S&P 500 Rallying Most Since 1987

By Inyoung Hwang and Whitney Kisling - Jan 19, 2012 10:15 PM GMT+0700

U.S. stocks are off to the best start in 25 years as investors speculate Federal Reserve Chairman Ben S. Bernanke has done enough to insulate the economy from Europe’s debt crisis.

The S&P 500 has gained 4 percent, the most since it rose 10 percent over the first 11 days in 1987, according to data compiled by Bloomberg. Stocks are overcoming earnings that trailed estimates by the widest margin in three years as improvements in hiring, manufacturing and car sales extend the biggest fourth-quarter advance since 2003.

Bernanke has left the target rate on overnight loans between banks unchanged since the end of 2008, the longest stretch since at least 1971, data compiled by Bloomberg show. The policy may push more investors toward equities after yields on 10-year Treasuries finished 2011 within a quarter-point of a record low and the economy grew at an estimated 3.1 percent rate last quarter, said John Carey of Pioneer Investments.

“It’s probably a good idea not to fight someone so much bigger than you are,” Carey, a Boston-based money manager at Pioneer, said in a telephone interview on Jan. 18. The firm oversees about $220 billion. “The Fed will probably stay on its course,” he said. “I haven’t heard any indication that the Fed is considering boosting interest rates, so stocks will look attractive from an income point of view.”

Worst to First

Four companies whose declines were among the 10 biggest in the S&P 500 last year are among the 10 largest gainers in 2012. Netflix Inc., the Los Gatos, California-based movie service, climbed 42 percent, and First Solar Inc. in Tempe, Arizona, is up 27 percent. Charlotte, North Carolina-based Bank of America Corp., which lost 58 percent in 2011, gained 22 percent this year, while Sears Holdings Corp. in Hoffman Estates, Illinois, rose 24 percent after losing 56 percent.

The S&P 500 advanced seven of the first eight days this year, something that has occurred eight times since 1900, data compiled by JPMorgan Chase & Co. show. The mean return those years was 16 percent, the data show.

About $640 billion has been added to the value of American shares this year and the S&P 500 reached an almost six-month high yesterday, as economic reports outweighed concern that downgrades for European nations would worsen the debt crisis. France was stripped of its top rating by S&P and banks suspended talks with Greece over restructuring.

Economic Growth

“Europe is important but it’s not the end of the world if they see a recession,” James Dunigan, who helps oversee $107 billion as chief investment officer in Philadelphia for PNC Wealth Management, said in a Jan. 17 phone interview. “We’re starting to see that modest economic growth expectation for this year.”

The average forecast for U.S. gross domestic product growth this year has been rising since October. From a low of 2 percent, the median estimate in a survey of 72 economists has climbed to 2.3 percent, including a 0.2-point increase on Jan. 12 that represented the biggest one-day gain since projections for 2012 began, according to data compiled by Bloomberg.

Optimism about the economy is helping investors shrug off fourth-quarter earnings that have trailed estimates. Profit (SPX) fell short of analyst forecasts by an average of 4.3 percent among the eight S&P 500 companies that posted results in the first week of earnings season, the data show. Three other quarters with a worse first week of earnings season were in 2007 and 2008 as the economy was slipping into to the worst recession since the 1930s.

Five-Month High

The S&P 500 increased 1.1 percent to 1,308.04 yesterday, the highest level since July 26. It climbed 1.4 percent over four days last week, reaching a five-month high of 1,292.48 on Jan. 11 even after Microsoft Corp., the world’s biggest software maker, said personal computer sales were probably worse than forecast in the fourth quarter. The gauge advanced 0.2 percent to 1,310.13 at 10:14 a.m. New York time today.

“This year isn’t going to be about earnings,” James Paulsen, who helps oversee about $333 billion as chief investment strategist at Minneapolis-based Wells Capital Management, said in a Jan. 17 phone interview. “There’s a lot of value in the market that could come just from people calming down about this recession, depression calamity. It’ll be about expanding that multiple.”

Combined S&P 500 profit is forecast to reach $104.76 a share in 2012, the highest level ever, according to data compiled by Bloomberg. The benchmark index is trading at 12.5 times forecast earnings. That compares with 13.4 at the beginning of 2011. The S&P 500’s average ratio in 2011 was 14.1 based on reported earnings. The five-decade mean is 16.4.

Unprecedented Stimulus

Central banks around the world have taken unprecedented measures to prevent the European debt crisis from triggering a global recession. European Central Bank President Mario Draghi last month unveiled plans to offer banks 36-month, 1 percent loans through two so-called longer-term refinancing operations, known as LTROs.

That combined with investor speculation of a third round of stimulus by the Fed and bets China’s central bank will ease monetary policy has fueled stock prices, according to Doug Noland, the money manager for Pittsburgh-based Federated Investors Inc.’s Prudent Bear Fund, which oversees $1.3 billion. It won’t last, he said.

“Markets over the years have become programmed to focus a lot on monetary stimulus,” Noland said in a Jan. 17 phone interview. “It’s a very dangerous reason to be buying equities. We saw in 2011 how QE2 didn’t have much fire power. We’ve seen European policy making repeatedly disappoint the markets.”

Target Rate Unchanged

Fed policy makers have left their target rate unchanged since the end of 2008, data compiled by Bloomberg show. The S&P 500 more than doubled from its low in March 2009 after Bernanke signaled in August 2010 the central bank would embark on a second round of asset purchases, known as quantitative easing, to boost the economy.

The index declined as much as 19 percent from its 2011 high in April through October last year as the program ended and concerns European leaders would fail to tame the region’s debt crisis escalated. It has since rebounded 19 percent.

Gross domestic product in the euro region will shrink by 0.2 percent this year, the median estimate in a survey of 21 economists surveyed by Bloomberg. The diverging outlooks are reducing lockstep price moves. The so-called 30-day correlation coefficient between the euro and S&P 500 fell 27 percent to 0.66 after reaching a record 0.91 in November.

Correlation Weakens

Speculation about whether European leaders would succeed in containing the credit crisis sent equity, currency and commodity markets up and down in unison last year. The relationship between U.S. stocks and the euro weakened after American unemployment fell to 8.5 percent from 9 percent and business activity as measured by the Chicago Purchasing Managers Index expanded at the fastest pace in seven months.

“A lot of people dismissed the original data in the fall as being backward looking,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $550 billion. “But when you started seeing jobless claims going down, it looked more and more like the U.S. had shrugged off a lot of the European contagion.”

Rallying stocks have done little to entice investors. Mutual funds that invest in U.S. equities posted $753 million in inflows for the week ending Jan. 11 after $7.1 billion in outflows during the first week of the year, Investment Company Institute data show. Customers pulled about $63 billion for the final three months of 2011, the data show.

Election Years

The S&P 500 has gained an average 6.1 percent during presidential election years, compared with 4.4 percent in the years that follow, according to Bloomberg data going back to 1952. The index has posted a positive return for the last seven months of those years 87 percent of the time, data from the Stock Trader’s Almanac show.

“Committed bears have to pull in their claws a little,” according to Brian Barish, who helps oversee about $7 billion as Denver-based president of Cambiar Investors LLC. “On the more bullish side, corporate earnings continue to be very good and stocks in a lot of areas are quite undemanding in terms of their valuations,” Barish said in a Jan. 17 phone interview. “We could have a good year.”

To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net; Whitney Kisling in New York at wkisling@bloomberg.net

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

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Dimon, Blankfein Predict Markets to Rebound

By Dawn Kopecki and Christine Harper - Jan 19, 2012 10:33 PM GMT+0700
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JPMorgan Chase & Co. chief executive officer Jamie Dimon. Photographer: Scott Eells/Bloomberg

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Jan. 19 (Bloomberg) -- Paul Miller, managing director and banking analyst with FBR Capital Markets Corp., talks about Bank of America Corp.'s fourth-quarter profit reported today. The second-largest U.S. lender had net income of $1.99 billion, or 15 cents a diluted share, compared with a loss of $1.24 billion, or 16 cents, a year earlier when the bank booked a $2 billion writedown at its home-loan unit. Miller speaks with Erik Schatzker and Scarlet Fu on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon and Goldman Sachs Group Inc. (GS) CEO Lloyd C. Blankfein predict Wall Street will rebound from 2011’s trading- revenue plunge. Rivals and analysts aren’t so sure.

Fourth-quarter earnings reported by the six largest U.S. banks show the industry suffered a third straight quarterly drop in combined trading and investment-banking revenue. On conference calls this week, analysts are pressing executives with a similar refrain: Is it a temporary rut or a lasting shift to smaller volumes, profits and pay?

“This is a big debate,” said Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and an analyst at FBR Capital Markets in Arlington, Virginia. “A lot of bears are saying it is due to regulation and deleveraging, and some are saying it is cyclical. I think it’s some of both.”

Executives and analysts are focusing on whether stiffer regulations, capital rules and a weak economy may solidify a decline in revenue after the European debt crisis curbed trading volume and corporate dealmaking in last year’s second half. Credit Suisse Group AG (CSGN), UBS AG (UBSN) and Royal Bank of Scotland Group Plc (RBS), which are all shrinking their investment banks, have announced plans to eliminate about 8,300 jobs since the start of November.

‘Snap Back’

“We’d all hoped that the headwinds to our business, including low levels of client activity, low interest rates, market volatility and political uncertainty around the world would subside,” Credit Suisse CEO Brady Dougan told analysts Nov. 1. The bank said that day it would cut about 1,500 jobs, in addition to 2,000 previously announced, and reorganize its securities unit after reporting third-quarter profit that missed analysts’ estimates. “It’s now clear, however, that these secular trends may persist for an extended period,” he said.

Dimon and Blankfein have since sought to reassure investors that markets and earnings from securities units will rebound.

“The world will snap back, and it will be a surprise, and it will be faster than people think,” Blankfein, 57, said at a Nov. 15 investor conference. Yesterday, Chief Financial Officer David Viniar echoed the remarks after the firm said trading revenue fell 25 percent from the third quarter to $3.06 billion.

“We are clearly in a cyclical downturn,” rather than a secular decline, Viniar said. “There is less activity that is cyclical. That will come back. I have no idea when, but it will come back.”

Dimon, 55, said investment banking is a volatile business in which volumes can swing by 50 percent daily.

‘Boom Again’

“It’s not a mystical thing,” he told reporters on a Jan. 13 conference call. “You just have to manage the business carefully and understand it’s going to have those kinds of swings. I don’t think the lower numbers are permanent. I think when things come back, these numbers will boom again.”

Equity issuance across the world fell to $163 billion in the last half of 2011, down 53 percent from the first six months, according to data compiled by Bloomberg. Corporate bond issuance also skidded amid the European crisis and a weaker- than-expected U.S. economy.

Government efforts to prevent banks from trading with their own money also have an impact that may last, said Charles Bobrinskoy, the Chicago-based vice chairman and director of research at Ariel Investments, which has about $5 billion under management and owns shares of New York-based Goldman Sachs, JPMorgan, Citigroup (C) Inc. and Morgan Stanley.

“It’s a little of both -- it’s a little bit of secular, a little bit of cyclical,” he said.

Less Leverage

It doesn’t help that lawmakers and regulators are seeking to limit financial maneuvers that boosted or masked leverage in the past, such as off-balance-sheet conduits, variable-interest entities and collateralized debt obligations, said Richard Bove, an analyst at Rochdale Securities LLC in Lutz, Florida.

“There’s no more CLOs, CDOs, CDOs squared, CDOs cubed,” Bove said, referring to asset-linked securities and financial instruments at the heart of 2008’s U.S. financial crisis. “The leverage isn’t there and the market isn’t there. Banks can’t grow at the same rate.”

Citigroup reduced employees’ 2011 compensation to account for a temporary decline in trading volumes and investor appetite, CEO Vikram Pandit, 55, told analysts Jan. 17. The bank also restructured reserves and sold certain assets where it sees a permanent shift in the market, he said.

“There’s no magic answer,” Pandit said. “It’s very hard to parse out exactly what part of the activity we’re seeing is the cause of the cyclical situation versus how much is secular.”

BofA, Morgan Stanley (MS)

Citigroup, the third-biggest U.S. bank by assets, said Jan. 17 that net income dropped 11 percent as lower revenue from advising companies and trading securities led its investment bank to the first quarterly loss since 2008.

Goldman Sachs said fourth-quarter net income fell 58 percent, as revenue slid 30 percent. JPMorgan, the biggest U.S. bank, said last week that net income decreased 23 percent as investment bank earnings fell. San Francisco-based Wells Fargo & Co. (WFC), which relies least on trading among the six banks, said a focus on loans helped soften a 4 percent drop in revenue. Its profit rose 20 percent.

Bank of America Corp. (BAC) reported a second consecutive quarterly loss today in its global banking and markets division, which includes trading and underwriting operations. The entire company swung to a $1.99 billion profit from a year-earlier loss as mortgage charges eased. Morgan Stanley lost $250 million during the quarter, as trading volumes and mergers and acquisitions fell.

‘Difficult Question’

“It’s either a slow cyclical recovery or secular, and I don’t think it’s clear what it is,” Morgan Stanley Chief Financial Officer Ruth Porat said today in a telephone interview. “However you look at it, it’s a slower growth environment.” Morgan Stanley has reduced headcount to account for the slower-than-expected recovery, she said.

The grim outlook for trading was a recurring topic on Goldman Sachs’ analyst call.

“Your revenue weakness recently, are you saying none of that is due to secular factors?” Mike Mayo, an analyst at independent research firm CLSA in New York, asked Viniar during the bank’s conference call. “It’s all cyclical? There’s no structural change that’s hurting your revenues?”

The market doesn’t seem any worse than the fall of 2008 or when the bubble in technology stocks burst years earlier, Viniar said in response to analysts’ questions. Still, he would never be so bold as to rule out a lasting change, he said.

“We’ve all been doing this for a long time and we’ve seen downturns before,” he said. “Every time you’re in one it feels like it’s never going to end and this world is different now.”

“So is it cyclical? Is it secular?” Viniar said. “It’s a very difficult question to answer.”

To contact the reporters on this story: Dawn Kopecki in New York at dkopecki@bloomberg.net; Christine Harper in New York at charper@bloomberg.net

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

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Dollar Maintains Two-Day Decline on Signs of U.S. Recovery, Stock Gains

By Masaki Kondo and Monami Yui - Jan 19, 2012 9:14 AM GMT+0700

The dollar maintained a two-day decline against the euro amid signs the U.S. economy is gaining momentum and as Asian stocks extended a global rally, damping demand for haven currencies.

South Korea’s won strengthened against all of its major counterparts before data forecast to show fewer Americans filed applications for unemployment benefits. The Australian dollar slid for the first time in three days after government data showed employers unexpectedly reduced payrolls. Demand for the euro was limited ahead of a second day of talks between Greece and bondholders on a debt-swap plan.

“The U.S. recovery is the only reason that can justify the current risk-on markets,” said Junichi Ishikawa, an analyst in Tokyo at IG Markets Securities Ltd. “When stocks are higher, investors tend to sell currencies” such as the dollar.

The dollar was little changed at $1.2853 per euro as of 10:55 a.m. in Tokyo from yesterday in New York, when it slid 1 percent, the most since Nov. 11. The yen fetched 98.64 per euro from 98.83. The U.S. currency dipped 0.1 percent to 76.74 yen. The won strengthened 0.5 percent to 1,136.35 per dollar.

The MSCI Asia Pacific Index (MXAP) of shares advanced 1 percent. The Standard & Poor’s 500 Index climbed 1.1 percent in New York yesterday and closed at the highest level since July.

Jobless claims in the U.S. decreased to 384,000 in the week ended Jan. 14 from 399,000, according to the median of economist estimates in a Bloomberg News survey before the figures are released today. Factory output climbed 0.9 percent last month, the biggest increase since December 2010, Federal Reserve data showed yesterday.

Greek Talks

The Institute of International Finance, which represents private creditors to Greece, broke off negotiations last week after failing to agree with the government about how much money investors will lose by swapping their bonds. Greece could forge an agreement on a voluntary debt swap with creditors by the end of this week, one finance ministry official told reporters in Athens before the talks ended yesterday.

The yen has advanced 8.7 percent in the past six months, the best performance among the 10 currencies tracked by the Bloomberg Correlation-Weighted Indexes. The dollar has risen 6.7 percent, while the euro has fallen 3.7 percent.

France is scheduled to auction bonds today maturing in more than a year for the first time since S&P stripped the nation of its AAA credit rating on Jan. 13. The country will offer debt whose maturities range from 2014 to 2040.

“I’m very bearish about the euro, absolutely,” said Kurt Magnus, executive director of currency sales in Sydney at Nomura Holdings Inc., Japan’s biggest brokerage. “The situation in Europe is still very, very poor.”

The Australian dollar weakened against all of its 16 major counterparts after the statistics bureau said the number of people employed dropped by 29,300 in December. Economists had estimated an increase of 10,000.

“The knee-jerk reaction was to take the Aussie dollar lower,” said Mike Jones, a currency strategist at Bank of New Zealand in Wellington.

The currency lost 0.3 percent to $1.0406 and fell 0.4 percent to 79.89 yen.

To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net; Monami Yui in Tokyo at myui1@bloomberg.net.

To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net.

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Asian Stocks Rise on U.S. Builder Confidence, IMF Plan to Boost Resources

By Yoshiaki Nohara and Toshiro Hasegawa - Jan 19, 2012 9:40 AM GMT+0700
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A pedestrian walks past an electronic stock board outside a securities firm in Tokyo. Photographer: Kiyoshi Ota/Bloomberg

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Jan. 19 (Bloomberg) -- Amit Rajpal, manager of global financial funds for Marshall Wace LLP, talks about China banking stocks. He also discusses U.S. financial stocks and Europe's sovereign debt crisis. He speaks in Hong Kong with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Asian stocks rose for a third day after confidence among U.S. homebuilders beat estimates and the International Monetary Fund said it plans to expand its lending resources to counter Europe’s debt crisis.

Toyota Motor Corp. (7203), the world’s biggest carmaker by market value, advanced 1.8 percent in Tokyo. Sumco Corp. (3436) led gains in semiconductor-related companies after ASML Holding NV, Europe’s largest maker of semiconductor equipment, forecast higher first- quarter orders. Agile Property Holdings (3383) Ltd., a Chinese property developer, rose 2.2 percent in Hong Kong on speculation China may relax capital requirements for lenders.

The MSCI Asia Pacific Index advanced 1 percent to 119.34 as of 11:18 a.m. in Tokyo, with more than three stocks gaining for each that fell. The measure is headed for the highest close since Nov. 9.

“We see an improvement not only in manufacturing and labor data, but also in the sluggish housing market, boosting confidence for the U.S. economic outlook,” said Mitsushige Akino, who oversees about $600 million in Tokyo at Ichiyoshi Investment Management Co. “It’s good that the IMF is also enhancing the safety net for European financial firms, while the European Central Bank has eased tensions by injecting capital into them.”

Japan’s Nikkei 225 Stock Average rose 1.3 percent and South Korea’s Kospi Index gained 1.1 percent. Australia’s S&P/ASX 200 added 0.3 percent, paring earlier gains, after a report showed the nation’s employers unexpectedly cut workers in December. Hong Kong’s Hang Seng Index rose 1.2 percent.

U.S. Data, IMF

Futures on the Standard & Poor’s 500 Index rose 0.1 percent today. The index advanced 1.1 percent in New York yesterday as a report showed confidence among U.S. homebuilders rose in January to the highest level since 2007. The IMF is proposing to raise its lending capacity by as much as $500 billion to safeguard the global economy.

Equities also gained as a finance ministry official told reporters that Greece’s government could forge an agreement with private creditors by the end of this week after talks resumed in Athens yesterday.

Exporters advanced. Toyota, which gets 28 percent of its sales in North America, added 1.8 percent to 2,630 yen in Tokyo. Sony Corp. (6758), Japan’s No. 1 exporter of consumer electronics, rose 2.3 percent to 1,334 yen.

James Hardie Industries SE (JHX), a building-materials supplier that gets almost 70 percent of sales from the U.S. increased 1.8 percent to A$7.40. Samsung Electronics Co. (005930), South Korea’s biggest exporter of consumer electronics, gained 3.1 percent to 1.06 million won.

Chipmakers Rise

The MSCI Asia Pacific Index gained 3.8 percent this year through yesterday, compared with a 4 percent increase by the S&P 500 Index and a 3.7 percent loss by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 12.4 times estimated earnings on average, compared with 12.5 times for the S&P 500 and 10.2 times for the Stoxx 600.

Semiconductor-related firms climbed after ASML Chief Executive Officer Eric Meurice said yesterday that the company expects a “healthy start” to the year with first-quarter orders forecast to rise. The Philadelphia Semiconductor Index, which tracks the performance of 30 industry stocks, rose 5 percent yesterday.

Sumco, a maker of silicon wafers for semiconductors, rose 9.2 percent to 606 yen, the biggest winner on the Asia-Pacific index. Tokyo Electron Ltd. (8035), a manufacturer of chipmaking gear, gained 3.2 percent to 4,365 yen. Elpida Memory Inc. (6665), a Japanese maker of semiconductors, rose 3.7 percent to 336 yen.

China’s Policy

China’s banking regulator is considering a plan to relax capital requirements for lenders after the world’s second- largest economy expanded at the slowest pace in 10 quarters, four people with knowledge of the matter said. The Shanghai Composite Index, which tracks the bigger of China’s stock exchanges, rose 1.7 percent.

“There’s still a lot of news we’ve got to overcome, in particular out of China,” said Belinda Allen, a senior investment analyst at Colonial First State Global Asset Management in Sydney, which oversees about $145 billion. “We still need to see signs of any policy easing coming out of China, and I think that would lead to a more upbeat outlook.”

Agile Property gained 2.2 percent to HK$8.72 in Hong Kong. China Overseas Land & Investment Ltd. (688) rose 1.9 percent to HK$14.72. Hitachi Construction Machinery Co (6305), a Japanese machinery maker that generates 26 percent of its revenue in China, advanced 3.2 percent 1,465 yen.

Lynas Corp., an Australian rare-earths developer, rose 6.6 percent to A$1.13, the third-biggest gain on the Asia-Pacific index, after Malaysia’s Trade and Industry Minister Mustapa Mohamed said his cabinet will soon decide on granting the company a license to refine rare earths in the country.

To contact the reporters on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net; Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net

To contact the editor responsible for this story: John McCluskey at j.mccluskey@bloomberg.ne



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Sugar Traders Wager That Biggest Glut in Five Years Is Ending: Commodities

By Isis Almeida and Swansy Afonso - Jan 19, 2012 9:45 AM GMT+0700

Traders are betting that the biggest sugar glut since 2007 will shrink in the next harvest, reversing expectations from six months ago and ending the largest decline in prices in a decade.

Raw sugar for March 2013 is trading at a premium of 4 percent to the July 2012 contract on ICE Futures U.S. in New York, compared with a 6.6 percent discount six months ago. The switch is reflecting a change in outlook even before forecasts for the next season from the International Sugar Organization or U.S. Department of Agriculture. Prices may rise as much as 13 percent to 27 cents a pound by Dec. 31, according to the median of 21 analyst and trader estimates compiled by Bloomberg.

Futures fell 27 percent last year, the most since 2001, as a glut emerged after three consecutive annual shortages. Traders are now focused on the prospect for crops in India and Brazil, which account for 38 percent of output. The predicted rally may curb a drop in global food prices tracked by the United Nations that drove costs to a 14-month low in December.

“Sugar is moving from an expected surplus to concern about supply,” said Bruno Lima, a Campinas, Brazil-based senior risk management consultant at INTL FCStone, a trader and adviser to commodity producers and consumers. “There’s a lot of sugar now and this is reflected in the lower price for July, while March 2013 futures are higher because Brazilian producers are concerned about the crop and there’s speculation output could shrink in other countries like India.”

World Index

The sweetener rose 3 percent to 24 cents this year compared with a 4.2 percent drop in the Standard & Poor’s GSCI Agriculture Index (SPGSAG) of eight commodities. The MSCI All-Country World Index of equities rose 4.1 percent as the return on Treasuries was 0.01 percent, a Bank of America Corp. index shows.

Hedge funds and other large speculators raised their net- long position, or bets on higher prices, by 15 percent to 50,403 futures and options since wagers reached a four-year low at the end of last month, data from the Commodity Futures Trading Commission show.

The harvest in India, the second-biggest producer after Brazil, may drop as much as 4 million metric tons in the 12 months ending in September 2013, from 25 million to 26 million tons this season, if millers are unable to pay farmers for cane, said London-based ED&F Man Holdings Ltd., which trades sugar across 40 countries. The decline is more than the European Union imports in a year, USDA data show.

Three-Decade High

Decreasing output may require the country to be an importer of sugar, said Kona Haque, a commodities analyst at Macquarie Group Ltd. in London. Futures exceeded 30 cents in 2010, a three-decade high at the time, after shortages drove India to tap overseas markets. The nation was last a net importer in 2009-2010, according to the USDA.

The next cane harvest in the center-south of Brazil, the main growing region, will probably reach 480 million tons to 520 million tons, according to Datagro Ltd., a Sao Paulo-based research company. Production this season fell 11 percent to 492.23 million tons by Jan. 1, the first drop in a decade, according to data from industry association Unica.

While global supply will exceed demand by 6 million tons in the 12 months ending in September, combined shortages in the past three seasons reached about 20 million tons, said Keith Flury, an analyst at Rabobank International in London. Consumption rose every year since 1994, USDA data show.

Australian Crop

Less production from India and Brazil may be met by bigger crops elsewhere. Australia, the third-biggest exporter, may increase sugar output by 15 percent to 4.5 million tons in the harvest from June as cane acreage expands 5 percent, according to Sydney-based Commonwealth Bank of Australia.

Brazil’s crops could escape damage from La Nina, a phenomenon that causes heavier rainfall in Asia and drier weather in South America. La Nina may have peaked, bringing a return to normal rainfall, Bryce Anderson, an agricultural meteorologist with DTN Telvent in Omaha, Nebraska, said Jan. 11. An undamaged crop may mean another surplus of as much as 6 million tons, said Paul Deane, an agricultural economist at Australia & New Zealand Banking Group Ltd. in Melbourne.

Hedge funds are less bullish than they have been for most of the past four years, when the average net-long position was more than twice as big as it is now.

India’s stockpiles should be large enough to prevent imports, said Jayantilal B. Patel, the president of the New Delhi-based National Federation of Cooperative Sugar Factories Ltd. Reserves may reach 5 million tons at the end of this season, said Kishor Shah, the chief financial officer of Kolkata-based Balrampur Chini Mills Ltd. (BRCM), the nation’s second-largest producer.

Uttar Pradesh

Cane prices set by Uttar Pradesh, the biggest cane-growing state, rose as much as 19 percent in the past year while the cost of refined sugar in Mumbai was little changed and global rates slumped. That’s left the country’s mills struggling to pay farmers, who in turn may choose to plant other crops next season, said G.S.C. Rao, president of the New Delhi-based Sugar Technologists’ Association of India, which advises the industry.

The anticipated rally in prices may raise costs for food companies. Nestle SA (NESN), whose brands include Smarties and Aero, spends about 1.5 billion Swiss francs ($1.6 billion) a year on sugar, according to Millicent Molete, a spokeswoman. Shares of the Vevey, Switzerland-based company fell 0.2 percent this year.

Production could stagnate in the 27-nation European Union because of the level of inventories carried over from this season, said Fabienne Pointier, an analyst at Kingsman SA, a Lausanne, Switzerland-based broker and researcher. The region consumes about 11 percent of the world’s sugar.

Dry Weather

Cane production in Thailand, the second-largest shipper, may decline from a record in the year starting in November because of dry weather, said Prasert Tapaneeyangkul, the secretary-general of the Office of the Cane & Sugar Board in Bangkok. He declined to provide a forecast.

China, the second-biggest consumer after India, will import the sweetener to replenish stockpiles that were diminished by state sales intended to curb inflation, the National Development and Reform Commission, the nation’s top economic planning agency, said in November. Purchases rose 48 percent to 2.4 million tons in the first 11 months of 2011, customs data show.

“There is growing speculation that over the next few months we will see the buildup of cane-payment arrears, which could be the precursor of a fall in next year’s Indian crop,” said Farideh Bromfield, the London-based head of commodities research at ED&F Man. “Brazil can’t be overlooked as the poor rate of investment there doesn’t bode well for continued growth in sugar production.”

To contact the reporters on this story: Isis Almeida in London at ialmeida3@bloomberg.net; Swansy Afonso in Mumbai at safonso2@bloomberg.net

To contact the editors responsible for this story: James Poole at jpoole4@bloomberg.net; Claudia Carpenter at ccarpenter2@bloomberg.net

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Applications at Elite Colleges Slow

By Janet Lorin - Jan 19, 2012 3:01 AM GMT+0700

Applications for freshman admission to elite U.S. colleges such as the Massachusetts Institute of Technology and Columbia University are slowing after years of record increases.

The number of students applying to New York-based Columbia fell 8.9 percent to 31,818 for the 2011-2012 year after rising 33 percent last year when the school joined the Common Application. MIT had 1 percent growth, the smallest increase in seven years, while the University of Pennsylvania had a 1.7 percent drop after a 40 percent jump in the past three years combined.

Athletics programs, early-admission policies, competition for seats and other school-specific issues may be having a greater effect on student applications rates, counselors and admissions deans said. High school seniors are getting the message that it can be next to “impossible” to win a seat at these schools, said Jon Reider, head of college counseling at San Francisco’s University High School.

“There is a finite number of teenagers who have the credentials to make themselves competitive for schools like this and, at a certain point, that level is hit,” said Reider, a former admissions officer at Stanford University. “The supply of kids flattens out.”

Penn admitted 12 percent of applicants last year and Columbia 6.9 percent. One reason for the decline in Penn’s applications to 31,127 is that more colleges have early admission programs, Eric J. Furda, dean of admissions, said in an e-mail. Penn, based in Philadelphia, also required an additional essay this year, which might have had a small impact, Furda said.

Early Admissions

Fellow Ivy League schools Harvard University in Cambridge, Massachusetts, and Princeton University, in Princeton, New Jersey, reinstated early applications after a break of several years.

Early admissions at Harvard and Princeton probably affected Columbia’s application volume, Jessica Marinaccio, dean of undergraduate admissions, said in a statement.

MIT, based in Cambridge, cut its direct marketing to potential applicants by about 40 percent to eliminate students who weren’t likely to be admitted based on their PSAT score, said Stuart Schmill, dean of admissions. MIT sought a smaller “but highly appropriate pool,” he said. The school, which doesn’t accept the Common Application, received 18,084 applications for this year.

“Were not trying to encourage increased numbers just for the sake of it,” Schmill said in an interview. “We’re happy given that applicant pool is as diverse and talented as ever. For us that is a terrific outcome.”

‘We Are the 6%’

Applications for freshman admission are often taken as a proxy for a school’s popularity. Many colleges, including those in the Ivy League, buy names of prospective students who score high on standardized tests and send them marketing brochures and e-mails. The boost in applications makes the colleges appear more selective. A Harvard student group sells T-shirts sporting the slogan “We are the 6%,” in reference to the undergraduate college’s admission rate last year.

The Common Application, which Columbia joined last year, is used by more than 400 colleges. It’s an online form students can use to apply to multiple schools.

“Given the increased accessibility associated with the Common Application, schools initially accepting it have typically seen a two-year increase in application volume of 10 to 25 percent,” Marinaccio said in the statement. “Our application numbers this year appear to be normalizing to a size consistent with this trend and at a level that continues to indicate strong student interest.”

Last Year’s Record

Last year, freshman applications climbed to all-time highs at the eight Ivy League institutions in the northeastern U.S. The other schools in the league plan to release their applications numbers in the coming weeks.

Freshman applications to Stanford University, near Palo Alto, California, rose 7 percent to a record of almost 37,000, the school reported last week. Stanford may be benefiting from its location in Silicon Valley, connection to the technology world, orientation toward Asia and because it attracts top students who are interested in national-level intercollegiate sports, Reider said.

Georgetown, Stanford Gain

Stanford senior Andrew Luck, the Cardinal quarterback and a two-time Heisman Trophy runner-up, has garnered national attention and is considered a top National Football League prospect. The women’s soccer team won its first national championship in December.

Duke University, which last year offered seats to 13 percent of applicants, may be the beneficiary of some competitors having admission rates in the single digits. Freshman applications to the school in Durham, North Carolina, increased by 6.2 percent to more than 31,000, according to Christoph Guttentag, dean of admissions.

“While sports may have a nominal impact on applications at Duke, it says something about selective college admissions when a 13 percent admit rate looks more possible,” Guttentag said in an interview.

Georgetown University’s applications increased by an estimated 4.2 percent to about 20,500 the year, said Charles Deacon, dean of admissions. The school in Washington didn’t do anything differently this year, said Deacon, adding that he could “easily” increase applications and move Georgetown into the 30,000 range by buying more names, joining the Common Application and significantly increase international travel and recruitment to China and Korea.

“We are not doing any of these things because they don’t mesh with our philosophical position about the appropriate way for the appropriate students to apply to us,” Deacon said in an interview. “It allows us to fill our class appropriately and still give adequate time and attention to each candidate.”

To contact the reporter on this story: Janet Lorin in New York jlorin@bloomberg.net.

To contact the editor responsible for this story: Lisa Wolfson at lwolfson@bloomberg.net.

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8 U.S. Lawmakers Abandon Anti-Piracy Bills

By Eric Engleman and Derek Wallbank - Jan 19, 2012 3:23 AM GMT+0700
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A laptop computer displays Wikipedia's front page on Jan. 18, 2012 in London. Photographer: Peter Macdiarmid/Getty Images

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Jan, 18 (Bloomberg) -- Alexis Ohanian, co-founder of Reddit.com, talks about his opposition to the Stop Online Piracy Act. Reddit along with other Internet companies are staging online protests today against the legislation. Ohanian speaks on Bloomberg Television's "InBusiness With Margaret Brennan." (Source: Bloomberg)

Eight U.S. lawmakers dropped their support for Hollywood-backed anti-piracy legislation as Google Inc. (GOOG), Facebook Inc. and other websites protested the measures.

Co-sponsors who say they can no longer support the Senate legislation include Republicans Marco Rubio of Florida, Roy Blunt of Missouri and Orrin Hatch of Utah, as well as Democrat Ben Cardin of Maryland. Republican Representatives Ben Quayle of Arizona, Lee Terry of Nebraska and Dennis Ross of Florida, and Democratic Representative Tim Holden of Pennsylvania said they would withdraw their backing of the House measure.

The House and Senate bills are backed by the movie and music industries as a means to crack down on the sale of counterfeit goods by non-U.S. websites. Google and Facebook are among Internet companies that object to the legislation, saying it will spur online censorship and slow U.S. economic growth.

“This unprecedented effort has turned the tide,” Representative Darrell Issa, a California Republican who opposes the measures, said in an e-mailed statement.

Google, owner of the world’s most popular search engine, covered the “Google” icon on its home page today with a black box and linked to a website that urged visitors to sign an online petition asking Congress to reject the legislation.

Wikipedia, the online encyclopedia run by the nonprofit Wikimedia Foundation Inc., shut the English version of its website for 24 hours to protest the bills. The home page of the English website gives visitors information about how to call their elected representatives.

Zuckerberg’s Argument

Google and Facebook, the most popular social-networking service with more than 800 million users worldwide, have led Web-industry opposition to the anti-piracy bills, saying the measures may saddle Web companies with new mandates and liabilities and hamper innovation.

“The Internet is the most powerful tool we have for creating a more open and connected world,” Facebook Chief Executive Officer Mark Zuckerberg said in a post on the social network today. “We can’t let poorly thought out laws get in the way of the Internet’s development.”

Zuckerberg’s post links to a Facebook page that outlines the company’s opposition to the bills and provides a link for people to contact members of Congress.

Craigslist Inc., operator of the online classified ad website, steered users to a page with a black background and a message in white letters asking visitors to “imagine a world without craigslist, Google, Wikipedia.” The website provided visitors with a link to a page offering ways to contact lawmakers and voice opposition to the legislation.

Legislators’ Reversals

Rubio said he switched his position on the Senate measure, the Protect IP Act, after examining opponents’ contention that it would present a “potentially unreasonable expansion of the federal government’s power to impact the Internet,” according to a posting today on Facebook. Blunt said in a statement today he is withdrawing as a co-sponsor of the Senate bill.

Hatch, one of the Senate bill’s original co-sponsors, and Ross said they would withdraw support for the legislation in separate Twitter posts today. Staff members for Quayle, Terry and Holden said the lawmakers would no longer back the House measure. Cardin said he couldn’t vote for the Senate bill in its current form, according to a statement Jan. 13.

Hollywood studios want lawmakers to ensure that Internet companies such as Google share responsibility for curbing the distribution of pirated films and television shows.

‘Another Gimmick’

Christopher Dodd, chairman of the Motion Picture Association of America and a former Democratic senator, said in an e-mailed statement yesterday that the Internet protest is “yet another gimmick, albeit a dangerous one, designed to punish elected and administration officials who are working diligently to protect American jobs from foreign criminals.”

The House and Senate measures would let the Justice Department seek court orders requiring search engines, payment processors and ad networks to block or cease business with the piracy websites operating outside the U.S.

Representative Lamar Smith, a Texas Republican who introduced the Stop Online Piracy Act, said last week he would remove a provision from his bill requiring Internet-service providers, when ordered by a court, to block access to non-U.S. websites linked to piracy.

Senator Patrick Leahy, a Vermont Democrat, said he’s willing to consider dropping a similar provision from the Protect IP Act. Opponents say such website-blocking may harm the stability of the Internet’s domain-name system.

Promoting ‘Rogue Websites’

Smith has said that companies “like Google have made billions by working with and promoting foreign rogue websites so they have a vested interest in preventing Congress from stopping rogue websites.”

Google agreed last year to pay $500 million to settle U.S. allegations that advertising for online Canadian pharmacies on its website allowed illegal imports of prescription drugs. The company has said it has also fought counterfeiters and piracy operations.

The Senate is scheduled to hold a procedural vote on whether to proceed with the Protect IP Act on Jan. 24. Leahy leads the Senate Judiciary Committee, and Smith is chairman of the House Judiciary Committee.

The Senate bill is S. 968 and the House bill is H.R. 3261.

To contact the reporters on this story: Eric Engleman in Washington at eengleman1@bloomberg.net; Derek Wallbank in Washington at dwallbank@bloomberg.net

To contact the editor responsible for this story: Michael Shepard at mshepard7@bloomberg.net

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Obama Said to Be Considering Nominating Summers to Lead World Bank in 2012

By Hans Nichols - Jan 19, 2012 4:03 AM GMT+0700
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National Economic Council Director Lawrence Summers, right, talks with Treasury Secretary Timothy Geithner, left, before the start of an event with President Barack Obama. Photographer: Susan Walsh/AP

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Jan. 18 (Bloomberg) -- President Barack Obama is considering nominating Lawrence Summers, his former National Economic Council director, to lead the World Bank when Robert Zoellick’s term expires later this year, according to two people familiar with the matter. Hans Nichols reports on Bloomberg Television's "InBusiness With Margaret Brennan." (Source: Bloomberg)

President Barack Obama is considering nominating Lawrence Summers, his former National Economic Council director, to lead the World Bank when Robert Zoellick’s term expires later this year, according to two people familiar with the matter.

Summers has expressed interest in the job to White House officials and has backers inside the administration, including Treasury Secretary Timothy Geithner and current NEC Director Gene Sperling, said one of the people. Secretary of State Hillary Clinton is also being considered, along with other candidates, said the other person. Both spoke on condition of anonymity to discuss internal White House deliberations.

Lael Brainard, the Treasury undersecretary for international affairs, is compiling a list of potential candidates to replace Zoellick, who was nominated to a five-year term that began in July 2007 by then-President George W. Bush. By tradition, the U.S. president chooses the leader of the World Bank while the head of the International Monetary Fund is selected by European leaders. The nomination is subject to approval by the World Bank’s executive board.

White House press secretary Jay Carney declined to comment. Summers’ assistant, Julie Shample, said he was unavailable. Philippe Reines, a spokesman for Clinton, also declined to comment.

Scrutiny of Record

A nomination of Summers would bring scrutiny of his previous stints in government, both as former President Bill Clinton’s Treasury secretary and Obama’s NEC director, as well as his tenure as president of Harvard University.

“Larry is controversial,” said Erskine Bowles, who served as Clinton’s chief of staff. “Anything you appoint Larry to, you know there are going to be some people who are going to take shots at him. But you know he’s a brilliant economist, which I think everybody recognizes.”

Bowles said he had no information on the White House deliberations.

“He performed well in some difficult markets,” Bowles said. “I think it’s been a passion of his for a long, long time and I am confident that he will do a good job.”

Summers also may come under fire for some of his previous work at the bank, as well as the commercial relationships he has forged since leaving the White House in December 2010.

In 1991, at the World Bank, he signed off on a memo that argued that less-developed countries might benefit from accepting pollution from wealthy countries.

Return to Harvard

After leaving the Obama administration, Summers, 57, returned to Harvard, where he’s now a professor at the John F. Kennedy School of Government.

Summers earned his doctorate in economics at Harvard in Cambridge, Massachusetts, and at 28 was granted tenure, the youngest age anyone had gained that status at the time. He spent time on the staff of the White House Council of Economic Advisers in the 1980s before joining the World Bank as chief economist.

He was Clinton’s Treasury secretary from 1999 to 2001, after which he became Harvard president. Summers quit that post in 2006 after a series of battles with the Faculty of Arts and Sciences, which teaches most of the undergraduate courses, and following a controversy over comments he made at a conference, in which he suggested women lacked an aptitude for science.

‘Supported Deregulation’

During the Clinton era, Summers argued for the deregulation of the financial industry and clashed with Brooksley Born, then head of the U.S. Commodity Futures Trading Commission, over the regulation of the over-the-counter derivatives market. Those positions, along with his speaking engagements at banks and work at a hedge fund, have made him unpopular with some Democrats.

In the 16 months before joining Obama’s White House, the hedge fund D.E. Shaw & Co. paid Summers more than $5 million, according to a 2009 financial-disclosure form.

“Summers is certainly a very smart economist,” said Dean Baker, who is co-director of the Center for Economic and Policy Research in Washington. “However, his track record in dealing with the U.S. economy has not been very good.”

Baker cited Summers’ support for deregulating the financial industry and said he “ ignored the stock bubble in the ‘90s and the housing bubble in the last decade.”

“And, he seems to have badly underestimated the severity of the downturn,” Baker said.

‘Global’ Experience

Summers’ ascension to the World Bank presidency would be cheered by Wall Street, said Ralph Schlosstein, chief executive officer at Evercore Partners Inc.

“He has a very strong set of global experiences, which are fundamental to being a great head of the World Bank,” Schlosstein said. “I think he has an open-mindedness and creativity that will probably be a tremendous asset in the challenging world we face over the next decade.”

Summers will also have his detractors, Schlosstein said, in part because of his interpersonal skills. “He doesn’t suffer fools graciously,” he said.

Under a longstanding unwritten agreement, the IMF has always been led by a European while the World Bank has been headed by an American. The U.S. in June backed then-French Finance Minister Christine Lagarde to take the head of the IMF. Emerging market leaders such as Brazilian Finance Minister Guido Mantega have questioned the division of leadership posts at the two institutions, saying the choice should be made on the basis of merit, not nationality.

Aid Channel

The World Bank, which was established to rebuild Europe after World War II, made loans worth about $57 billion in the year ended June 30. It offers financial and technical assistance to countries. Pakistan, for example, will receive up to $5.5 billion in grants and loans through mid 2015. The institution also has a private sector arm.

Under Zoellick, shareholders approved a capital increase providing the institution with $5.1 billion in cash to meet demand from countries hit by the global recession that followed the 2008 financial crisis.

The next World Bank president may yet face another increase in loan demand. Yesterday, the bank cut its global growth forecast by the most in three years and told developing countries to “prepare for the worst,” saying that Europe’s debt crisis still has the potential to trigger another global financial crisis.

To contact the reporter on this story: Hans Nichols in Washington at hnichols2@bloomberg.net

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

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AMR 65-Year-Old Female Flier in Custody After Bringing Gun on Dallas Plane

By Mary Jane Credeur and Andrew Zajac - Jan 19, 2012 4:41 AM GMT+0700

A 65-year-old passenger was charged with a felony after boarding an American Airlines flight with a gun in her handbag and passing through security screening at the Dallas-Fort Worth airport, authorities said.

The loaded .38-caliber revolver was spotted during an X-ray check of the bag, Greg Soule, a spokesman for the Transportation Security Administration, said in an interview. The woman took the bag from the conveyor and left the security area before the TSA could notify police, he said. Soule declined to elaborate.

The woman passed through security at about 6:30 a.m. and was taken into custody about 8 a.m., after the plane from AMR Corp (AAMRQ).’s American taxied back to the terminal, an airport spokesman, David Magana, said today in a statement. The woman is from Little Elm, Texas, and was charged with a third-degree weapons felony under state law and released this afternoon, Magana said. Police are withholding her name for now, he said.

“This is not a typical, exploitable weakness and the reality is that we have human beings in this system and they can be distracted,” said John Nance, a former commercial and Air Force pilot who runs the safety consulting company John Nance & Associates in University Place, Washington.

“It’s less a matter of ‘Oh my god, we had a breach and the whole system is wrong’ than this being a reason to review things and find out if there are chinks in the armor that we can improve,” Nance said.

Police Called

When TSA officers realized the woman had left the screening area, they called airport police and reviewed closed-circuit video to get a description of her, Soule said.

Dallas/Fort Worth International Airport police swept all five terminals during the search for the woman, and 10 flights were delayed by about 25 minutes while shuttle trains bypassed the terminal where the incident occurred, Magana said in the statement.

Soule and Magana declined to say why officials didn’t evacuate and re-screen all passengers in the terminal, or why passengers weren’t prevented from getting on planes during the search for the weapon.

The woman was on American Airlines (AMR) Flight 2385 bound for Houston with 128 passengers and five crew members, and the MD-80 jet had pushed away from the gate when it was recalled, said Ed Martelle, a spokesman for the Fort Worth-based carrier.

To contact the reporters on this story: Mary Jane Credeur in Atlanta at mcredeur@bloomberg.net; Andrew Zajac in Washington at azajac@bloomberg.net

To contact the editor responsible for this story: Ed Dufner at edufner@bloomberg.net

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Seven Charged in Insider Trading Probe

By Patricia Hurtado and Bob Van Voris - Jan 19, 2012 8:43 AM GMT+0700

Seven men, including fund managers and analysts, were accused by the U.S. of forming a “criminal club” of friends and co-workers who reaped almost $62 million in illicit profits from insider trading in Dell Inc. (DELL) shares.

Manhattan U.S. Attorney Preet Bharara alleged that the scheme included one trade that earned a $53 million illegal windfall for Level Global Investors LP co-founder Anthony Chiasson and his fund. The insider-trading ring, which involved five different hedge funds and investment firms, is the largest identified by the U.S. to date to involve a single stock, federal authorities said.

Chiasson, Todd Newman, a portfolio manager formerly at Diamondback Capital Management LLC, Jon Horvath, a hedge fund analyst in New York, and Danny Kuo, a fund manager for Whittier Trust Co. in South Pasadena, California, were taken into federal custody this morning, said Janice Fedarcyk, head of the Federal Bureau of Investigation’s New York office.

The charges “paint a stunning portrait of organized corruption on a grand scale,” Bharara said today at a news conference. “It describes a circle of friends who essentially formed a criminal club, whose purpose was profit and whose members regularly bartered lucrative inside information. It was a club where everyone scratched everyone else’s back.”

Galleon Group Scale

The U.S. said the illegal profits earned as a result of the scheme were almost of the same “magnitude of fraud we proved in the Galleon Group insider trading scheme,” Bharara said.

A five-year insider-trading probe by Bharara’s office and the FBI has resulted in charges against 63 people, Fedarcyk said. More than 50 have pleaded guilty or been convicted after trial since 2009, including Galleon Group LLC co-founder Raj Rajaratnam.

Rajaratnam, was found guilty in May and is serving 11 years in prison, the longest ever for insider trading. He made $72 million from his illicit tips, evidence showed. Several other technology company employees and fund managers have been convicted of receiving nonpublic information as a result of the probe.

At today’s press conference, Bharara displayed a flowchart placing Sandeep Goyal, a former Dell employee, at the center of the ring. According to the U.S., an unnamed person in the Dell investor-relations department passed secret earnings information to Goyal, who passed it on to Jesse Tortora of Diamondback.

Circle of Friends

Tortora, Horvath, Kuo and Spyridon “Sam” Adondakis, a Level Global analyst, were friends who shared inside information on public technology companies, including Dell, prosecutors said. The ring traded the information in 2008 and 2009, according to the U.S.

Tortora passed the inside information on Dell to Newman before the computer maker announced its first- and second- quarter 2008 earnings, according to the U.S. Newman made $3.8 million in illegal profits for his hedge fund from trading on the information, according to the U.S. Tortora also passed tips to Kuo, Horvath and Adondakis.

Adondakis passed the Dell information to his colleague Chiasson and others at Level Global, according to the charging documents. They allegedly traded on the tips for $57 million in illegal profits.

Adondakis, Tortora and Goyal pleaded guilty last year to securities fraud and conspiracy charges that were unsealed today, Bharara said. They are cooperating with the government’s investigation, he said.

‘More Disturbing’

Robert Khuzami, the head of enforcement at the U.S. Securities and Exchange Commission, which filed a related suit today against the defendants, said the cases describe actions “far more disturbing” than insider trading committed by someone who obtains one illegal tip.

“Today’s actions lay bare an organized network of analysts and fund managers who set up and used a corrupt network to obtain inside information,” Khuzami said. “These cases, along with Galleon and expert networking cases, reflect systemic dishonesty and exposes a deeply-embedded level of corruption.”

Horvath, 42, is an analyst at Connecticut-based hedge fund Sigma Capital Management LLC, said a person with knowledge of the matter who wasn’t authorized to speak because the information wasn’t public. He was arrested by the FBI this morning at his home in Manhattan, the U.S. said, and released on a $750,000 bond after a court appearance before U.S. Magistrate Judge James Cott in New York.

‘Honesty and Integrity’

“Throughout a more than 10-year career as a respected investment analyst, Jon Horvath has conducted himself with honesty and integrity,” Horvath’s lawyer, Steven Peikin, said after court. “He has done nothing wrong, and the charges brought against him today will be shown to be meritless.”

Chiasson, 38, used inside information to win for his Level Global fund what the U.S. said was a single “enormous bet” of $53 million on Dell earnings, prosecutors claimed.

“This is the largest single trade ever charged in the Southern District in an insider trading case,” Assistant U.S. Attorney David Leibowitz said today at a bail hearing, referring to the federal jurisdiction that includes Wall Street.

Greg Morvillo, Chiasson’s lawyer, argued that Leibowitz was attributing to his client trades made by others at Level Global.

Chiasson, who turned himself in to U.S. authorities this morning, was released on $2.5 million bond to be secured by $1.25 million in cash or property and three co-signers. Morvillo said in court that his client is innocent of the charges.

“He will be here to defend these charges, whether it’s tomorrow, next month or next year,” Morvillo told Cott.

Newman, 47, was released on a $3 million bond after appearing in U.S. District Court in Boston today.

Kuo, 36, who was arrested today in California, was released on $300,000 bond after appearing in federal court in Los Angeles.

Facing 25 Years

Newman of Needham, Massachusetts, Chiasson of New York, Horvath of New York and Kuo of San Marino, California, are each charged with one count of conspiracy to commit securities fraud and one count of securities fraud. They face as long as 25 years in prison if found guilty, prosecutors said.

Goyal is a former junior technology analyst at Neuberger Berman, said Alexander Samuelson, a company spokesman. Goyal left the firm this month. Goyal, who didn’t trade on the information, was paid about $175,000, by Tortora through an intermediary, for the tips, Bharara said. Goyal worked for Dell at its corporate headquarters in Round Rock, Texas, from 2003 until the summer of 2006, prosecutors said.

Justine Harris, a lawyer for Adondakis; Jessica Margolis, who represents Goyal; Alfred Pavlis, who represents Newman; and Ralph Caccia, who represents Tortora, didn’t return phone messages seeking comment.

FBI Searches

In November 2010, FBI agents from New York and Boston executed search warrants at the offices of Level Global and Diamondback, hedge funds founded by former employees of SAC Capital Advisors LP.

Level Global told clients last February that it was shutting down -- eight years after David Ganek and Chiasson founded the hedge fund -- because of the U.S. probe.

Steven Goldberg, a spokesman for New York-based Level Global, didn’t return a call seeking comment on the arrests.

Diamondback, in a letter to investors today, said it has cooperated with U.S. authorities. It said Newman left the firm after the 2010 search and Tortora resigned in April 2010.

Civil Complaint

The SEC’s civil insider-trading complaint was filed in Manhattan federal court against all seven men, Diamondback Capital and Level Global. In addition to the alleged Dell insider trades, the SEC claims members of the ring traded on inside information about chipmaker Nvidia Corp. (NVDA) Level Global made at least $15.6 million in illegal profits on its Nvidia trades, the agency claimed.

Peter Neiman, of Wilmer Hale, a lawyer for Diamondback Capital, declined to comment on the SEC lawsuit. MaryJeanette Dee, a lawyer for Level Global, didn’t immediately return a voice mail left at her office seeking comment on the suit.

During the trial last year of James Fleishman, a former executive at Primary Global Research LLC, witnesses testified that he helped employees of technology companies pass nonpublic information to his expert-networking firm’s fund manager clients. Fleishman was convicted of conspiracy charges related to insider trading.

One witness, Mark Anthony Longoria, a former Advanced Micro Devices Inc. employee, described how he passed secret tips and other information about his company to fund managers, including Adondakis.

Primary Global

Bob Nguyen, a former Primary Global analyst who pleaded guilty and agreed to cooperate with the U.S., testified at Fleishman’s trial that Tortora was a client of Fleishman’s who got nonpublic information about technology companies through the Mountain View, California-based research firm.

Daniel Devore, a former global supply manager of Dell, pleaded guilty and is cooperating with the U.S. insider-trading investigation.

The criminal case is U.S. v. Newman, 12-00124, U.S. District Court, Southern District of New York (Manhattan). The civil case is Securities and Exchange Commission v. Adondakis, 12-00409, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: Patricia Hurtado in New York federal court at pathurtado@bloomberg.net; Bob Van Voris in New York federal court at rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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S&P 500 Caps Best Start to Year Since 1987 on Economic Optimism

By Rita Nazareth - Jan 19, 2012 4:36 AM GMT+0700
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Specialist Ned Zelles, second left, works at his post on the floor of the New York Stock Exchange on Jan. 18, 2012. Photographer: Richard Drew/AP

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Jan. 19 (Bloomberg) -- Scott Wren, senior equity strategist at Wells Fargo Advisors LLC, talks about the outlook for U.S. and emerging stock markets, and his investment strategy. Wren speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

U.S. stocks rose, giving the Standard & Poor’s 500 Index its best start to a year since 1987, after confidence among homebuilders topped forecasts, Goldman Sachs (GS) Group Inc. rallied and concern about Europe eased.

Goldman Sachs climbed 6.8 percent as earnings beat estimates amid lower compensation costs. Bank of America Corp. (BAC) and JPMorgan (JPM) Chase & Co. jumped at least 4.6 percent, leading the gains in the Dow Jones Industrial Average. PulteGroup Inc. (PHM) and Lennar Corp. added more than 4.3 percent, pacing an advance in homebuilders. A measure of chipmakers rose the most in the S&P 500 among 24 industries, rallying 3.9 percent.

The S&P 500 increased 1.1 percent to 1,308.04 at 4 p.m. New York time, closing above 1,300 for the first time since July. The Dow advanced 96.88 points, or 0.8 percent, to 12,578.95. The Nasdaq Composite Index climbed 1.5 percent to 2,769.71. The Russell 2000 Index jumped 1.8 percent to 779.26.

“It’s great to see the market up,” John Carey, a Boston- based money manager at Pioneer Investments, said in a telephone interview. The firm oversees about $220 billion. “People are realizing that Europe is important, but it’s not the whole world. They are looking at the economic numbers in the U.S. and seeing that we’re not going back into a recession. The economy is still growing. We might be all right at the end of the day.”

The S&P 500 has risen 4 percent this year as measures of commodity, financial and industrial shares rallied at least 6.4 percent. The Morgan Stanley Cyclical Index of companies most- tied to the economy has surged 11 percent in 2012, with Alcoa Inc. (AA) and Caterpillar Inc. (CAT) soaring at least 15 percent.

Highest Since 2007

Stocks climbed today as confidence among U.S. homebuilders rose in January to the highest level since 2007. Equities extended gains as an official told reporters that Greece’s government could forge an agreement with private creditors by the end of this week after talks resumed in Athens today. The International Monetary Fund is proposing to raise its lending capacity by as much as $500 billion to safeguard the economy.

“Investors need a new excuse to commit more capital,” Michael Shaoul, chairman of Marketfield Asset Management in New York, which oversees $1.3 billion, said in a telephone interview. “The acute stress of Europe has moderated. Given that we already have good economic data, the most obvious new excuse is earnings. I would expect a decent earnings season.”

Companies in the benchmark index, which beat profit estimates in the previous 11 quarters, probably will report a 4.6 percent increase in per-share earnings during the September- December period, analysts’ estimates compiled by Bloomberg show.

Homebuilders Rally

Nine out of 10 industries in the S&P 500 rallied as financial and technology gauges advanced at least 1.6 percent. A gauge of homebuilders in S&P indexes climbed 4.6 percent. PulteGroup added 5.9 percent to $7.94. Lennar (LEN) jumped 4.4 percent to $23.

Goldman Sachs rose 6.8 percent to $104.31. Chief Executive Officer Lloyd C. Blankfein cut compensation 21 percent in 2011 as he reduced costs and focused on international growth to offset a slowdown in trading, which contributes most of the firm’s revenue. Goldman Sachs’s higher-than-estimated earnings contrasted with previous reports from Citigroup Inc. (C), which fell short of analysts’ estimates, and JPMorgan, which matched projections.

Some of the largest financial companies also climbed. Bank of America advanced 4.9 percent to $6.80. JPMorgan added 4.7 percent to $36.54.

Bank of New York Mellon Corp. (BK) fell 4.6 percent to $20.30. The world’s biggest custody bank said fourth-quarter earnings declined 26 percent on a restructuring charge and lower revenue from businesses tied to financial markets.

Sales Forecast

The Philadelphia Semiconductor Index surged 5 percent as all of its 30 stocks advanced. Linear Technology Corp. (LLTC) jumped 12 percent, the most in the S&P 500, to $33.32. The maker of semiconductors for industrial equipment and cars forecast fiscal third-quarter sales that would beat analysts’ estimates.

Yahoo! Inc. (YHOO) gained 3.2 percent to $15.92 as Jerry Yang’s exit may remove a barrier to find a buyer or negotiate a sale of stakes in Asian assets valued at more than $10 billion. Now that the co-founder and one-time chief executive officer has cut his leadership ties to Yahoo, newly appointed CEO Scott Thompson has freer rein to unwind the company’s part-ownership of Alibaba Group Holding Ltd. and Yahoo Japan Corp.

U.S. companies that beat analysts’ earnings estimates are an exception, rather than the rule, for the fourth-quarter reporting season getting under way. Only 47.1 percent of companies in the S&P 500 that posted quarterly results between Dec. 1 and yesterday exceeded the average projection, according to data compiled by Bloomberg.

Financial Crisis

So-called positive surprises have surpassed 50 percent at a comparable point in every other quarterly reporting period for the past four years. The previous low was 51.5 percent in the third quarter of 2008, when a global financial crisis was taking hold.

“Early reporters’ results” are one of two reasons to expect the current earnings season to be disappointing, Thomas M. Doerflinger, a strategist at UBS AG, wrote yesterday in a report. The other is that many companies are likely to cut estimates for this year.

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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Obama Denies Keystone, Will Allow Refile

By Kate Andersen Brower and Jim Snyder - Jan 19, 2012 5:27 AM GMT+0700

President Barack Obama denied a permit to build TransCanada Corp. (TRP)’s Keystone XL oil pipeline and the company said it will refile a revised route to avoid an environmentally sensitive area in Nebraska.

The decision today was praised by environmentalists, who said the pipeline would add to greenhouse-gas emissions and endanger water supplies, and decried by business groups and Republican lawmakers, who had pushedObama to approve the project as a way to add jobs.

Obama faced a Feb. 21 deadline Congress set after the administration in November postponed a decision saying it needed time to review a revised Nebraska route. TransCanada said the 1,661-mile (2,673-kilometer) project would carry 700,000 barrels of crude a day from Alberta’s oil sands to refineries along the Gulf of Mexico, crossing six U.S. states and creating 20,000 jobs.

“I’m disappointed that Republicans in Congress forced this decision, but it does not change my administration’s commitment to American-made energy,” Obama said in a statement. “We will continue to look for new ways to partner with the oil and gas industry to increase our energy security.”

TransCanada fell 33 cents to $41.41 at 4:15 p.m. in New York, and earlier today fell 4.8 percent, the biggest intraday decline since June 2009.

The company will reapply and Chief Executive Officer Russ Girling in an e-mailed statement said he expects a review that would let the pipeline begin operating by 2014. A decision on a route that avoids the Sand Hills of Nebraska qwill be made by September or October, he said.

‘Profound Disappointment’

Canadian Prime Minister Stephen Harper, who was called by Obama, told the president Canada will seek to diversify its energy exports after Keystone was rejected. Harper “expressed his profound disappointment” with the Keystone decision, according to a statement from his office.

The State Department, which reviewed the pipeline because it crossed an international boundary, recommended that Obama deny the permit and find that “Keystone XL pipeline be determined not to serve the national interest,” according to an e-mailed statement. “The president concurred.”

The denial of the permit application doesn’t preclude any future permit applications for similar projects, the State Department said.

“TransCanada remains fully committed to the construction of Keystone XL,” Girling said in the statement. A review of the revised application should “make use of the exhaustive record compiled over the past three plus years,” he said.

Adequate Information

Kerri-Ann Jones, assistant secretary for oceans and international environmental and scientific affairs, said department didn’t have “adquate information” to proceed with the review. She declined, during a conference call, to estimate how long a new review of an alternatie route would take.

Representative Fred Upton, a Michigan Republican and chairman of the House Energy and Commerce Committee, said he will hold a hearing next week on the pipeline. Secretary of State Hillary Clinton is being invited as the committee seeks ways to “restart the project,” he said in a statement.

Environmentalists said the pipeline will add to greenhouse- gas emissions tied to climate change and endanger drinking water supplies in Nebraska. They have staged demonstrations outside the White House and vowed to withhold financial support to Obama’s presidential campaign if he approved the pipeline.

“The entire purpose of the pipeline is to move Canadian oil to the crude refineries in the Gulf so that it can be shipped overseas,” Jeremy Symons, a National Wildlife Federation vice president, said today in a phone interview. “If the pipeline is built, Canada gets the jobs, China gets the oil and American families get the oil spills.”

Ogallala Aquifer

Protests in Nebraska and at the White House focused on the risks of a spill tainting the Ogallala aquifer in the state’s Sand Hills region. TransCanada has discussed alternate routes with state officials that would pose less risk to drinking-water supplies.

“We’re glad Keystone hasn’t been approved, but we’d like to see the pipeline rejected outright,” said Noah Greenwald, endangered species program director for the Center for Biological Diversity, in a phone interview. He said producing petroleum from oil sands releases more greenhouse gases and requires more water than conventional oil production.

The Natural Resources Defense Council, an opponent of the project, said Obama’s decision puts the health and safety of the public ahead of the interests of oil and gas companies.

‘Truth, Misinformation’

The decision is “a victory of truth over misinformation,” Frances Beinecke, the group’s president, said today in an e- mailed statement. “This pipeline was never in America’s national interest.”

Governors in the six states along the Keystone route were unhappy with the decision, saying they were relying on the project to create jobs and help get their oil to market.

“We need this pipeline if we want to pull together for energy security,” Montana Governor Brian Schweitzer, a Democrat, said in a telephone interview. Montana issued a permit for the pipeline in December and negotiated a $100 million access on-ramp for state-produced oil with TransCanada, he said.

Wendy Abrams, who raised from $50,000 to $100,000 for Obama in 2008, according to the Center for Responsive Politics, had said rallying her friends around the president would be hard if he approved the pipeline. She said Obama has since shown that he’s not “in the pocket of Big Oil.”

‘Politically Motivated’

The decision was “politically motivated” and will make the U.S. more dependent on foreign nations “that don’t share our interests,” U.S. Chamber of Commerce President Thomas Donohue said. The decision shows job creation is not a high priority for Obama, he said.

“The president’s decision sends a strong message to the business community and to investors: Keep your money on the sidelines, America is not open for business,” Donohue said.

Denying a U.S. permit shows Obama listens to “fringe protest groups” and will set a bad precedent, said Charles Drevna, president of the Washington-based National Petrochemical & Refiners Association.

“President Obama has given in to political pressure from extremist opponents of fossil fuels and turned his back on American consumers who need fuel, American workers who need jobs, and America’s economic and national security,” he said in an e-mailed statement.

‘A Distraction’

Representative Edward Markey of Massachusetts, the senior Democrat on the Natural Resources Committee, said the pipeline isn’t critical to U.S. energy policy, and became “a distraction” from attempts to reduce the nation’s dependence on foreign sources of oil.

“This pipeline would have taken the dirtiest oil on the planet, sent it snaking across the Midwest in an already-leaky pipeline, only to be exported to foreign markets once it reached the Gulf Coast,” Markey said. “The United States shouldn’t be used as a middleman between the dirtiest Canadian oil and the thirstiest foreign markets, when what the American people get in return is environmental risk and higher gas prices.”

The administration in November delayed approving the project until after the 2012 election, saying it wanted to study an alternate route that would take the pipeline away from environmentally sensitive Sand Hills area in Nebraska.

The State Department said at the time that the review of an alternative route could be completed “as early as the first quarter of 2013.”

‘All In’

Obama’s jobs council yesterday called for an “all-in” approach, urging an expansion of oil and gas drilling and an acceleration of projects including pipelines.

“We should allow more access to oil, natural gas and coal opportunities on federal lands,” the President’s Council on Jobs and Competitiveness said in a year-end report.

The American Petroleum Institute, the Washington-based group representing oil and gas companies, plans to lobby Congress for legislation that would take away Obama’s power to make a final decision on the Keystone pipeline.

“The president’s decision today makes us question if he’s truly interested in jobs creation,” API President Jack Gerard said in an interview before an appearance in Washington.

TransCanada applied for a U.S. permit in 2008. Advocates such as Senator Richard Lugar, an Indiana Republican who sponsored legislation to set the February deadline, said further delay compromises U.S. efforts to import more oil from a friendly nation.

“The studying time is done,” Lugar said in an e-mailed statement. “The environmental concerns have been addressed. The job creation, economic and energy-security arguments are overwhelmingly in favor of building it. The president opposing pipeline construction is not in the best interest of the United States.”

To contact the reporters on this story: Kate Andersen Brower in Washington at kandersen7@bloomberg.net; Jim Snyder in Washington at jsnyder24@bloomberg.net

To contact the editor responsible for this story: Timothy Franklin at tfranklin14@bloomberg.net

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