Conservatives Say Low Rates Are U.K.’s Best Route Out of Slump

By Robert Hutton and Jennifer Joan Lee

Oct. 28 (Bloomberg) -- Philip Hammond, a lawmaker who speaks on Treasury policy for the Conservatives, said the opposition party wants the Bank of England to keep interest rates low and will cut the deficit to allow this to happen.

“It is essential that in the recovery we are able to continue to keep monetary policy relatively loose,” Hammond said in an interview at Bloomberg’s office in London. “We will only be able to do that if we have got the deficit under control.”

The focus on monetary policy contrasts with Prime Minister Gordon Brown’s argument that maintaining government spending is the best bring Britain out of the worst recession since World War II.

With an election due within seven months, the question of how and when to cut spending is at the heart of the debate between the ruling Labour Party and the opposition. Brown argues that maintaining spending and cutting taxes are the best ways to return to growth. The Conservatives say those steps risk lifting inflation and interest rates, choking off recovery.

“What has got Britain through the recession so far has been the activist monetary policy at the Bank of England, keeping interest rates low, supporting the economy through quantitative easing,” Hammond said. “We will only be able to do that if we have sent a clear signal to the markets that we intend to execute a plan to get the deficit under control. We need to make a start in 2010.”

‘Active Monetary Policy’

Conservative leader David Cameron yesterday said he was “a great believer in an active monetary policy,” a step away from previous comments that the bank’s quantitative easing program would have to end soon.

Cameron told journalists that a speech he’d made at the start of the month had been misunderstood. “The point I was making was about how easy or difficult to fund our debt, because the market for gilts hasn’t really been tested yet, because of QE,” he said. He repeated his point that the intervention will have to end some time. “You can’t go on indefinitely.”

Policy makers at the central bank will decide next week whether to extend their asset purchase program, which is pumping 175 billion pounds ($286 billion) in newly created money into the economy.

The program has increased demand for U.K. government bonds, known as gilts, as the Treasury sells a record 220 billion pounds of debt this year.

The Conservatives have repeatedly warned this year that Brown’s spending plans are putting the U.K.’s AAA debt rating at risk. Hammond’s boss, George Osborne, told an audience of financiers on Monday that it was only the likelihood of a Conservative victory at the next election that was keeping Britain’s debt costs down.

Conservatives have led Labour in polls for two years.

To contact the reporter on this story: Robert Hutton in London at rhutton1@bloomberg.net; Jennifer Joan Lee in London at jlee176@bloomberg.net

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Norway to Favor Gradual Rate Increases to Balance Krone, Demand

By Josiane Kremer

Oct. 28 (Bloomberg) -- Norges Bank, which today may become Europe’s first central bank to raise interest rates since the credit crisis started easing, will favor gradual increases as it seeks to balance krone gains against accelerating asset prices, economists said.

The Oslo-based bank will follow the Bank of Israel and Australia’s Reserve Bank to become the third central bank to reverse an easing cycle that brought Norway’s borrowing costs to a record-low 1.25 percent. Governor Svein Gjedrem will announce a quarter point increase in the overnight deposit rate at 2 p.m. today, a Bloomberg survey of 20 economists shows.

“It is a trade-off between the need for higher rates to curb the acceleration in home prices and the strength in private consumption” and “the effect of the krone exchange rate on the manufacturing sector,” said Bjoern Roger Wilhelmsen, a senior economist at First Securities ASA in Oslo and a former economist at the central bank. He expects borrowing costs to rise to a “neutral” rate of 5 percent to 5.5 percent within two years.

Norway, the world’s fifth-biggest oil exporter, suffered a milder recession than its Nordic neighbors, resuming growth in the second quarter as record-low borrowing costs and government stimulus measures equivalent to 4.7 percent of gross domestic product boosted consumer spending and kept unemployment the lowest in Europe. Prime Minister Jens Stoltenberg, who was re- elected last month, has pledged to continue spending in excess of national fiscal guidelines for a second consecutive year.

‘Extremely Low’

Gjedrem said on Sept. 30 that asset prices “have risen sharply and probably excessively,” characterizing policy rates as “extremely low.” Five days earlier, Gjedrem gave a speech saying that a strengthening of the krone “suggests that the key policy rate should be kept low for a period ahead.”

The krone has gained 7.8 percent against the euro since the end of June, making it the second-best performer of the 16 major currencies tracked by Bloomberg in the period. A further strengthening would hurt exporters including Norsk Hydro ASA, Europe’s third-largest aluminum producer, and Norske Skogindustrier ASA, the world’s second-biggest newsprint maker.

“In my view we will see a cautious start of the hiking cycle,” Wilhelmsen said.

At the same time, house prices in the only Scandinavian country that isn’t a member of the European Union have returned to a peak reached in the summer of 2007, not taking inflation into account, according to the Finance Ministry.

Housing Peak

House prices rose a quarterly 1.8 percent in the three months ended September, after gaining 5.3 percent in the previous quarter, Statistics Norway said on Oct. 14.

House prices grew even when the economy was in a technical recession as unemployment, which fell to 2.7 percent in September, remained the lowest in Europe throughout the credit crisis. Norwegians, the world’s second-richest citizens per capita after Luxembourgers, didn’t have to wait long for low interest rates to feed through to disposable income, with about 90 percent of mortgage holders using floating rates, according to the Finance Ministry.

“We see a very big difference between strong growth in private consumption and household demand and a quite strong contribution from the public sector,” Wilhelmsen said. “On the other hand, the construction sector is still suffering and the export sector is quite weak.”

Oil Wealth

The country’s oil wealth has shielded it from the worst of the economic crisis, and mainland GDP, which excludes oil, gas and shipping, grew 0.3 percent in the second quarter, ending six months of recession. The government expects the economy to grow 2.1 percent next year after contracting 1.1 percent this year. The jobless rate will average 3.2 percent this year and 3.7 percent in 2010.

The strong growth outlook has helped the krone outperform Sweden’s krona against the euro since the end of March.

“We think the currency will limit the room for the central bank to hike interest rates going forward,” said Maren Romstad, currency strategist at DnB NOR ASA, Norway’s biggest bank. “The export sector is still struggling and a stronger krone will only weaken the sector further.”

The krone will continue to strengthen as the global economy recovers, said Erik Bruce, senior economist at Nordea Bank AB in Oslo. “The strengthening of the krone means that core inflation will maybe go down to 1 percent next year and it means that the export sector will have problems on the international market.”

Inflation

The central bank targets price growth, adjusting for the effect of energy and taxes, of 2.5 percent. Inflation accelerated to 2.4 percent last month from 2.3 percent in August. Inflation has exceeded the bank’s target in six of nine months this year.

Exports will recover more slowly than consumer demand, the government forecasts, rising 0.1 percent in 2010 after slumping 6.5 percent this year.

Bruce expects Norges Bank to move “gradually” and increase rates at every second meeting to 2.75 percent within 12 months. If the bank “moves too fast, we will surely see an even stronger krone and that will lead to a too tight monetary situation, too low inflation.”

Norges Bank also releases its revised economic forecasts and rate path today.

To contact the reporter on this story: Josiane Kremer in Oslo at Jkremer4@bloomberg.net.

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Colombian Peso Drops to a Six-Week Low; Argentine Bonds Gain

By Drew Benson and Andrea Jaramillo

Oct. 27 (Bloomberg) -- Colombia’s peso fell to the lowest level in six weeks on speculation the central bank will buy dollars, pushing further declines in the currency.

The peso dropped for a fourth day, weakening 1.8 percent to 1,984.72 per U.S. dollar at 2:40 p.m. New York time, from 1,948.7 yesterday. It touched 1,990, the weakest since Sept. 15. The peso has tumbled 3.3 percent in the last five days, the second-biggest drop after the South African rand among 26 emerging market currencies tracked by Bloomberg.

“The peso is sliding on expectations the central bank will buy dollars, but we don’t see the central bank buying yet,” said Julian Cardenas, head of economic research at Bogota-based brokerage Corredores Asociados SA.

The central bank said Oct. 23 it will spend as much as 3 trillion pesos ($1.52 billion) to buy U.S. dollars and government peso bonds to inject cash into the financial system. Policy makers didn’t disclose how much would be spent on buying each.

The yield on Colombia’s 11 percent bonds due in July 2020 rose six basis points, or 0.06 percentage point, to 8.47 percent, according to Colombia’s stock exchange.

In Argentina, the yield on the nation’s inflation-linked peso bonds due in 2033 fell 20 basis points to 11.62 percent, according to Citigroup Inc.’s local unit.

Argentine Debt Law

Economy Minister Amado Boudou will discuss the government’s plan to suspend a law preventing the restructuring of about $20 billion in debt with Congress tomorrow, spokesman Sergio Poggi said. President Cristina Fernandez de Kirchner sent a bill to Congress last night calling for the suspension of the law through the end of 2010. Lawsuits stemming from the 2001 default are blocking Argentina from international debt markets.

Argentina’s peso rose 0.1 percent to 3.8213 per dollar from 3.8235 yesterday.

Venezuela’s bolivar gained 1.5 percent to 5.22 per dollar in unregulated parallel market trading from 5.3 yesterday, traders said. Venezuelans buy dollars in the parallel market when they can’t get government authorization to purchase them at the official exchange rate of 2.15 per dollar.

Petroleos de Venezuela SA, the country’s state oil company, said yesterday it boosted a bond sale to $3.26 billion from $3 billion to meet local investor demand for dollar-based assets. PDVSA, as the company is known, said it met 100 percent of the orders for the securities than can be purchased locally with bolivars and sold abroad for dollars.

In Chile, the peso climbed 0.6 percent to 531.25 per dollar, from 534.45 yesterday. The yield for a basket of Chile’s 10-year peso bonds in inflation-linked currency units, called unidades de fomento, rose three basis points to 2.94 percent, according to Bloomberg composite prices.

Peru’s sol declined 0.1 percent to 2.8905 per dollar, from 2.8890 yesterday. The yield on the country’s 8.6 percent sol- denominated bond due August 2017 was little changed at 4.83 percent, according to Bloomberg prices.

To contact the reporters on this story: Drew Benson in Buenos Aires at abenson9@bloomberg.net; Andrea Jaramillo in Bogota at ajaramillo1@bloomberg.net

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Yen Strength May Turn Into Broader Dollar Rally, RBC Says

By Daniel Tilles

Oct. 28 (Bloomberg) -- The yen’s strength may herald gains by the dollar as October draws to a close, according to RBC Capital Markets.

“The sell-off in cross-yen risks extension to a broader dollar rally as we head into month-end, where the bias is skewed toward dollar demand,” Sue Trinh, a senior currency strategist in Sydney, wrote today in a report. “There is a risk dollar-yen could move higher into the end of the week.”

To contact the reporter on this story: Daniel Tilles in London at dtilles@bloomberg.net

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Dollar Rally to Last for ‘a While,’ Jim Rogers Says

By Theresa Barraclough

Oct. 28 (Bloomberg) -- A rally in the dollar may last for “a while” as equity and commodities markets decline, said Jim Rogers, chairman of Singapore-based Rogers Holdings.

“Everybody is pessimistic on the dollar,” Rogers said in an interview with Bloomberg television in Singapore. “Whenever you have everybody on the same side of the boat, you know what you have to do. We may have a rally in the dollar, a decline in commodity prices or stock prices for a while.”

Rogers, an author whose books include “Investment Biker” and “Adventure Capitalist,” said in an Oct. 8 interview that there may be a rally in the dollar, although it won’t be “sustainable.” He said at a financial forum in Hong Kong in January that printing of the U.S. currency to help revive the economy would weaken the greenback and Treasuries.

The dollar has weakened so far this year versus all but one of its 16 major counterparts, including a 5.7 percent drop against the euro. The currency traded at $1.4812 per euro as of 1:55 p.m. in Tokyo from $1.4804 yesterday, after gaining 1.5 percent over the previous three days. The dollar weakened to 91.14 yen, from 91.80 yen.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, fell to 76.090 today, from 81.308 at the end of last year.

“The dollar is overdue for a rally,” Rogers said.

Trimming Net Longs

Investors have been reducing bets that the dollar will decline versus the yen and the euro. The difference in the number of wagers by hedge funds and other large speculators on an advance in the euro compared with those on a drop -- so- called net longs -- was 36,033 on Oct. 20, compared with net longs of 43,367 a week earlier. Similarly, net yen longs were 31,185 on Oct. 20, from 33,339 a week earlier.

Rogers, who predicted the start of the global commodities rally in 1999, said that raw material prices may decline for a while. The Reuters/Jefferies CRB Index, which tracks 19 commodities, has fallen 0.8 percent over the past week trimming this year’s gains. The index dropped 36 percent in 2008, its worst annual performance on record.

Rogers also said that he “certainly wouldn’t be buying U.S. Treasuries” and “couldn’t imagine lending money to the U.S. government for long periods of time.”

Ten-year Treasury yields have increase one and a quarter percentage point so far this year to 3.46 percent as President Barack Obama pushed U.S. marketable debt to $7.01 trillion, the most ever, as the budget deficit reached a record $1.42 trillion in the fiscal year that ended Sept. 30.

To contact the reporter on this story: Theresa Barraclough in Tokyo at tbarraclough@bloomberg.net.

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Yen Rises as Economic Concerns Damp Demand for Higher Yields

By Yasuhiko Seki and Ron Harui

Oct. 28 (Bloomberg) -- The yen gained against the euro and dollar on speculation the global economic recovery will slow, reducing demand for higher-yielding assets.

The euro slid to a one-week low against Japan’s currency before reports this week forecast to show German consumer prices fell and unemployment rose, backing the case for the European Central Bank to hold down interest rates. Australia’s dollar dropped versus the yen as a report showed inflation slowed, easing speculation the central bank will speed up rate increases.

“As the market shifts attention to the sustainability or the strength of a recovery from a cyclical upturn, the mood of euphoria may wane,” said Masahide Tanaka, senior strategist in Tokyo at Mizuho Trust & Banking Co., a unit of Japan’s second- largest lender.

The yen rose to 135.50 per euro as of 6:56 a.m. in London from 135.89 in New York yesterday, after earlier reaching 134.85, the highest level since Oct. 20. Japan’s currency fetched 91.33 per dollar from 91.80. The dollar traded at $1.4833 per euro from $1.4804 yesterday, when it touched $1.4770, the strongest level since Oct. 13.

Australia’s currency dropped to 91.29 U.S. cents from 91.66 cents yesterday after touching 90.73 cents, the least since Oct. 14. It was at 83.39 yen from 84.14 yen yesterday.

German Prices

The jobless rate in Germany, Europe’s biggest economy, probably rose to 8.3 percent in October from 8.2 percent in the previous month, according to a Bloomberg News survey of economists before the report’s release tomorrow.

The nation’s consumer price index, calculated using a harmonized European Union method, fell 0.1 percent in October from a year earlier after slipping 0.5 percent in September, a separate survey showed. The Federal Statistics Office in Wiesbaden will release the report later today.

“We expect German CPI to remain weak,” Brian Kim, a currency strategist in Stamford, Connecticut, at UBS AG, wrote in a research note yesterday. “We continue to target the euro- dollar back at $1.45 in one month as sentiment is clearly showing signs of strain.”

The ECB will maintain its benchmark interest rate at 1 percent through the second quarter of 2010, a Bloomberg survey showed. The central bank next meets on Nov. 5.

Australia’s consumer prices advanced 1 percent from the second quarter, when it gained 0.5 percent, the Bureau of Statistics said in Sydney today. The median estimate of 20 economists surveyed by Bloomberg News was for a 0.9 percent increase. Prices gained 1.3 percent from a year earlier.

Unsustainable Rally

“We saw a modest drop in the pricing of expectations of a 50 basis point hike next week in Australia, which weighed a bit on the Aussie,” said David Forrester, a currency economist in Singapore at Barclays Capital. “Since then it’s been taken over by what’s going on with the U.S. dollar and equity markets.”

Futures markets pared to 10 percent from 14 percent yesterday the chance of a 50 basis point increase in official interest rates when the reserve bank meets next week.

The yen rose against all 16 of the most-active currencies on concern a rally in stocks and commodities can’t be sustained.

The six-month run-up in shares and raw materials is probably at its peak as U.S. growth lags behind historical averages, according to Bill Gross at Newport Beach, California- based Pacific Investment Management Co.

Gross, a founder and co-chief investment officer of the world’s biggest manager of bond funds, has predicted a “new normal” in the global economy that will include heightened government regulation, lower consumption, slower growth and a shrinking global role for the U.S. economy.

“What has happened is that our ‘paper asset’ economy has driven not only stock prices, but all asset prices higher than the economic growth required to justify them,” Gross wrote yesterday on Pimco’s Web site.

Japan Retail

The Standard & Poor’s 500 Index slipped 0.3 percent to 1,063.41 yesterday in New York. The Nikkei 225 Stock Average fell 1.4 percent today, while the MSCI Asia Pacific Index of regional shares lost 1 percent.

Adding to signs the recovery will be slow, Japan’s retail sales fell for a 13th month in September, the Trade Ministry said today in Tokyo. Sales slid 1.4 percent from a year earlier.

The dollar fell against the Japanese currency on renewed concern over the health of the U.S. banking sector.

GMAC Inc., the lender that received two government bailouts totaling $13.5 billion, is in talks with the Treasury Department to receive a third lifeline, a person familiar with the matter told Bloomberg News.

GMAC Support

“This development may renew worries over the health of the U.S. financial sector,” Takashi Kudo, director of foreign- exchange sales at NTTSmartTrade Inc., a unit of Nippon Telegraph & Telephone Corp., said about GMAC. “This could add to the argument for the Fed to keep borrowing costs low, and would likely be negative for the dollar and positive for the yen.”

GMAC is preparing to report third-quarter results on Nov. 4 after posting losses in seven of the past eight periods. The U.S. rescued GMAC last December after deciding the firm was crucial to the survival of the auto industry. General Motors Co., its former parent, and Chrysler Group LLC rely on GMAC to provide financing to customers.

The dollar reached 92.32 yen yesterday, the strongest level since Sept. 21, on speculation that Federal Reserve will change rhetoric on the duration of credit easing when policy makers meet next week.

To contact the reporters on this story: Yasuhiko Seki in Tokyo at yseki5@bloomberg.net; Ron Harui in Singapore at rharui@bloomberg.net.

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Oil Trades Above $79 After Rising on Signs of Economic Recovery

By Ann Koh

Oct. 28 (Bloomberg) -- Oil traded above $79 a barrel after gains in U.S. home prices and an industry report showing a drop in stockpiles bolstered optimism that the world’s largest energy user is recovering from the worst recession since the 1930s.

Crude oil advanced 1.1 percent yesterday after the American Petroleum Institute reported yesterday that crude stockpiles in the U.S. declined 1 percent to 339.5 million last week. The S&P/Case-Shiller home-price index also showed that prices increased from the prior month.

“We do see the global economy continue on its recovery path, and we could see more dollar weakness which has a positive effect for dollar-denominated commodities,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. “As much as underlying fundamentals, we haven’t really seen a huge degree of improvement.”

Crude oil for December delivery was at $79.32 a barrel, down 23 cents, at 3:56 p.m. Singapore time. Prices rose as much as 28 cents, or 0.4 percent, to $79.83 a barrel. Yesterday, the contract climbed 87 cents to settle at $79.55 a barrel on the New York Mercantile Exchange. Prices have gained 78 percent this year and reached a one-year high of $82 a barrel on Oct. 21.

“Oil is hovering at fairly elevated levels,” Emmanuel Ng, an economist at Oversea-Chinese Banking Corp., said in an interview with Bloomberg Television in Singapore. “If we continue to see oil prices climbing higher and higher into 2010, then the ghost of the oil worries will come back and haunt Asia just a little bit, we suspect.”

Oil fell 2.3 percent on Oct. 26 when the dollar climbed, reducing investor demand for commodities.

Dollar Rally

A rally in the dollar may last for “a while,” Jim Rogers, chairman of Rogers Holdings, said in a Bloomberg Television interview in Singapore.

“Everybody is pessimistic on the dollar,” Rogers said. “Whenever you have everybody on the same side of the boat, you know what you have to do. We may have a rally in the dollar, a decline in commodity prices or stock prices for a while.”

The dollar was at $1.4833 per euro as of 6:56 a.m. in London from $1.4804 yesterday. It also touched $1.4770 yesterday, the strongest level since Oct. 13.

The dollar has weakened so far this year versus all but one of its 16 major counterparts, including a 5.7 percent drop against the euro.

OPEC Production

The Organization of Petroleum Exporting Countries will raise oil output if there’s a “real” shortage of supply, Qatari Oil Minister Abdullah bin Hamad al-Attiyah said yesterday in Ras Laffan, Qatar. The 12-member group is scheduled to meet Dec. 22 in Luanda, Angola, to review production targets.

“Sometimes the price of oil has no correlation to demand and supply,” al-Attiyah said. “Now what we are seeing is that oil has a strong correlation with the dollar.”

Higher oil prices pose a “significant risk” to global recovery efforts from the recession, Fatih Birol, chief economist of the International Energy Agency, said at a conference in London on Oct. 26.

An Energy Department report today will probably show that U.S. crude-oil supplies increased last week as fuel stockpiles fell, according to a Bloomberg News survey.

Stockpiles of crude oil rose 1.91 million barrels in the week ended Oct. 23 from 339.1 million the prior week, according to the median of 16 estimates by analysts before the department’s report. All respondents forecast a gain.

Supplies of distillate fuel, a category that includes heating oil and diesel, declined 1 million barrels from 169.9 million the prior week, according to the survey.

Brent crude oil for December settlement was at $77.65 a barrel, down 27 cents, at 3:56 p.m. Singapore time. It increased 66 cents, or 0.9 percent, to end the session at $77.92 a barrel on the London-based ICE Futures Europe exchange yesterday.

To contact the reporter on this story: Ann Koh in Singapore at akoh15@bloomberg.net

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India May Import Rice in 2010, Trigger Price Surge, Trader Says

By Luzi Ann Javier

Oct. 28 (Bloomberg) -- India, the world’s second-largest rice grower, may import up to 3 million metric tons next year as the government secures supplies in case the nation faces another year of drought, triggering a price surge, a trader said today.

The weakest monsoon in India since 1972 may slash rice output by about 18 percent to 81 million tons in the marketing year that began Oct. 1, below forecast demand of 89 million tons, according to the United Nations Food and Agriculture Organization.

“The government can afford to have rice sitting in the warehouse and rotting, but they can’t afford to have a very low stockpile of rice next year in case another drought or flooding hurts crops,” Rakesh Singh, head rice trader at Emmsons International Ltd., which supplies about 500,000 tons a year in India, said in an interview in Cebu, central Philippines. “We may hear about a tender in the next few weeks.”

If India imports rice next year, it will be the first time the country has purchased the grain since 2006, according to data from the U.S. Department of Agriculture, and only the second time since 2001.

The country’s return to the import market would push Thai rice export prices, the regional benchmark, at least 25 percent higher from current levels to $800 a ton, Singh said.

The price of 100 percent grade-B Thai white rice was set at $525 a ton last week, the fourth consecutive weekly drop, according to Thai Rice Exporters Association figures.

‘Wild Card’

Reduced production caused by bad weather in the Philippines and Latin America and lower output in the U.S. may help push prices back to record levels next year, Dwight Roberts, president of the U.S. Rice Producers Association said in an interview in Cebu yesterday. Declining Indian production may turn the South Asian nation into an importer, triggering a surge in global prices, he added.

“I think India is a real wild card in the next few months, or the next few weeks,” Roberts said.

Rice futures traded in Chicago surged to a record $25.07 per 100 pounds in April 2008 as shipments slowed and buyers including the Philippines, the world’s biggest importer, increased purchases to secure supplies and cool inflation. Rice for January delivery traded 1.1 percent higher at $13.915 per 100 pounds as of 3:25 p.m. Singapore.

Still, India has no plans to import rice because its reserves are adequate, Nanda Kumar, the country’s farm secretary, said in New Delhi yesterday.

To contact the reporter on this story: Luzi Ann Javier in Cebu at ljavier@bloomberg.net

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CIC Seeks Commodities, Property as Hedge, Lou Says

By Bloomberg News

Oct. 28 (Bloomberg) -- China Investment Corp., the country’s sovereign wealth fund, said it has $110 billion for overseas investments and will focus on buying into commodities companies and property as a hedge against accelerating inflation.

“Now we are seeing expectations of medium and long-term inflation, and the value of major currencies may have to fall to a new equilibrium level,” Chairman Lou Jiwei told a forum in Beijing today, according to a transcript of his comments posted on financial portal hexun.com. “Investing in major commodities can be a hedge. So is investing in real estate.”

CIC, which held almost $300 billion in assets at the end of last year, is seeking resources from Indonesia to Canada to support expansion in the world’s fastest-growing major economy. It spent at least $3.69 billion on resources in September, buying stakes in Indonesia’s PT Bumi Resources, Noble Group Ltd. and in the London-traded unit of Kazakhstan’s state-run energy company.

“China needs to diversify its foreign reserves investments away from U.S. Treasuries and it lacks resources, so it has to be buying minerals from a national strategy point of view,” said Helen Wang, a Shanghai-based analyst with DBS Vickers Hong Kong Ltd. “Now may not be the best time in terms of prices, but they may be betting that commodities prices will be even higher in the next five to 10 years.”

Copper prices in London have almost doubled this year on Chinese demand while crude oil has added 86 percent in New York.

The fund has made “not bad” returns from overseas holdings this year after pumping more money into stocks, mining, energy and real estate, Lou said. CIC sees opportunities in “many” commodities companies after asset bubbles burst in the financial crisis, he added.

‘Long-term’ Returns

“Our strategy is just long-term risk-adjusted return, is making money,” Lou said. “Now is the opportunity. I don’t care about how many tons of oil to ship home, I care about whether stocks are worth more money.”

Overseas investments by Chinese companies surged 190 percent to $20.5 billion in the third quarter from a year earlier, the Ministry of Commerce said yesterday. Chinese businesses’ non- financial direct investments in Africa, mainly in mining, manufacturing and construction, jumped 79 percent in the first nine months to $875 million, the ministry said yesterday in a separate statement.

China’s sovereign wealth fund is increasing investments in commodities firms after losing money on financial companies including Blackstone Group LP and Morgan Stanley.

SouthGobi Energy Resources Ltd., a unit of Ivanhoe Mines Ltd., said Oct. 26 it has obtained $500 million of financing from CIC to expand and develop coal reserves in southern Mongolia.

JSC KazMunaiGas, Bumi

CIC bought an 11 percent stake in Astana, Kazakhstan-based JSC KazMunaiGas Exploration Production for about $939 million, it said Sept. 30. A week earlier it bought $1.9 billion of debt from Jakarta-based Bumi Resources, Indonesia’s biggest coal producer, and paid $850 million for a 15 percent stake in Noble Group, a Hong Kong-based commodity supplier. Vancouver-based Teck Resources Ltd., Canada’s largest diversified mining company, sold a 17 percent stake to CIC in July.

China’s economy, the world’s third largest, expanded at the fastest pace in a year in the third quarter as stimulus spending and record lending growth helped the nation lead the world out of recession. Gross domestic product grew 8.9 percent from a year earlier.

The world’s biggest buyer of commodities including soybeans, cotton and iron ore, will expand 8.2 percent this year, compared with a March forecast of 7 percent, the Asian Development Bank said this month.

‘A Certain Percentage’

CIC should set aside “a certain percentage” of its investments in commodities because they’re important to China’s economic growth, Lou said. A “bigger” part of the fund’s investments in mining, energy and real estate were made in the open market through external agencies and not disclosed to the public, he said, adding that direct investments are less efficient and more difficult to adjust.

CIC is preparing for “rebalancing” overseas investments to further boost returns, Lou said without elaborating, according to the transcript. The company has completed nearly half of its overseas investments, he said.

To contact the Bloomberg News staff for this story: Zhang Dingmin in Beijing at Dzhang14@bloomberg.net

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Gold to Rise to $2,000 Amid ‘Massive’ Inflation, Superfund Says

By Kim Kyoungwha

Oct. 28 (Bloomberg) -- Gold may rise to a record $2,000 an ounce in the next three years as investors hedge against “massive” inflation sparked by governments printing money, according to Superfund Financial Singapore Pte’s Aaron Smith.

“In the next few years, after the deflation cycle, we’ll see massive inflation,” Managing Director Smith, 30, said in an interview. “Soon, when you go to buy a cup of coffee, you’ll pay $20 or $30 because the dollar won’t be worth anything.”

The company’s Superfund Green Gold A Fund, which has more than doubled since its inception in 2005, has lost 15.6 percent this year because of higher volatility, said Smith, who joined in 2002. Gold rose to an all-time high this month as governments including the U.S. boosted debt to combat the global recession.

“When the U.S. dollar crashes, all the paper currencies have to crash, otherwise if their currencies are too strong, their economies will be weak,” said Smith, who issued similar gold forecasts in May and earlier this month. “Another excellent buying opportunity for investors is silver.”

Gold for immediate delivery, which touched a high of $1,070.80 an ounce on Oct. 14, traded at $1,039.32 at midday in Singapore. The metal has strengthened 18 percent this year, while the Dollar Index, a six-currency gauge of the dollar’s strength, fell 6.4 percent.

Gold Forecasts

Smith joins investors including Shayne McGuire, director of global research at the Teacher Retirement System of Texas, and Jim Rogers in forecasting higher gold prices. Pension funds will increase gold holdings as currencies decline, McGuire said on Oct. 22. Gold will probably top $2,000 in the next decade as the dollar weakens, Rogers said Oct. 7.

Superfund, founded in 1995 and backed by $1.6 billion in assets, specializes in so-called managed futures, using its own trading system to generate buy and sell calls on stock, bond, currency and commodity futures. Still, the company’s flagship Superfund A, which gained 35.4 percent last year, has lost 24 percent this year, Smith said.

The ratio of silver to gold, currently at 62.35, will be “cut in half” in the next three to five years as millions of people in South Asia and China buy the metal as an alternative because they can no longer afford gold, Smith said. Silver has soared 46 percent this year to $16.65 an ounce.

To contact the reporter on this story: Kyoungwha Kim in Singapore at Kkim19@bloomberg.net

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Japanese Stocks Fall on Profit Concerns; Toshiba, Canon Decline

By Akiko Ikeda and Patrick Rial

Oct. 28 (Bloomberg) -- Japanese stocks fell for a second day as companies from ship operators to electronics makers reported weaker earnings or cut forecasts.

Leopalace21 Corp. plunged 16 percent after the real-estate company predicted a loss from a profit. Kawasaki Kisen Kaisha Ltd. dropped 4.5 percent, leading declines by shipping lines after widening its loss forecast yesterday. Canon Inc., the world’s largest camera maker, sank 3.4 percent after reporting a seventh-straight quarterly profit decline. Toshiba Corp. lost 4.6 percent after maintaining its full-year estimates while saying the outlook for the global economy is “highly opaque.”

“The thought is starting to creep into people’s minds that once stimulus measures run out, the recoil will run rather deep,” said Hiroshi Morikawa, a senior strategist at MU Investments Co., which manages the equivalent of $14 billion. “Earnings might be good now, but that’s looking to the past, and everyone is more worried about the uncertain future.”

The Nikkei 225 Stock Average fell 1.4 percent to 10,075.05 at the market close in Tokyo. The broader Topix index dropped 0.8 percent to 888.80, with almost twice as many shares declining as advancing. Stocks in the benchmark are valued at 37 times estimated earnings, compared with 17 times for the Standard & Poor’s 500 Index.

Shimano Inc., the world’s biggest maker of bicycle parts, retreated 6.9 percent to 3,660 yen, the sharpest decline this year. The company cut its full-year net income forecast 28 percent due to a slump in sales of bikes and fishing equipment. Net income fell 58 percent for the nine months ended Sept. 30.

Leopalace21 Plunges

Leopalace21 plunged by the daily limit of 16 percent to 528 yen after forecasting a net loss of 19.1 billion yen, compared with its earlier projection for 8.7 billion yen in net income. The company cited a slow recovery in the rental market, low occupancy rates and a writedown.

Property stocks climbed the most among the Topix’s 33 industry groups in the fiscal first half to September, gaining 37 percent, compared with 18 percent for the broad benchmark.

“Real-estate stocks advanced during the first half because of expectations for their condominium and rental-office businesses, however none of them is improving,” said Masaru Kimura, an analyst at Cosmo Securities Co. “Tighter restrictions on banks’ equity capital and a rise in long-term interest rates are also negative factors for the stocks.”

Leopalace tumbled the most among the 1,687 companies in the Topix today. Real-estate companies had the largest decline among the index’s 33 industry groups, followed by shipping lines.

Shipping Lines Decline

Ship operators extended declines from yesterday, when they reported earnings and forecasts. Kawasaki Kisen tumbled 4.5 percent to 337 yen. The company widened its annual net forecast loss to 79 billion yen ($858 million) from 31 billion yen.

Nippon Yusen K.K., Japan’s largest line by sales, retreated 2.6 percent to 338 yen, its lowest since September 2001, after the company cut fleet spending plans by half and widened its loss forecast fivefold. Mitsui O.S.K. Lines Ltd. dropped 2.2 percent to 539 yen.

Among stocks that climbed, Honda Motor Co., Japan’s second- largest carmaker, rallied 3.3 percent to 2,940 yen after boosting its full-year profit forecast to 155 billion yen, compared with an earlier projection of 55 billion yen. The company cited government stimulus measures that are lifting demand for fuel-efficient vehicles in China and Japan.

Honda had the steepest increase in the Nikkei and was the biggest positive contributor to the Topix.

Koito Manufacturing Co., a headlamp maker, climbed 4.3 percent to 1,315 yen after increasing its full-year net income outlook to 6 billion yen from 1 billion yen, from rising demand for less-polluting cars.

DeNA, Canon, Toshiba

DeNA Co. jumped by the daily limit of 16 percent to 285,200 yen, the sharpest advance in the Topix. Hiroshi Kamide, an analyst at KBC Securities, lifted the operator of auction and shopping Web sites to “buy” from “hold,” citing management’s re-focus on gaming contents.

Toshiba, Japan’s biggest chipmaker, lost 4.6 percent to 519 yen, the biggest drop in a month, and was the most-actively traded stock by value in Japan. The company kept its annual outlook unchanged, even after reporting a first-half loss that was narrower than forecast.

Canon slumped 3.4 percent to 3,460 yen, the sharpest slide in six weeks. The camera maker posted its seventh-straight quarterly profit drop as the stronger yen eroded the value of exports. Third-quarter net income fell 56 percent to 36.7 billion yen, the company said.

Canon and Toshiba were the biggest drags on the Topix.

To contact the reporter on the story: Akiko Ikeda in Tokyo at iakiko@bloomberg.net; Patrick Rial in Tokyo at prial@bloomberg.net.

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Asian Stocks Decline on Earnings Concern; Japan’s Yen Advances

By Shani Raja and Patrick Rial

Oct. 28 (Bloomberg) -- Asian stocks fell, dragging the MSCI Asia Pacific Index to a three-week low, as losses at National Australia Bank Ltd. and Canon Inc.’s lower profit raised concern about the strength of the global recovery. The yen advanced.

National Australia fell 2.8 percent after posting a second- half loss amid rising bad-debt charges. Canon, the world’s largest camera maker, lost 3.4 percent as it reported its seventh-straight drop in quarterly profit. Toshiba Corp. sank 4.6 percent after warning of a “highly opaque” economic outlook. BlueScope Steel Ltd. dropped 3.5 percent in Sydney as rising Chinese steel inventories raised oversupply concerns.

The MSCI Asia Pacific Index lost 1.2 percent to 116.49 as of 5:08 p.m. in Tokyo, set to close at the lowest since Oct. 6. The gauge has surged 65 percent from a more than five-year low on March 9 amid signs stimulus measures around the world are reviving the global economy.

“The thought is starting to creep into people’s minds that once stimulus measures run out, the recoil will run rather deep,” said Hiroshi Morikawa, a senior strategist at MU Investments Co., which manages the equivalent of $14 billion. “Earnings might be good now, but that’s looking to the past, and everyone is more worried about the uncertain future.”

Japan’s Nikkei 225 Stock Average lost 1.4 percent and China’s Shanghai Composite Index added 0.3 percent. South Korea’s Kospi Index slumped 2.4 percent. Australia’s S&P/ASX 200 Index dropped 1.4 percent.

Hong Kong’s Hang Seng Index fell 1.8 percent, with Sino Land Co. sinking 4.6 percent on concern the city’s government will act to curb property speculation.

Honda, Astellas

Among companies that rose, Honda Motor Co., Japan’s second- largest carmaker, surged 3.3 percent after tripling its full- year earnings forecast. Astellas Pharma Inc. gained 1.5 percent after agreeing to pay for global rights to develop and sell an experimental drug for prostate cancer.

Futures on the U.S. Standard & Poor’s 500 Index rose 0.1 percent. The measure dropped 0.3 percent yesterday as a gauge of confidence among the country’s consumers unexpectedly fell.

The yen gained against all 16 of the most-active currencies on speculation the pace of the global economic recovery will slow, reducing demand for higher-yielding assets. Japan’s currency rose to 135.19 per euro from 135.89 in New York yesterday, after earlier reaching 134.85, the highest level since Oct. 20.

Economic Reports

Better-than-estimated economic and earnings reports have helped fuel a global stock-market rally since March. The advance has driven the average price of companies in the MSCI Asia Pacific Index to 1.55 times book value, up from 1.03 times at this year’s low in March.

“The market’s in a bit of a wait-and-see mode,” said Prasad Patkar, who helps manage about $1.3 billion at Platypus Asset Management in Sydney. “In this stage of the recovery, valuations always looked stretched. The market is forward- looking and expecting an earnings recovery to come through.”

The MSCI index has lost 1.2 percent since the end of September, and is set for its first monthly decline since February amid speculation governments will begin to withdraw stimulus measures.

Australia this month became the first country in the Group of 20 nations to boost borrowing costs since the start of the credit crisis. India’s central bank governor indicated yesterday that it was time to shift policy toward stemming inflation.

Net Loss

National Australia, the country’s biggest lender to businesses, fell 2.8 percent to A$29.83. The net loss of A$75 million ($68 million) in the six months ended Sept. 30 compared with a profit of A$1.85 billion in the year-earlier period, the Melbourne-based bank said today. Commonwealth Bank of Australia lost 3.8 percent to A$53.03.

Canon slumped 3.4 percent to 3,460 yen after its third- quarter net income fell 56 percent to 36.7 billion yen from a year earlier. The company maintained its estimates for full-year earnings and sales.

“Some investors had expected an upward revision of the full-year earnings forecasts because of Canon’s robust camera business,” said Tetsuya Wadaki, a Tokyo-based analyst at Nomura Holdings Inc., who recommends buying the stock.

Toshiba dropped 4.6 percent to 519 yen, the most since Sept. 28. The chipmaker’s second-quarter loss narrowed on cost reductions, helping Toshiba beat its first-half forecast. Still, the outlook for the global economy in the second half of its fiscal year “remains highly opaque,” Toshiba said.

Steel Supply

BlueScope Steel Ltd., Australia’s largest steelmaker, slumped 3.5 percent to A$3.05. JFE Holdings Inc., Japan’s No. 2 producer, sank 2.8 percent to 2,935 yen. Posco, South Korea’s biggest steelmaker, dropped 3.7 percent to 524,000 won.

Steel inventories held by large Chinese companies jumped 10 percent in the first nine months of the year, the Ministry of Industry and Information Technology said, adding to evidence of rising oversupply in the world’s largest producer of the metal.

The nation’s cabinet in August said it was studying curbs on overcapacity in industries including steel. Monthly steel production in China reached records for four months from May through August.

In Hong Kong, Sino Land dropped 4.6 percent to HK$14.80. New World Development Co., controlled by billionaire Cheng Yu- tung, slumped 4.3 percent to HK$16.78.

Property Market

Hong Kong Financial Secretary John Tsang signaled at a meeting that the government is prepared to act to stop the property market becoming “unfair” and “unhealthy,” the South China Morning Post reported today.

For property stocks, “it’s more of a psychological impact,” said Marco Mak, head of research at Tai Fook Securities Ltd. “As long as the government isn’t having any administrative intervention, the pullback will be short term.”

Honda Motor climbed 3.3 percent to 2,940 yen after forecasting net income of 155 billion yen in the year ending March, compared with an earlier target of 55 billion yen.

Astellas, Japan’s second-largest drugmaker, gained 1.5 percent to 3,390 yen. The company agreed to pay as much as $765 million to California-based Medivation Inc. for global rights to develop and sell the prostate cancer drug.

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

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Deutsche Bank Said to Be Near Deal for Sal. Oppenheim Holding

By Aaron Kirchfeld

Oct. 28 (Bloomberg) -- Deutsche Bank AG, Germany’s biggest lender, is poised to buy the Luxembourg-based holding company of wealth manager Sal. Oppenheim Jr. & Cie. for about 1 billion euros ($1.48 billion), two people familiar with the matter said.

The family owners of Sal. Oppenheim will retain 25 percent in an operating unit of the asset and wealth management business in Cologne, Germany, said the people, who declined to be identified because talks are private. An agreement may be announced as soon as today after Deutsche Bank’s supervisory board meets, said the people.

Chief Executive Officer Josef Ackermann is seeking control of Sal. Oppenheim, Germany’s biggest independent private bank, to cut reliance on investment banking and bolster the asset and wealth management business. The acquisition would almost double Deutsche Bank’s assets under management in the private-wealth unit to more than 300 billion euros and add about 150 million euros in operating profit a year, according to estimates by Morgan Stanley analysts.

Spokesmen for Deutsche Bank and Sal. Oppenheim declined to comment. Die Welt yesterday reported the structure of the transaction, which the German newspaper said has tax benefits.

Sal. Oppenheim, run by the seventh generation of the same family, put itself up for sale after reporting its first loss since World War II last year from soured investments in companies such as insolvent German retailer Arcandor AG as well as derivatives and real estate. The bank in April posted a 2008 net loss of 117 million euros.

Wealth-Management Unit

Deutsche Bank is only interested in the wealth management business and Sal. Oppenheim is seeking a buyer for its investment bank. The company’s effort to sell the advisory and securities unit is focused on Macquarie Group Ltd., Australia’s biggest investment bank, and won’t be completed until after the Deutsche Bank transaction, the people said. Italy’s Mediobanca SpA previously dropped out of negotiations.

Deutsche Bank loaned 350 million euros to Sal. Oppenheim to help the wealth manager pay off loans to other banks, two people familiar with the matter said in September. The loan followed 300 million euros in financing provided by Deutsche Bank in August that the wealth manager used to raise capital. Deutsche Bank received Sal. Oppenheim shares as collateral, paving the way for a stake purchase, the people said.

Sal. Oppenheim says it became Europe’s largest independent bank after its 2004 purchase of BHF-Bank from ING Groep NV for 600 million euros. The company, which employs about 4,000 people, traces its roots to a commission and exchange house founded in 1789 by Salomon Oppenheim Jr.

To contact the reporter on this story: Aaron Kirchfeld in Frankfurt at akirchfeld@bloomberg.net

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PGE Prices Europe’s Biggest IPO This Year at $2.1 Billion

By Pawel Kozlowski

Oct. 28 (Bloomberg) -- PGE SA, Poland’s largest power group, priced its initial public offering at the top of its range, valuing Europe’s biggest IPO this year at 5.97 billion zloty ($2.1 billion).

State-owned PGE, which is offering 259.5 million shares, or a 15 percent stake, set the final price at 23 zloty a share, the company said on its Web site. That was in line with the 23-zloty median estimate of 13 fund managers surveyed by Bloomberg News on Oct. 21, and compares with a 17.50 zloty to 23 zloty indicative price range.

PGE, also known as Polska Grupa Energetyczna, will sell 15 percent of the shares in its IPO to individual investors, compared with an earlier planned 10 percent. Demand from institutional and individual investors amounted to 45 billion zloty, according to the statement.

Poland had the biggest number of new listings in Europe after NYSE Euronext in the first nine months of 2009, attracting 22 companies, compared with 23 at the world’s largest operator of stock markets, according to PricewaterhouseCoopers LLP statistics cited on the Warsaw bourse’s Web site.

The state-owned company, picked to develop Poland’s first nuclear plant, is seeking cash to make acquisitions and replace aging generation capacity. PGE estimates it will have to spend 38.9 billion zloty on expansion through 2012, including investment to meet European Union environmental requirements.

Profit Doubled

PGE, whose net income almost doubled to 1.79 billion zloty in the first half of 2009, may post a 3.17 billion zloty profit for the full year, according to BRE Bank SA estimates.

The IPO price of 23 zloty values the company at 12.6 times BRE’s estimate of 2009 earnings. That’s more than the valuation of 9.6 times earnings for CEZ AS, the Czech Republic’s biggest utility, and the 9.5 ratio for RWE AG of Germany. Verbund and EVN AG, Austrian utilities, trade at 13.6 and 12.9 times this year’s estimated earnings, according to Bloomberg data.

Companies from Banco Santander SA’s Brazilian unit to Aviva Plc’s Delta Lloyd NV are holding IPOs this year after the MSCI World Index climbed 65 percent from its 2009 low on March 9.

The IPO, managed by Goldman Sachs Group Inc. and UniCredit SpA, will be the largest in Europe since EDP Renovaveis SA, the renewable-energy unit of Portugal’s biggest utility EDP- Energias de Portugal SA, sold 1.57 billion euros ($2.3 billion) of shares in May last year.

Asset Sales

Poland is speeding up sales of state assets to raise 36.7 billion zloty through 2010 to help finance a budget gap the government expects will almost double next year. The government will sell an additional 10 percent stake in PGE next year, according to the prospectus.

The government plans an IPO of its second-largest power group, Tauron Polska Energia SA, in the first half of the next year. The state-owned utility wants to raise as much as 4 billion zloty and the government may decrease its stake to below 50 percent while retaining control of the company.

The stock of state-controlled coal producer Lubelski Wegiel Bogdanka SA has soared 54 percent since its IPO in June, lifting the company’s valuation to 13.3 times estimated earnings from 9.4 times, according to data compiled by Bloomberg.

To contact the reporter on this story: Pawel Kozlowski in Warsaw pkozlowski@bloomberg.net

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Apollo, Chiquita, Illumina, Psychiatric: U.S. Equity Preview

By Lu Wang

Oct. 28 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

Apollo Group Inc. (APOL US): The owner of the University of Phoenix reported said the enforcement division of the Securities and Exchange Commission commenced an informal inquiry into the company’s revenue recognition practices.

Chiquita Brands International Inc. (CQB US): The seller of bananas and other produce said that, excluding some items, it earned 20 cents a share in the third quarter. Analysts, on average, expected the company to post a loss of 15 cents, according to a Bloomberg survey.

By Lu Wang

Oct. 28 (Bloomberg) -- Shares of the following companies may have unusual moves in U.S. trading. Stock symbols are in parentheses.

Apollo Group Inc. (APOL US): The owner of the University of Phoenix reported said the enforcement division of the Securities and Exchange Commission commenced an informal inquiry into the company’s revenue recognition practices.

Chiquita Brands International Inc. (CQB US): The seller of bananas and other produce said that, excluding some items, it earned 20 cents a share in the third quarter. Analysts, on average, expected the company to post a loss of 15 cents, according to a Bloomberg survey.

Harris Corp. (HRS US): The maker of military radios boosted its forecast, projecting profit of at least $3.85 a share for the year. The company had previously predicted $3.50 at most.

Illumina Inc. (ILMN US): The maker of equipment to analyze DNA said that, excluding some items, it expects to earn 25 cents a share at most in the fourth quarter. That trailed the 27-cent average estimate from analysts in a Bloomberg survey.

Psychiatric Solutions Inc. (PSYS US): The provider of behavioral-health programs to children reduced its full-year forecast after third-quarter profit missed analysts’ estimates.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

Harris Corp. (HRS US): The maker of military radios boosted its forecast, projecting profit of at least $3.85 a share for the year. The company had previously predicted $3.50 at most.

Illumina Inc. (ILMN US): The maker of equipment to analyze DNA said that, excluding some items, it expects to earn 25 cents a share at most in the fourth quarter. That trailed the 27-cent average estimate from analysts in a Bloomberg survey.

Psychiatric Solutions Inc. (PSYS US): The provider of behavioral-health programs to children reduced its full-year forecast after third-quarter profit missed analysts’ estimates.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

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Vitamin Shoppe IPO Hands Blackstone Cash After Dot-Com Crash

By Michael Tsang and Rita Nazareth

Oct. 28 (Bloomberg) -- Vitamin Shoppe Inc.’s initial public offering is giving investors a second chance to buy a stake in the retailer of nutritional supplements a decade after its dot- com unit sold shares at the peak of the Internet bubble.

The company, Blackstone Group LP and the family of founder Jeffrey Horowitz raised $155 million yesterday after selling 9.1 million shares above the forecast price range, according to Bloomberg data. The $17-a-share offer values Vitamin Shoppe at about $470 million and exceeds the $14 to $16 that the North Bergen, New Jersey-based retailer sought.

Vitamin Shoppe was the 17th U.S. company to raise money in an IPO since September, the busiest period in almost two years, as sellers take advantage of a credit-market thaw to unload shares into the biggest equity rally since the 1930s. The listing was Vitamin Shoppe’s second foray into the IPO market, after the initial sale of its VitaminShoppe.com Inc. unit in 1999 lost more than 90 percent for investors in less than two years as Internet stocks collapsed.

“This is a retail story, not a dot-com story from 10 years ago,” said Scott Billeadeau, who helps manage about $19 billion at Fifth Third Asset Management in Minneapolis. “They’ve raised the price because of demand. It’s a very good story.”

Charlotte, North Carolina-based Bank of America Corp.’s Merrill Lynch & Co. investment banking unit, Barclays Plc in London and New York-based JPMorgan Chase & Co. were the lead underwriters for the sale.

Vitamins, Hardwood Floors

Vitamin Shoppe is the first IPO of a retail chain store since Toano, Virginia-based Lumber Liquidators Inc., which sells hardwood flooring, offered shares in November 2007. Vitamin Shoppe originally filed in May 2007, before the start of the credit crisis. The company withdrew its registration statement in February this year and resubmitted it in July.

IPOs have increased after the Standard & Poor’s 500 Index rallied more than 50 percent from a 12-year low in March and the U.S. government lent, spent or guaranteed $11.6 trillion to shore up banks and revive the economy.

Prior to yesterday’s offerings, the amount raised in IPOs since September accounted for almost two-thirds of this year’s $11.3 billion in sales. The last time more U.S. companies went public over a two-month period was in December 2007 and January 2008, when there were 26, data compiled by Bloomberg show.

‘New Condition’

Palatine, Illinois-based Addus HomeCare Corp., which provides home nursing care, and Vitamin Shoppe added to the tally after raising a combined $209 million. Addus sold 5.4 million shares at $10 apiece yesterday, lower than its forecast range of $11 to $13.

“There is an IPO market now, which is a new condition,” said Lawrence Creatura, who invests in small-company stocks at Pittsburgh-based Federated Investors Inc., which oversees about $400 billion globally. “We came through a period when access to equity capital was impossible.”

Vitamin Shoppe sold 7.67 million shares, while New York- based Blackstone, the world’s largest private-equity firm, and the Horowitz family offered a combined 1.43 million shares, according to planned offer amounts in a regulatory filing.

After the IPO, Vitamin Shoppe will be 55 percent controlled by Irving Place Capital, the former Bear Stearns Cos. buyout fund that oversees $4.4 billion, the filing showed. The New York-based private-equity firm didn’t offer any common stock in the sale.

Long-Term Debt

Vitamin Shoppe intends to use its portion of the IPO proceeds to redeem about $64 million in preferred stock held by its owners and repay about $40 million in debt, according to the regulatory filing. The retailer had about $165 million in long- term debt prior to the offering.

The company earned 37 cents a share in the six months that ended in June, the regulatory filing showed. That implies a valuation of about 23 times profit over a full year, cheaper than the average ratio of 26.5 times estimated 2009 earnings for companies in the S&P SmallCap 600 Index, data compiled by Bloomberg show.

The vitamin retailer was founded by Jeffrey Horowitz in 1977 and opened its first store on the corner of 57th Street and Lexington Avenue in New York. Horowitz sold 70 percent of the company to the private-equity unit of JPMorgan and FdG Associates in 1997.

Vitamin Shoppe sold shares in its online unit VitaminShoppe.com on Oct. 7, 1999, raising $50 million. VitaminShoppe.com fell 11 percent on the first day of trading on the Nasdaq Stock Market. The shares rebounded and reached an all-time high of $17.1875 on Nov. 26, 1999.

One Dollar

The company then tumbled more than 90 percent as the technology bubble burst and it posted five consecutive quarters of losses. VitaminShoppe.com was delisted on April 16, 2001, after its parent company took it private for $1 a share.

Irving Place, then known as Bear Stearns Merchant Banking, paid $310 million to buy a controlling stake in Vitamin Shoppe in December 2002.

IPOs evaporated in the fourth quarter of last year after New York-based Lehman Brothers Holdings Inc. filed for the world’s biggest bankruptcy and caused a credit-market freeze. Only one company, Phoenix-based Grand Canyon Education Inc., sold stock in the last three months of 2008.

The drought lasted until September as an average of two U.S. companies a month went public, the slowest pace since at least 1995. While the number of deals has picked up, IPO performance has been the worst since at least 1995, data compiled by Bloomberg show.

Smallest Advantage

The IPOs of 16 American companies since September have beaten the S&P 500 by 1.2 percentage points on average in the first month of trading through yesterday, the smallest margin in Bloomberg data going back 14 years. Offerings by U.S. companies have beaten the S&P 500 by an average 21.3 percentage points after their listings, the data show.

Before yesterday’s IPOs, five companies had to cut their offer prices to attract investors, while only two companies -- Jersey City, New Jersey-based Verisk Analytics Inc. and A123 Systems Inc. of Watertown, Massachusetts -- priced shares above their forecast range.

PGE SA, Poland’s largest power group, priced Europe’s biggest IPO this year at the top of its range yesterday, valuing the Warsaw-based company at 5.97 billion zloty ($2.1 billion).

To contact the reporters on this story: Michael Tsang in New York at mtsang1@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net.

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The Rise In The New Zealand Dollar Help Slow Down Inflation

Daily Forex Fundamentals | Written by ecPulse.com | Oct 27 09 08:20 GMT |

New Zealand's Prime Minister indicated that the rise in the local currency does not reflect the current economic conditions seen by the country, and since the rise in the New Zealand dollar helped slow down inflation, the central bank does not see the need to start raising rates for now. The New Zealand central bank led by Alan Pollard may not face pressures to start raising rates in the upcoming period, since inflation is under control for now especially with the appreciation of local currency against other currencies that reduces the imported inflation, since import prices become lower. The consumer price index rose by 1.3% during the third quarter of the year, therefore it remains within the comfort zone of the central bank between 1.0-3.0%. And since the interest rates in New Zealand are higher than its trading partners, the country depends on the rise of its local currency. The New Zealand dollar is expected to remain near its highest levels, especially since interest rates stabilized in the United States between 0.0-0.25% and in Japan at 0.1%. Therefore, many worldwide investments head to New Zealand in order to benefit from the higher return resulted from the interest rate, which is higher than in other countries. This increases demand on the local currency, which consequently will keep rising Although the economy will benefit from the appreciation of the local currency, this will certainly, create problems for exports, which became less competitive. The Finance Minister Bill English demanded focusing on exports to push the economy into recovery and overcome the recession, and he also criticized the exaggerated rise in the New Zealand dollar which does not reflect the real conditions in the economy. Alan Pollard stated last week that the rise in the local currency is not what prevents the central bank from raising interest rates, and that the bank's decision to maintain interest rates at their lowest level at 2.5% was to support domestic consumption and strengthen investments that could compensate for the fall in exports, thereby support the economy. Ecpulse disclaimer: The content of ecPulse.com and any page in the website contain information for investors/traders and is not a recommendation to buy or sell currencies, stocks, gold, silver & energies, nor an offer to buy or sell currencies, stocks, gold, silver & energies. The information provided reflects the writers' opinions that deemed reliable but is not guaranteed as to accuracy or completeness. ecPulse is not liable for any losses or damages, monetary or otherwise that result. I recommend that anyone trades currencies, stocks, gold, silver & energies should do so with caution and consult with a broker before doing so. Prior performance may not be indicative of future performance. Currencies, stocks gold, silver &energies presented should be considered speculative with a high degree of volatility and risk

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