It reached a record 770.6 tons on Oct. 10.
Outlook
Gold may fare better than other commodities as a global slowdown reduces demand for raw materials. The Reuters/Jefferies CRB Index of 19 commodities is down 29 percent this year, paced by a 33 percent decline in crude oil. Gold has lost 13 percent.
``There's some value going into the metal,'' said Frank McGhee, head dealer at Integrated Brokerage Services LLC in Chicago. ``Gold's overall value is holding. Investors should be safe-haven buying here but not using leveraged money. Gold can scream out and turn higher any time, but investors need to be comfortable that gold can go down before it goes higher.''
Gold may trade at $600 to adjust for the value of the dollar, analysts at Deutsche Bank said today in a report.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
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Barton Biggs Says U.S. Stocks Are `Very, Very Cheap'
By Nick Baker and Kathleen Hays
Oct. 24 (Bloomberg) -- U.S. and European stocks are ``very, very cheap'' after the Standard & Poor's 500 Index lost 40 percent this year, the worst annual drop since 1931, according to Barton Biggs, managing partner at hedge fund Traxis Partners LLC.
``U.S. and European markets have blown out to record levels of attractiveness versus bonds,'' Biggs said in an interview with Bloomberg Television. ``We're at very, very cheap levels.''
The S&P 500 trades for 11 times estimated profit for the next 12 months, while Europe's Dow Jones Stoxx 600 Index fetches 7.7 times earnings, according to data compiled by Bloomberg. The S&P 500's dividend yield is 3.46 percent, compared with the 10- year Treasury yield of 3.69 percent, the data show.
``One of these days, even if the world is going to hell, we will have a tremendous run-up,'' said Biggs, 75. ``There is an extreme level of pessimism and almost despair. As long as I have been in the business, those have always been good signs.''
The investor said large, ``high-quality'' U.S. companies including Cisco Systems Inc., 3M Co. and Procter & Gamble Co. are the cheapest in the world. ``And if you've really got the intestinal fortitude, these emerging markets have been absolutely crushed,'' he said.
Biggs was wrong in February when he said the U.S. stock market is ``at or very close to an important bottom.'' The S&P 500 has since plunged 35 percent.
Russian shares are ``dirt cheap'' because oil has plunged more than 50 percent in less than four months and Prime Minister Vladimir Putin ``acted like a jerk,'' Biggs said. The hedge-fund manager also said he favors India because it will be ``the next China.''
Russia's Micex index has retreated 73 percent in 2008, while India's Sensitive Index lost 57 percent. Both measures had surged sixfold since the end of 2002.
To contact the reporters on this story: Nick Baker in New York at nbaker7@bloomberg.net; Kathleen Hays in New York at khays4@bloomberg.net
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Oct. 24 (Bloomberg) -- U.S. and European stocks are ``very, very cheap'' after the Standard & Poor's 500 Index lost 40 percent this year, the worst annual drop since 1931, according to Barton Biggs, managing partner at hedge fund Traxis Partners LLC.
``U.S. and European markets have blown out to record levels of attractiveness versus bonds,'' Biggs said in an interview with Bloomberg Television. ``We're at very, very cheap levels.''
The S&P 500 trades for 11 times estimated profit for the next 12 months, while Europe's Dow Jones Stoxx 600 Index fetches 7.7 times earnings, according to data compiled by Bloomberg. The S&P 500's dividend yield is 3.46 percent, compared with the 10- year Treasury yield of 3.69 percent, the data show.
``One of these days, even if the world is going to hell, we will have a tremendous run-up,'' said Biggs, 75. ``There is an extreme level of pessimism and almost despair. As long as I have been in the business, those have always been good signs.''
The investor said large, ``high-quality'' U.S. companies including Cisco Systems Inc., 3M Co. and Procter & Gamble Co. are the cheapest in the world. ``And if you've really got the intestinal fortitude, these emerging markets have been absolutely crushed,'' he said.
Biggs was wrong in February when he said the U.S. stock market is ``at or very close to an important bottom.'' The S&P 500 has since plunged 35 percent.
Russian shares are ``dirt cheap'' because oil has plunged more than 50 percent in less than four months and Prime Minister Vladimir Putin ``acted like a jerk,'' Biggs said. The hedge-fund manager also said he favors India because it will be ``the next China.''
Russia's Micex index has retreated 73 percent in 2008, while India's Sensitive Index lost 57 percent. Both measures had surged sixfold since the end of 2002.
To contact the reporters on this story: Nick Baker in New York at nbaker7@bloomberg.net; Kathleen Hays in New York at khays4@bloomberg.net
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Brazil Stocks Fall to Lowest in 3 Years on Outlook; Bolsa Drops
By Alexander Ragir and James Attwood
Oct. 24 (Bloomberg) -- Brazilian stocks fell to the lowest level in three years as slowing global growth, slumping commodity prices and the weakening real darkened the outlook for earnings.
Uniao de Bancos Brasileiros SA led declines in banks on concern tighter credit and trading losses may hurt future profits after it missed third-quarter earnings. Lojas Americanas SA dropped 14 percent after Itau Corretora said the biggest discount retailer is likely to report a loss on higher financing costs. Petroleo Brasileiro SA fell 10 percent as oil slid.
``It's almost as if the global financial system has just frozen and that will have a real impact on companies' earnings, on asset values everywhere,'' said John Ditierri, who helps manage $20 billion at Emerging Markets Management LLC in Arlington, Virginia. ``There is really nowhere that's safe.''
The Bovespa index dropped 6.9 percent to 31,481.55, the lowest level since November 2005. It has fallen 14 percent this week and 51 percent for the year. Mexico's Bolsa slid 4.6 percent. The MSCI Emerging Markets Index tumbled 7.9 percent. The Standard & Poor's 500 slid 3.5 percent.
Stocks tumbled around the world, sending the global benchmark index to the lowest level since June 2003. The FTSE 100 Index sank 5 percent and South Korea's Kospi Index fell 11 percent. The rout in Asia started after Samsung Electronics Co.'s profit fell, Sony Corp. slashed its earnings forecast and Toyota Motor Corp. sales dropped for the first time in seven years.
``This is a very bad crisis and there's a lot of forced selling by people that borrowed money to invest and have to sell because they are getting redemptions,'' said Edward Hocknell, who helps manage about $15 billion at Baillie Gifford Overseas Ltd. in Edinburgh. ``Markets have momentum in both directions. The fear and deleveraging may have more to come.''
Banks Plunge
Unibanco plunged 8.7 percent to 10.50 reais.
Unibanco's net profit of 704 million reais ($296.2 million) trailed the average analyst estimate of 776 million reais by 8.7 percent, Bloomberg data showed.
``There were rumors about trading losses,'' said Greg Lesko, who helps oversee $900 million at Deltec Asset Management Corp. in New York. The release of the earnings failed to assuage investors' concern, he said.
Banco do Brasil, Latin America's biggest bank, slid 2.6 percent to 12.75 reais.
The real slid 2 percent against the dollar today. The yen climbed against the dollar as the risk of a global recession prompted investors to slash carry trades, in which they fund purchases of higher-yielding assets with the Japanese currency.
BM&FBovespa MidLarge Cap index slid 7.2 percent, while the BM&FBovespa Small Cap index dropped 6.9 percent.
Lojas Americanas dropped 14 percent to 4.53 reais. The retailer may report a 3 million real loss, compared with profit of 8 million reais, Itau analysts said yesterday. Rival Lojas Renner slid 7.1 percent to 16.54 reais.
Commodity Slump
Petrobras fell 2.30 reais to 20.40 reais as crude oil plunged on concern the global economic slump is curbing fuel demand.
Mexico's Bolsa fell for a fourth day on concern about earnings and the weaker currency. The peso traded near a record low on concern the global economic slowdown will deepen, sapping demand for developing-nation exports.
Grupo Bimbo SAB slid 8.6 percent to 50.05 pesos. Mexico's largest baker reported third-quarter profit that trailed the average analyst estimate by 8.4 percent, Bloomberg data showed.
Grupo Financiero Banorte SAB fell 11 percent to 18.93 pesos after Mexico's biggest publicly traded bank posted third-quarter operating profit that trailed by 30 percent the average estimate by two analysts surveyed by Bloomberg.
Elsewhere in Latin America, Chile's Ipsa fell 2.2 percent, Peru's Lima General slipped 6.7 percent and Colombia's IGBC dropped 5.6 percent.
To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net; James Attwood in Santiago at jattwood3@bloomberg.net.
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Oct. 24 (Bloomberg) -- Brazilian stocks fell to the lowest level in three years as slowing global growth, slumping commodity prices and the weakening real darkened the outlook for earnings.
Uniao de Bancos Brasileiros SA led declines in banks on concern tighter credit and trading losses may hurt future profits after it missed third-quarter earnings. Lojas Americanas SA dropped 14 percent after Itau Corretora said the biggest discount retailer is likely to report a loss on higher financing costs. Petroleo Brasileiro SA fell 10 percent as oil slid.
``It's almost as if the global financial system has just frozen and that will have a real impact on companies' earnings, on asset values everywhere,'' said John Ditierri, who helps manage $20 billion at Emerging Markets Management LLC in Arlington, Virginia. ``There is really nowhere that's safe.''
The Bovespa index dropped 6.9 percent to 31,481.55, the lowest level since November 2005. It has fallen 14 percent this week and 51 percent for the year. Mexico's Bolsa slid 4.6 percent. The MSCI Emerging Markets Index tumbled 7.9 percent. The Standard & Poor's 500 slid 3.5 percent.
Stocks tumbled around the world, sending the global benchmark index to the lowest level since June 2003. The FTSE 100 Index sank 5 percent and South Korea's Kospi Index fell 11 percent. The rout in Asia started after Samsung Electronics Co.'s profit fell, Sony Corp. slashed its earnings forecast and Toyota Motor Corp. sales dropped for the first time in seven years.
``This is a very bad crisis and there's a lot of forced selling by people that borrowed money to invest and have to sell because they are getting redemptions,'' said Edward Hocknell, who helps manage about $15 billion at Baillie Gifford Overseas Ltd. in Edinburgh. ``Markets have momentum in both directions. The fear and deleveraging may have more to come.''
Banks Plunge
Unibanco plunged 8.7 percent to 10.50 reais.
Unibanco's net profit of 704 million reais ($296.2 million) trailed the average analyst estimate of 776 million reais by 8.7 percent, Bloomberg data showed.
``There were rumors about trading losses,'' said Greg Lesko, who helps oversee $900 million at Deltec Asset Management Corp. in New York. The release of the earnings failed to assuage investors' concern, he said.
Banco do Brasil, Latin America's biggest bank, slid 2.6 percent to 12.75 reais.
The real slid 2 percent against the dollar today. The yen climbed against the dollar as the risk of a global recession prompted investors to slash carry trades, in which they fund purchases of higher-yielding assets with the Japanese currency.
BM&FBovespa MidLarge Cap index slid 7.2 percent, while the BM&FBovespa Small Cap index dropped 6.9 percent.
Lojas Americanas dropped 14 percent to 4.53 reais. The retailer may report a 3 million real loss, compared with profit of 8 million reais, Itau analysts said yesterday. Rival Lojas Renner slid 7.1 percent to 16.54 reais.
Commodity Slump
Petrobras fell 2.30 reais to 20.40 reais as crude oil plunged on concern the global economic slump is curbing fuel demand.
Mexico's Bolsa fell for a fourth day on concern about earnings and the weaker currency. The peso traded near a record low on concern the global economic slowdown will deepen, sapping demand for developing-nation exports.
Grupo Bimbo SAB slid 8.6 percent to 50.05 pesos. Mexico's largest baker reported third-quarter profit that trailed the average analyst estimate by 8.4 percent, Bloomberg data showed.
Grupo Financiero Banorte SAB fell 11 percent to 18.93 pesos after Mexico's biggest publicly traded bank posted third-quarter operating profit that trailed by 30 percent the average estimate by two analysts surveyed by Bloomberg.
Elsewhere in Latin America, Chile's Ipsa fell 2.2 percent, Peru's Lima General slipped 6.7 percent and Colombia's IGBC dropped 5.6 percent.
To contact the reporters on this story: Alexander Ragir in Rio de Janeiro at aragir@bloomberg.net; James Attwood in Santiago at jattwood3@bloomberg.net.
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Canada Stocks Retreat on Economy Concern, Led by Manulife
By John Kipphoff
Oct. 24 (Bloomberg) -- Canadian stocks fell, touching a four-year low, as finance and energy shares slid on concern that a deepening global economic slowdown will hurt demand for the nation's commodities.
Manulife Financial Corp., Canada's biggest insurance company, paced a drop in financial companies on an analyst downgrade. Petro-Canada led oil and gas companies lower as crude prices fell to a 16-month low. The main index pared its drop late in the session as some energy producers rebounded and gold miners, including Barrick Gold Corp., rallied along with the metal's price as investors sought a safe haven.
The Standard & Poor's/TSX Composite Index dropped 0.4 percent to 9,294.09 in Toronto after earlier falling 7.5 percent, the most in eight years, to the lowest since September 2004. The S&P/TSX, which derives three-quarters of its value from finance, energy and materials shares, slid 2.8 percent this week and is poised for a 21 percent drop in October, the steepest since the crash of 1987.
``It's truly awful, whichever way you measure it,'' said David Baskin, president of Baskin Financial Services in Toronto, which manages about C$350 million. ``It'll stop at some point. Valuations are looking attractive. But who wants to be the guy to make the call? Not me. You step in and buy something and 10 minutes later it's down 5 percent.''
Manulife Financial slid 3.9 percent to C$25, taking its drop in October to 35 percent. Canada's largest insurance company was cut to ``market perform'' from ``outperform' by BMO Capital Markets analyst John Reucassel. Manulife said this month that credit losses may cut third-quarter earnings by about C$250 million.
Lenders
Royal Bank of Canada, the country's biggest lender, declined 2.1 percent to C$46.50. Toronto-Dominion Bank, Canada's second-largest bank, retreated 2.1 percent to C$56.80.
A measure of financial companies slipped 2.5 percent.
Energy stocks fell 0.2 percent today, led by oil-sands companies. The group has dropped 25 percent in October.
Petro-Canada fell 3.3 percent to C$26.89. The nation's third-largest energy producer reported a 61 percent increase in profit this week and said it may pare back the C$23.8 billion ($22.3 billion), Fort Hills oil-sands project that it plans to build with partners UTS Energy Corp. and Teck Cominco Ltd.
UTS fell 11 percent to 92 cents and has lost 83 percent of its market value this year amid doubts that it can raise its share of the financing for Fort Hills. Teck Cominco, Canada's biggest diversified mining company, rose 3.7 percent to C$13 after dropping 33 percent in the previous three sessions.
Junior Partner
Opti Canada Inc. a junior partner in another oil sands project, Long Lake, dropped 13 percent to C$4.17. Opti and partner Nexen Inc. this week delayed a decision to expand the mine.
Suncor Energy Inc. was unchanged at C$26.20 after dropping as much as 12 percent. The world's second-biggest oil-sands mining company cut its 2009 capital budget by 33 percent yesterday to conserve cash, slowing construction at its Voyageur expansion project.
Gold climbed 2.2 percent to $730.30 an ounce in New York, paring its weekly drop as equities tumbled worldwide. Gold's gain helped materials shares in the S&P/TSX rise 4.9 percent, one of two industry groups among 10 in the index to advance today. It's still down 36 percent in October.
Barrick Gold Corp., the biggest bullion miner, rose 8.9 percent to C$25.75. Goldcorp Inc. gained 12 percent to C$22.
To contact the reporter on this story: John Kipphoff in Montreal at jkipphoff@bloomberg.net.
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Dillard's, National City, PNC, Thoratec: U.S. Equity Preview
By Lu Wang
Oct. 24 (Bloomberg) -- The following companies may have unusual price changes in U.S. trading on Oct. 27. Stock symbols are in parentheses, and share prices are as of 5:30 p.m. in New York, unless otherwise specified.
Standard & Poor's 500 Index futures expiring in December lost 49.20, or 5.4 percent, to 866. Dow Jones Industrial Average futures fell 513, or 5.8 percent, to 8,261. Nasdaq-100 Index futures slipped 62, or 4.9 percent, to 1,191.50.
Dillard's Inc. (DDS US) fell 24 cents, or 7.2 percent, to $3.10. The department-store chain may have its debt rating cut by Moody's Investors Service, which cited the company's ``continuing weak operating performance.''
PNC Financial Services Group Inc. (PNC US) fell $1.38, or 2.3 percent, to $57.50. Pennsylvania's biggest bank may have its debt rating reduced by Standard & Poor's after agreeing to buy National City Corp. (NCC US). The ratings provider said it may raise the rating for National City, Ohio's largest bank. National City dropped 25 percent to $2.07 in regular trading.
Spectra Energy Corp. (SE US): The second-biggest U.S. pipeline company by market value said it plans to expand two natural-gas lines in northern British Columbia. The stock lost 3.5 percent to $17.16 in regular trading.
Thoratec Corp. (THOR US) plunged $13.04, or 52 percent, to $12. The company said five people have died while using its mechanical heart that is smaller than a D-cell battery and urged doctors and patients to assess the devices.
To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net
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Global Stocks Tumble on Economic Concern; Oil Falls, Yen Rises
By Lynn Thomasson and Sarah Jones
Oct. 24 (Bloomberg) -- Global stocks from Seoul to Stockholm tumbled to the lowest since August 2003 on concern the deepening economic slump will damage earnings. Oil dropped to a 16-month low and the yen reached the highest since 1995 against the dollar.
The Standard & Poor's 500 Index lost 3.5 percent, a smaller decline than European and Asian equities, even after futures on the U.S. measure fell so far that trading was curbed. The U.K.'s FTSE 100 Index sank 5 percent and the pound had the biggest drop versus the dollar since 1971 following a government report showing the economy shrank for the first time in sixteen years. South Korea's economy grew at the slowest pace in four years, driving the Kospi Index down 11 percent.
``There's a worldwide fear of a worldwide recession,'' said Michael Binger, Minneapolis-based fund manager at Thrivent Asset Management, which oversees about $70 billion. ``The concern has moved to being about which banks and companies will fail to which countries could fail, with Iceland and some of the smaller countries around the world being on life support.''
The MSCI World Index of developed markets declined 4.3 percent to 871.64. MSCI's emerging-markets benchmark fell 7.8 percent to 473.98, completing eight straight weeks of losses, the longest stretch since 1998. The MSCI index covering both regions slumped to the lowest since August 2003. Russia's Micex Stock Exchange halted trading until next week following today's 14 percent retreat.
$10 Trillion
More than $10 trillion has been erased from the market value of equities so far this month. That accounts for about one-third of the total value wiped off world equities this year. MSCI's measure tracking both developed and emerging markets is heading for the worst year on record, plunging 47 percent in 2008, amid $660 billion in global credit-related losses and the biggest financial crisis since the Great Depression.
The Chicago Board Options Exchange Volatility Index surged to 79.13, the highest in its 18-year history. The VIX measures the cost of using options as insurance against S&P 500 declines.
``We're getting very close to the emotional blow-off where everybody says, `I don't care; I want out,''' said E. Craig Coats Jr., who co-heads fixed income at Keefe, Bruyette & Woods Inc. in New York. ``Everybody seems to be saying `I want to be in cash or Treasuries.'''
More than 200 companies in the S&P 500 have reported quarterly results since the start of October, posting an average profit slump of 23 percent, according to Bloomberg data.
Auto Sales Slump
Toyota Motor Corp., Japan's biggest carmaker, tumbled 6.4 percent to 3,200 yen after saying quarterly sales fell for the first time in seven years.
U.S. auto sales this month may fall to the lowest rate in at least 25 years as tighter credit and falling home values decrease demand, said analysts at Deutsche Bank AG.
American International Group Inc. declined 19 percent to $1.70. The insurer said it has used $90.3 billion of a U.S. government credit line since it was bailed out last month, an amount exceeding the original loan meant to save the company.
Europe's Dow Jones Stoxx 600 Index slid 4.7 percent. The MSCI Asia Pacific Index fell 5.7 percent.
Air France-KLM Group slid 3.1 percent to 11.50 euros. The region's biggest airline said it will be ``very difficult'' to meet full-year earnings targets as the global credit crisis and slowing economic growth undermine demand for travel.
Yields on 30-year bonds touched the lowest in more than three decades amid speculation a global slowdown will drive U.S. policy makers to cut borrowing costs. Its yield rose 4 basis points to 4.09 percent, following a plunge as low as 3.8676 percent shortly before 6 a.m. in New York as stocks fell.
`Not Buying'
``The issue that drives prices now are the margin calls, redemptions and sales,'' said George Feiger, chief executive officer of Contango Capital Advisors, which oversees about $2 billion in Berkeley, California. ``I'm not buying now.''
Iceland secured an emergency bailout loan of $2 billion from the International Monetary Fund after the collapse of the island's banking system paralyzed much of its foreign exchange market, Prime Minister Geir Haarde said in Reykjavik.
Futures on the S&P 500 lost 6.6 percent before U.S. markets officially opened, triggering a Chicago Mercantile Exchange measure meant to limit losses.
Home Resales Jump
Pulte Homes Inc. gained 4.8 percent to $8.50 after home resales in the U.S. rose more than forecast in September. Cheaper prices on foreclosed property lifted purchases of existing homes up 5.5 percent last month to a 5.18 million annual pace, the highest level in a year, the National Association of Realtors said in Washington.
Oil tumbled 5.4 percent to $64.15 a barrel even after OPEC's decision to slash production by 1.5 million barrels a day. Energy stocks in the S&P 500 lost 3.9 percent. Exxon Mobil Corp. retreated 1.9 percent to $69.04.
National City Corp. plunged 25 percent to $2.07. PNC Financial Services Group Inc., Pennsylvania's largest bank, plans to buy the lender, Ohio's largest bank, for about $5.2 billion in stock with funds from the U.S. Treasury. The offer of $2.23 a share is 19 percent less than National City's closing price yesterday.
Fifth Third Bancorp had the biggest loss in the S&P 500, sliding 29 percent to $8.07. Ohio's second-biggest bank was cut to ``sell'' from ``neutral'' at Goldman Sachs Group Inc.
Extreme Pessimism
``There is an extreme level of pessimism and almost despair,'' said Barton Biggs, managing partner at hedge fund Traxis Partners LLC. ``We're at very, very cheap levels.''
The yen climbed to a 13-year high against the dollar as stock-market losses prompted investors to dump higher-yielding assets funded by low-cost loans in Japan.
Japan's currency rose 8.6 percent this week against the dollar, the biggest gain since October 1998. It surged 13 percent versus the euro, the greatest weekly advance. The euro headed for a 5.1 percent decline versus the dollar.
The pound depreciated as much as 5.9 percent to below $1.53. Sterling's intraday decline surpassed that on Black Wednesday in September 1992, when the U.K. was driven out of Europe's exchange-rate mechanism.
To contact the reporters on this story: Lynn Thomasson in New York at lthomasson@bloomberg.net; Sarah Jones in London at sjones35@bloomberg.net.
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