Stocks Cheaper Than Any U.S. Peak in 23 Years

By Whitney Kisling - Mar 5, 2012 9:38 PM GMT+0700

Corporate profits that doubled since 2009 have left the Standard & Poor’s 500 Index cheaper than at all 34 peaks since 1989, even as options traders push the cost of protecting against losses to the highest in four years.

Companies in the benchmark gauge of U.S. stocks trade for 14.1 times earnings after advancing 102 percent since March 2009 to an almost four-year high last week, data compiled by Bloomberg show. Valuations are lower than at every 52-week peak since 1989. Traders have pushed the price of contracts that pay should the S&P 500 drop 20 percent to the most since 2007 compared with ones betting on a rally of the same size.

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The S&P 500 climbed 0.3 percent to 1,369.63 last week and closed at 1,374.09 on March 1, the highest since 2008. Photographer: Tim Boyle/Bloomberg

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March 2 (Bloomberg) -- Michael A. Gayed, the chief investment strategist at Pension Partners LLC, talks about the outlook and performance of retailer and consumer stocks. Gayed speaks with Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

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March 2 (Bloomberg) -- James McCaughan, chief executive officer of Principal Global Investors, talks about the outlook for Europe's sovereign-debt crisis and the possible impact on global stock markets. He speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

Rising oil prices and concern European leaders have yet to contain the credit crisis are keeping investors from paying more for profits, which are projected to reach annual records through 2013. Bears say equities aren’t cheap because the profit estimates are too optimistic. Bulls say shrinking price-earnings ratios provide a margin of safety should gains in the U.S. economy fail to match forecasts.

“Stocks have just gotten too cheap,” Paul Zemsky, the New York-based head of asset allocation for ING Investment Management, said in a telephone interview. His firm oversees $160 billion. “We were worrying about a Chinese hard landing that didn’t happen. We worried about a U.S. double dip and that didn’t happen. We worried about Europe disintegrating, that didn’t happen. The worst risks have passed.”

Weekly Gain

The S&P 500 climbed 0.3 percent to 1,369.63 last week and closed at 1,374.09 on March 1, the highest since 2008, as jobless claims fell to a four-year low and consumer confidence improved. The gauge slipped 0.3 percent to 1,365.66 at 9:36 a.m. New York time today.

The index was 6 points above its 2011 high of 1,363.61 last week, even as its price-earnings ratio fell from 15.6. Companies from Abbott Laboratories (ABT) in Abbott Park, Illinois, to Memphis, Tennessee-based International Paper Co. (IP) have rallied while valuations shrunk.

Profits grew 99 percent between the end of 2009 and 2011, and are forecast to rise another 12 percent this year and 13 percent next, data compiled by Bloomberg show.

Nine quarters of earnings growth have outpaced the index’s advance, leaving valuations 14 percent below the five-decade average of 16.4. The price-earnings ratio hasn’t been this low while the index was at a 52-week high in 23 years, according to data compiled by Bloomberg that excludes peaks that occurred within a month of one another.

Stay Away

Investors are shunning equities after one of the most volatile years on record, a period when 10-year U.S. Treasury bonds returned 9.8 percent compared with nothing for stocks. Concern Greece would default on its debt, six increases to lender reserve requirements by the People’s Bank of China and U.S. unemployment above 9 percent sent the S&P 500 down more than 19 percent between April and October before recovering.

“What you’re seeing is a gigantic exercise in behavioral finance,” Brian Barish, who helps oversee about $7 billion as Denver-based president of Cambiar Investors LLC, said of the multiple in a Feb. 29 phone interview. “It isn’t fair, but it is understandable. The ability to scare the hell out of people is much greater than the ability to attract them to equities.”

Options traders have increased bearish bets even as shares gained and earnings exceeded estimates by 3.1 percent in the fourth quarter. Six-month puts to protect against a 20 percent decline in the S&P 500 have an implied volatility of 29.09. That’s 2.2 times higher than calls to bet on a 20 percent gain, Bloomberg data on the price relationship known as skew show.

Peak Margins

Low valuations and rising options costs reflect investor concern about earnings after profit margins in the S&P 500 rose nine straight quarters and reached 14 percent between October and December, said Eric Teal, who manages $4 billion at First Citizens Bancshares Inc. Profitability has only been higher during five quarters in 2006 and 2007 and one in 1999. In both cases, the S&P 500 was in a bear market within a year.

Margins averaged 10 percent between 1991 and 2006, according to data compiled by Bloomberg.

“There is an underlying concern that profit margins have peaked and will begin to contract in coming years,” Teal, the Raleigh, North Carolina-based chief investment officer, said Feb. 28. “Thus, investors are unwilling to pay up for earnings that are clouded with uncertainty.”

Bearish Bets

For Keith Wirtz, who oversees $14.6 billion as chief investment officer for Fifth Third Asset Management in Cincinnati, there’s little surprise in options rising after the S&P 500 gained 25 percent in five months. The last time bearish bets were this high relative to bullish ones was in May 2007. The S&P 500 reached the highest price-earnings ratio in two years the following month and a record high of 1,565.15 in October 2007. What followed was the worst financial crisis since the Great Depression, with equity losses of 57 percent through March 2009.

“You’ve got risk coming from everywhere,” Wirtz said in a Feb. 29 phone interview. “That’s why the markets are skittish. You can’t put a measurement against those risks. How do you put probabilities on these kinds of outcomes? You just have to discount the worst, which is what they’re doing.”

The rally that restored more than $3.2 trillion to U.S. equity value since October is pushing up indicators used by analysts who use charts to predict future prices. About two- thirds of New York Stock Exchange-listed companies closed last week above their 200-day moving average. The 14-day relative strength index for the S&P 500, which compares the magnitude of gains and losses, has exceeded 70 on 13 days since Jan. 25. Some investors use that level as a signal a rally has come too far, too fast.

Reaching Peaks

Of the 500 companies in the benchmark equity gauge, 67 reached 52-week highs last week, data compiled by Bloomberg show. That compares with 31 in the same week last year. Shares of Abbott, the maker of nutritional drinks, heart stents and drugs, reached the highest level in three years, even as its earnings multiple shrunk to 12.1 from 12.6 in May, data compiled by Bloomberg show. Profits excluding some items increased 12 percent a year since 2009 while shares rose an average 2.4 percent each year.

International Paper’s earnings haven’t trailed analyst forecasts since 2008 and the stock reached its highest price since November 2007 last week. The world’s largest pulp and paper producer’s price-earnings ratio fell 35 percent in the past 12 months to 10.1, data compiled by Bloomberg show.

Target Earnings

Annual profit at Target Corp. (TGT), the second-largest U.S. discount retailer, has climbed 15 percent on average since fiscal 2010. Even after reaching an almost 14-month high on March 1, the shares are trading at 13.5 times earnings, compared with 13.6 in October and the average of 19 since 1990.

“A number of recent trends have emerged which should support stronger corporate profits, including better U.S. economic data, less-severe results in Europe, higher oil prices and reduced financial sector stress,” Jonathan Golub, chief U.S. market strategist at UBS Securities LLC in New York, wrote last week, raising his year-end estimate for the S&P 500 to 1,475 from 1,325. “Conditions support further increases in both earnings and stock prices.”

To contact the reporter on this story: 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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China Cuts GDP Target Seeking Sustainable Growth

By Bloomberg News - Mar 5, 2012 5:05 PM GMT+0700

China pared the nation’s economic growth target to 7.5 percent from an 8 percent goal in place since 2005, a signal that leaders are determined to cut reliance on exports and capital spending in favor of consumption.

Officials will also aim for inflation of about 4 percent this year, unchanged from the 2011 goal, according to a state- of-the-nation speech that Premier Wen Jiabao delivered to about 3,000 lawmakers at the annual meeting of the National People’s Congress in Beijing today.

Asian stocks fell as Wen, 69, said the nation needs to shift to a more sustainable and efficient economic model and achieve “higher-quality development over a longer period of time.” China must boost the incomes of ordinary people, count less on exports and investment and reduce the state’s role in favor of private enterprise, Zong Qinghou, the country’s second- richest man, said in a March 3 interview.

“The growth target indicates the lowest level that the government is comfortable with and is also a signal to local officials that they shouldn’t solely focus on the rate of expansion,” said Michael Buchanan, chief Asia-Pacific economist at Goldman Sachs Group Inc. in Hong Kong. “China’s trend growth rate is coming down but it’s still higher than this -- more like around 9 percent.”

Fiscal, Monetary Policy

Wen reiterated that the government will maintain a “proactive” fiscal policy and a “prudent” monetary policy. The government in February lowered banks’ reserve requirements for the second time in three months to boost lending and sustain growth, following five interest-rate increases from October 2010 to July 2011 aimed at slowing inflation.

The MSCI Asia Pacific Index (SHCOMP), which has gained for 11 straight weeks, fell 1 percent as of 2:20 p.m. in Tokyo. The benchmark Shanghai Composite Index dropped 0.4 percent at 1:21 local time. The gauge, while up 12 percent in 2012, has declined 16 percent from a year ago as China’s growth decelerated to the slowest since the second quarter of 2009.

The yuan weakened 0.1 percent against the dollar to 6.3047.

Elsewhere in Asia, India’s services industries expanded at a slower pace in February, according to a purchasing managers’ index released today by HSBC Holdings Plc and Markit Economics. Taiwan may say inflation slowed in February from January, according to the median estimate of economists surveyed by Bloomberg.

Europe Slowing

European services and manufacturing contracted last month, a final composite gauge may show today. Italy, France and Germany will also release services PMI data today. Euro zone retail sales probably fell 0.1 percent in January from the previous month, the third consecutive decline, economists predicted ahead of the report.

The Institute for Supply Management may say service industries in the U.S. grew at a slower pace in February, while a Commerce Department report may show orders to U.S. factories fell in January.

China’s government plans a budget deficit of 800 billion yuan ($127 billion), or 1.5 percent of GDP, Wen said. That compares with last year’s target of 900 billion yuan, or 2 percent of GDP, and the actual deficit of 850 billion yuan, a figure altered by the use of a so-called budget stabilization fund and shifting some local-government spending, according to the speech. The Ministry of Finance in January gave preliminary budget data indicating a 2011 deficit of 519 billion yuan, or 1.1 percent of GDP.

Analyst Forecasts

The growth target matched the median forecast of 15 economists surveyed by Bloomberg News last month. Twelve of 15 economists forecast a 4 percent inflation goal, while the median estimate of 13 respondents was for a budget deficit of 1 trillion yuan.

Officials are targeting money-supply growth of 14 percent, according to the report, in line with the median forecast of 15 analysts for the rise in M2, the broadest measure. China has a goal of increasing fixed-asset investment by 16 percent this year, the National Development and Reform Commission said in a report. That’s below the 18 percent median estimate of 12 economists.

Wen and fellow officials from the ruling Communist Party are preparing to begin a once-in-a-decade handover of power later this year to a new set of leaders. President Hu Jintao and Wen will step down from their roles and let a younger generation of leaders step in that’s likely to include Vice President Xi Jinping and Vice Premier Li Keqiang.

Incomes ‘Too Low’

“The biggest hurdle facing China’s economy now is that the government’s income is too high and the people’s income is too low,” Zong, 66, chairman of Hangzhou Wahaha Group Co. and a member of China’s legislature, said in the interview.

The country’s leaders may cut the bank-reserve ratio further this year, Bank of China Ltd. (3988) Chairman Xiao Gang said in Beijing. Xiao also said the state-controlled bank, China’s fourth-largest by market value, will have loan growth this year be similar to that of 2011.

“This low growth target with relatively high inflation suggests monetary policy will be relatively relaxed,” said Liu Li-Gang, head of Greater China economics at Australia & New Zealand Banking Group Ltd. (ANZ) in Hong Kong. “This in turn will help increase bank lending and boost investment.”

The National People’s Congress, while often derided as a rubber-stamp parliament, counts some of China’s most powerful politicians and executives as its members. They wield power in their home provinces and weigh in on proposals such as levying a property tax, privatizing state-owned enterprises and changing how China manages its currency.

Global Contributor

China was the largest contributor to global GDP growth in 2010 as it surpassed Japan to become the world’s second-largest economy, after an average annual expansion of 10 percent for three decades lifted more than 600 million people out of poverty, according to the World Bank. The nation’s urban population last year surpassed that of rural areas for the first time.

The annual economic-growth targets have been routinely surpassed and are more indicative of the direction of policy. Even so, gross domestic product expanded 8.9 percent in the fourth quarter from a year earlier, the least since the second quarter of 2009. For the full year, growth was 9.2 percent after 2010’s 10.4 percent, compared with the 8 percent goal.

China’s consumer prices rose 5.4 percent last year, exceeding the 2011 official annual target of 4 percent while easing from July’s peak of 6.5 percent.

Average Target

Leaders are trying to ensure the expansion slows to no less than an average targeted pace of 7 percent for the five years through 2015.

At the same time, heightened pollution, a widening income gap and an aging population along with an under-developed social-security system are testing Communist Party leaders’ plans to shift to a more-balanced growth model.

On top of that, risks of a deeper slowdown may be rising as Europe’s sovereign-debt crisis is pushing the continent into recession, curbing China’s exports, while the country maintains rules that have ended a surge in home prices. Fifty-nine percent of global investors polled by Bloomberg in September said China’s economy will expand less than 5 percent annually by 2016.

Foreign companies are still looking to the country for growth. Yum! Brands Inc. (YUM), owner of the KFC and Taco Bell fast- food chains, said fourth-quarter profit gained 30 percent as it opened a record 656 stores last year in China.

China’s exports fell 0.5 percent in January, the first drop in more than two years, as a sluggish global economy hurt demand and the weeklong Chinese New Year holiday disrupted trade. Sales to the European Union rose 14 percent in 2011 after a 32 percent gain in 2010, according to data from China’s customs administration.

--Victoria Ruan, Zhang Dingmin, Henry Sanderson. With assistance from Kevin Hamlin, Stephen Engle, Michael Forsythe and Nerys Avery in Beijing. Editors: Scott Lanman, Paul Panckhurst

To contact Bloomberg News staff on this story: Victoria Ruan in Beijing at vruan1@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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Obama Has ‘Israel’s Back’ Preventing Iran Nuke

By Margaret Talev - Mar 5, 2012 3:16 AM GMT+0700

President Barack Obama said the U.S. won’t hesitate to use military force to stop Iran from developing a nuclear weapon, while asserting there is still time for diplomacy and sanctions to work.

A nuclear-armed Iran threatens the security of the U.S. as well as Israel and would trigger an arms race in the region, Obama said in Washington to a conference of the American Israel Public Affairs Committee, the biggest pro-Israel organization in the U.S. He said international pressure including economic sanctions is isolating and dividing the Iranian leadership.

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U.S. President Barack Obama delivers remarks at the American Israel Public Affairs Committee (AIPAC) policy conference in Washington, D.C., U.S., on Sunday, March 4, 2012. Photographer: Ron Sachs/Pool via Bloomberg

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March 4 (Bloomberg) -- President Barack Obama speaks about Iran's nuclear program and the U.S.'s resolve to prevent the country from developing a nuclear weapon. Obama, speaking to a conference of the American Israel Public Affairs Committee in Washington, says the U.S. won't rule out any options to stop Iran from obtaining a weapon, adding that there is still time for diplomacy to work. (These are excerpts of Obama's speech. Source: Bloomberg)

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U.S. President Barack Obama and American Israel Public Affairs Committee (AIPAC) President Lee Rosenberg wave to AIPAC delegates assembled during a policy conference in Washington, D.C., U.S., on Sunday, March 4, 2012. Photographer: Ron Sachs/Pool via Bloomberg

“Iran’s leaders should know that I do not have a policy of containment; I have a policy to prevent Iran from obtaining a nuclear weapon,” Obama said. “And as I’ve made clear time and again during the course of my presidency, I will not hesitate to use force when it is necessary to defend the United States and its interests.”

Whether and when to use military force to stop Iran’s nuclear program has replaced the Israel-Palestinian peace process as the dominant issue in Israel-U.S. relations. Obama’s speech came on the eve of White House meeting with Israeli Prime Minister Benjamin Netanyahu, who also will address Aipac. In his 34-minute speech, Obama set out no so-called “red line” that if crossed by Iran would trigger a U.S. attack.

Netanyahu Reacts

Netanyahu said he was gratified to hear Obama reiterate his position that Iran must not be allowed to build a nuclear weapon and that the option of using military force remains.

“I appreciated that he made clear that when it comes to a nuclear-armed Iran containment is not an option,” Netanyahu said in Ottawa before leaving for Washington.

The Israeli leader also cited Obama’s affirmation that Israel has the right to act on its own if needed.

“I very much appreciated the fact that he said Israel has the right to defend itself by itself against any threat,” he said.

Obama’s relationship with Israel and the threat posed by Iran has emerged in the U.S. presidential campaign. Three Republican presidential candidates are scheduled to deliver messages to the Aipac conference.

Obama said all parties should consider the “weightiness of these issues” and the stakes for both the U.S. and Israel. He warned that the approach in dealing with Iran must be deliberate.

‘Loose Talk of War’

“Already, there is too much loose talk of war,” Obama said. “Such talk has only benefited the Iranian government, by driving up the price of oil, which they depend upon to fund their nuclear program. For the sake of Israel’s security, America’s security, and the peace and security of the world, now is not the time for bluster.”

Since the start of October, crude oil has risen 37 percent. Oil futures for April delivery were $106.70 a barrel March 2 on the New York Mercantile Exchange. Brent oil may rise to $150 a barrel this year if diplomatic relations between Iran and the west worsen, Barclays Plc forecast in a March 1 report.

Israeli President Shimon Peres, addressing Aipac this morning, said there is no disagreement between Israel and the U.S. on the goal of stopping Iran’s from building nuclear arms.

“Our message is clear: Iran will not develop a nuclear weapon,” Peres said.

Peres Medal

Obama, who also met with Peres after they spoke, told Aipac he will award Peres the Presidential Medal of Freedom, the highest U.S. civilian honor, later this year.

Iran says its nuclear program is for civilian energy and medical research.

The U.S. and the European Union tightened economic sanctions following a Nov. 8, 2011, report by United Nations inspectors that Iran’s nuclear research program may include pursuing the capability to build a nuclear weapon. As a result, Obama said, Iran is isolated and its economy ground to almost a halt last year.

Mark Dubowitz, executive director of the Washington-based policy research group Foundation for Defense of Democracies, said the only audience that counts for Obama’s message that he won’t tolerate a nuclear-armed Iran is Netanyahu and Iranian Supreme Leader Ayatollah Ali Khamenei.

‘Meaningful Action’

“It is now up to him to back up his words with meaningful action that sends a message to Jerusalem and Tehran about the strength of his resolve,” said Dubowitz, who has advised the administration and members of Congress on sanctions. Those actions, he said, include crippling sanctions, support for the Iranian opposition and preparations for military action.

“Overall it was a very good speech,” Israeli Deputy Foreign Minister Danny Ayalon said on Israel’s Channel 2 television. “The point that we have to pay particular attention to is that here, Obama has declared ownership; Iran is an American problem, and we won’t allow it to go nuclear.”

The Iranians, he said, “need to pay very close attention to what was said here.”

Aipac will also hear from Republican candidates including former House Speaker Newt Gingrich, former Massachusetts Governor Mitt Romney and former Pennsylvania Senator Rick Santorum, all of whom have accused Obama of failing to give Israel sufficient support. Obama won in 2008 with 78 percent support from Jewish voters, according to national exit polls.

Romney Criticism

Campaigning near Atlanta before the next round of primary contests on March 6, Romney said Obama has failed to impose sufficiently harsh sanctions against Iran or make clear that Iran having a nuclear weapon is “unacceptable to America.”

“I understand he just gave an address today talking about all the great things he’s done to provide greater peace and reduce the threat from Iran,” Romney told more than 1,000 voters in Snellville, Georgia. “That hasn’t happened.”

Without specifically citing critics, Obama reaffirmed his support for Israel and listed steps his administration has taken to bolster Israel’s defense and defend its ally.

“There should not be a shred of doubt by now: when the chips are down, I have Israel’s back,” Obama said. Political opponents who attack his policies are “not backed up by the facts,” he said.

To contact the reporter on this story: Margaret Talev in Washington at mtalev@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net

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BP Set to Rise as Spill Settlement Lifts Cloud

By Brian Swint - Mar 5, 2012 7:01 AM GMT+0700

BP Plc (BP/) is poised to gain at least 5 percent this week after a $7.8 billion settlement with victims of the worst U.S. oil spill, an analyst survey showed.

BP shares will probably rise to a minimum of 520 pence from the close of 496.5 pence on March 2, according to the forecasts of five oil industry analysts. Jason Kenney, an analyst for Banco Santander SA (SAN) in Edinburgh, said the stock may climb as high as 580 pence over time if additional spill costs stay within the company’s estimates.

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Photographer: Chris Ratcliffe/Bloomberg

The deal with businesses and individuals, reached after markets closed last week, was lower than the $14 billion that had been discussed, according to people familiar with the talks, and the money for the settlement will come from a $20 billion compensation fund that’s already provisioned for. BP Chief Financial Officer Brian Gilvary said yesterday the company is prepared to settle with the U.S. government for penalties under the Clean Water Act if the terms are fair.

The agreement is “very positive,” said Fadel Gheit, an analyst at Oppenheimer & Co. in New York. It “could speed up a government settlement and remove this dark cloud that has been hanging over BP for two years,” he said in an e-mailed response to questions.

BP’s market value has dropped by about 29 billion pounds ($45 billion) since the explosion on April 20, 2010, on the Deepwater Horizon rig that killed 11 workers and started the spill. Shares closed at 642.5 pence the day before the disaster.

Pollution Law

London-based BP still faces as much as $17.6 billion in fines for pollution law violations in a suit by the federal government, which will now take the lead in any trial over the spill. U.S. District Judge Carl Barbier in New Orleans yesterday postponed the trial, scheduled to start today, in light of the settlement.

“We remain prepared to settle with others on terms that are fair and reasonable,” CFO Gilvary said on yesterday’s conference call with analysts, echoing comments by Chief Executive Officer Bob Dudley on Feb. 7. “But equally, we’re prepared to go to court.”

Gilvary said it wouldn’t be appropriate to comment on settlement negotiations with federal or state governments. The settlement with individuals and businesses “removes a significant amount of uncertainty for the company in terms of the outlook, but also financially,” he said.

Stuart Joyner, an analyst at Investec Securities Ltd., said shares are about 25 percent below where they would be without the accident. The settlement with victims may push up shares 5 percent, he said.

Stronger Position

“It’s by no means over, but by settling with the largest group, BP is in a stronger position to negotiate with the government,” Joyner said. “BP can say they’ve made it right. The government is after an element of punishment, but if they get too tough it will look like they’re really going after the company, which they said they wouldn’t do.”

BP said the proposed settlement won’t increase the $37.2 billion charge it previously recorded in its financial statements for costs associated with the spill. That figure includes the $20 billion BP set aside for the claims trust fund.

BP would be able to absorb as much as $40 billion of costs related to the spill and still maintain a stable outlook on its A2 debt rating, which is five levels above the lowest investment-grade rank, Moody’s Investors Service said Feb. 24.

The accord provides for a transition from the Gulf Coast Claims Facility trust, through which BP said it has paid more than 220,000 claims from individuals and businesses. The company warned that, although the accord is for $7.8 billion, the $14 billion remaining in the trust may not be enough to satisfy all the costs the fund was created to address.

Earlier Talks

Before the settlement announcement, BP had been in talks with lawyers for spill victims over a deal to be funded by liquidating the remainder of the claims facility, three people familiar with the matter had said.

“The whisper was that the deal would be closer to $14 billion, so if it turns out to be around $8 billion, that’s clearly positive for BP,” said Jason Gammel, an analyst at Macquarie Capital Ltd. in London. “There’s about 30 pence per share of upside. The settlement with the government is still the biggest outstanding item.”

U.S. Attorney General Eric Holder, whose lawyers will now be leading the way in any trial, said Feb. 28 the U.S. has a “strong” case over liability for the explosion.

“We are prepared to go to trial,” Holder said in testimony before a U.S. House Appropriations subcommittee in Washington.

BP set aside $3.5 billion to pay Clean Water Act fines based on its own lower estimate of barrels spilled and no finding of gross negligence, or a conscious act or omission, which would raise the level of penalty per barrel spilled to as much as $4,300 from the $1,100 maximum as a result of simple negligence.

“The share price deserves to be at about 560,” said Iain Armstrong, an analyst at broker Brewin Dolphin Ltd. in London. “It’s still messy, but this is one more step to putting it behind them.”

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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Putin Wins Six More Years in Kremlin

By Henry Meyer and Ilya Arkhipov - Mar 5, 2012 7:57 AM GMT+0700

Russian Prime Minister Vladimir Putin claimed victory in a presidential election that his opponents say was marred by fraud, accusing protesters against his rule of seeking to usurp power.

“We won in an open and honest fight,” Putin said in front of thousands of supporters near the Kremlin last night as tears streamed down his face. “We showed that our people can easily distinguish between a desire for novelty and renewal from political provocations which have only one goal: to destroy Russian statehood and usurp power.”

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Russian Prime Minister Vladimir Putin delivers a speech during a rally with his supporters at the Luzhniki stadium in Moscow. Photographer:Yuri Kabodnov/AFP/Getty Images

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Russia's Prime Minister and presidential candidate Vladimir Putin votes in a polling station in Moscow, on March 4, 2012. Photographer: Yuri Kabodnov/AFP/Getty Images

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A woman marks her ballot at home as a member of a local electoral commission stands behind her with a mobile ballot box in the village of Muravshchina. Photographer: Viktor Drachev/AFP/Getty Images

Putin, 59, who has been at Russia’s helm for 12 years including the last four as premier, won another six years in the Kremlin with about 64 percent of the vote, according to preliminary results with more than 90 percent of all ballots counted. Exit polls estimated his score at about 60 percent. Opposition groups plan a rally in Moscow today.

The Russian leader is seeking to reassert his authority in the face of renewed protests over electoral fraud allegations similar to those that sparked the largest unrest in his decade in power. Outgoing President Dmitry Medvedev, who agreed to step aside in September to make way for Putin’s return, appeared alongside his predecessor at the rally. Putin backed the presidential candidacy of Medvedev, 46, four years ago, when the constitution prevented him from running for a third consecutive term.

‘Frustration and Anger’

“Putin may have won the election but the challenges he’s been facing in the past few months won’t go away,” said Masha Lipman, an analyst at the Carnegie Moscow Center. “There is deep frustration and anger, and protests will continue.”

Putin’s support plummeted last year, culminating in rallies that brought tens of thousands of people to the streets of Moscow and other major cities to protest alleged fraud in the ruling United Russia party’s victory in Dec. 4 elections. The premier vowed to raise spending on social programs and the military as he stepped up campaign promises to reverse the slide in his ratings.

Putin scored 64.5 percent, with 92.2 percent of votes counted, according to the Central Electoral Commission, which estimated turnout at 64 percent. Official results are due later today. Putin got 58.3 percent of the vote, the All-Russian Center for the Study of Public Opinion, or VTsIOM, said, citing an exit poll of 159,161 people. Putin got 59.3 percent, according to an exit poll by the Public Opinion Foundation.

Fraud Allegations

Fraud allegations are exceeding reports received during the conduct of the election three months ago, Alexey Navalny, an anti-corruption blogger and opposition leader, told the Ekho Moskvy radio station.

About 5,000 reports of violations had been registered nationwide, the Golos vote monitoring group said by e-mail. Presidential candidates Gennady Zyuganov, the leader of the Communist party who placed second, and billionaire Mikhail Prokhorov, who was third, questioned the fairness of the balloting.

The vote was the cleanest election in the “entire history of Russia,” Putin’s campaign manager, Stanislav Govorukhin, told reporters.

The ruble has gained 9.7 percent against the dollar this year, the third-best performance among currencies tracked by Bloomberg, behind the Hungarian forint and the Polish zloty. The benchmark Micex (INDEXCF) stock index is up 15 percent.

The cost of insuring government debt against non-payment for five years using credit-default swaps fell to 179 basis points on March 2, its lowest level since Aug. 17, according to data provider CMA, which is owned by CME Group Inc. (CME) and compiles prices quoted by dealers in the privately negotiated market.

‘Happy Investors’

“Investors will be happy if the exit polls are confirmed,” Chris Weafer, chief strategist at Moscow-based investment bank Troika Dialog, said by e-mail. “Attention will quickly switch to who will be appointed in the key positions in the next government and how Putin can deliver on the promises made during his election campaign without busting the budget.”

As European nations adopt record austerity measures that have toppled governments from Spain to Romania, Putin’s pledges may raise government spending by as much as 4.8 trillion rubles ($164 billion), or 5 percent of economic output, through 2018, Capital Economics estimates.

‘Full Support’

More than 100,000 people gathered near the Kremlin for the rally to celebrate Putin’s victory, state television said. One of the participants, Sergei Smykov, 50, an autoworker from Nizhny Novgorod, 400 kilometers (250 miles) southeast from Moscow, said Putin had restored Russia after the chaos of the 1990s. “He has my full support,” he said.

Zyuganov came second with 17 percent backing, according to the partial results. He was followed by Prokhorov with 6.9 percent and Vladimir Zhirinovsky of the nationalist Liberal Democratic Party with 6.6 percent.

The election was “absolutely unfair,” Zyuganov said on state television. He declined to congratulate Putin on his victory or recognize the outcome. Prokhorov also said he didn’t consider the presidential vote honest.

Putin’s election is “illegitimate” and protests led by middle-class Russians won’t die down, said former Prime Minister Mikhail Kasyanov, an opposition leader.

‘People to the Streets’

“We will continue to call people to the streets,” Kasyanov said by phone. “Mr. Putin has been selected as the winner of this so-called election, and the middle-class in Moscow and other cities know that without this pressure we won’t achieve anything.”

The opposition is calling for new parliamentary and presidential elections in March 2013 and March 2014, Kasyanov said.

The Organization for Cooperation and Security in Europe and Golos will release their assessment of the presidential vote today.

In the southwestern district of Akademicheskaya, a member of the electoral commission filed a complaint after five minibuses of people came to vote at a polling station. The people said they were soccer players who had been invited to Moscow for a game by United Russia, said the official, Yuri Zuev, adding that he suspected them of multiple voting.

Opposition parties including the Communists have alleged United Russia inflated its result in December to about 50 percent, having won closer to 30 percent of the vote. International observers said the elections were marred by ballot-stuffing.

‘Already Evident’

“It is already evident that the violations are clearly and indisputably affecting the outcome of the vote and yet again show that these are not real elections,” said Navalny.

Authorities installed web cameras in more than 91,000 polling stations in a bid to allay concerns about fraud. The OSCE, which is deploying 230 observers together with the Council of Europe, said in a report last month that the cameras couldn’t capture all the details of the voting process, in particular during counting.

“The next term may be tragic for Putin,” Igor Bunin, head of the Moscow-based Center for Political Technology, said by phone. “He will have to solve dozens of social and economic problems in his term, and to solve them, he risks losing the support of his core electorate.”

To contact the reporters on this story: Henry Meyer in Moscow at hmeyer4@bloomberg.net; Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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European Equity Futures, Asian Stocks Advance

By Lynn Thomasson and Norie Kuboyama - Mar 2, 2012 2:10 PM GMT+0700

European equity futures rose, while the yen weakened and Asian stocks headed for a record 11th weekly gain after U.S. jobless claims matched a four-year low and Europe’s leaders agreed to speed payments to a bailout fund.

Euro Stoxx 50 Index futures added 0.4 percent as of 7 a.m. in London. Standard & Poor’s 500 Index futures slipped less than 0.1 percent and the MSCI Asia Pacific Index (MXAP) climbed 0.3 percent. The yen fell 0.5 percent against the dollar, sliding against all of its major peers. German 10-year bond yields dropped two basis points to 1.85 percent. Industrial metals advanced, led by nickel and tin. Oil declined 0.2 percent after touching $110.55 a barrel yesterday.

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Asian stocks entered a bull market this week and have rallied 20 percent from a two-year low in October. Photographer: Haruyoshi Yamaguchi/Bloomberg

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March 1 (Bloomberg) -- The number of Americans filing first-time claims for jobless benefits fell 2,000 to 351,000, a level matching a four-year low, Labor Department figures showed today. Consumer spending rose 0.2 percent in January, less than forecast, while incomes increased 0.3 percent, according to the Commerce Department. Michael McKee and Betty Liu report on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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March 2 (Bloomberg) -- Herald van der Linde, head of equity strategy for Asia-Pacific at HSBC Holdings Plc, talks about the region's stocks and investment strategy. He speaks in Hong Kong with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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March 2 (Bloomberg) -- Markus Rosgen, Hong Kong-based chief Asian strategist at Citigroup Inc., talks about the outlook for global stocks and the impact of Europe's Long-Term Refinancing Operation on markets. Rosgen speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Chinese policy makers may introduce proposals to support economic growth at the annual National People’s Congress next week. Euro-area finance ministers authorized the region’s bailout fund to issue bonds for the Greek debt restructuring, while the International Swaps & Derivatives Association said $3.25 billion in Greek credit-default swaps won’t be triggered. U.S. initial jobless claims fell 2,000 to 351,000 last week, less than economist estimates.

“The U.S. economy overall is headed for a mild recovery, and that’s supporting stocks,” said Kiyoshi Ishigane, a Tokyo- based strategist at Mitsubishi UFJ Asset Management Co., which oversees about $84 billion. “The Greek debt crisis isn’t fully resolved yet, but it has calmed down for now.”

U.S. Stocks

S&P 500 futures expiring in March were at 1,373.70. The U.S. equity gauge has the potential to reach a record high of 1,700 this year if economic growth surprises investors the same way falling bond rates did in 1995, Birinyi Associates Inc. said. Reaching that level would mean a 24 percent rally from yesterday’s close of 1,374.09, data compiled by Bloomberg show.

Another round of U.S. monetary stimulus is “definitely not off the table,” said John Williams, president of the Federal Reserve Bank of San Francisco, in Honolulu today.

The euro strengthened 0.4 percent to 108.36 yen. Euro-area finance ministers authorized the region’s bailout fund to raise money for Greece’s bond exchange, the first step in releasing funds from a 130 billion-euro ($173 billion) rescue package. Euro governments might pay the first two annual installments into the 500 billion-euro ($666 billion) fund this year and complete the capitalization in 2015, a year ahead of schedule. A decision will come later today.

“There will be an acceleration,” European Union President Herman Van Rompuy told reporters in Brussels late yesterday. “It could be starting with the payment of two tranches in 2012 but we have to take a definite decision.”

Greek Default Swaps

The yield on Greece’s 10-year bond rose 165 basis points to a record 36.44 percent yesterday. The ISDA made its decision on Greek default swaps after it was asked to rule whether part of the nation’s $170 billion bailout was a credit event. The group will now probably be asked to determine whether collective action clauses, or CACS, being used by Greece to impel investors to participate in a wider exchange of bonds that would trigger the swaps.

The Shanghai Composite Index (SHCOMP) rose 1.3 percent and the Hang Seng China Enterprises Index climbed 1.1 percent. The National People’s Congress, whose meeting will run for a week and a half, is legally the highest governmental body in China. Its members are some of China’s most powerful politicians and executives, wielding power in their home provinces and weighing in on proposals such as whether to impose a nationwide property tax.

China’s Stocks

“Investors are hoping there’ll be more reforms that may boost the market,” said Wu Kan, a Shanghai-based fund manager at Dazhong Insurance Co., which oversees $285 million. “Better liquidity these days is also helping the market reach highs.”

Three stocks rose for each that fell in the MSCI Asia- Pacific gauge. The index entered a bull market this week after rallying 20 percent from a two-year low in October. The Nikkei 225 Stock Average (NKY) gained 0.7 and Australia’s S&P/ASX 200 Index increased 0.4 percent.

Shipping companies advanced after container freight rates on Asia to Europe routes more than doubled, according to estimates by Drewry Shipping Consultants Ltd. STX Pan Ocean Co. (028670), a South Korean shipper, jumped 9 percent. Kawasaki Kisen Kaisha Ltd., Japan’s third-biggest carrier, climbed 7.6 percent.

The yen traded near a nine-month low against the dollar after a government report showed Japanese consumer prices fell for a fourth month, boosting speculation the central bank will expand monetary easing. Japan’s 10-year rate rose one basis point to 0.985 percent, the highest since Feb. 10.

Oil, Copper

Oil for April delivery declined 0.2 percent to $108.63 a barrel in electronic trading on the New York Mercantile Exchange. Crude yesterday climbed above $110 a barrel for the first time since May after Iran’s Press TV reported an explosion on a pipeline in Saudi Arabia. There was no sabotage at oil facilities in the Qatif area, Major General Mansour Al-Turki, a spokesman for Saudi Arabia’s Interior Ministry, said after the report.

Copper rose 0.3 percent after inventories tracked by the London Metal Exchange fell to the lowest since August 2009, bourse data showed yesterday. Nickel climbed 1.6 percent to $19,800 a ton and tin advanced 1 percent to $24,000 a ton.

Ten-year Treasury yields held at 2.03 percent. Government securities have dropped 0.5 percent in 2012, while U.S. company debt returned 3.3 percent, Bank of America Merrill Lynch data show.

To contact the reporters on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Norie Kuboyama in Tokyo at nkuboyama@bloomberg.net

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

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Romney Names Oklahoma Oil Billionaire Hamm as Energy Adviser

By Joe Carroll - Mar 2, 2012 12:25 AM GMT+0700

Mitt Romney, the front-runner for the Republican Party’s presidential nomination, appointed Oklahoma oil billionaire Harold Hamm as energy adviser to his campaign.

Hamm, the 66-year-old founder, chairman and chief executive officer of Continental Resources Inc. (CLR), will be chairman of Romney’s Energy Policy Advisory Group, the candidate’s campaign office said in a statement today.

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Mitt Romney in Detroit on Feb. 24, 2012. Photographer: Yana Paskova/The New York Times/Redux

Hamm ranked 36th on Forbes magazine’s list last year of the 400 wealthiest Americans. His 68 percent stake in Enid, Oklahoma-based Continental, the largest leaseholder in the Bakken oil formation, had a value of $11.2 billion as of yesterday’s close.

Romney has attacked President Barack Obama for policies he says increased energy prices. Gasoline prices averaged $3.56 a gallon last month in the U.S., the highest ever for this time of year.

“Mitt’s goal of cheap, plentiful energy for the American economy offers the American people a stark alternative to President Obama’s goal of driving prices higher,” Hamm said in the statement.

With nine months to go before U.S. voters choose a president, Romney has won an estimated 151 of the 1,144 delegates needed to get his party’s nomination to oppose incumbent President Barack Obama, more than all three of his opponents combined.

‘Streamlined’ Regulation

Romney’s energy plan calls for establishing fixed timetables for federal decisions on oil, natural-gas and nuclear projects, and a “streamlined approach” to regulation, his campaign said in the statement. He also would urge Congress to amend the Clean Air Act to exclude carbon dioxide from the list of regulated pollutants.

The U.S. should abandon Obama’s “course of restricting supply, increasing regulation, and hoping for miraculous new technologies to save the day,” Romney said in the statement.

Continental is the largest leaseholder in the Bakken shale, a geologic formation beneath the northern Great Plains that holds more crude than any other deposit in the contiguous U.S.

Hamm began exploring the Bakken almost two decades ago and now controls more than 350 wells. Using intensive drilling and rock-fracturing techniques, Hamm pioneered the oil boom that last year pushed North Dakota’s output to a record, exceeding production of Ecuador, an Organization of Petroleum Exporting Countries member.

The Bakken shale and two nearby formations known as the Three Forks and Sanish have the potential to become some of the largest oil-producing zones in the next 30 years, said Christian O’Neill, an analyst with Bloomberg Industries.

To contact the reporter on this story: Joe Carroll in Chicago at jcarroll8@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net

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U.S. Stocks Rise on Bank Rally as Jobless Claims Decline

By Rita Nazareth - Mar 2, 2012 5:00 AM GMT+0700

U.S. stocks advanced, sending the Standard & Poor’s 500 Index to the highest level since 2008, amid a rally in financial shares and after government data showed that jobless claims declined to a four-year low.

JPMorgan Chase & Co. (JPM) and Bank of America Corp. (BAC) climbed at least 1.8 percent as Spanish and French borrowing costs fell. ConocoPhillips (COP) added 2.2 percent, pacing gains in energy producers, as crude oil traded near $110 a barrel. Gap Inc. (GPS), the largest U.S. apparel chain, increased 7.2 percent as same-store sales exceeded estimates. General Motors Co. (GM) jumped 1.7 percent after the automaker reported a surprise U.S. sales gain.

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March 1 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks advanced, sending the Standard & Poor’s 500 Index to the highest level since 2008, amid a rally in financial shares and after government data showed that jobless claims declined to a four-year low. Bloomberg's Pimm Fox also speaks. (Source: Bloomberg)

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March 1 (Bloomberg) -- Jeffrey Hirsch, president of the Hirsch Organization and editor of the "Stock Trader's Almanac," talks about the outlook for U.S. stocks markets and his advise for investors. He speaks with Adam Johnson, Lisa Murphy and Stephanie Ruhle on Bloomberg Television's "Street Smart." (Source: Bloomberg)

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March 1 (Bloomberg) -- David Gerstenhaber, president and founder of Argonaut Management LP, talks about investment strategy and the economy. Gerstenhaber speaks with Sara Eisen and Stephanie Ruhle on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

The S&P 500 added 0.6 percent to 1,374.09 at 4 p.m. New York time, after a three-month gain. The Dow Jones Industrial Average rose 28.23 points, or 0.2 percent, to 12,980.30.

“We’re not lighting the world on fire, but we’re seeing improvement in the economy,” said Mark Masterson, managing director and partner at HighTower’s Masterson, Emma & Associates in Naples, Florida. Hightower has over $25 billion in assets. “The risk from the European situation has been reduced. I don’t know that it’s been eliminated. Best I can say at this point is that it appears to have been postponed.”

Equities rose as the number of Americans filing first-time claims for jobless benefits fell to a level matching a four-year low, more evidence the labor market is healing. Gains in Europe also helped lift the S&P 500 after Spain and France sold 12.5 billion euros ($16.7 billion) of bonds as the European Central Bank’s long-term refinancing operation of lending to banks helped spur demand.

Banks Rally

Financial shares had the biggest gain in the S&P 500 among 10 industries, adding 1.2 percent. JPMorgan increased 2.9 percent, the most in the Dow, to $40.37. Bank of America had the second-largest advance in the 30-stock gauge, climbing 1.9 percent to $8.12.

Goldman Sachs Group Inc. (GS) jumped 5.2 percent to $121.13. The fifth-biggest U.S. bank by assets agreed to buy Ariel Holdings Ltd.’s Bermuda-based insurance and reinsurance businesses to expand property and casualty coverage.

Benchmark gauges briefly pared gains as oil jumped after a report of an explosion on a pipeline in Saudi Arabia. A government official said late today there was no sabotage to its oil facilities in the Qatif region. Energy shares in the S&P 500 added 0.9 percent as a group. ConocoPhillips gained 2.2 percent to $78.22.

‘Two Steps Forward’

“U.S. stocks and economic data appear to be moving at least two steps forward for every step back which, we believe, leads to a strengthening trend for both,” said Kully Samra, who manages U.K.-based clients for Charles Schwab Corp., which has $1.6 trillion of assets globally. “Rising oil prices are a risk to global growth, but we’re optimistic the improved environment will keep the recovery in motion.”

Gap surged 7.2 percent, the most in the S&P 500, to $25.05. Sales climbed 4 percent, beating the average projection for a 1.4 percent drop from analysts surveyed by Retail Metrics Inc. Unseasonably warm weather boosted purchases of spring merchandise.

Car companies had the biggest gain in the S&P 500 among 24 industries, rallying 2.1 percent. GM added 1.7 percent to $26.47 as deliveries rose 1.1 percent in February to 209,306 cars and light trucks, beating analysts’ estimates for a 4.8 percent drop. Ford Motor Co. (F) climbed 2.3 percent to $12.66 after sales also topped analysts’ estimates.

Adding Technology

Advanced Micro Devices Inc. (AMD) climbed 2.2 percent to $7.51. The second-largest maker of processors for personal computers said it will pay $334 million to buy SeaMicro Inc., a chip designer with expertise in servers, adding technology that can help it compete with Intel Corp. in the market for data centers.

Monster Worldwide Inc. (MWW) surged 15 percent to $8.01. The world’s largest online-recruiting company said it’s considering “all other strategic alternatives” to boost shareholder value.

Apple Inc. (AAPL) rose 0.4 percent to a record $544.47, gaining for a sixth day. Now that its market value has exceeded $500 billion, the biggest challenge for the maker of iPads may be staying there. It’s the sixth U.S. company crossing the threshold, data compiled by S&P show. The others are Microsoft Corp. (MSFT), General Electric Co., Cisco Systems Inc., Intel Corp. and Exxon Mobil Corp., in chronological order.

All five companies were below $500 billion a year after reaching that pinnacle, according to data compiled by Bloomberg. GE was the only one to surpass that value afterward.

Extending a Rally

Today’s advance extended this year’s rally in the S&P 500 to 9.3 percent. Yet the index trades at about 14.2 times reported earnings, compared with the average since 1954 (SPX) of 16.4 times, according to data compiled by Bloomberg.

The S&P 500 has the potential to reach 1,700 before the end of the year should the economy surprise investors the same way falling bond rates did in 1995, Birinyi Associates Inc. said.

An expansion that beat forecasts would help stocks rally after economists tempered their estimate for growth in 2012 to 2.2 percent from 2.3 percent earlier in the year, according to Laszlo Birinyi, who was among the first to suggest buying stocks in 2009. The potential for surprise is similar to 1995, when the yield on the 30-year U.S. Treasuries (USGG30YR) fell 1.93 percentage points, even as Wall Street predicted they would gain.

“In 1995, the consensus trade was higher yields, today it is tepid economic growth and the market is suggesting -- perhaps insisting -- an alternative to that consensus,” Birinyi wrote. “We would encourage a more aggressive posture.”

‘Dramatic Improvement’

UBS AG raised its forecasts for the S&P 500 and its companies earnings amid a “dramatic” improvement in the economy. Jonathan Golub’s year-end forecast for the benchmark gauge rose to 1,475 from 1,325. He estimates earnings-per-share of $103 this year and $112 in 2013. The previous forecasts were $99 and $111, respectively.

A measure of homebuilders in S&P indexes lost 0.9 percent. PulteGroup Inc. slumped 2.6 percent to $8.59. KB Home (KBH) fell 1.3 percent to $11.27.

Sotheby’s (BID) tumbled 9.1 percent to $35.75. The publicly traded auctioneer of fine arts and collectibles said fourth- quarter profit fell 26 percent as sales slid.

Smaller companies trailed larger stocks in the U.S. in February, a sign that the S&P 500’s longest monthly rally in a year may be losing momentum, according to Bespoke Investment Group LLC.

The Russell 2000 Index (RTY), which tracks companies with an average market value of $738 million, added 2.3 percent last month, compared with a 4.1 percent gain in the S&P 500, whose members average $25.9 billion in value. The underperformance accelerated in the second half of the month, with the Russell 2000 rising on two of the last nine days and the S&P 500 gaining during seven.

“Small caps are cyclical in nature, and typically perform better during market rallies,” Justin Walters, Bespoke’s co- founder, wrote in a note yesterday. “They haven’t been rallying recently, which should be cause of concern for market bulls.”

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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Birinyi: S&P 500 May Reach 1,700 by Year End

By Whitney Kisling - Mar 2, 2012 4:20 AM GMT+0700

The Standard & Poor’s 500 Index (SPX) has the potential to reach a record high of 1,700 this year should economic growth surprise investors the same way falling bond rates did in 1995, Birinyi Associates Inc. said.

Reaching that level would mean a 24 percent rally from today’s close of 1,374.09, data compiled by Bloomberg show. The benchmark gauge for U.S. equities gained 103 percent since it reached a 12-year low on March 9, 2009. In 2012, it’s off to the best start to a year since 1991. The measure’s all-time high of 1,565.15 was set in 2007.

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Laszlo Birinyi, president of Birinyi Associates, Inc.. Photographer: Jin Lee/Bloomberg

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Feb. 13 (Bloomberg) -- Laszlo Birinyi, president and founder of Birinyi Associates Inc., talks about the outlook for equities and his stock recommendations He speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

An expansion that exceeded forecasts in the world’s largest economy would help stocks rally after economists tempered their estimate for growth in 2012 to 2.2 percent from 2.3 percent earlier in the year, according to Laszlo Birinyi, who was among the first to suggest buying stocks in March 2009. The potential for surprise is similar to 1995, when the yield on the 30-year U.S. Treasuries (USGG30YR) fell 1.93 percentage points, even as Wall Street predicted they would gain, according to a report from the Westport, Connecticut-based firm.

“In 1995, the consensus trade was higher yields, today it is tepid economic growth and the market is suggesting -- perhaps insisting -- an alternative to that consensus,” Birinyi wrote in the note today. “We continue to be bullish and would encourage a more aggressive posture.”

1982, 1990

Should economic data show signs of improvement, the S&P 500 may post a rally similar to the bull market that started in 1982, when the index advanced 229 percent, or the one that began in 1990, when it surged 302 percent, according to Birinyi. Reports on home sales and jobs have been better than estimated so far in 2012. The Citigroup Economic Surprise Index (CESIUSD) for the U.S. is at 45.1, up from negative 117.2 in June.

“If the market is right and the economy surprises us on the upside, gains similar to 1982 and 1990 are a distinct possibility and one which no one has entertained,” he wrote.

He stood by his bullish calls last year even as the S&P 500 fell five straight months starting in May. He said on Sept. 12 that U.S. companies were earning too much for the bull market to be derailed by Europe’s debt crisis. The S&P 500 is up 19 percent since then. Birinyi advised investors to “be in the market” during a Dec. 6 interview with Tom Keene on Bloomberg Radio’s “Bloomberg Surveillance.”

In January 2011, Birinyi said the average length and size of bull markets suggested the S&P 500 would rally to 2,854 on Sept. 4, 2013.

“That number hasn’t gone away,” Jeffrey Yale Rubin, director of research at Birinyi Associates, said during a phone interview today. “It’s not like Birinyi is lowering the target, because that’s way out there, almost to 2014.”

To contact the reporter on this story: 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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Apple Has $500 Billion Challenge Others Failed: Chart of the Day

By David Wilson - Mar 1, 2012 12:00 PM GMT+0700

Now that Apple Inc. (AAPL)’s market value has exceeded $500 billion, the biggest challenge for the maker of iPhones and iPad tablet computers may be staying there.

Apple is the sixth U.S. company that has ever crossed the threshold, according to data compiled by Standard & Poor’s. The others are Microsoft Corp. (MSFT), General Electric Co. (GE), Cisco Systems Inc. (CSCO), Intel Corp. and Exxon Mobil Corp. (XOM), in chronological order.

As the CHART OF THE DAY shows, all five companies were below $500 billion a year after reaching that pinnacle, according to data compiled by Bloomberg. GE was the only one to surpass that value afterward.

“Getting there is hard,” Howard Silverblatt, a New York- based senior index analyst at S&P, wrote yesterday in an e-mail. “Staying there is harder.”

GE’s market value exceeded half a trillion dollars for the first time on Dec. 20, 1999, based on closing stock prices. The capitalization of the industrial-products and financial-services company fell below that level on Dec. 19, 2000. It was above the threshold in May and June 2001, peaking at $530.4 billion before dropping again.

Exxon Mobil had the second-longest time gap, nine months, between its first and last close at more than $500 billion. The comparable gap for Microsoft was 8 1/2 months, while Cisco’s was two weeks. Intel only surpassed that amount twice, on Aug. 23 and Aug. 31, 2000.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

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

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Oil Rises to $110 on Report of Pipeline Explosion

By Mark Shenk and Moming Zhou - Mar 2, 2012 5:35 AM GMT+0700

Oil climbed over $110 a barrel for the first time since May after an Iranian state-run news channel reported an explosion on a pipeline in Saudi Arabia. A Saudi official said no oil facilities were sabotaged.

Futures reached $110.55 at 3:17 p.m. in New York after Iran’s Press TV reported on its English-language website that “an explosion has hit oil pipelines in the flashpoint Saudi Arabian city of Awwamiya,” then fell back below $109. Major General Mansour Al-Turki, a spokesman for the Saudi Interior Ministry, said no oil facility in the region has been sabotaged after reports of a fire near the Ras Tanura refinery.

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Crude oil for April delivery rose $1.77 to settle at $108.84 a barrel on the Nymex before the Press TV report. Photographer: George Esiri/EPA/Landov

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Abu Dhabi Securities Exchange. Photographer: Matilde Gattoni/Bloomberg

“It looks like it’s a rumor but it shows you how sensitive the oil market is to any kind of supply constraint,” said Phil Streible, a Chicago-based commodities broker at RJO Futures.

Crude oil for April delivery rose $1.77 to settle at $108.84 a barrel on the Nymex before the Press TV report. The price was $108.73 at 5:11 p.m. Futures settled at a nine-month high of $109.77 on Feb. 24.

Brent oil for April settlement climbed $3.54, or 2.9 percent, to a 10-month high of $126.20 a barrel on the London- based ICE Futures Europe exchange. Brent rose as high as $128.40 after the settlement and dropped back to $126.15.

Clashes between Saudi police and armed Shiite protesters in Awwamiya and al-Qatif, both cities in the oil-producing eastern region, have intensified since October when 11 police were injured in an attack. Saudi authorities accuse Iran of stirring up the unrest. The protesters have cultural and family ties with Shiite-led Iran. Saudi Arabia’s royal family is Sunni.

Regular Trading

Futures in New York rose 1.7 percent in regular trading as U.S. officials escalated warnings that the nation may join Israel in attacking Iran to stop the development of nuclear weapons and on economic reports signaling growth. The number of Americans filing first-time claims for jobless benefits fell and the Federal Reserve said yesterday that the housing market has shown improvement.

“The next few days could be very important as far as Iran is concerned,” said Matthew Dougherty, a managing director at Advisory Research Inc. in Chicago, which oversees $6 billion. “The labor market is improving and we’re starting to see some sparkles of hope in the housing market. These two sectors have been weighing on the economy for the last several years.”

Brent’s premium to New York-traded West Texas intermediate oil widened to $17.36 based on settlements. The premium has climbed with Iranian tensions and supplies in the U.S. Stockpiles at Cushing, Oklahoma (DOESCROK), the delivery point for WTI, rose 1.65 million barrels to 33.8 million last week, the most since August, the Energy Department said yesterday.

Iranian Source

“Brent is stronger because that’s where any disruption in supply is going to be felt,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “The news came from an Iranian source, which is problematic.”

While Iran has said its atomic program is for civilian purposes, the U.S. and its allies say the country is trying to develop the capacity to produce nuclear weapons.

General Norton Schwartz, the Air Force chief of staff, said yesterday that the Joint Chiefs of Staff have prepared military options to strike Iranian nuclear sites in the event of a conflict.

Israeli Prime Minister Benjamin Netanyahu is scheduled to address the American Israel Public Affairs Committee in Washington on March 5, a day after President Barack Obama speaks to the group, the main pro-Israel lobby in the U.S.

“We’re waiting to hear what Obama says to Aipac Sunday and to Netanyahu on Monday,” Dougherty said. “It wouldn’t take much to spook the market.”

Supply, Demand

Excluding Iran from the crude market would add to the shortfall between global supply and demand, according to U.S. Energy Department calculations using February estimates. Fuel use averaged 3 million barrels a day more than output when Iran is excluded, and 500,000 more when it is included, the department said in a report yesterday.

Saudi Arabia is deploying the most oil rigs in four years as it prepares for possible shortages caused by tension with Iran. The number of rigs used more than doubled in January from a year earlier, the biggest annual increase on record, data from Houston-based Baker Hughes Inc. (BHI) showed.

Applications for unemployment insurance decreased 2,000 in the week ended Feb. 25 to 351,000, Labor Department figures showed today. Economists forecast 355,000 claims, according to the median estimate in a Bloomberg News survey.

“The jobs numbers were good, which is a great boost for the energy market,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “Employment data is a good predictor of demand.”

Electronic trading volume on the Nymex was 804,930 contracts as of 5:11 p.m. in New York. Volume totaled 691,115 contracts yesterday, 13 percent above the three-month average. Open interest was 1.54 million contracts, the highest level since Aug. 16.

To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net; Moming Zhou in New York at Mzhou29@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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Greece May Default on Governments, Peterson’s Kirkegaard Says: Tom Keene

By John Detrixhe and Tom Keene - Mar 2, 2012 12:12 AM GMT+0700

Greece will probably default this year on European governments’ holdings of its sovereign debt, according to Jacob Kirkegaard of the Peterson Institute for International Economics.

The country published the formal offer last week for its agreement to exchange bonds for new securities, with private- sector investors taking a loss of 53.5 percent. While the European Central Bank won’t take direct losses from the swap agreement, the writedown may make it more politically feasible for governments to lose money on Greek debt, Kirkegaard said.

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A protest against austerity measures in Athens on Feb. 7, 2012. Photograph: Imago/ZUMAPRESS.com

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Protests in front of parliament in Athens on Feb. 22, 2012. Photograph: DPA/LANDOV

“The key thing about this is it’s a political issue, and therefore sequencing matters tremendously,” Kirkegaard, a research fellow at the Peterson Institute in Washington, said today in a radio interview on “Bloomberg Surveillance” with Ken Prewitt and Tom Keene. “It’s going to be essentially one government defaulting against the taxpayers of another.”

Default insurance on Greek debt won’t be paid out even after the nation negotiated the biggest sovereign-debt restructuring in history, the International Swaps & Derivatives Association ruled today.

The ECB’s exchange of Greek bonds for new securities that are exempt from losses being imposed on private investors hasn’t triggered $3.25 billion of outstanding credit-default swaps. ISDA’s determinations committee said the switch didn’t constitute subordination, one of the criteria for a payout under a restructuring credit event.

The ISDA decision may undermine investors’ willingness to use the derivatives, Kirkegaard said.

‘Begin to Doubt’

“If I were a buyer of industrialized sovereign credit- default swaps, I would strongly begin to doubt that I would ever get a payout,” he said.

Euro-area finance ministers cleared the issuance of bonds for the Greek debt swap as they reviewed the nation’s progress on meeting the conditions for the aid.

The officials, gathering in Brussels today before a summit of leaders from the 27-nation European Union, approved the 130 billion-euro ($173 billion) package last week and are maintaining pressure on officials in Athens before releasing cash. Luxembourg Prime Minister Jean-Claude Juncker said the payment would be made before a March 20 bond redemption.

The ministers authorized the European Financial Stability Facility to issue bonds for the debt swap, Juncker said today in a statement.

Pension Cuts

Greek lawmakers approved cuts in pensions and health care a day after ratifying 3.2 billion euros of spending reductions, trying to meet conditions for the bailout.

Forcing Greece to leave the monetary union isn’t “really a viable strategy,” Kirkegaard said.

“If you sent the signal that a country could be summarily pushed out of a monetary union, I think that would be the de- facto reintroduction of foreign-exchange risk into the euro area,” he said. “If you were to initiate such a process, would you keep your deposits in a Portuguese bank? I’m not sure you would, and that’s the issue.”

The Peterson Institute was established by Peter G. Peterson, co-founder of Blackstone Group LP.

To contact the reporters on this story: John Detrixhe in New York at jdetrixhe1@bloomberg.net; Tom Keene in New York at tkeene@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net

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