Economic Calendar

Friday, December 16, 2011

Asia Stocks, Gold Rise on U.S. Economic Strength

By Lynn Thomasson and Yoshiaki Nohara - Dec 16, 2011 10:27 AM GMT+0700 .

Asian stocks (MXAP) rose for the first time in four days as metals and the Australian dollar climbed after better-than-expected U.S. data signaled the world’s biggest economy is strengthening.

The MSCI Asia Pacific Index gained 0.4 percent as of 12:13 p.m. in Tokyo, paring a 2.7 percent drop for the week. Standard & Poor’s 500 Index futures increased 0.3 percent. The Chinese yuan strengthened the most in two months, the Indonesian rupiah appreciated and the Australian dollar advanced against most of its 16 major counterparts. Gold, copper and aluminum rose at least 0.6 percent.

U.S. initial jobless claims unexpectedly dropped to a three-year low and Federal Reserve gauges of manufacturing in the New York and Philadelphia regions topped estimates. Singapore’s exports exceeded economists’ projections, while Fitch Ratings boosted Indonesia’s sovereign debt ratings to investment grade. European Central Bank President Mario Draghi said yesterday there’s no “external savior” for indebted countries that don’t implement structural reforms and the central bank’s buying government bonds isn’t limitless.

“The U.S. economy is ending the year in a bit better shape than people had anticipated, and that is good, but Europe is obviously not,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion. “The European economy is heading toward recession next year, and I think it’s going to continue to weigh on markets.”

Euro Gains

The euro climbed 0.2 percent to $1.3041, trimming the biggest weekly decline in three months. Italian Prime Minister Mario Monti faces a confidence vote in Parliament today to speed passage of a 30 billion-euro ($39 billion) emergency budget plan aimed at spurring growth.

S&P 500 futures rose to 1,214.80. The number of applications for unemployment payments in the U.S. dropped by 19,000 to 366,000 in the week ended Dec. 10, a lower total than was forecast by any of 47 economists surveyed by Bloomberg News, according to government figures released yesterday.

About two stocks rose for each that fell in the MSCI Asia Pacific Index, which has fallen 19 percent this year. The Nikkei 225 Stock Average increased 0.3 percent and Australia’s S&P/ASX 200 Index climbed 0.4 percent.

New China Life Insurance Co., the nation’s third-largest life insurer, surged 14 percent on its first trading day in Shanghai.

The Chinese currency gained as much as 0.7 percent to 6.3294 per dollar, the strongest level since China unified official and market exchange rates at the end of 1993, as signs credit curbs are easing bolsters optimism policy makers will avoid a sharp slowdown in the world’s second-largest economy.

‘Improved Sentiment’

“Improved sentiment in global markets is helping as is news that China is easing curbs in the property sector which will limit downside risks to growth,” said Dariusz Kowalczyk, Hong Kong-based senior strategist at Credit Agricole CIB.

Indonesia’s rupiah gained 0.2 percent to 9,070 per dollar. The country’s long-term foreign and local currency debt was raised to BBB- from BB+, Fitch said in a statement yesterday. It had lost the investment grade rating in December 1997, during the Asian financial crisis.

India’s SGX S&P CNX Nifty Index futures for December delivery were little changed in Singapore. India’s central bank will probably leave interest rates unchanged for the first time since 2010, ending a streak of seven increases. All 13 economists in a Bloomberg survey predict that the Reserve Bank of India will hold the repurchase rate at a three-year high of 8.5 percent today.

Gold, Copper

Immediate-delivery gold rose for the first time in five days, gaining 0.6 percent to $1,579.57 an ounce. Copper for three-month delivery climbed 0.9 percent to $7,278 a metric ton on the London Metal Exchange. Aluminum increased 1 percent to $1,995 a ton.

Oil rose less than 0.1 percent to $93.92 a barrel, poised for a 5.5 percent weekly retreat, the most since September. Wheat for March delivery fell 0.2 percent to $5.78 a bushel in Chicago. The price earlier dipped to $5.7725, matching a level reached yesterday, the lowest for the most-active contract since July 21, 2010, on reports of increased supplies from Canada and Argentina.

The cost of insuring Asia corporate and sovereign bonds against non-payment decreased, according to traders of credit- default swaps. The Markit iTraxx Asia index of 40 investment- grade borrowers outside Japan fell 4 basis points to 212 basis points, Royal Bank of Scotland Group Plc prices show. The gauge is set for its lowest close since Dec. 15, according to data provider CMA.

To contact the reporters on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

To contact the editor responsible for this story: Richard Dobson at rdobson4@bloomberg.net





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Adobe Forecasts Sales That May Top Estimates on New Programs

By Aaron Ricadela - Dec 16, 2011 8:17 AM GMT+0700

Adobe Systems Inc. (ADBE) forecast fiscal first-quarter sales that may top analysts’ estimates amid buoyant demand for a new breed of tools that help customers design Web pages and create online video.

Revenue in the quarter that ends March 3 will be $1.03 billion to $1.08 billion, the company said in a statement today. That compared with $1.06 billion, the average estimate in a Bloomberg survey of analysts. Profit excluding certain items will be 54 cents to 59 cents a share, compared with the average 58-cent estimate. Shares gained in late trading.

Adobe, the largest maker of graphic-design software, last month reduced its sales outlook and said it will cut 750 jobs and stop making Flash software for mobile devices. The company is retooling its product line to better support the HTML5 Web- programming language, which has backing from companies including Apple Inc., Microsoft Corp. and Google Inc. It’s also aiming to get more revenue from online subscriptions.

“Adobe remains the premier company in terms of share, breadth of products and brand name” in the graphic-design software market, said Jay Vleeschhouwer, an analyst at Griffin Securities Inc. in New York. “It was a mistake to think Adobe would somehow not be right in the middle of participating in the HTML5 phenomenon.”

Vleeschhouwer has a “buy” rating on the shares and doesn’t own them.

Creative Suite

The San Jose, California-based company is releasing a new version of its flagship print- and Web-design software, Creative Suite 6, next year. The suite, plus individual sales of its programs such as Photoshop, Dreamweaver and Illustrator, supplies more than half of Adobe’s sales. Adobe will focus on tools that help customers work with HTML5 to design Web pages and produce online video.

For the fourth quarter, which ended Dec. 2, sales increased 14 percent to $1.15 billion, compared with analysts’ average $1.09 billion estimate. Profit excluding some costs was 67 cents a share, compared with analysts’ 60-cent estimate. Net income fell 35 percent to $173.7 million, reflecting the cost of job cuts in the quarter.

Shares rose in extended trading, advancing 5.6 percent to $27.95. The stock had slipped less than 1 percent to $26.46 at the close in New York.

Online Sales Pickup

One-third of Adobe’s design-software revenue will come from online subscriptions in three years, up from almost none now, Chief Financial Officer Mark Garrett said in an interview. The company’s advertising-software business may reach three-quarters of a billion dollars this fiscal year and will grow at about 25 percent annually, he said.

“This will be a billion-dollar business by itself,” he said. “We’re working hard to take a very fragmented market and pull it together.”

Chief Executive Officer Shantanu Narayen said the company’s design software business benefited from sales to large customers through traditional channels as well as individuals and smaller businesses through Adobe’s website.

“We had a healthy pipeline and the team executed,” he said on a conference call today.

Sales in the current fiscal year will increase 4 percent to 6 percent, Adobe said last month. At the time, analysts on average had estimated a revenue gain of 9 percent.

New Business Model

“A lot of the guidance takedown was due to the business model change,” said Ross MacMillan, an analyst at Jefferies & Co. in New York. “What’s maybe more surprising is the strength of the underlying business in Q4,” said MacMillan, who has a “buy” rating on the shares.

The company is overhauling the way it sells the Creative Suite to spur more frequent purchases of programs like Photoshop and Dreamweaver. As more customers seek to buy and use software over the Internet, Adobe plans to release a software package called Creative Cloud in the fiscal second quarter, Garrett said on today’s call.

Perhaps 15 percent of Creative Suite customers may buy cloud computing versions of the software, said Walter Pritchard, a San Francisco-based analyst at Citigroup Inc.

Adobe plans to introduce more tablet-computer software and subscription pricing plans starting at $50 a month, designed to attract new customers. It will also stop developing the Flash Player for mobile devices and instead emphasize the Air software, which will work with online application stores.

Recent acquisitions aim to expand Adobe’s Web publishing and advertising prowess. Last month, it said it would acquire online advertising company Efficient Frontier, which sells software that lets advertisers buy keywords on Google and place ads on Facebook. Adobe bought video advertising company Auditude Inc. on Nov. 1.

To contact the reporters on this story: Aaron Ricadela in San Francisco at aricadela@bloomberg.net

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




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Olympus Drops as Takayama Backs Away From Drastic Revamp

By Mariko Yasu - Dec 16, 2011 8:54 AM GMT+0700

Olympus Corp. (7733) fell as much as 11 percent, the biggest drop on the Nikkei 225 Stock Average (NKY), after President Shuichi Takayama signaled a planned revamp of management may stop short of demands by some overseas investors.

The Japanese camera maker, reeling from a $1.7 billion accounting fraud, has lost more than a quarter of its market value since restating earnings and slashing net assets Dec. 14. Takayama said yesterday he didn’t see a need for the entire board to resign over the cover-up, even after an independent review said they had failed to stop a “rotten” core of managers from hiding losses over more than a decade.

Shareholders including Southeastern Asset Management Inc., the biggest overseas stockholder in Tokyo-based Olympus, have said the entire board must go, along with all executives who were involved in the fraud. Takayama and Michael Woodford, who was fired as chief executive officer after challenging his fellow directors over the accounts, are in a battle for control that will test Japanese shareholders’ appetite to shake up one of the country’s best-known global companies.

While Takayama and Woodford both said yesterday they want to avoid a damaging proxy battle, they also traded barbs. Woodford said Takayama must quit and should play no role in deciding Olympus’s future management. Takayama repeated criticisms of Woodford’s abrasive personality and said it was unlikely management could work with him.

Delisting Threat

Since Woodford questioned inflated fees and takeover costs after he was fired Oct. 14, the company admitted to a 13-year scheme to hide losses and purged some senior executives. It still faces criminal probes, a battle for management control and a TSE review that may yet see it ejected from the world’s second-biggest bourse.

Takayama said that while he was willing to work with Woodford, he won’t meet him until after a separate panel to advise on changes in management reports.

The shares plunged 21 percent yesterday after Olympus took a $1.3 billion reduction in net assets, sparking a cut in the company’s credit rating. The stock was 8.6 percent lower as of 10:28 in Tokyo trading today.

Takayama said he will consider all options to restore capital, including a tie-up with other companies. Tokyo Stock Exchange rules permit companies to issue new shares to a third party with a dilutive effect of as much as 25 percent without seeking shareholder approval.

Shareholder Vote

Shareholders will vote on new management in March or April, Olympus said yesterday. Takayama said the replacement of the entire board may not be necessary.

“We’ll review our management structure, corporate governance and our business plans as we prepare for the shareholder meeting,” Takayama told reporters in Tokyo. “We’ll be reborn as new Olympus so that we can provide value to all our stakeholders including shareholders, customers, banks and our employees.”

The independent panel set up to investigate the fraud found a culture of “yes men” and a board that failed in its duty to stop a “rotten” core of executives from duping auditors, regulators and investors.

The board unanimously voted to fire Woodford when he challenged the accounting practices. Some board members and senior executives, including the head of the treasury department, Shigemi Sugimoto, signed off on documents that formed part of the fraud and were at yesterday’s press briefing.

Net Assets

Repeated attempts to reach Olympus executives accused of being involved in the schemes have failed.

Olympus’s net assets fell to 46 billion yen ($590 million) as of Sept. 30 from 151 billion yen reported in the previous quarter. That took the ratio to total assets to 4.8 percent, compared with the 44 percent average of 15 global peers in the precision-engineering sector, data compiled by Bloomberg show.

“Equity capital has eroded more than expected,” Tokyo- based Rating & Investment Information Inc. said in a statement announcing its decision to cut Olympus two levels to BBB-, with a view to a further downgrade. The rating is one above non- investment, according to data compiled by Bloomberg. “The possibility of additional losses from a lawsuit and other factors also cannot be ruled out.”

TSE Review

R&I is the only company with a credit rating on Olympus, according to data compiled by Bloomberg.

The TSE removed the company from its watch list for automatic delisting after it filed corrected earnings from fiscal 2006 on Dec. 14. It remains on a separate list for delisting pending a review of the fraud by the exchange.

Olympus stock plunged as much as 81 percent, wiping $7.1 billion off the company’s market value, after Woodford’s dismissal. The shares had recouped about half that loss before their two-day plunge.

Olympus had a net loss of 32 billion yen for the fiscal first-half ended Sept. 30, compared with a revised net income of 3.8 billion yen a year earlier. Revenue was 414.5 billion yen for the six months, from 417.3 billion yen a year earlier.

The company withdrew its earnings forecasts for this fiscal year.

To contact the reporter on this story: Ben Richardson in Hong Kong at brichardson8@bloomberg.net

To contact the editor responsible for this story: Peter Hirschberg at phirschberg@bloomberg.net




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Asian Stocks Snap Three-Day Losing Streak on Stronger U.S. Economic Data

By Jonathan Burgos and Yoshiaki Nohara - Dec 16, 2011 8:53 AM GMT+0700

Asian stocks rose, snapping three days of losses, after U.S. data on jobless claims and manufacturing beat estimates, easing concern Europe’s debt crisis will drag the global economy into a recession.

Samsung Electronics Co. (005930), South Korea’s biggest exporter of consumer electronics, increased 1.1 percent in Seoul. BHP Billiton Ltd., the world’s No. 1 mining company, climbed 0.5 percent as copper prices advanced. JB Hi-Fi Ltd. tumbled 15 percent after at least five analysts cut their recommendation as Australia’s second-largest electronics retailer predicted lower first-half earnings.

“The U.S. economy is ending the year in a bit better shape than people had anticipated, and that is good, but Europe is obviously not,” said Stephen Halmarick, Sydney-based head of investment markets research at Colonial First State Global Asset Management, which oversees about $150 billion. “The European economy is heading toward recession next year, and I think it’s going to continue to weigh on markets.”

The MSCI Asia Pacific Index added 0.4 percent to 111.98 as of 10:50 a.m. in Tokyo, with about three shares rising for every two that fell. The gauge is headed for a 2.5 percent loss this week after Moody’s Investors Service and Fitch Ratings warned that Europe faces lower credit ratings as it struggles to contain its debt crisis.

Japan’s Nikkei 225 Stock Average added 0.3 percent, while South Korea’s Kospi Index gained 0.5 percent. Australia’s S&P/ASX 200 rose 0.4 percent.

Singapore’s Straits Times Index advanced 0.3 percent after the city-state’s exports unexpectedly rose in November as pharmaceutical sales countered weak demand.

‘Escalating’ Crisis

Futures on the Standard & Poor’s 500 Index (SPXL1) gained 0.2 percent today. The index rose 0.3 percent in New York yesterday after U.S. initial jobless claims fell by 19,000 to 366,000 last week, the fewest since May 2008. The median forecast of economists surveyed by Bloomberg News was 390,000.

Some exporters advanced as two reports showed manufacturing in the New York and Philadelphia regions expanded more than forecast in December.

Gains in stocks may be limited today after International Monetary Fund Managing Director Christine Lagarde said yesterday that Europe’s crisis is “escalating” and cannot be resolved by one group of countries.

The MSCI Asia Pacific Index declined 19 percent this year through yesterday, compared with a 3.3 percent drop by the S&P 500 and a 15 percent loss by the Stoxx Europe 600 Index. Stocks (MXAP) in the Asian benchmark were valued at 12.5 times estimated earnings on average, compared with 12.3 times for the S&P 500 and 10.2 times for the Stoxx 600.

To contact the reporters on this story: Jonathan Burgos in Singapore at jburgos4@bloomberg.net; Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net.

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net.




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Amazon Says Kindle Sales Topping 1 Million Devices a Week

By Danielle Kucera - Dec 16, 2011 5:04 AM GMT+0700

Amazon.com Inc. (AMZN), the world’s largest online retailer, said customers have bought about 1 million of its Kindle e-book readers and tablets in each of the past three weeks, the most detailed sales numbers the company has released.

The Kindle Fire tablet, which sells for $199, has been the best-selling product on Amazon.com since its introduction 11 weeks ago, the Seattle-based company said in a statement today. Kindle Fire sales have risen week-over-week for the past three weeks, Amazon said.

The Kindle Fire, which has a 7-inch (18-centimeter) display and runs on Google Inc. (GOOG)’s Android operating system, costs less than half the price of Apple Inc. (AAPL)’s least-expensive iPad tablet. Amazon Chief Executive Officer Jeff Bezos said in October that the company may post a loss in the fourth quarter as it ramps up spending. Operating margin may narrow to 0.79 percent this quarter from 3.66 percent in the year-earlier period, according to the average analyst estimate compiled by Bloomberg.

“They have not talked about numbers at all, so it’s a big deal that they for some reason think they need to disclose metrics now,” said Brian Blair, an analyst at Wedge Partners Corp. in New York. “It’s a part of their strategy to show the strength of it against Apple -- a way to say, ‘we’re a player, and we’re going to start letting you know.’”

Amazon shares jumped 0.6 percent to $181.26 today at the close in New York. The stock is little changed this year.

Content Revenue

While IHS (IHS) Inc. says Amazon is losing money on every $199 tablet it sells, Susquehanna Financial Group LLLP said Nov. 15 that each machine may generate a total of $384 in revenue for the company, including money spent on books, videos and other content.

Estimates for sales have varied. Amazon has raised production of the tablet two or three times since its introduction and will probably sell 5 million to 6 million Kindle Fires by the end of the year, Blair said.

Anthony DiClemente, an analyst at Barclays Plc in New York, said the company may sell 4.5 million tablets in the fourth quarter, while Colin Sebastian, an analyst at Robert W. Baird & Co. in San Francisco, estimates Amazon will sell 5 million to 6 million units of the device.

After hitting store shelves on Nov. 14, the Kindle Fire has surpassed more established tablets from Samsung Electronics Co. and Barnes & Noble Inc. (BKS) in challenging Apple, which will ship an estimated 18.6 million iPads in the fourth quarter, IHS said. That would give Apple a market share of 66 percent, compared with an estimated 14 percent for Amazon, IHS said. The researcher forecasts overall tablet sales of 28.3 million units this quarter.

“They’re getting traction by selling no-profit hardware,” said Colin Gillis, an analyst at BGC Partners LP in New York. “Bad for margins, but it is giving them some share.”

To contact the reporter on this story: Danielle Kucera in San Francisco at dkucera6@bloomberg.net

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




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U.S. Stocks Rise as Strengthening Economic Data Overshadow Europe Crisis

By Inyoung Hwang - Dec 16, 2011 5:18 AM GMT+0700

U.S. stocks rose, snapping a three- day decline in the Standard & Poor’s 500 Index (SPX), as data on jobless claims and manufacturing signaling a strengthening economy overshadowed concern over Europe’s debt crisis.

Utilities, health-care and consumer staples had the biggest gains out of 10 S&P 500 groups, advancing at least 0.9 percent. FedEx Corp. (FDX), the operator of the world’s biggest cargo airline, jumped 8 percent after earnings beat analysts’ estimates on increased holiday orders. Novellus Systems Inc. (NVLS) surged 16 percent as Lam Research Corp. (LRCX) agreed to acquire the company.

The S&P 500 rose 0.3 percent to 1,215.75 at 4 p.m. New York time, paring an earlier rally of 1.1 percent as oil declined and financial companies erased gains. The Dow Jones Industrial Average added 45.33 points, or 0.4 percent, to 11,868.81.

“The news on the U.S. front is surprisingly positive and provides some counterbalance to the uncertainty in Europe,” Eric Teal, chief investment officer at First Citizens Bancshares Inc., which manages $4 billion in Raleigh, North Carolina, said in a telephone interview. “We’re focusing increasingly on the domestic economy which looks to be on the recovery track.”

The S&P 500 lost 3.5 percent during the first three days of this week after posted its first back-to-back weekly gain since October. The benchmark stock measure slumped on Dec. 13 after the Federal Reserve refrained from taking new actions to bolster growth at the world’s largest economy. The central bank said the U.S. economy is maintaining its expansion even as the global economy slows.

Jobless Claims

Global stocks extended gains this morning after Labor Department figures showed initial jobless claims fell by 19,000 to 366,000 last week, the fewest since May 2008. The median of 47 economists had projected 390,000, according to a Bloomberg News survey.

Two reports showed manufacturing in the New York and Philadelphia regions expanded more than forecast in December. The Federal Reserve Bank of New York’s general economic index accelerated to the highest level in seven months, to 9.5 from 0.6 in November. Readings higher than zero signal expansion among companies in the region, which covers New York, northern New Jersey and southern Connecticut. The Federal Reserve Bank of Philadelphia’s index, covering eastern Pennsylvania, southern New Jersey and Delaware, increased to 10.3 from 3.6.

Equities pared early gains after International Monetary Fund Managing Director Christine Lagarde said at an event in Washington that Europe’s “crisis is not only unfolding, but escalating” and cannot be resolved by one group of countries.

‘Get a Sense’

“Investors are trying to get a sense of not only how the economy is performing but also looking at what happens with policy, what happens in Europe,” Kevin Caron, a market strategist in Florham Park, New Jersey, at Stifel Nicolaus & Co., said in a telephone interview. His firm has about $108 billion in client assets.

FedEx jumped 8 percent, the biggest rally since April 2009, to $83.47. The company, considered an economic barometer because it delivers goods ranging from pharmaceuticals to financial documents, posted a quarterly profit that beat analysts’ estimates as U.S. consumers increased holiday orders from online retailers. FedEx also ordered 27 Boeing Co. (BA) 767 jet freighters to retire some of its older planes. Boeing increased 1 percent to $70.61.

Novellus Surges

Novellus Systems surged 16 percent to $40.37 for the biggest gain in the S&P 500. Lam Research agreed to buy the maker of machinery used in semiconductor production for about $3.3 billion in stock, valuing it at $44.42 a share. Lam Research fell 8.4 percent to $36.17.

Financial companies were unchanged as a group after rallying as much as 1.6 percent after Spain sold more debt than it had planned. Shares in the group erased their gains as the Securities and Exchange Commission appealed a District Court judge’s decision to reject its proposed $285 million settlement with Citigroup Inc. (C) The New York-based bank slumped 0.5 percent to $25.92, after earlier rising as much as 3.3 percent.

Michael Kors Holdings Ltd., the clothing company founded by the designer of that name, rose 21 percent to $24.20 in its trading debut. The company sold 47.2 million shares yesterday for $20 apiece to raise $944 million, 19 percent more than planned.

Technology and energy companies in the S&P 500 posted the only declines among 10 groups, falling at least 0.2 percent. First Solar Inc. (FSLR), the world’s largest maker of thin-film solar panels, slumped 6 percent, the biggest drop in the S&P 500, to $31.45. The company was downgraded to “neutral” from “outperform” by Robert W. Baird & Co. Chevron Corp. (CVX) slid 0.9 percent to $99.67, as the price of crude oil tumbled to its lowest level in six weeks.

Options Expiration

Tomorrow is the expiration of futures and options contracts on indexes and individual stocks, an event known as quadruple witching, which occurs once every three months.

The S&P 500 has slumped 3.3 percent in 2011 and 11 percent from its high on April 29. The index posted losses in six of the past seven months through November. The gauge’s decline this year may mean there are lower odds the measure will rally during the last two weeks of 2011, if history is any guide, according to Nautilus Capital LLC.

Since 1928, the benchmark index has rallied at year-end 60 percent of the time when it had fallen year to date, compared with 80 percent when it was up for the year, data from Nautilus show. The S&P 500 produced an average gain of 1.3 percent during the last two weeks of the year.

Hedge Funds

Stocks favored by hedge funds fell more than the S&P 500 during the first three days of the week. A Goldman Sachs index of companies that appear most often in funds’ top 10 holdings lost 4.5 percent in the first three days of the week, a period in which the S&P 500 fell 3.5 percent. The index rose 0.4 percent today.

Hedge funds selling assets because of client redemptions may have exacerbated declines for equities and reinforced market volatility, according to Eric Green, a Philadelphia-based fund manager at Penn Capital Management. His firm oversees about $6 billion.

“The hedge fund exposure continues to go down -- it’s year end, they’re squaring positions off, they’re preparing for redemptions,” Green said in a telephone interview. “The volatility is pretty extreme, the market is getting whipped around on nothing and most of them want to shut things down. They probably have to sell more things than buy because they have net redemptions.”

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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Zynga Said to Price 100M Shares at $10 in IPO

By Lee Spears - Dec 16, 2011 5:10 AM GMT+0700

Zynga Inc., the largest maker of games for Facebook Inc.’s website, raised $1 billion in its initial public offering, pricing the shares at the top of the marketed range, said a person with knowledge of the IPO.

The developer of games such as “CityVille,” “FarmVille” and “Mafia Wars” sold 100 million shares for $10 each, according to the person, who declined to be identified because the details haven’t been released. Zynga had offered the stock for $8.50 to $10 apiece. It will start trading tomorrow on the Nasdaq Stock Market under the symbol ZNGA.

The offering is the biggest by a U.S. Internet company since Google Inc. (GOOG) raised $1.9 billion in its 2004 IPO, Bloomberg data show. The game maker’s surging sales appeal to investors seeking growth that outpaces members of the Standard & Poor’s 500 Index, according to Tim Cunningham, a money manager at Thornburg Investment Management Inc.

“Growth is really scarce, so I think that makes it more valuable than usual,” said Cunningham, who helps oversee about $74 billion at Thornburg in Santa Fe, New Mexico. Founded by Chief Executive Officer Mark Pincus in 2007, Zynga doubled sales to $829 million in the first nine months of 2011.

The IPO values Zynga at as much as $7 billion, or 6.8 times revenue in the year through Sept. 30. That’s more than three times rival Electronic Arts Inc. (ERTS)’s price relative to sales over the same period.

Electronic Arts, based in Redwood City, California, bolstered its own online services by purchasing PopCap Games this year. EA, the maker of “The Sims” and “Scrabble” for mobile devices had a market value of $6.9 billion, or about 1.8 times trailing 12-month sales.

‘More Competition’

Nexon Co., a Tokyo-based maker of games for Facebook including “Zombie Misfits,” fell on each of its first two days of trading this week after holding a $1.2 billion IPO, Japan’s biggest this year. The stock is down 4.3 percent since the offering.

“You’re definitely going to see more competition” for Zynga as other companies expand their user bases, said Richard Greenfield, an analyst at BTIG LLC in New York. “On the other hand, I think it’s also going to bring more people into the overall social gaming space.”

Zynga planned to offer about 14 percent of its common stock, according to a regulatory filing. That compares with less than 10 percent for companies including Groupon Inc., LinkedIn Corp., and Pandora Media Inc., which made their public debuts this year. Internet companies have used smaller free floats to boost initial demand for their stock, pushing the price higher.

Avalon Ventures, Google

Zynga planned to sell all of the shares in the IPO, and to use net proceeds of about $889 million for game development, marketing and general corporate purposes.

Backers including Avalon Ventures, Foundry Group and Google may trim their stakes if underwriters exercise an over-allotment to buy 15 million additional shares, according to the original terms of the offering. Venture firm Kleiner Perkins Caufield & Byers, Zynga’s biggest shareholder after Pincus, didn’t plan to sell shares in the IPO.

The market value Zynga sought in its IPO was less than a $14.1 billion fair-value estimate of the company’s worth as of August, according to the prospectus. The company settled on a price range after taking into account recent IPOs that underperformed, according to a Dec. 10 filing. Morgan Stanley and Goldman Sachs Group Inc. led Zynga’s offering.

Social Media

Groupon, the Chicago-based provider of online coupons, raised $805 million in its IPO last month, including the over- allotment option. The shares, which surged as much as 31 percent in the first weeks of trading, have since fallen 12 percent from their high.

Angie’s List Inc., the Indianapolis-based operator of a consumer-reviews website, raised $132 million in its IPO last month, including an over-allotment. The stock surged in its first day of trading before falling as much as 11 percent below its offer price.

Both Groupon and Angie’s List are trading above their offer prices. Sixty percent of the Internet or social-media companies that completed U.S. IPOs since 2010 are trading below offer price, Kevin Pleines, an analyst at Birinyi Associates Inc. in Westport, Connecticut, said in a Dec. 13 research note. Buyers of the shares at their opening trade in the public market have lost an average of 32 percent, Pleines said.

Zynga gets more than 90 percent of its revenue from Palo Alto, California-based Facebook, operator of the world’s largest social network. Facebook is examining a $10 billion IPO that would value the company at more than $100 billion, a person with knowledge of the matter said last month.

To contact the reporter on this story: Lee Spears in New York at lspears3@bloomberg.net

To contact the editor responsible for this story: Jennifer Sondag at jsondag@bloomberg.net




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BofA, Goldman, Barclays Have Fitch Credit Ratings Cut

By Hugh Son - Dec 16, 2011 8:29 AM GMT+0700

Bank of America Corp. (BAC), Goldman Sachs Group Inc. (GS) and Citigroup Inc. (C) had their credit grades cut by Fitch Ratings as the impact of financial regulation and market turmoil (VIX) weighed on the industry.

The lenders’ long-term issuer default ratings were cut one level to A from A+, Fitch said yesterday in a statement. Barclays Plc (BARC), based in London, Credit Suisse Group AG (CSGN), Deutsche Bank AG (DBK) and BNP Paribas SA also had their grades lowered.

The moves complete a review of financial firms by the three major rating companies. Moody’s Investors Service cut banks in September, citing a lower probability that the U.S. will support the industry in an emergency. Standard & Poor’s lowered ratings last month. Lenders including Bank of America and Citigroup have said they may have to post billions of dollars in collateral and face higher funding costs in the event of downgrades.

“It’s hard to take anything positive from this; it speaks to the sentiment overall on global financial firms right now,” said Michael Nix, who helps manage about $925 million at Greenwood, South Carolina-based Greenwood Capital Inc., including Morgan Stanley (MS) shares. “It also validates what the other raters have already done, and to an extent was expected.”

Bank of America climbed 0.6 percent to $5.26 yesterday, New York-based Goldman Sachs fell 1.5 percent and Citigroup slid 0.5 percent. The shares of all three were little changed in extended trading after Fitch’s announcement.

Biggest Lenders

Credit ratings of the world’s biggest lenders have come under pressure amid weak economic growth and doubts about whether European regulators have done enough to end the sovereign-debt crisis. Lenders in the region must raise about 114.7 billion euros ($149 billion) in capital to help address the turmoil, the European Banking Authority said last week.

Fitch downgraded Barclays and Zurich-based Credit Suisse to A from AA-, while lowering France’s BNP Paribas (BNP) and Deutsche Bank to A+ from AA-. Fitch corrected an earlier version of its statement to announce that Frankfurt-based Deutsche Bank was cut one level instead of two. Morgan Stanley’s long-term issuer default rating was affirmed at A.

The downgrades may increase pressure on firms facing stagnant revenue growth. Bank of America said last month that a one-level downgrade by all rating companies could amount to $5.1 billion in collateral demands as of Sept. 30.

The full scope of damage from a credit-rating downgrade is “inherently uncertain” because it depends upon the behavior of counterparties and customers, the Charlotte, North Carolina- based firm said.

‘Strong Liquidity’

“This decision is driven more by concerns about the global economy than the specific credit quality of Bank of America,” Jerry Dubrowski, a spokesman for the lender, said in an e-mailed statement. “We continue to maintain strong liquidity levels and to build capital.”

A one-level rating reduction for Citigroup’s deposit-taking unit could trigger an estimated $4 billion of collateral payments and other cash obligations, the company said in a regulatory filing.

Citigroup has made “enormous progress refocusing our business strategy to take advantage of our global network” Jon Diat, a spokesman for the New York-based bank, said in an e- mailed statement. “With a strong capital base, robust structural liquidity and ample reserves, Citi is well-positioned for the future.”

Representatives for Goldman Sachs, BNP, Deutsche Bank, Credit Suisse and Barclays declined to comment. Mark Lake, a spokesman for New York-based Morgan Stanley, said the firm was “gratified” that Fitch affirmed its ratings.

To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

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





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IMF’s Lagarde: Europe Crisis ‘Escalating’

By Nicole Gaouette - Dec 16, 2011 12:39 AM GMT+0700

The European debt crisis is growing to the point that it won’t be solved by one group of countries, Christine Lagarde, the managing director of the International Monetary Fund said today.

Lagarde said that if countries don’t work together, the world will face a situation similar to the 1930s, before the world slid into World War II.

“There is no economy in the world, whether low-income countries, emerging markets, middle-income countries or super- advanced economies that will be immune to the crisis that we see not only unfolding, but escalating at a point where everybody would actually have to focus on what it can do,” Lagarde said.

If the international community doesn’t work together, “the risk from an economic point of view is that of retraction, rising protectionism, isolation,” Lagarde said. “This is exactly the description of what happened in the ‘30s and what followed is not something we are looking forward to.”

Lagarde said the world economic outlook “is quite gloomy” with pervasive downside risk, downward revisions, slower growth than expected, higher deficits than predicted and public finances in shaky condition. “And that is pretty much true the world over,” Lagarde said.

The one exception, she said, is emerging markets and the Asian economies most badly hit during the 1990s economic crisis. They, too, will have to help manage the current crisis if the world is to weather the risk, she said. Leadership has to rest with Europe, she said.

Crisis Core

“It’s going to have to start from the core of the crisis at the moment, which is obviously the European countries and in particular the countries of the eurozone, which are sharing this monetary union,” Lagarde said.

She described the eurozone, the countries that use the euro, as a “monetary union which has not been properly been completed by an economic and fiscal union, which is currently in the works.”

As Europe’s leaders work to resolve their “monumental” challenges, the impatience of financial markets is a problem, she said.

“It would be lovely from a market perspective if it was not just ‘currently’ but immediately, a signed, sealed, delivered done-deal overnight,” Lagarde said. “Unfortunately, those of you who have the privilege of belonging to democracies know things do not happen in that way, things take time.”

‘Fiscal Solidarity’

Lagarde said international support would probably be channeled through the IMF for “organizing a collective financial responsibility, a fiscal solidarity and that element of risk-sharing that is expected, pretty much, around the globe.”

Lagarde spoke at the State Department, where Secretary of State Hillary Clinton had invited her to address an event to promote greater involvement of women in public policy.

The leadership skills that are needed to face this crisis are ones that management consultants such as McKinsey & Co Inc. have found women possess in abundance, Lagarde said.

“Because it’s a question of courage or actually facing the issues, not being in denial, accepting the truth, accepting the reality and then dealing with it,” Lagarde said. “And frankly, from my previous life either in the private sector, or as minister of finance, or in my current position, it’s a set of skills that women excel at.”

To contact the reporter on this story: Nicole Gaouette in Washington at ngaouette@bloomberg.net

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




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Corzine: MF Staff Said Fund Transfer Legal

By Silla Brush and Clea Benson - Dec 16, 2011 2:29 AM GMT+0700

Jon S. Corzine, former chairman and chief executive officer of MF Global Holdings Ltd., told lawmakers today that the firm’s back-office staff “explicitly” informed him that fund transfers made before the company filed for bankruptcy were legal.

Corzine, testifying today before U.S. lawmakers for the third time in a week, was responding to allegations made at a U.S. Senate hearing earlier this week when the executive chairman of Chicago-based CME Group Inc. (CME) told lawmakers Corzine had known of a $175 million loan using client money that was made before the Oct. 31 bankruptcy.

Corzine used today’s hearing of an oversight panel of the House Financial Services Committee to rebut the suggestion that he may have authorized improper use of customer money.

Lawmakers and U.S. authorities are investigating what happened to as much as $1.2 billion in customer funds that is missing from MF Global accounts.

“I did not instruct anyone to lend customer funds to anyone,” Corzine said.

Corzine suggested Terrence Duffy, CME Group executive chairman, may have been referring to some funds transfers that occurred as MF Global was selling billions of dollars in securities. JPMorgan Chase & Co. (JPM), which was involved in the transactions, told MF Global the sale could not be completed until overdrafts in some accounts in London were corrected.

“I contacted the firm’s back office in Chicago and asked them to resolve the issues, which I understood they did,” Corzine said. He didn’t say explicitly whether he was aware at the time that the loan may have included funds from customer accounts.

Operations Staff

Corzine’s testimony today marked the second time that he appeared to be suggesting that MF Global’s Chicago-based operations staff might be the appropriate target for scrutiny over what happened to the missing money.

“The back office in Chicago explicitly confirmed to me that the funds were appropriately transferred,” Corzine said.

On Tuesday, Corzine named Christine Serwinski, the company’s chief financial officer for North America, as someone in charge of the responsible department, though he said she had been on vacation during the final days of MF Global. Serwinski did not respond to a message left at her home telephone number.

Texas Republican Randy Neugebauer, chairman of the oversight subcommittee, said he was uncomfortable with the amount of power Corzine held at MF Global before he stepped down.

“What we saw was one person had an extreme amount of authority, Mr. Corzine, as the chair of the board and the CEO of the company,” Neugebauer said in his opening statement. “And, according to people we have interviewed, one of the principal traders of this company. There was no real barrier or firewall for protecting the investors of the company.”

Second-Hand Account

Duffy, who is also scheduled to testify today, said Tuesday his information was based on a second-hand account of a conversation between CME and MF Global employees. He didn’t say whether Corzine learned of the loans in advance of the funds being moved. He also didn’t say whether the loans were a legitimate use of customer funds.

Corzine has repeatedly testified that he cannot explain why the money is missing, and that he had been surprised to learn of the shortfall on the night of Oct. 30.

Officials from regulators including the Federal Reserve Bank of New York, the Commodity Futures Trading Commission, and the Securities are also expected to appear at today’s hearing.

Illegitimate Transfers

Investigators are attempting to determine which transactions involving customer funds were illegitimate, Jill E. Sommers, the senior CFTC commissioner overseeing the investigation said in a telephone interview yesterday.

“We’re far enough along the trail to see the transactions going out” of segregated accounts, Sommers said. Investigators are searching e-mails and other documents to trace the transactions. “Following a trail is not as easy as it sounds because money isn’t just transferred from point A to point B and stopping,” she said.

Sommers said she expects regulators will eventually be able to determine where all the money went. There may still be a shortfall because some money may not be available to be clawed back for customers, she said.

Corzine and MF Global didn’t receive preferential treatment in a bid to become a primary dealer of government securities, Thomas C. Baxter Jr., general counsel of the New York Federal Reserve, said in testimony prepared for today’s hearing.

Corzine met with officials at the New York Fed on June 1, 2010, and discussed the broker’s efforts to improve its credit structure by raising $150 million in equity, Baxter said.

Primary Dealer

MF Global, starting before Corzine became CEO, sought to expedite a New York Fed review in order to become a primary dealer. The firm was under orders from the Commodity Futures Trading Commission to overhaul its internal controls. The Fed’s policy was to impose a one-year waiting period after such an enforcement action. MF Global argued the matter wasn’t material to its application, Baxter said.

The New York Fed disagreed and reviewed MF Global’s application “without fear or favor,” Baxter said in the testimony. MF Global was approved as a primary dealer on Feb. 2, 2011. That status was revoked by the Fed on Oct. 31, the same day the firm filed for bankruptcy.

Primary dealers participate in auctions of U.S. government debt and provide the New York Fed’s trading desk with information and analysis about the market as the central bank implements interest rate policies.

To contact the reporters on this story: Silla Brush in Washington at sbrush@bloomberg.net; Clea Benson in Washington at cbenson20@bloomberg.net.

To contact the editor responsible for this story: Lawrence Roberts at lroberts13@bloomberg.net




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Thursday, December 15, 2011

Victoria’s Secret Revealed in Child Picking Burkina Faso Cotton

By Cam Simpson - Dec 15, 2011 12:00 PM GMT+0700
Bloomberg Markets Magazine

Enlarge image Victoria’s Other Secret Masks Children

Clarisse Kambire, 13, a child laborer, begins her daily task of picking the crop from her farmer's field of fair trade organic cotton near Benvar, Burkina Faso, on Nov. 10, 2011. Photographer: Chris Ratcliffe/Bloomberg

Dec. 15 (Bloomberg) -- Clarisse Kambire, a 13-year-old foster child, produces cotton on an organic and "fair-trade" farm in Burkina Faso that is used to make undergarments for Victoria's Secret. Bloomberg's Cam Simpson reports. (Source: Bloomberg)

Clarisse Kambire, 13, a child laborer, left, and a fellow child laborer carry wicker baskets full of hand-picked fair-trade organic cotton back to the farmer's store house after a day's labor in fields near Benvar, Burkina Faso. Photographer: Chris Ratcliffe/Bloomberg

Clarisse Kambire, 13, a child laborer, sits on a bench in the room where she sleeps in the home of her foster parent and his family. Photographer: Chris Ratcliffe/Bloomberg

Clarisse Kambire, right, works with other child laborers to harvest organic cotton grown in the fields of her farmer foster parent. Photographer: Chris Ratcliffe/Bloomberg

Precious bolls of Burkinabe cotton fibers are carefully drawn from a plant by children's hands destined for the fair-trade market. Photographer: Chris Ratcliffe/Bloomberg

Using the labor of foster children like Ponhitierre Some, 12, allows Burkinabe farmers to profit from fair-trade cotton. Photographer: Chris Ratcliffe/Bloomberg

After two days of picking cotton, child laborer Clarisse Kambire carries a large wicker bushel of fiber from the field to a storehouse almost a mile away. Photographer: Chris Ratcliffe/Bloomberg

Clarisse carries her bushel to the home of a family where the farmer she works for stores his cotton because it’s closer to the pickup point for the organic and fair-trade program. Photographer: Chris Ratcliffe/Bloomberg

A telltale green flag, given to its growers by local cooperatives, flies at the edge of the field where Clarisse works. Photographer: Chris Ratcliffe/Bloomberg

Organic cotton from Burkina Faso is blended into most of Victoria's Secret's cotton underwear lines. Photographer: Chris Ratcliffe/Bloomberg

A bicycle belonging to cotton farmer Victorien Kamboule stands on the mud floor where his foster child, Clarisse Kambire, is made to sleep. Photographer: Chris Ratcliffe/Bloomberg

Victoria’s Secret, whose supermodel “Angels” helped it set record sales and profits in the third quarter of 2011, agreed in 2007 to a deal to buy fair- trade and organic cotton from Burkina Faso. Photographer: Scott Eells/Bloomberg


Clarisse Kambire’s nightmare rarely changes. It’s daytime. In a field of cotton plants that burst with purple and white flowers, a man in rags towers over her, a stick raised above his head. Then a voice booms, jerking Clarisse from her slumber and making her heart leap. “Get up!”

The man ordering her awake is the same one who haunts the 13-year-old girl’s sleep: Victorien Kamboule, the farmer she labors for in a West African cotton field. Before sunrise on a November morning she rises from the faded plastic mat that serves as her mattress, barely thicker than the cover of a glossy magazine, opens the metal door of her mud hut and sets her almond-shaped eyes on the first day of this season’s harvest. (Follow her journey in videos, photos and more here.)

She had been dreading it. “I’m starting to think about how he will shout at me and beat me again,” she said two days earlier. Preparing the field was even worse. Clarisse helped dig more than 500 rows with only her muscles and a hoe, substituting for the ox and the plow the farmer can’t afford. If she’s slow, Kamboule whips her with a tree branch.

This harvest is Clarisse’s second. Cotton from her first went from her hands onto the trucks of a Burkina Faso program that deals in cotton certified as fair trade. The fiber from that harvest then went to factories in India and Sri Lanka, where it was fashioned into Victoria’s Secret underwear -- like the pair of zebra-print, hip-hugger panties sold for $8.50 at the lingerie retailer’s Water Tower Place store on Chicago’s Magnificent Mile.

Clarisse’s Cotton

“Made with 20 percent organic fibers from Burkina Faso,” reads a stamp on that garment, purchased in October.

Forced labor and child labor aren’t new to African farms. Clarisse’s cotton, the product of both, is supposed to be different. It’s certified as organic and fair trade, and so should be free of such practices.

Planted when Clarisse was 12, all of Burkina Faso’s organic crop from last season was bought by Victoria’s Secret (LTD), according to Georges Guebre, leader of the country’s organic and fair- trade program, and Tobias Meier, head of fair trade for Helvetas Swiss Intercooperation, a Zurich-based development organization that set up the program and has helped market the cotton to global buyers. Meier says Victoria’s Secret also was expected to get most of this season’s organic harvest, Bloomberg Markets magazine reports in its February issue.

Telltale Green Flag

The leader of the local fair-trade cooperative in Clarisse’s village confirmed that her farmer is one of the program’s producers. A telltale green flag, given to its growers, flies at the edge of the field she works.

As Victoria’s Secret’s partner, Guebre’s organization, the National Federation of Burkina Cotton Producers, is responsible for running all aspects of the organic and fair-trade program across Burkina Faso. Known by its French initials, the UNPCB in 2008 co-sponsored a study suggesting hundreds, if not thousands, of children like Clarisse could be vulnerable to exploitation on organic and fair-trade farms. The study was commissioned by the growers and Helvetas. Victoria’s Secret says it never saw the report.

Clarisse’s labor exposes flaws in the system for certifying fair-trade commodities and finished goods in a global market that grew 27 percent in just one year to more than $5.8 billion in 2010. That market is built on the notion that purchases by companies and consumers aren’t supposed to make them accomplices to exploitation, especially of children.

Perverting Fair Trade

In Burkina Faso, where child labor is endemic to the production of its chief crop export, paying lucrative premiums for organic and fair-trade cotton has -- perversely -- created fresh incentives for exploitation. The program has attracted subsistence farmers who say they don’t have the resources to grow fair-trade cotton without violating a central principle of the movement: forcing other people’s children into their fields.

An executive for Victoria’s Secret’s parent company says the amount of cotton it buys from Burkina Faso is minimal, but it takes the child-labor allegations seriously.

“They describe behavior contrary to our company’s values and the code of labor and sourcing standards we require all of our suppliers to meet,” Tammy Roberts Myers, vice president of external communications for Limited Brands Inc., said in a statement. Victoria’s Secret is the largest unit of the Columbus, Ohio-based company.

“Our standards specifically prohibit child labor,” she said. “We are vigorously engaging with stakeholders to fully investigate this matter.”

In The Fields

To understand the plight of Clarisse and others like her, Bloomberg News spent more than six weeks reporting in Burkina Faso, including interviewing Clarisse, her family, neighbors and leaders in her village. Her experiences were similar to those of six other children extensively interviewed by Bloomberg, such as an emaciated 12-year-old boy working in a nearby field.

Interviews around the country with fair-trade growers, officers of fair-trade cooperatives and child-welfare officials reveal that there is little training and few if any safeguards against using children, even after dangers were uncovered by the 2008 report.

Victoria’s Secret, whose supermodel “Angels” helped it set record sales and profit in the third quarter of 2011, agreed in 2007 to a deal to buy fair-trade and organic cotton from Burkina Faso. The aim was to purchase sustainable raw materials and benefit female African farmers.

In time for Valentine’s Day 2009, the retailer marketed a special lingerie line made from “pesticide-free, 100 percent rain-fed cotton” and sold with the claim that each purchase improved lives in the country.

‘Good for Children’

“Good for women,” read a booklet accompanying a white thong covered with blue and lavender daisies. “Good for the children who depend on them.”

The thong was labeled 95 percent organic. Today, such Burkinabe fiber is blended into lingerie at a much-reduced level, allowing the company to spread it across most of its cotton underwear lines, Lori Greeley, chief executive officer of Victoria’s Secret Stores, told a Wharton School publication in March.

Growers sell the fiber to the company with fair-trade certification, though the finished garments no longer carry the “good for children” marketing message, nor do they have a fair-trade stamp. Victoria’s Secret has more than 1,000 stores in North America, and sells through its famously risque catalogs and around the world via the Internet.

Mango-Tree Serenade

An executive with Limited Brands’ sourcing and production arm, Margaret Wright, visited Burkina Faso in April. Women who produce organic cotton serenaded her under mango trees in the city of Tiefora, according to a press release from the national growers group. In Tiefora, about a 130-mile (210-kilometer) drive from Clarisse’s village of Benvar, Wright told them that the well-being of women was the main reason the company was interested in organic cotton, the release said.

The company’s desire for fair-trade cotton testifies to the success of a labeling movement that began in the 1980s with small-scale Mexican coffee farmers and now boasts the involvement of consumer-goods giants such as Wal-Mart Stores Inc. (WMT) and Starbucks Corp. (SBX) The movement has boosted the profits of farmers in impoverished parts of the world.

Fairtrade International, the world’s largest group of its kind, certified that Burkina Faso’s organic crop met its standards, says Tuulia Syvaenen, chief operating officer of the Bonn-based organization.

Myers, of Limited Brands, says the company relied on that certification to meet its goal of “improving the lives of some of the world’s poorest women and children through the responsible sourcing of cotton -- something we have been doing through our efforts with Burkinabe women cotton farmers.”

Program Under Review

Fairtrade International started a review in Burkina Faso after Bloomberg News raised questions, says Syvaenen, adding it would begin a training program for farmers. She also says the UNPCB never gave Fairtrade a copy of the 2008 study it co- sponsored on child labor, which identified concerns about the vulnerability of so-called enfants confies, a French term used in West Africa for a type of foster child -- kids such as Clarisse.

Bloomberg News obtained a copy of the study, which has never been made public, and spoke to a field investigator involved, as well as farmers who were originally interviewed for the report.

With the exception of gold, cotton is produced with child or forced labor in more countries than any other commodity in the global supply chain, according to the U.S. Labor Department. One of those countries is Burkina Faso. In its reports, the department has repeatedly cited the country for the worst forms of child labor, while the State Department has done the same regarding child trafficking to conventional cotton fields there. None of those reports has ever specifically examined Burkina Faso’s organic and fair-trade crop.

Lost Childhood

Clarisse’s life and her experience in Victorien Kamboule’s field capture a childhood lost at the bottom of an American company’s purportedly ethical supply chain.

As a little girl, Clarisse viewed the world around her with wide eyes, giving her a look of constant amazement, her mother says. Her expression earned her a nickname, Pree-Pree. In her family’s native tongue, Dagara, it roughly translates into “bug-eyed.” Though a term of endearment, it wasn’t terribly flattering. The girl, born in 1998 to migrant-worker parents in neighboring Ivory Coast, hated it. Still, Pree-Pree stuck.

Pree-Pree’s Journey

After her parents split up when she was about 4, Pree-Pree was shuttled between her father’s relatives on either side of the border until the age of 9. That’s when an aunt took her to the village of Benvar in Burkina Faso and left her in the sod- covered, mud-walled home of the farmer, Kamboule, where she lives today. Though they’re separated in age by a generation, Clarisse and Kamboule, 30, are cousins. Clarisse also is his enfant confie.

In the room where Clarisse sleeps, a narrow wooden bench lines one wall. A few clothes washed by hand dry on a line strung along another. She has no dolls, no photos, not even a toothbrush. “Nothing,” she says. Kamboule, his wife, and their own children -- a 3-year-old girl and a 1-year-old boy -- sleep together under a mosquito net on a bed in the adjoining room. The air inside the room where Clarisse sleeps is stale, heavy with the smell of perspiration.

Except for the metal door, a small triangle is the only opening in the mud walls that surround her. It’s stuffed with a yellow rag, but when Kamboule wakes Clarisse for work she knows it’s still dark outside: Her mornings begin before dawn when the season demands it. After the farmer shouts her awake, “he tells me to go to the farm,” she says.

Slinging a Hoe

Clarisse steps outside after Kamboule has already pedaled his bicycle to the organic cotton plot. Slinging a hoe with a freshly sharpened blade over her shoulder, she makes her way alone along a ribbon of dirt, explaining how in the planting season in May and June she walks through a blanket of humidity and heat, when temperatures reach well above 100 degrees Fahrenheit (38 Celsius).

The sun begins to rise as Clarisse approaches the empty field. She takes the hoe from her shoulder and clasps the handle, placing her right hand above her left along a patch of wood faded by wear. The grueling routine is so well-practiced that she demonstrates it with ease. Her hands are thick and strong, her thumbnails blackened. Her only possession, a gift from her grandmother, encircles her left wrist -- a bracelet of eight strings of orange and blue beads, as small as apple seeds, and a single strand of white ones.

‘It’s Painful’

Bending at the waist, Clarisse buries the edge of the blade and starts scraping a deep row into the earth, taking small steps backward with each cut. “It’s very, very hard,” she says, “and he forces me to do it.” Before long, her arms and hips ache. “It’s painful,” she says. When she strikes rocks beneath the soil, it sends the blade cutting into her bare toes.

If she slows down from exhaustion, “he comes to beat me,” she says. He whips her across the back with the tree branch and shouts at her. “I cry,” she says, looking down as she speaks and rubbing the calluses on her hands.

The two of them dig for weeks to carve a plot stretching the length of about four American football fields.

Even in poor countries, this job is often performed by a beast tethered to a plow. But Burkina Faso ranked 181st out of 187 countries in the 2011 United Nations Human Development Index, and the farmers who force Clarisse and the other children to work don’t own animals. Even if they did, they say they don’t have access to a plow, which costs the equivalent of about $150 in Burkina Faso, where about 80 percent of the population lives on less than $2 a day. The farmers contend that they wouldn’t need child laborers if they had the right tools.

Going Hungry

Each afternoon, Clarisse walks back to the hut, exhausted. Some days, she says, the farmer’s wife brings her a starchy white paste, made from corn or millet. Her head bowed, Clarisse makes the sign of the cross with her right hand before raising her chin and sinking her fingers into the gelatinous paste. If she’s lucky, she’s fed once per day, she says. Some days, she doesn’t eat at all.

Kamboule says he couldn’t raise fair-trade cotton without Clarisse. “If I leave the child out, how will I be able to do the work?” Kamboule says. He acknowledges striking her. “I sometimes beat her,” he says. “This is when I give her work and she doesn’t deliver.”

Like Clarisse, his own parents left him with relatives to labor rather than attend school. Strong and lean, the illiterate farmer seems to toil endlessly, wearing the same pair of tattered shorts each day.

Thousands of Farmers

On small-plot farms like Kamboule’s across Burkina Faso, researchers sponsored by the growers federation in 2008 found that more than half of 89 producers surveyed had a total of 90 foster children under the age of 18. Many had two or more. The problem was acute in the country’s southwest, which is the heart of the program’s production and Clarisse’s home. There were about 7,000 fair-trade farmers in the program that year, according to data from Helvetas.

The study found that two-thirds of foster children in homes like Kamboule’s weren’t in school when they were required to be. Fair-trade farmers told researchers they didn’t pay the kids, leading the study’s authors to write, “This category of children is a problem on several levels: in terms of their social vulnerability on the one hand, and in terms of their status at work on the other. These foster children have an employee status: they are clearly asked to work, as expressed in the words of the producers, but they receive no remuneration, regardless of age.”

Wanting to Learn

Some foster children also were abused or malnourished. Even though they’re legally required to be in school, fewer than one in three was enrolled in the southwest, in contrast to the farmers’ own children.

“The study showed that the situation of the children is not a catastrophe, but they are quite weak,” says Meier, of Helvetas, adding that his group is “in favor” of implementing its recommendations. “But we cannot act ourself in this respect.”

The bulk of the research focused on the work performed by the growers’ own kids, arguing that even when they were illegally kept out of school their labor was a beneficial form of vocational education.

Clarisse was determined to attend school. Shortly after her aunt brought her to Burkina Faso, she set off without permission one winter morning for Benvar’s primary school, more than a mile down a red dirt road. She planted herself inside one of the three classrooms that make up the squat, concrete building, where she was one of 70 new pupils squeezed onto benches in a school with more than 300 students. One classroom had blackboards at either end, with half the students listening to one teacher, and the other half facing the opposite direction listening to another.

‘Clever and Polite’

Amid the crush of children, teachers noticed her. “She was unusual -- clever and polite,” recalls Moussa Kiemtore, 34, the school’s headmaster, who sports a clean-shaven head and a small tuft of hair on his chin. Clarisse stood out because she understood and even spoke some French she had learned in Ivory Coast. Though it’s the official language in Burkina Faso -- and the language of instruction in its schools -- very few children in and around Benvar know French, especially the youngest, Kiemtore says.

Clarisse was overjoyed. “They showed me many new things,” she says.

She wouldn’t stay in school for long. Her seat was empty before she completed a single term. The schoolmaster was alarmed when he heard the French-speaking girl was no longer in class. He visited Kamboule and tried to persuade him to bring her back.

School ‘Useless’

“He claimed she left on her own,” the schoolmaster recalls, “but we realized later he had compelled her to leave.” Or as Clarisse puts it, Kamboule “told me going to school was useless.”

She wasn’t useless to Kamboule. Like other farmers from across Burkina Faso, he says the cash that neighboring growers fetched for organic and fair-trade cotton persuaded him to plant the fiber. Previously, he had grown millet, mostly to feed his family. For the cotton planted in 2010, organic farmers could net up to 70 percent more per hectare than neighbors using genetically modified seeds, according to data from Helvetas.

Kamboule and some growers say nobody from the program gave them rules or training about child labor on their farms. Face- to-face instruction would be a necessity in a nation where 71 percent of the population can’t read.

‘Nothing About Children’

“No, they said nothing about children,” recalled Louis Joseph Kambire, 69, a wiry fair-trade farmer who sits on the audit committee of the Benvar cooperative. Without kids of his own, Kambire forces the foster children in his care to work in an organic and fair-trade cotton field that he’s cultivated right next to Clarisse’s.

The children -- 10-year-old Edmond Dieudone and 12-year-old Ponhitierre Some -- make it possible for him to earn a living from fair-trade cotton, says Kambire, wearing a white crucifix on a black cord around his neck and a white fedora with a black band on his head. “That’s why they are working with me,” he says. Before the fair-trade program, he hadn’t made them labor in his subsistence fields.

Sometimes, Clarisse spies Edmond and Ponhitierre in the distance, though they keep silent. “We can’t speak when the farmers are there,” she says.

Little Training

There was little or no effort to increase training after the 2008 report, according to Bloomberg interviews with farmers in five of the six villages where the survey was conducted. Dramane Diabre, a farmer with 13 children in the eastern region of the country, says he received training on avoiding illegal child labor in 2010. By contrast, every farmer in the southwest said there was never any resulting action.

Growers across the country say they got regular technical training on how to maintain organic purity following concerns about contamination with the 2008 introduction of genetically modified crops in the country’s conventional cotton sector. The fiber can be scientifically tested for organic purity, not for whether children grow it.

Guebre, the head of organic and fair trade for the growers group, says technical sessions included information on child labor. “If someone doesn’t want it, we can’t force him,” says Guebre, whose group keeps a share of the price paid by Victoria’s Secret. “If he says he didn’t participate or didn’t hear, that’s something else.”

In response to questions, the growers federation denied that child labor is used in its program. Guebre also says its myriad requirements, including avoiding such labor, are read out to farmers when they initially sign on.

Hauling Manure Compost

Like others, Baasolokoun “Bassole” Dabire, 53, president of the organic and fair-trade cooperative in the village of Yabogane, didn’t get the message. He said his understanding was that it’s acceptable for his roughly 60 farmers to use children in their fields on two conditions: They’re not their own biological children, and they’re at least six years old.

“Your own children, no, but somebody else’s child can work,” he says in an interview near his farm in the southwest.

The cotton Clarisse grows comes with two certifications -- one for fair trade and one for organic. Buyers pay the program a premium for each. In the field, the organic designation means she avoids pesticides or mineral fertilizers that can plague children forced to labor in conventional cotton.

Yet the lack of chemicals carries its own cost. Two or three times between digging rows and harvesting each season, Clarisse must spend days hauling buckets of manure compost on her head about half a mile to her field from a pit she helps maintain. Bending at her waist, she uses both hands to spread a circle of compost around each of the thousands of plants. Her lower back aches.

‘Very Painful’

“It’s very painful,” Clarisse says, “because I have to keep doing it until he tells me I can stop.”

Without herbicides and pesticides, Clarisse must defend the crop against weeds and other invaders -- by hand. One of the cotton farmer’s greatest enemies is the boll worm, which can quickly destroy an entire crop if left unchecked.

Clarisse says she walks the rows, delicately reaching into a plant when she spots a worm. Without disturbing their fragile bolls, she extracts each worm with a firm pinch. They can grow as large as her index finger. She throws them onto the ground, flips over her hoe and uses its flat side to crush each one against the gravelly earth.

First Harvest

By the time Clarisse started picking her first harvest in 2010, Victoria’s Secret was becoming the program’s only buyer instead of just the most prominent, according to Guebre of the growers group and Meier, whose Swiss group advises it. That’s because the country’s overall organic yield was shrinking ever- closer to the 600 metric tons per year guaranteed to the lingerie company.

At about 5:40 a.m. on the first day of Clarisse’s harvest this November, the horizon behind her hut starts to glow red, almost purple, while she stirs inside. Just before sunrise, she pushes open the metal door. She places a bucket inside a wicker bushel and tightly folds a faded propylene sack until it’s the size of a pocket book, flicking it into the bucket with a snap of her wrist. Without breaking stride, Clarisse raises the bushel with both hands, walks beneath it and balances it on her head.

She heads down a path beside a corn field leveled by the harvest, a pair of flip-flops with pink straps popping beneath her feet, her hands resting easily at her sides. All around Clarisse, the earth is like a wasteland. It’s black and charred from clearing fires set by farmers, filling the air with the smell of burning grass, sweet and strong.

Row Upon Row

She crosses the main village road, the one that leads to Benvar’s school, and steps onto a slender trail winding through dry, golden stalks of grain that rise above her head. After about 50 paces, she emerges to see the work that awaits her: row upon row of bolls bursting with cotton. The farmer is already here, working where the plants are most in danger of being trampled by passersby. At the opposite end stands a tree branch topped by the green flag.

By 7:15 a.m., the sliver of shade in the bottom corner of her field disappears, as the West African sun rises with the temperature. On the road above the field, a boy walking to school says he and his friends notice the children working almost every day. “We see them to be suffering,” says Seuka Somda, who, like Clarisse, is 13.

Giant Shea Tree

The harvesting pauses at about noon, after six hours of picking. Clarisse heads to the village square to cool herself in the shade of a giant shea tree that grows in its center. Before long, a woman calls her name. She jumps to her feet and scurries over. Three men traveling through the village have stopped to cool themselves and drink some of the local brew, called “pito.” As Clarisse refills their bowls, one man tells her: “If you give me a refill, it means you have agreed to sleep with me.” She pours his pito, turns and walks away.

Around 4 p.m., Clarisse returns to the field. A large wicker bushel bulges with cotton. She bends over and compacts it as tightly as she can. Cotton towers above the bushel’s rim. Clarisse wobbles as she sets it atop a blue, yellow and red scarf wrapped on the crown of her head.

She makes her way along the road under the weight of the harvest, weak from eating nothing for two days except some roasted groundnuts given to her by another child laborer. Two men on bicycles pedal toward her, both carrying bulging bags balanced on their frames. “Have you gone to grind some flour?” she calls out. “Can you kindly give me some so I can make something to eat?” The men say nothing, continuing down the red dirt road toward the village square.

Storing the Cotton

Clarisse carries her bushel to a neighbor’s home where Kamboule stores his cotton because it’s closer to the pickup point for the organic and fair-trade program. The house, in relative luxury with its poured concrete foundation, sits just down the road from the school she used to attend.

Back at Kamboule’s hut, under the light of a full moon, Clarisse says she’ll use some of the water she’s drawn from the well to wash herself, then she’ll go to the homes of neighbors and friends in the village. If they’re eating, she’ll wait politely and hope they offer her some food. For an enfant confie, this is everyday life, Clarisse says: “If your mother is not with you, you become like an orphan.”

Far away, in midtown Manhattan, Irina Richardson says she’s shopped at Victoria’s Secret for bras and underwear for 15 years and was pleased to think she was doing good. Told of Clarisse’s role in providing cotton for lingerie, the 51-year-old property manager from Long Island says she was stunned. “Buying something made under those conditions shows no respect for other human beings,” she says.

No More French

Clarisse, who once stared at the world in wonder, now has difficulty looking others in the face. She no longer speaks French, because, she says, there is no one left in her life who would understand her.

Exhausted at the end of each day, she can’t fall asleep easily after she lies down on her faded plastic mat. “I feel uneasy,” she says. “Sometimes, I’m very angry.” It’s hard to close her eyes, she says, when she knows waking up means “I will suffer again.” She tries to think of a better life: She imagines owning and tending a few sheep and some goats. Women can earn money raising small animals, and it’s easier than working the fields. This is her new dream now that she knows, as she says, that “I have no chance to go back to school.”

Once she does fall asleep, the nightmares return.

To contact the reporter on this story: Cam Simpson in London at csimpson13@bloomberg.net

To contact the editors responsible for this story: Flynn McRoberts at fmcroberts1@bloomberg.net; Melissa Pozsgay at mpozsgay@bloomberg.net


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