Samsung Q3 Profit Beats Estimates on Smartphones

By Jun Yang - Oct 7, 2011 8:12 AM GMT+0700

Samsung Electronics Co., the world’s second-largest maker of mobile phones, reported profit that beat analysts’ estimates as demand for Galaxy smartphones outweighed slumping sales of displays and semiconductors.

Operating profit in the three months ended September was 4.2 trillion won ($3.6 billion), the Suwon, South Korea-based company said in a statement today, 3.7 trillion won average of 28 analysts’ estimates compiled by Bloomberg. A year ago, the company had a profit of 4.86 trillion won a year ago.

The shares rose to a three-month high after the company joined HTC Corp. (2498) in benefiting from the popularity of mobile devices running Google Inc.’s Android software. The gains in smartphones, where Samsung is second only to Apple Inc. (AAPL), helped offset falling profit from the biggest business of selling memory chips and flat-screen panels.

“I’m quite amazed,” said Lee Seung Woo, a Seoul-based analyst at Shinyoung Securities Co. “It seems like there was a big surprise on the smartphone side.”

Samsung rose as much as 3 percent to 881,000 won in Seoul, the highest intraday level since July 8, before trading 2.6 percent higher at 9:12 a.m. The benchmark Kospi index climbed 2.9 percent.

Operating profit may be 200 billion won higher or lower than today’s preliminary estimate when audited results are announced later this month, Samsung said. The company didn’t provide net income figures and a breakdown of divisional earnings. Sales rose 1.9 percent to 41 trillion won.

Mobile Business

Profit at the telecommunications unit likely jumped 76 percent to 1.99 trillion won, according to a Bloomberg News survey of six analysts. Sales at the division may have gained 28 percent to 14.21 trillion won.

The company, which aims to sell more than 60 million smartphones this year, probably shipped half of that in the third quarter, Shinyoung’s Lee said.

Samsung will likely meet its target to sell more than 300 million handsets this year, including basic models, J.K. Shin, head of Samsung’s mobile-phone division, said Sept. 26.

The South Korean company’s sales accelerated from the second quarter after it began selling the Galaxy S II, a successor to its best-selling Android device introduced last year to counter Apple’s iPhone. The latest 4.27-inch model was unveiled in February.

The company has rolled out a new version of the Galaxy S II that supports faster fourth-generation networks using the long- term evolution, or LTE, technology, a feature lacking in the latest iPhone.

Chip Profit Drops

Profit at the semiconductor division, Samsung’s biggest business by revenue last year, probably fell 63 percent to 1.26 trillion won from a year ago, according to the median of a survey of six analysts by Bloomberg News. Sales may have fallen to 8.98 trillion won from 10.66 trillion won.

Weakening demand for computer-memory chips also hurt Micron Technology Inc. (MU), the largest U.S. maker of the product used in personal computers. On Sept. 29, Micron reported a net loss of $135 million for the fiscal fourth quarter.

The price of the benchmark DDR3 2-gigabit DRAM has slumped more than 70 percent in the past 12 months, according to data from Taipei-based Dramexchange Technology Inc., operator of Asia’s largest spot market for semiconductors.

No Rebound

There won’t likely be “a drastic rebound” in prices for chips used in personal computers, Kwon Oh Hyun, head of the company’s chip division, said in an e-mail interview on Sept. 29. The company’s chip business is “on track” with the capital expenditure plan for 2011, he said without elaborating.

Global personal-computer shipments will rise 3.8 percent to 364 million units in 2011, compared with an earlier projection of 9.3 percent, research firm Gartner Inc. said on Sept. 8. Shipments will probably increase 10.9 percent in 2012, the Stamford, Connecticut-based company said.

Samsung, which controls about 40 percent of the DRAM market, last month began operations at a new 12-trillion won factory, the largest in the industry, in Hwaseong, outside Seoul.

LCD, TVs

Samsung’s display division likely had an operating loss of 200 billion won, compared with 520 billion won profit a year earlier as TV sales fell amid an economic slowdown, according to the survey of analysts. The loss would be the company’s third in as many quarters.

The average price of Samsung’s LCD displays for televisions probably fell about 25 percent in the third quarter, according to Hana Daetoo Securities Co. estimates.

Samsung’s TV-making unit likely had an operating profit of 359.5 billion won from a loss of 230 billion won a year ago, helped by models featuring 3-D functionality and Web-based services, according to the survey. Sales at the unit probably rose to 14.92 trillion won from 14.13 trillion won, it said.

To contact the reporter on this story: Jun Yang in Seoul at jyang180@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

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Sony Nears Deal to Buy Ericsson’s Stake in Mobile-Phone Venture, WSJ Says

By Diana ben-Aaron and Jonathan Browning - Oct 7, 2011 12:54 AM GMT+0700

Sony Corp. (6758) is getting closer to an agreement to buy Ericsson AB’s stake in their mobile-phone venture, the Wall Street Journal reported, citing people familiar with the matter.

The talks between the two companies, which held regular discussions in recent years about the ownership structure of Sony Ericsson Mobile Communications AB, may still fail, the newspaper said. Ericsson spokesman Ola Rembe and Sony Ericsson spokeswoman Holly Rossetti declined to comment. Sony’s spokesmen in Japan couldn’t be reached outside regular office hours.

Full control of London-based Sony Ericsson Mobile Communications AB would add smartphones using Google Inc. (GOOG)’s Android system to Sony’s device business, while freeing Ericsson to concentrate on sales of wireless transmission equipment and services. Sony Ericsson already makes a smartphone with a slideout gaming keyboard that overlaps with Sony’s Playstation games.

“This would make sense for both Ericsson and Sony,” said Haakan Wranne, a Stockholm-based analyst at Swedbank Markets, who said a deal may value Ericsson’s 50 percent stake at as much as 1.4 billion euros ($1.9 billion) “The current venture doesn’t maximize the potential of Sony’s presence and assets in gaming, and is diluting what could be a bigger-profile Sony offering.”

The 50 percent stake could be valued at between 1 billion euros and 1.25 billion euros, the Wall Street Journal said, citing unidentified analysts.

‘No Point’

“‘There is no point” for Ericsson to “remain involved and bear the risk of having to pay additional funds to the joint venture,” Sanford C. Bernstein analyst Pierre Ferragu said.

Ericsson and Sony formed the joint venture on Oct. 1, 2001, giving themselves five years to dethrone Nokia Oyj as the world’s biggest mobile-phone maker. Nokia is still the biggest handset maker by units, while Apple Inc. (AAPL) and Samsung Electronics Co. passed it in the smartphone market in the second quarter, according to Strategy Analytics.

Sony Ericsson on July 15 reported its first quarterly loss in more than a year. Chief Executive Officer Bert Nordberg said at the time the company was ramping down its feature phone business as the worldwide market for handsets without smartphone software was “collapsing.”

The company’s efforts to replace its aging smartphone portfolio with updated models such as the Xperia Arc were dented by supply chain disruptions following the Japanese earthquake and tsunami in March. The company shipped 7.6 million handsets in the second quarter, falling short of the 9.1 million estimated by analysts.

Sony Technologies

The company’s phones use Sony technologies produced in northern Japan, such as camera sensors, displays and batteries.

Sony Ericsson was the world’s tenth biggest handset manufacturer in the second quarter with a 1.7 percent share according to market researchers Gartner Inc. It had a 3 percent share a year earlier. Bigger competitors in the Android segment include Samsung, HTC Corp. (2498), and Motorola Mobility Inc., which was acquired this year by Google for $12.5 billion.

Ericsson can’t expect “to get anywhere close to that amount,” Swedbank’s Wranne said. Google was keen to get Motorola’s intellectual-property holdings “and was prepared to pay up for it.” Sony is also the only realistic buyer for the stake and Ericsson therefore “doesn’t have the opportunity to play this one out.’’

Sony Ericsson has over 4,000 of its own telecom patents and has a license to all the Nortel Networks Corp. patents that were auctioned this year, Gustaf Brusewitz, a spokesman for the joint venture, said in August. Both Ericsson and Sony were part of a group, which also included Apple and Microsoft Corp., that agreed in July to pay $4.5 billion for a portfolio of patents from the breakup of Nortel to keep them out of Google’s hands.

To contact the reporter on this story: Diana ben-Aaron in Helsinki at dbenaaron1@bloomberg.net

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

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U.S. Stocks Rise on Speculation About Progress on Europe Crisis

By Rita Nazareth - Oct 7, 2011 3:48 AM GMT+0700

U.S. stocks rallied, giving the Standard & Poor’s 500 Index its biggest three-day gain since August, amid speculation that European officials were making progress in containing the region’s debt crisis.

Financial stocks in the S&P 500 added 3.2 percent as a group, rising 8.8 percent in three days, the biggest advance since July 2009, as European lenders gained and Treasury Secretary Timothy F. Geithner said U.S. banks have strengthened. Alcoa Inc. (AA), the largest U.S. aluminum producer, climbed 5.4 percent as commodities jumped. Target Corp. (TGT) added 4.3 percent as September sales beat analysts’ estimates.

The S&P 500 rallied 1.8 percent to 1,164.97 at 4 p.m. New York time, climbing 6 percent in three days, the most since Aug. 15. The Dow Jones Industrial Average gained 183.38 points, or 1.7 percent, to 11,123.33 today. The Russell 2000 Index of small companies jumped 2.4 percent, extending its three-day advance to 11 percent, the biggest rally since March 2009.

“Europe has been a significant cloud hanging over our heads,” Michael Mullaney, who helps manage $9.5 billion at Fiduciary Trust in Boston, said in a telephone interview. “If there’s something more long-term in nature as compared to a short-term fix, the market will look very favorably on that, especially the financial sector.”

The S&P 500 this week came within 1 percent of extending its decline from its April peak to 20 percent, the common definition of a bear market. Concern over Europe’s debt crisis sent the index to a one-year low on Oct. 3, pushing it to 12.02 times reported earnings, according to data compiled by Bloomberg. That was the cheapest valuation level since 2009.

‘Downside Risks’

European Central Bank President Jean-Claude Trichet said the ECB will resume covered-bond purchases and reintroduce yearlong loans for banks, while defying calls for an interest- rate cut and acknowledging “downside risks” to the economy have intensified. The European Commission is pushing for a coordinated capital injection for banks to shield them from the fallout of a potential Greek default.

“People have priced in a Lehman II type of situation,” Brian Barish, Denver-based president of Cambiar Investors LLC, which oversees about $8 billion, said in a telephone interview. “You start to hear some credible stuff on European bank recapitalization. They will do what they’ve got to do to prevent a Lehman from happening.”

The KBW Bank Index (BKX) rallied 4.6 percent. Geithner said U.S. financial firms have strengthened and there is “absolutely” no chance of another collapsing like Lehman Brothers Holdings Inc. in 2008. Geithner, testifying today before the Senate Banking Committee in Washington, didn’t mention any banks by name when responding to a question about Morgan Stanley.

‘Very Modest’

“The direct exposure of the U.S. financial system to the countries under the most pressure in Europe is very modest,” he said. “Our firms, and this is true across the largest institutions in the United States, again are in a much stronger position if you look at their capital levels, levels of leverage, how they’re funded.”

Bank of America Corp. (BAC) rose 8.8 percent, the most in the Dow, to $6.28, while JPMorgan Chase & Co. added 5 percent to $32.38. Morgan Stanley (MS) climbed 4.8 percent to $15.18. Citigroup Inc. increased 5.3 percent to $26.02.

Stocks also rose as data showed that claims for U.S. unemployment benefits rose less than forecast last week. Government data tomorrow are forecast to show employers added 55,000 workers to payrolls in September and the unemployment rate held at 9.1 percent, according to the median forecast of economists.

Most-Tied

The Morgan Stanley Cyclical Index of companies most-tied to the economy rose 2.6 percent. The Dow Jones Transportation Average added 2.2 percent. Alcoa gained 5.4 percent, the second- biggest gain in the Dow, to $9.88. The company will mark the unofficial start of the earnings season when it reports results on Oct. 11.

A gauge of retailers in the S&P 500 rose 2.1 percent. Target and Limited Brands Inc. helped September retail sales beat analysts’ estimates as promotions drove consumers to increase purchases amid concerns the economic recovery may stall. Target jumped 4.3 percent to $51.91. Limited, owner of the Victoria’s Secret chain, rose 0.8 percent to $40.59.

Yahoo! Inc. lost 1.7 percent to $15.65. Microsoft Corp. (MSFT) isn’t anywhere close to making an offer for the company and senior executives of the software maker aren’t involved in discussions, two people familiar with the matter said. Yahoo surged 10 percent yesterday on a Reuters report that Microsoft may make a bid.

Trading Range

Excluding its dip to a 13-month closing low of 1,099.23 on Oct. 3, the S&P 500 has mostly traded between about 1,120 and 1,220 for the past two months. Of the 14 other trading range instances since 1990, more than 75 percent resulted in gains over the following one, three and six months, according to Birinyi Associates Inc., the Westport, Connecticut-based money management and research firm.

The average trading range lasts about seven months, with the shortest one beginning in March 1998 and lasting three months, Birinyi data show.

“The market’s been in a trading range,” Wasif Latif, vice president of equity investments at USAA Investment Management Co. in San Antonio, which oversees about $50 billion, said in a telephone interview. “We’ll need clear economic data or policy movements out of Europe to break out that range.”

Wall Street strategists say the S&P 500, after falling within 1 percent of a bear market this week, will post the biggest fourth-quarter rally in 13 years even after they cut forecasts at a rate exceeded only during the credit crisis.

“Investors are way too bearish and are being swayed by macro variables,” Brian Belski, the New York-based chief investment strategist at Oppenheimer, wrote in an e-mail on Oct. 4. “Fundamentals drive stocks,” he said. “U.S. portfolios are not positioned for a positive third-quarter earnings season.”

To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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European Central Banks Extend Global Efforts

By Scott Lanman and Simon Kennedy - Oct 7, 2011 5:00 AM GMT+0700
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Jean-Claude Trichet, president of the European Central Bank (ECB), speaks during a news conference in Berlin on Oct. 6, 2011. Photographer: Timothy Fadek/Bloomberg

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Oct. 6 (Bloomberg) -- Nariman Behravesh, chief economist at IHS Global Insight, talks about today's European Central Bank decision on interest rates and the prospects for ECB policy. Behravesh, speaking with Betty Liu on Bloomberg Television's "In the Loop," also talks about the outlook for the U.S. economy and tomorrow's September U.S. jobs report. (Source: Bloomberg)

Europe’s leading central banks returned to crisis-fighting mode, expanding a push by global monetary-policy makers to support economies and financial markets while fiscal authorities struggle to act.

The European Central Bank, after a meeting yesterday in Berlin, said it would reintroduce purchases of covered bonds and yearlong loans for banks to support markets rattled by the region’s sovereign-debt crisis. In London, the Bank of England boosted its asset-purchase program by more than a third to 275 billion pounds ($424 billion) in a bid to avert a new recession in the U.K.

International central bankers are softening their anti- inflation stances or reviving programs to keep financial systems liquid as they race to keep slumping growth from turning into a full-fledged contraction. The Federal Reserve has eased policy two months in a row, while central banks in Malaysia and South Korea have refrained from raising rates as they focus on maintaining growth over damping price increases.

“There has been a recent shift in central banking across the world, in the West toward easing and in emerging markets putting tightening on hold with an option to ease if necessary,” said Gerard Lyons, London-based chief economist at Standard Chartered Bank. The fiscal and monetary policy “cupboard is almost bare in the West, so pressure is on the central banks to do more of the heavy lifting.”

Australia’s central bank signaled Oct. 4 it has scope to lower the highest benchmark interest rate among developed economies if necessary as inflation pressures ease. Turkey and Russia stepped up sales of foreign-currency reserves this week.

Risk Aversion

“We have a substantial increase in risk aversion, and that is affecting flows into the emerging markets and their economies,” said Ted Truman, a former Fed official and assistant Treasury secretary, who’s now a senior fellow at the Peterson Institute for International Economics in Washington. “Many of their currencies are weakening, and there’s a recognition that the global economy which they live off of is slowing down.”

Brazil plans moderate interest-rate reductions after a surprise cut Aug. 31 to 12 percent, a government official familiar with monetary policy said this week on condition of anonymity. Last week, Israel’s central bank lowered its benchmark rate for the first time in 2 1/2 years, to 3 percent.

The Fed said last month it would replace $400 billion of short-term debt in its portfolio with longer-term Treasuries in a program dubbed Operation Twist. In August, the central bank said its benchmark interest rate would probably stay near zero through at least mid-2013, amending previous language for a less-specific “extended period.”

Additional Easing

Additional easing may be in the offing. JPMorgan Chase & Co. (JPM) economists last week forecast the average interest rate of developed economies, weighted for gross domestic product, will fall to 0.62 percent by the end of the year from 0.80 percent. In emerging markets, it will drop to 5.80 percent from 5.93 percent.

“We’re going to see further measures,” said Tim Drayson, a global economist at Legal & General Investment Management in London. “There’s clearly more scope for the Fed for going to QE3, and the ECB can cut rates,” he said, referring to a third round of quantitative easing, or large-scale asset purchases.

The euro reversed losses after the ECB’s rate decision to rise 0.7 percent to $1.3437 at 5 p.m. in New York. The pound lost 0.1 percent against the dollar to $1.5445. The Standard & Poor’s 500 Index of stocks rose 1.8 percent to 1,164.97 at 4 p.m.

Final Meeting

ECB President Jean-Claude Trichet, overseeing his final monetary-policy decision before retiring, said at a Berlin press conference yesterday that the central bank will spend 40 billion euros ($54 billion) on covered bonds starting next month and will offer banks two additional unlimited loans of 12 and 13- month durations. He also said the ECB will continue to lend banks as much money as they need in its regular refinancing operations at least until July 2012.

Policy makers left the benchmark interest rate at 1.5 percent, where it’s been since July 7. With inflation accelerating to 3 percent last month, the ECB is resisting calls to reverse this year’s two quarter-point rate increases even amid speculation a recession is impending, Greece edges toward default and investors express concern about potential European bank losses. The ECB is the first line of support for markets as European governments piece together a new plan to solve their region’s debt strains.

‘Intensified Downside Risks’

“Ongoing tensions in financial markets and unfavorable effects on financing conditions are likely to dampen the pace of economic growth in the euro area in the second half of this year,” Trichet said. There are “intensified downside risks” to the economic outlook, he said.

The Bank of England’s nine-member Monetary Policy Committee, led by Governor Mervyn King, raised the ceiling for so-called quantitative easing from 200 billion pounds. That’s the biggest expansion since the first round of stimulus in March 2009. Only 11 of 32 economists in a Bloomberg News survey predicted an increase in asset purchases.

The central bank acted a day after a report showed Europe’s second-biggest economy grew less than previously estimated in the quarter through June.

The pledge to buy the most bonds since the depths of the credit crisis shows King and his colleagues are prioritizing the recovery over the threat from inflation, which is running more than double the central bank’s target. The onus to boost expansion is on Bank of England as the nation’s government remains committed to delivering the toughest fiscal squeeze since World War II.

Vietnam, Kenya

Not every country is considering easier monetary policy. Vietnam’s central bank yesterday said it would lift its refinancing rate by a percentage point to 15 percent. The Central Bank of Kenya raised its benchmark interest rate this week by four percentage points to 11 percent.

Other emerging market central banks have room to join developed economies in providing stimulus if growth falters, said Lyons at Standard Chartered Bank. The People’s Bank of China has raised interest rates five times and increased the reserve requirement nine times in the past 12 months, slowing growth in the world’s second-largest economy behind the U.S.

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net; Simon Kennedy in London at skennedy4@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net; Craig Stirling at cstirling1@bloomberg.net.

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Fans Hold IPhone-Lit Vigils for Steve Jobs

By Dina Bass, Douglas MacMillan and Danielle Kucera - Oct 7, 2011 1:05 AM GMT+0700
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Steve Nagata, right, holds an Apple iPad displaying an image of a candle as he takes part in a vigil outside the company's store in the Ginza district of Tokyo on Oct. 6, 2011. Photographer: Tomohiro Ohsumi/Bloomberg

Apple Inc. (AAPL) fans worldwide mourned the death of co-founder Steve Jobs, paying tribute to the man who changed the way they listen to music, use their mobile phones and play on their computers.

At Apple’s headquarters -- located at 1 Infinite Loop, Cupertino, California -- flags flew at half-staff and bagpipes sounded to the tune of “Amazing Grace” as people placed flowers around a white iPad with a picture of Jobs, who died yesterday at 56, after a battle with cancer. Mourners flocked to Apple stores from New York to Hong Kong, while a crowd gathered in San Francisco’s Mission Dolores Park for an iPhone-lit vigil.

“Part of the narrative that made Apple what it is today goes out with Steve Jobs,” said Christopher Smith, 40, a former business development manager in San Francisco who joined the vigil. “I came out to honor the fact that one man with vision, courage and unwavering dedication can still change the world. The way that I communicate and the way that I interact with the world is through things that Steve Jobs has created.”

Microsoft Corp. (MSFT) co-founder Bill Gates and Sony Corp. (6758) Chairman Howard Stringer were among leaders who expressed admiration for the man who built the world’s most valuable technology company. President Barack Obama and former U.K. Prime Minister Tony Blair also issued statements of sympathy.

Jobs’s Home

“Michelle and I are saddened to learn of the passing of Steve Jobs,” Obama said in a statement. “Steve was among the greatest of American innovators -- brave enough to think differently, bold enough to believe he could change the world, and talented enough to do it.”

While Apple plans a celebration for staff, it doesn’t intend to hold a public ceremony, a person familiar with the matter said.

Teary-eyed mourners left flowers in front of Jobs’s modest home at the corner of Waverly Street and Santa Rita Avenue in Palo Alto, California. Neighborhood children drew hearts with markers and left them on the ground for others to leave messages. Policemen stood watch, barricading the street.

“Here’s a guy who’s a billionaire and lives in a regular neighborhood, not behind a gated estate with all the security guards,” said Bruce Gee, a former Apple employee who drove up to the house from his home a couple miles away. “On Halloween, people go trick or treating there like everyone else.”

At the San Francisco Apple store near Union Square, Steve Streza, 24, stood holding an iPad displaying Apple’s homepage image of Jobs and the words “Steve Jobs: 1955-2011.”

‘Regular Guy’

“Macs were the reason I got into product development,” said Streza, a developer at readitlater.com who grew up with Mac computers. “If it weren’t for Steve Jobs and Macs, my life would probably be in a completely different place right now.”

Steve Somerstein, who says he met Jobs several times since 1986, recalled the time when he bumped into Jobs while apartment hunting in Palo Alto.

“He was just a regular guy,” said Somerstein, who was at the Palo Alto store. “I congratulated him on the company and hoped it was going to do well. I didn’t even own an Apple at that point. He was about 10 years younger than me and just a nice kid.”

Ron Kent, a food-truck owner who was at the Palo Alto store, likened Jobs to Michelangelo, the renaissance-era artist who painted the frescoes in the Sistine Chapel in the Vatican.

“He’s the visionary of our time,” Kent said.

‘RIP Steve Jobs’

Some mourned via social media sites. More than 20 “RIP Steve Jobs” pages sprung up on Facebook within hours of the announced passing of Jobs. News of Jobs’s death slowed the mobile websites of CNN and the Washington Post, according to Keynote Systems Inc. (KEYN), which tracks website performance.

“Steve Jobs,” the biography written by former Time magazine editor Walter Isaacson, scheduled for release Nov. 21, was the best seller on Amazon.com Inc.’s website.

In New York, Jared and Alexi Roth, 33 and 31, left two red apples by the wall outside the Apple store on Broadway in the Upper West Side.

“We were literally walking by a market on Broadway when Jared got a text saying Steve Jobs died,” Alexi said. “We saw the apples and just thought it would be appropriate.”

Across the ocean, Charanis Chiu, walked in front of the Apple store in Hong Kong to place a sunflower, the logo of the photo-viewing application on the iPhone.

“A lot of companies such as Microsoft and Nokia are following in his direction,” said Chiu, a vendor of photographic equipment. “Apple will continue to grow as long as they are going in the right direction.”

‘Insanely Great Honor’

At the store in Shanghai’s Lujiazui district, an area of about three square meters was set aside at the front for people to pay tribute to Jobs.

Microsoft’s Gates praised the man who for decades was both a rival and a partner in the personal-computer industry.

“The world rarely sees someone who has had the profound impact Steve has had, the effects of which will be felt for many generations to come,” Gates said. “For those of us lucky enough to get to work with him, it’s been an insanely great honor. I will miss Steve immensely.”

Stephen Elop, chief executive officer of Nokia Oyj (NOK1V), said the world lost a “true visionary” in Jobs’s passing.

Sachio Kitagawa, 45, was on her way with her son to the Apple store in the Ginza shopping district of Tokyo when she heard the news of Jobs’s passing.

“He should receive the Nobel prize,” said Kitagawa, who’s used Apple products for 20 years. “I have a second child who is disabled and even he can use the Macintosh. It shows you how user-friendly Apple products are.”

‘Thank You’

Outside the Apple store a short walk from Frankfurt’s financial institutions, sunflowers, gerbera daisies and roses were laid alongside a burning candle.

“He forged designs which appealed to the mass market and developed technology which you can now find in museums -- not because of its age, but because it was groundbreaking,” said Guenther Uttecht, a 60-year-old artist who uses Apple products to work on abstract photos as he left the shop.

At the entrance of the store on Regents Street in London lay a white rose with a hand-written note saying “Rip Steve Jobs. With love from Instagramers London and all Instagramers around the world. You gave us life. Thank you x”. Next to it a passerby had left an apple with a bite out of it, imitating the brand’s iconic logo, alongside a bouquet of lillies.

On Rue Halevy, just behind Opera Garnier in central Paris, flowers were tucked into the doors of the Apple store. One bouquet had a card from Mario Baluci, the creative artist at Carre Senart, that said, “Thank you, Steve.”

In Singapore, Georgina Koh, 30, recalled the man who inspired her to open her own accessory shop.

“The world should remember Steve Jobs’s famous quote ‘Stay Hungry, Stay foolish,’” said Koh, a former Apple worker, in reference to Jobs’s Stanford University commencement speech in 2005. “It’s an honor to have been associated with Apple. It is a company built by a man relentless about creating beautiful products that have changed our lives.”

To contact the reporters on this story: Dina Bass in Seattle at dbass2@bloomberg.net; Douglas Macmillan in New York at dmacmillan3@bloomberg.net; Danielle Kucera in New York at dkucera6@bloomberg.net

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

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Wal-Mart’s Empty Shelves Erode Walton Legacy

By Matthew Boyle - Oct 7, 2011 7:13 AM GMT+0700

Wal-Mart Stores Inc. (WMT), once a case study in moving and selling goods, is now turning to consultants for help with the most basic of retail tasks: Keeping its shelves stocked.

The retailer has hired firms including Acosta Inc. in the U.S. and Retail Insight in the U.K. to walk the aisles and track whether hundreds of items are in stock. Products are missing as a plan to add thousands of items to stores this year crowds storage space and tighter labor budgets leave workers less time to stock shelves.

“You cannot keep cutting labor hours and expect the shelves to get filled, especially when you have more products to be replenished,” Colin McGranahan, an analyst with Sanford C. Bernstein in New York, said in an interview. “Store-level execution is coming down. There are only a few ways to cut corners without unintended repercussions, and that’s what is happening at Wal-Mart.”

Wal-Mart’s reputation as the most efficient and cheapest merchant has eroded amid nine straight quarters of declining U.S. same-store sales. Pressured by unemployment and rising fuel costs, Wal-Mart shoppers are making fewer trips and visiting other stores more often, according to a study from WSL Strategic Retail.

David Tovar, a Wal-Mart spokesman, said today in an interview that the company’s in-stock levels have continued to improve and now are at “historical highs.” He declined to disclose what those historical highs are.

“We’re pleased with the progress we’ve made,” he said.

Suppliers’ Support

Still, one Wal-Mart supplier said in-stock levels are worse today than in the past. During the summer, less than 90 percent of items in a typical basket of goods were available for shoppers, said the supplier, who declined to be named because his discussions with Wal-Mart are private.

Keeping shelves full is a focus for Wal-Mart, and the retailer is asking for support to keep stores stocked up, the supplier said.

The company’s shares gained 10 cents to $52.75 today in New York Stock Exchange composite trading.

Wal-Mart always excelled at getting products to the right place at the right time. Co-founder Sam Walton revolutionized retail distribution, moving goods from factories to shipping centers to stores faster and cheaper than rivals, said Nelson Lichtenstein, a professor at The University of California, Santa Barbara and author of “The Retail Revolution: How Wal-Mart Created a Brave New World of Business.”

Supply Chain

The retailer’s supply chain practices are now studied by others, and Chief Executive Officer Mike Duke and his predecessor, Lee Scott, both rose through Wal-Mart’s logistics department.

Today’s retail environment is different from the one Walton faced. In addition to Target Corp. (TGT) and Kroger Co. (KR), Wal-Mart today is battling foes such as online merchant Amazon.com Inc. and Germany’s Aldi deep-discount chain, which has more than 1,100 U.S. stores.

Consumers said Aldi was the most affordable supermarket in a March survey by consulting firm Market Force Information. Amazon offers 80 times as many products as Walmart.com, at lower prices, according to Wells Fargo analyst Matt Nemer.

Only half of Wal-Mart’s shoppers now say it has the lowest prices, the WSL survey of 1,500 consumers found.

Wal-Mart’s response was a guarantee to match rivals’ prices to lure households making less than $70,000 a year, which account for two-thirds of Wal-Mart’s U.S. business while doing only about one-fifth of their shopping there.

‘Trusted Retailer’

“We’ve got to deliver on these principles that had made us a trusted retailer -- that we’ll save them money and have what they need,” Simon has told investors.

The return of about 8,500 items to stores, which will continue throughout the year, has boosted Wal-Mart’s inventory more quickly than sales for five consecutive quarters. In the second quarter, inventory increased 11.1 percent, more than double the pace of sales growth.

Simon told investors in June that the inventory increase was intentional and a result of returning the items to shelves and sourcing more products directly from Asian manufacturers. At an investor conference later that month, Simon said he was focused on improving in-stock levels.

“The only thing that really matters to us is whether the product is on the shelf or not,” he said.

Searching Storerooms

Wal-Mart’s shelves are pockmarked with empty spaces because employees can’t find products in storerooms fast enough, said Vic Gallese, an independent retail consultant based in Fort Worth, Texas.

While the world’s largest retailer has computer systems to manage its ordering and flow of goods, at the store level, “you’re trusting your inventory to a person, and that takes skill and hours of labor,” said Gallese, who works with retailers to improve in-stock levels.

For example, a product like salsa could be missing from the shelf while there is a full case of it that has been misplaced in the back room due to a lack of space, Gallese said.

“Once your backroom gets out of control with inventory, things can circle the drain in a hurry for you,” Gallese said.

Out-of-stock items lead to lost sales and customers, according to a 1991 study of about 3,000 consumers in the Journal of Retailing. When faced with an unavailable item, 14 percent of respondents said they would go to another store rather than choose a different brand or size.

“The original retailer may not only lose that consumer for the exact item they were out of that day, they may lose the consumer entirely,” Stanley E. Griffis, an associate professor of logistics at Michigan State University’s Broad School of Business, said in an interview. “Until someone invents the Replicator device from ‘Star Trek,’ there will always be out-of- stock experiences.”

To contact the reporter on this story: Matthew Boyle in New York at mboyle20@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net

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Apple Looks Overseas to Stay on Top Without Jobs

By Adam Satariano - Oct 7, 2011 3:08 AM GMT+0700
Bloomberg Markets Magazine

Steve Jobs built Apple Inc. into the world’s most valuable technology company with easy-to-use products that transformed the computing, wireless and music industries. The company will look for overseas growth to extend that legacy and remain an investor favorite.

Apple, which said its visionary founder died yesterday at 56, aims to maintain its expansion in markets such as China, fueling sales of the iPhone and iPad. The company also stands to gain from updated versions of those best-sellers and the new iCloud service, which makes it easier for its gadgets to share information -- and harder for users to switch to rival devices.

For Chief Executive Officer Tim Cook, the challenge will be developing Apple’s next generation of hot sellers and facing down competition in the markets Jobs pioneered. Google Inc.’s Android has emerged as one of Apple’s biggest threats after gaining momentum in phones and tablets. Cook, who this week led the debut of the iPhone 4S, will lean on a cadre of fellow veteran executives who have long worked together under Jobs.

“He created an infrastructure that this management team can build on for a long time,” said Tim Bajarin, a technology analyst at Creative Strategies Inc. “The bigger question is how fast will they innovate and take advantage of that infrastructure for things like new devices, applications and services.”

Jobs had resigned as Apple Inc. (AAPL) chief executive officer on Aug. 24. He was diagnosed in 2003 with a neuroendocrine tumor, a rare form of pancreatic cancer, and had a liver transplant in 2009.

Apple Investors

Investors have had mixed reactions since Jobs stepped down as CEO. The shares rose more than 7 percent in the month after he resigned, and have since slipped back to little changed. The stock fell 88 cents to $377.37 at 4 p.m. New York time on the Nasdaq Stock Market.

The shares are recommended by 49 analysts, with no sell ratings, according to Bloomberg data. On average, analysts predict the shares will rise another 32 percent to $499.40.

“Steve Jobs has set up the company for the next few years to have some more blockbuster products,” said Giri Cherukuri, an Apple investor with Oakbrook Investments who has been following the company since the late 1980s. Updated models of the iPhone and iPad, as well as potential new products like a television, will keep the company growing, he said.

‘Final Great Act’

Apple’s stock price has risen more than 9,000 percent since Jobs returned to the company in 1997. The stock has more than doubled in the past two years, while Microsoft Corp. (MSFT) has gained 5.1 percent and Intel Corp. (INTC) has risen 14 percent. Hewlett- Packard Co. is down 48 percent.

While analysts once predicted that Apple shares would plunge when Jobs left the company, investors have grown more comfortable with other executives since he first went on medical leave in 2004. In 2008, Piper Jaffray Cos. analyst Gene Munster estimated that Apple shares would tumble 25 percent if Jobs departed.

Munster, who now has a target price of $607 for the stock, said Jobs’s “final great act” was grooming Cook as a successor.

Apple benefited from record purchases of iPads and iPhones in the quarter that ended in June, helping profit more than double to $7.31 billion. Sales climbed 82 percent $28.6 billion.

“For now, people are comfortable, but that could change if there are signs to the contrary,” said Mike Abramsky, an analyst at RBC Capital Markets in Toronto.

Cook’s Team

In addition to Cook, Apple’s executive team includes Jonathan Ive, senior vice president of industrial design; Scott Forstall, who is in charge of the iOS software that powers the iPhone and iPad; and Philip Schiller, who leads product marketing. Additionally, Bob Mansfield heads Mac hardware engineering; Eddy Cue runs iTunes, the App Store and iCloud; Bruce Sewell is chief counsel, putting him at the helm of the company’s patent disputes; and Chief Financial Officer Peter Oppenheimer is tasked with overseeing Apple’s more than $75 billion in cash and long-term holdings.

While Apple has turned its website into a memorial to Jobs and is flying the flags at its Cupertino, California, headquarters at half-mast, the company will quickly have to shift its focus back to the looming release of the iPhone 4S. The device, unveiled Oct. 4, goes on sale Oct. 14.

Nokia, RIM

The iPhone helped Apple upend the mobile-phone industry, increasing the popularity of touch-screen devices. That came at the expense of Nokia Oyj and Research In Motion Ltd. (RIMM), which have lost market share and shed workers.

As Apple’s sales and profit grew, its market value soared past rival technology companies. Its valuation now exceeds the combined worth of Microsoft and Intel, two companies that once pushed Apple to the fringes of the personal-computer industry.

To stay on top, Apple will have to maintain its expansion in China, where the company generated about $3.8 billion in the most recent quarter, up more than sixfold from a year earlier. The company’s retail outlet in Shanghai had 100,000 visitors on its opening weekend, Cook said at the iPhone 4S event. Apple is opening its first store in Hong Kong this year.

The new version of the iPhone, Apple’s top money-maker, will face competition from Samsung Electronics Co., Motorola Mobility Holdings Inc. and HTC Corp., which use Android software in their smartphones.

New Products

Apple’s ICloud, which lets customers access pictures, music and other information across a broad range of its devices, will be released on Oct. 12. The service was first showcased at Jobs’s last public appearance, Apple’s developer conference in June.

When Apple needs to introduce entirely new products, Jobs’s vision may be missed -- if the company introduces a TV, for example, Piper Jaffray’s Munster said.

Jobs was critical in hiring and pushing the company into new areas, Abramsky said. He was vital in negotiations with media companies for securing content such as music and movies that are sold through iTunes.

“There’s a certain unknown about how Apple will be different,” Abramsky said.

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

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

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Obama Says Banks Use Regulations as ‘Excuse’ for Fees

By Hans Nichols and Margaret Talev - Oct 7, 2011 1:25 AM GMT+0700
Enlarge image

U.S. President Barack Obama, speaks during a news conference in the East Room of the White House in Washington, D.C. on Oct. 6, 2011. Photographer: Andrew Harrer/Bloomberg

President Barack Obama said banks are using new financial regulations as an “excuse” to impose fees on consumers, while saying there isn’t anything the government can do to stop them.

“People have been using financial regulation as an excuse to charge consumers more,” Obama said at a White House news conference. He used the issue to urge the Senate to confirm his nominee to lead the Consumer Financial Protection Bureau, saying that providing the public with more transparency on prices and practices will put competitive pressure on financial institutions.

The anti-Wall Street protests that have spread from New York City to San Francisco are evidence of public frustration with the financial system.

Bank of America Corp. (BAC), the biggest U.S. lender, and rivals including JPMorgan Chase & Co., Wells Fargo & Co. and SunTrust Banks Inc., are rolling out new charges for debit-card users as Dodd-Frank Act rules imposed by the Federal Reserve take effect this month.

The limits may reduce annual revenue at the biggest U.S. banks by $8 billion, data compiled by Bloomberg Government show. The fees have drawn criticism from Obama and some Democratic lawmakers, who are fighting Republican attempts to scale back Dodd-Frank.

‘Hidden Fee’

“Basically, the argument they’ve made is, well you know what, this hidden fee was prohibited so we’ll find another fee to make up for it,” Obama said. “Now, they have that right, but it’s not a good practice. It’s not necessarily fair to consumers.”

Obama stepped back from an answer he gave Oct. 3 in an interview with ABC News and Yahoo. When asked then whether he could stop Charlotte, North Carolina-based Bank of America’s $5 debit- card service charge, he said, “You can stop it because it -- if you -- if you say to the banks, ‘You don’t have some inherent right just to -- you know, get a certain amount of profit.’”

Obama said today the government doesn’t have a right to dictate how much profit a bank makes. Still, he said, the bank charges demonstrate the need to install his nominee to lead the financial watchdog agency.

“What the Consumer Finance Protection Bureau could do is to make sure that consumers understood exactly what they were getting, exactly what was happening,” the president said.

Senate Action

The nomination of Richard Cordray to oversee the bureau was approved by the Senate Banking Committee today. The action sets up a showdown with Republicans vowing to block any nominee for the post until changes are made in the structure and funding of the new agency, created by the Dodd-Frank Act.

Vice President Joe Biden said earlier today that financial institutions are “tone-deaf” in adopting new fees.

“The American people know -- they don’t guess, they know - - the reason the CEO of Bank of America” and leaders of other financial institutions remain in business “is because they, that guy making 50,000 bucks bailed him out,” Biden said, referring to the government rescue of financial institutions in the aftermath of the collapse of Lehman Brothers Holdings Inc. in 2008.

‘Tone Deaf’

“At a minimum, they are incredibly tone deaf,” Biden said. “And at a maximum they are not, they are not, paying their fair share of the bargain here. And middle-class people are getting killed.”

The president said he has followed reports of the anti-Wall Street demonstrations. The protests “are giving voice to a more broad-based frustration about how our financial system works.”

He said the public is dissatisfied that “you’re still seeing some of the same folks who acted irresponsibly trying to fight efforts to crack down on abusive practices that got us into this problem in the first place.”

Still, Obama defended the government rescue of U.S. banks, saying that “had we seen a financial collapse then, the damage to the American economy would have been even worse.” He said he has used “a lot of political capital” to keep banks afloat.

To contact the reporters on this story: Hans Nichols in Washington at hnichols2@bloomberg.net; Margaret Talev in Washington at mtalev@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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Stocks, Euro Advance as Treasuries Drop

By Michael P. Regan and Rita Nazareth - Oct 7, 2011 4:28 AM GMT+0700

U.S. stocks rallied for a third day, commodities gained and Treasuries slid as European officials detailed plans to tame the sovereign debt crisis and reports on retail sales and jobless claims bolstered optimism in the economy. The euro reversed an earlier drop versus the dollar.

The Standard & Poor’s 500 Index gained 1.8 percent to 1,164.97 at 4 p.m. in New York. The Russell 2000 Index of smaller U.S. stocks extended a three-day advance to 11 percent, its best since 2009. The Stoxx Europe 600 Index surged 2.7 percent. Ten-year Treasury yields added 10 basis points to 1.99 percent. The euro rose 0.7 percent to $1.3439 after losing 0.8 percent. The S&P GSCI Index of commodities jumped 2.5 percent as oil increased 3.7 percent to $82.59 a barrel.

American equities extended a global rally after European Central Bank President Jean-Claude Trichet said the ECB will resume covered-bond purchases and reintroduce yearlong loans for banks, while defying calls for an interest-rate cut and acknowledging “downside risks” to the economy have intensified. The European Commission is pushing for a coordinated capital injection for banks to shield them from the fallout of a potential Greek default.

“People have priced in a Lehman II type of situation,” Brian Barish, Denver-based president of Cambiar Investors LLC, which oversees about $8 billion, said in a telephone interview. “You start to hear some credible stuff on European bank recapitalization. They will do what they’ve got to do to prevent a Lehman from happening. There’s a good chance we might’ve had a bottom in stocks.”

Covered Bonds

The 2.5 trillion-euro market for covered bonds -- assets backed by mortgages or public-sector loans -- underpins much of Europe’s real estate lending, which almost ground to a halt in the wake of Lehman Brothers Holdings Inc.’s collapse in September 2008.

U.S. stocks also climbed after claims for unemployment benefits rose less than forecast last week to a level that shows the pace of dismissals may be slowing. Applications for jobless benefits climbed by 6,000 to 401,000, Labor Department figures showed. Economists projected 410,000 claims, according to the median estimate in a Bloomberg News survey. The monthly average dropped to the lowest level since the end of August.

Government data tomorrow are forecast to show employers added 55,000 jobs last month and the unemployment rate held at 9.1 percent, according to the median estimates.

Bear Market Averted

The S&P 500 has rebounded 6 percent since Oct. 3, when it closed within 1 percent of a level that would have marked a bear-market plunge of 20 percent from its April peak. The S&P GSCI commodities gauge is up 5.3 percent in two days, its best back-to-back advance since May, and has trimmed its drop from this year’s high to 20 percent. Treasury yields have increased after demand for safer assets dragged the 10-year note’s rate to a record low of 1.67 percent on Sept. 23. The Dollar Index has slipped about 1.1 percent since Oct. 4, when it reached the highest level since January.

Indexes of financial, commodity and consumer companies rose at least 2.2 percent today to lead gains in all 10 industry groups in the S&P 500. Bank of America Corp. jumped 8.8 percent and Alcoa Inc. rallied 5.4 percent for the top gains in the Dow Jones Industrial Average.

The S&P 500 Financials Index has rallied 8.8 percent in three days, its steepest advance since July 2009, to trim its year-to-date loss to 23 percent. U.S. Treasury Secretary Timothy F. Geithner told the Senate Banking Committee today that there is “absolutely” no chance of another U.S. financial institution collapsing like Lehman Brothers.

Retail Sales, Apple

Target Corp. climbed 4.3 percent today and Limited Brands Inc. and Saks Inc. also rose after reporting September sales that surpassed analysts’ projections. Apple Inc. shares slipped 0.2 percent after co-founder Steve Jobs died.

The cost to protect the debt of Morgan Stanley and Citigroup Inc. declined amid growing speculation Europe’s leaders will be able to prevent the debt crisis from infecting bank balance sheets.

Credit-default swaps on Morgan Stanley, the owner of the world’s biggest retail brokerage, fell 55 basis points to 475, the biggest decline since May 2009, and those on Citigroup slid 40.5 basis points to 304.57, the largest drop since Nov. 24, 2008, according to data provider CMA. Swaps on Goldman Sachs Group Inc. eased 25 basis points to 371, the data show.

Wall Street strategists say the S&P 500 will post the biggest fourth-quarter rally in 13 years even after they cut forecasts at a rate exceeded only during the credit crisis.

The benchmark index for U.S. stocks will climb 14 percent from yesterday to end 2011 at 1,300, according to the average estimate of 12 strategists surveyed by Bloomberg. The last time they were this bullish in October was 2008, when the group predicted a 27 percent gain and the index lost 18 percent.

Trading Range

Excluding its dip to a 13-month closing low of 1,099.23 on Oct. 3, the S&P 500 has mostly traded between about 1,120 and 1,220 for the past two months. Following 14 periods since 1990 when the index was stuck in a range, more than 75 percent resulted in gains in the next one, three and six months, according to Birinyi Associates Inc., the Westport, Connecticut- based money management and research firm. The average trading range studied lasted about seven months, with the shortest beginning in March 1998 and lasting three months, Birinyi data show.

“We’ll need clear economic data or policy movements out of Europe to break out of that range,” Wasif Latif, vice president of equity investments at USAA Investment Management Co. in San Antonio, which oversees about $50 billion, said in a telephone interview.

Earnings Season

Alcoa Inc., the largest U.S. aluminum producer, will mark the unofficial start of the earnings-reporting season when it reports results on Oct. 11. Third-quarter profits for S&P 500 companies are projected to have grown 13 percent, according to analyst forecast compiled by Bloomberg, down from an estimate of 17 percent when the index traded at a three-year high at the end of April.

Among European stocks, BNP Paribas SA, Credit Agricole SA and Natixis surged at least 5.3 percent after Le Figaro said the French government is working on a contingency plan to take stakes in the country’s lenders. BHP Billiton Ltd., the world’s biggest mining company, rallied 5.9 percent as metal prices increased. SABMiller Plc surged 7 percent after a report by Brazilian news website IG said the brewer is in talks to be bought by Anheuser-Busch InBev NV. Spokespeople for both companies declined to comment.

Bonds, Currencies

Ten-year Spanish and Italian bond yields decreased seven basis points each, while rates on U.K., French and German debt rose at least four points.

The dollar weakened against 14 of 16 major peers today, with the Brazilian real surging 2.7 percent to lead gains after higher-than-forecast inflation spurred bets the central bank may slow the pace of interest-rate cuts.

The euro strengthened versus 10 of 16 major peers. The pound slid against all 16 major peers after the Bank of England expanded its bond-purchase program. The Australian and New Zealand currencies strengthened against most peers.

Copper futures climbed 4.5 percent to $3.2465 a pound in New York and rallied 5.9 percent in London to lead gains in 19 of 24 commodities tracked by the S&P GSCI Index.

The MSCI Emerging Markets Index of stocks surged 3.7 percent, extending its rebound from a two-year low on Oct. 4. Benchmark indexes in South Korea, Brazil and Chile climbed at least 2.5 percent.

To contact the reporters on this story: Michael P. Regan in New York at mregan12@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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Fisher Says He Sympathizes With Protests

By Vivien Lou Chen - Oct 7, 2011 3:18 AM GMT+0700

Federal Reserve Bank of Dallas President Richard Fisher said protests against Wall Street and the central bank stem from frustration with unemployment, and he sympathizes with the discontent.

The U.S. faces stalled job growth, and “too many” of its workers are unemployed, Fisher said in a speech today in Fort Worth, Texas. The policy maker dissented at each of the past two Federal Open Market Committee meetings in August and September, opposing plans to hold rates low until at least mid-2013 and to swap short-term securities in the Fed’s portfolio with longer- term debt.

“I’m somewhat sympathetic” to the demonstrations, Fisher said. “We have too many people out of work. We have very uneven distribution of income.”

Demonstrators from New York City to San Francisco took to the streets to protest what they call a growing wealth disparity between large U.S. corporations and average citizens in the wake of the financial crisis. Picketers marched in San Francisco yesterday as part of the Occupy Wall Street movement that began three weeks ago in lower Manhattan and has spread to cities from Dallas to San Francisco.

The jobless rate in August was 9.1 percent. Employers that month added zero jobs to payrolls, down from 85,000 in July, according to the Labor Department.

“We have a very frustrated people and I can understand their frustration,” Fisher said. He reiterated his view that the Fed “can’t do everything” to cure what ails the economy and there’s “a danger if we go too far.”

‘Exceptional’ Texas

Fisher, 62, spoke on the topic of “Texas: What Makes Us Exceptional; What Makes Us Vulnerable?” at the Texas Economic Development Council’s 2011 Annual Conference and 50th Anniversary Celebration.

The U.S. has become a “national economic desert devoid of job creation,” with Texas providing an “oasis,” Fisher said.

A key to the state’s success “lies in its ability to change and adapt” to a rapidly globalized economy, and job growth should continue at “a moderate pace,” Fisher said. Texas had an 8.5 percent jobless rate in August.

While the state benefits from high commodity prices, it “continues to be handicapped by low levels of construction activity and moderate gains in consumer spending and demand,” he said.

Fisher’s Dissent

Fisher dissented at the FOMC’s Sept. 20-21 meeting against the group’s decision to push down longer-term interest rates, saying he did not prefer to undertake further easing, according to an FOMC statement. He also challenged the committee’s Aug. 9 pledge to keep the benchmark U.S. interest rate low through at least mid-2013, preferring instead to maintain a previous commitment to do so for “an extended period.”

President Barack Obama, appearing at a White House news conference today, said the anti-Wall Street protesters are “giving voice” to wider frustration with the U.S. financial system.

“The American people understand that not everybody’s been following the rules, that Wall Street is an example of that,” he said, while stopping short of endorsing the demonstrations. The protests are a result of “broad-based” dissatisfaction growing out of the financial crisis.

To contact the reporter on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net;

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

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ECB Keeps Banks Afloat as Governments Act on Greek Default Risk

By Gabi Thesing and Jeff Black - Oct 7, 2011 6:00 AM GMT+0700

The European Central Bank’s move to keep euro-area banks afloat is buying governments more time to recapitalize them as Greece edges closer to default.

The ECB said yesterday it will reintroduce year-long loans, giving banks access to unlimited cash through January 2013, and resume purchases of covered bonds to encourage lending. At the same time, the European Commission is pushing for a coordinated capital injection into banks and German Chancellor Angela Merkel said policy makers “shouldn’t hesitate” if it turns out financial institutions are undercapitalized.

“Politicians, including Angela Merkel, have finally realized the urgency in protecting banks as a Greek default can no longer be ruled out and no-one wants a Lehman in Europe,” said Christoph Kind, head of asset allocation at Frankfurt Trust, which manages $24 billion. “From its side, the ECB is making sure that banks won’t face funding issues throughout that period.”

Financial shares advanced yesterday after Merkel fed speculation that policy makers are working on plans to boost bank capital to stem the spread of the sovereign debt crisis. Europe’s rescue fund, the European Financial Stability Facility, could be relied upon as a last resort to bolster banks if needed, she said, adding Germany is ready to discuss possible bank aid at this month’s European Union summit.

Writedowns

Germany’s Deutsche Bank AG on Oct. 4 scrapped its profit forecast and announced 500 job cuts and further writedowns on Greek bond holdings, while Belgium’s Dexia SA is facing its second bailout in three years.

European leaders are under pressure from global counterparts to find a solution to the debt crisis as it threatens to tip the world economy back into recession. EU leaders hold a summit on Oct. 18 followed by a meeting of the Group of 20 on Nov. 3-4.

The ECB’s measures buy banks “a lot of time as Europe is basically moving toward recapitalizing the sector,” said Silvio Peruzzo, an economist at Royal Bank of Scotland Group Plc in London. “Where the ECB can and does contribute very aggressively is to breaking the nexus between the sovereigns and the banks.”

The ECB will spend 40 billion euros ($53 billion) on covered bonds from next month and offer banks two additional unlimited loans of 12 and 13-month durations, President Trichet said at a press conference in Berlin yesterday after leaving the benchmark interest rate at 1.5 percent. The ECB will continue to lend banks as much money as they need in its regular refinancing operations at least until July 2012.

Old Tools

The ECB used the same measures during the global financial crisis to avert a credit crunch.

The 2.5 trillion-euro market for covered bonds -- assets backed by mortgages or public-sector loans -- underpins much of Europe’s real estate lending, which almost ground to a halt in the wake of Lehman Brothers Holdings Inc.’s collapse in September 2008.

Banks’ overnight deposits with the ECB jumped to the most in more than a year this week as concern about other institutions’ sovereign debt holdings discouraged them from lending to each other.

“For the banking sector the focus is more on liquidity rather than capital,” UniCredit SpA Chief Executive Officer Federico Ghizzoni said in an interview published yesterday.

‘Everything Necessary’

Policy makers are “determined to do everything necessary to ensure that Europe’s banks are able to play their essential role in lending,” commission President Jose Barroso told reporters in Brussels yesterday. “Close coordination at European level is essential.”

Chairing his final rate-setting meeting before handing the reins to Italy’s Mario Draghi at the end of the month, Trichet resisted calls to reverse two rate increases earlier this year even as the debt crisis threatens to tip Europe back into recession.

Klaus Baader, co-chief economist at Societe Generale SA in London, said the ECB’s decision to focus on greasing the banking sector rather than cutting rates “is a completely appropriate reaction to the current conditions” as “the problem in the euro area is not an excessively high level of short term interest rates.”

Risk to Growth

Still, the crisis has “started to infect the real economy,” said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt.

The ECB in September cut its growth forecasts to 1.6 percent from 1.9 percent for 2011 and to 1.3 percent from 1.7 percent for 2012. Euro-area service and manufacturing industries last month contracted for the first time in more than two years.

Deutsche Bank Chief Executive Officer Josef Ackermann blamed the slowdown in Europe for his bank’s troubles. About 42 percent of revenue from the bank’s sales and trading operations came from Europe last year, Ackermann said on Oct 4.

The bank will write down its Greek sovereign debt holdings by about 250 million euros for the third quarter after a 155- million-euro value reduction at the end of the second quarter.

France’s Natixis (KN) and BNP Paribas (BNP) SA were among the biggest gainers on the 46-member Bloomberg Europe Banks and Financial Services Index yesterday. Natixis climbed as much as 13 percent, while Paribas was up as much as 7.8 percent.

Trichet yesterday said European banks and supervisors including the European Banking Authority should do everything they can to address the need for recapitalization and banks shouldn’t be reluctant to accept state help when needed.

“There finally seems to be a plan in Europe and what the ECB did yesterday certainly complemented that,” said Gilles Moec, co-chief European economist at Deutsche Bank in London. “The ECB has always been ready to step up to the plate if governments show a willingness to shoulder responsibility. It wasn’t always the case in the past, but it looks like it’s coming together now.”

To contact the reporters on this story: Gabi Thesing in London at gthesing@bloomberg.net; Jeff Black in Frankfurt at Jblack25@bloomberg.net.

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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Goldman Protesters Almost Outnumbered

By Charles Mead and Elise Young - Oct 7, 2011 3:20 AM GMT+0700

Protesters assembling today outside a Goldman Sachs Group Inc. (GS) building in New Jersey were met by almost as many security guards and police officers as “Occupy Wall Street” demonstrators sought to single out the bank.

About 50 people gathered at a Goldman Sachs building surrounded by metal barricades in Jersey City, where 30 to 40 officers and guards were waiting. The investment bank’s employees watched from windows as the crowd chanted “We are the 99 percent” before breaking into discussion groups.

“Goldman Sachs has too many people in government, and too much influence,” said Pat Meany, 53, who arrived on his bicycle and wore clothes painted with fluorescent colors and peace symbols. “It seems like they’re looking out for America’s rich. It’s not for the good of all Americans.”

In Trenton, about three dozen protesters were initially outnumbered by members of the media for a simultaneous gathering at the World War II memorial across from the Statehouse. The crowd grew to about 75 people within an hour as participants took turns to speak about corporate greed, the influence of money on politics, war and the environment.

“There is no reason why this country should be the way it is,” said Heath Weaver, 46, of Toms River, a self-employed videographer who came to the Trenton event with a sleeping bag. “Instead of people coming together we’ve been fighting against each other and nothing’s getting solved.”

Stephen Cohen, a spokesman for New York-based Goldman Sachs, declined to comment on the demonstration.

To contact the reporters on this story: Charles Mead in New York at cmead11@bloomberg.net; Elise Young in Trenton at eyoung30@bloomberg.net.

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Mark Tannenbaum at mtannen@bloomberg.net.

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Wall Street March Reaches Washington as Obama Cites Americans’ Frustration

By Holly Rosenkrantz - Oct 7, 2011 4:06 AM GMT+0700

The Occupy Wall Street protests came to Washington today, as marchers gathered near the White House and President Barack Obama said the demonstrations are “giving voice” to frustrations with the financial system.

“The American people understand that not everybody’s been following the rules, that Wall Street is an example of that,” Obama said at a White House press conference. He stopped short of endorsing the movement, which began three weeks ago in Lower Manhattan and has spread to cities from Houston to San Francisco with the help of postings on Twitter and websites.

Several thousand protesters set up camp today in Washington’s Freedom Plaza, two blocks from the Treasury Department. They staged drumming circles, set up sign-making tents, held a mini-rock festival and spoke against Wall Street excesses. Shortly before 3 p.m., they began marching toward the White House, with plans to rally nearby outside the columned headquarters of the U.S. Chamber of Commerce.

Nationwide, the protesters have criticized the government for propping up hobbled financial giants such as Citigroup Inc. (C) and Bank of America Corp. with a $700 billion taxpayer-funded bailout. They also called for more government aid to create jobs for the unemployed and voiced anti-war and anti-trade sentiment.

Biden’s Comments

“There’s a lot in common with the Tea Party,” Vice President Joe Biden said today in Washington of the protests. “What are the people up there on the other end of the political spectrum saying? The same thing: ’Look guys, the bargain is not on the level anymore.’ In the minds of the vast majority of the American -- the middle class is being screwed.”

Republican presidential candidate Herman Cain told reporters in Houston today that the Wall Street protesters are “trying to disrupt the whole country.”

“This is an attempt by the left to create a distraction from the failed policies of this administration,” Cain said.

National union leaders based in Washington moved to embrace the protests as they reached the capital. Richard Trumka, president of the AFL-CIO, the largest U.S. labor federation, told reporters yesterday that the demonstrations were reminiscent of a union march on Wall Street last year.

Speakers at a rally in Washington today said their efforts were inspired by union-backed protests in Madison, Wisconsin, this year against Republican moves to curb union benefits.

“Madison was our inspiration; the country noticed,” Gloria English, 51, a bartender and house cleaner from Owings, Maryland, said in an interview.

Not About Union

Not all participants in today’s march were ready to usher union leaders to the head of the protest parade.

’’This is much bigger than my union affiliation,’’ Lisa Oberg, a 32-year-old actor from Baltimore who joined in the Washington protests today, said. “This is about the people. My union has nothing to do with why I’m here.”

In New York, where the Occupy Wall Street protests continued today, Governor Andrew Cuomo said, “A lot of people are feeling the pain and when people are feeling the pain they look for an outlet, and that’s what I think you’re hearing from the protesters.”

The causes run from opposition to the death penalty to income inequality, according to Cuomo, who defended Wall Street’s role in the New York economy.

“Wall Street is a major economic engine for the state,” he said at a press conference. “When all is said and told, 20 to 25 percent of the state’s income comes from Wall Street. From the state’s balance, there has to be a balance.”

New York Costs

New York City Police Commissioner Raymond Kelly told reporters today that the protests have cost his city about $2 million in overtime so far.

In Sacramento, California, today, about 100 demonstrators gathered in a small park downtown named after labor organizer Cesar Chavez.

“Fight Back,” and “Heal America: Tax Wall Street” were among the signs held by demonstrators.

“They are right, this is class warfare,” Nathan Appete, who said he was a 24-year-old nursing student from Fresno, said, “This is a war against the middle class by those big banks.”

In Houston, Dustin Phipps, a 24-year-old premed student, was one of the organizers of several hundred protesters who had met online. They gathered today in a downtown park and walked four blocks to the JPMorgan Chase Tower.

“They got bailed out; we got sold out,” was among the chants Phipps led over a red megaphone.

Watching from across the street, Peggy Chilton, a 52-year- old oil industry accountant, said, “I came to mock them. They need to get a job. These are rich, white college students whose professors don’t like the Tea Party.”

In San Francisco, police and city crews dismantled an encampment outside the Federal Reserve Bank’s building in the Financial District early today that had been set up by Occupy SF protesters, the San Francisco Chronicle reported.

To contact the reporter on this story: Holly Rosenkrantz in Washington at hrosenkrantz@bloomberg.net

To contact the editor responsible for this story: Larry Liebert at lliebert@bloomberg.net

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Biggest S&P 500 Gain Since 1998 Forecast by UBS, Barclays

By Inyoung Hwang - Oct 7, 2011 4:12 AM GMT+0700
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Goldman Sachs Group Inc.’s David Kostin cut his price estimate for the S&P 500 in 2011 this week for the third time in three months, reducing it to 1,200 from 1,250. Photographer: Noah Berger/Bloomberg

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Traders work on the floor of the New York Stock Exchange in New York, U.S. Photographer: Jin Lee/Bloomberg

Wall Street strategists say the Standard & Poor’s 500 Index, after falling within 1 percent of a bear market this week, will post the biggest fourth-quarter rally in 13 years even after they cut forecasts at a rate exceeded only during the credit crisis.

The benchmark index for U.S. stocks will climb 14 percent from yesterday to end 2011 at 1,300, according to the average estimate of 12 strategists surveyed by Bloomberg. The last time they were this bullish in October was 2008, when the group predicted a 27 percent gain and the index lost 18 percent.

Analysts from Oppenheimer & Co. to UBS AG and Barclays Plc say equities will rebound from a decline of 19 percent since April as policy makers prevent a default by Greece and profit in the S&P 500 climb to $95.85 a share in 2011. Europe’s worsening debt crisis and the U.S. government’s loss of its AAA credit rating led strategists to cut their S&P 500 forecast in the past two months from an average level of 1,401.

“Investors are way too bearish and are being swayed by macro variables,” Brian Belski, the New York-based chief investment strategist at Oppenheimer, wrote in an e-mail on Oct. 4. “Fundamentals drive stocks,” he said. “U.S. portfolios are not positioned for a positive third-quarter earnings season.”

Services Expanded

A report showing U.S. services industries expanded faster than economists predicted in September and speculation Europe will contain losses tied to sovereign debt pushed the S&P 500 up 1.8 percent to 1,144.03 yesterday. After falling to 1,074.77 intraday on Oct. 4, the index surged 6.4 percent through yesterday. The S&P 500 rallied 1.8 percent to 1,164.97 today.

Belski is sticking to his forecast from December that the S&P 500 will end this year at 1,325, up 16 percent from yesterday’s closing level. When he gave his prediction, the average strategist projection for the end of 2011 was 1,379, according to data compiled by Bloomberg.

Strategists shouldn’t be so optimistic given the severity of the European debt crisis, said Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4 billion in Raleigh, North Carolina.

“The best case is we establish a foundation with some modest gains in the fourth quarter, but it’s too optimistic” to expect a rally, he said. Strategists “need to better assess the European debt situation,” Teal said in a telephone interview yesterday. “The general trend is downward.”

Kostin Cuts Estimates

Goldman Sachs Group Inc.’s David Kostin cut his price estimate for the S&P 500 in 2011 this week for the third time in three months, reducing it to 1,200 from 1,250. While the U.S. will likely avoid a recession, the economic recovery is stagnating, according to the equity strategist.

“The unstable macro environment is likely to persist for the foreseeable future,” Kostin wrote in an Oct. 4 report. “Investors believe a non-trivial probability exists that the crisis will trigger a global financial dislocation similar to 2008.”

Wall Street firms stuck with bullish forecasts through the beginning of August as the S&P 500 tumbled amid concern U.S. lawmakers would fail to reach an agreement with President Barack Obama to raise the nation’s debt limit. The index fell 11 percent between July 22 and Aug. 5.

Strategists kept their average forecast at 1,401 from July 6 through Aug. 8, when it was cut to 1,389. The measure retreated to an 11-month low of 1,119.46 on Aug. 8 after S&P cut the American credit rating.

Solving Greece

Stocks will rebound as investors become convinced leaders in Europe can solve the sovereign crisis, according to UBS’s Jonathan Golub. The cost to rescue Europe’s banks may reach $2 trillion for governments and private partners, BlackRock Inc. (BLK) Chairman and Chief Executive Officer Laurence D. Fink said yesterday at an event in Toronto.

“Worst-case outcomes are not going to play through,” Golub said in a telephone interview on Oct. 4. “You have 17 countries that have to coordinate their actions, which makes the process more cumbersome, but that doesn’t mean they can’t come to a resolution.”

Golub said in December that the S&P 500 would end this year at 1,325. He raised the estimate to 1,425 in February before cutting it to 1,350 last month, an 18 percent rise from yesterday’s closing level. Golub said in 2010 the S&P 500 would finish the year at 1,350 before reducing that estimate to 1,150 in July. The gauge rallied 13 percent to 1,257.64 last year.

Russia Default

The stock index jumped 21 percent in the fourth quarter of 1998 after Russia’s default, which caused the collapse of hedge fund Long-Term Capital Management and sent the S&P 500 down 15 percent in August. The measure slumped 12 percent in August and September of this year.

Global equities entered a bear market on Sept. 22, after the MSCI All-Country World Index extended its drop since its peak this year to more than 20 percent. About $3 trillion has been erased from U.S. equities since April 29, sending the S&P 500’s valuation to 12.5 times earnings, near the lowest level since March 2009, according to data compiled by Bloomberg.

While investors are abandoning stocks amid concern Europe’s crisis will worsen and growth in Asia will slow, equities will rally in the fourth quarter as economic and policy outlooks improve and the Federal Reserve provides additional stimulus, according to Barclays’s Barry Knapp. The central bank announced plans on Sept. 21 to buy $400 billion of long-term debt.

Knapp estimates the S&P 500 will rise to 1,325 in 2011. He lowered his prediction from 1,450 a month ago.

“The U.S. situation looks fine,” Knapp, the New York- based head of U.S. equity strategy, said in a telephone interview on Oct. 4. “If we were living in isolation here, the market would be much higher.”

To contact the reporter on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net

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