Pro-Romney PAC Killing Machine With Attack Ads

By Heidi Przybyla - Mar 28, 2012 2:38 AM GMT+0700

Eric Thayer/The New York Times/Redux

Mitt Romney through a crowd of workers in Shreveport, Louisiana, on March 23, 2012.

A new ad airing today in the run-up to the April 3 Wisconsin primary replays footage of Rick Santorum saying he doesn’t “care what the unemployment rate’s going to be” and accuses him of voting against national right- to-work legislation.

It’s the latest attack spot sponsored by Restore Our Future, a so-called super-political action committee supporting Mitt Romney, aimed at derailing Santorum’s candidacy in Wisconsin by running more than 1,884 attack ads that the former Pennsylvania senator’s campaign says are misleading.

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March 26 (Bloomberg) -- Republican presidential candidate and former U.S. Senator from Pennsylvania Rick Santorum speaks about his opponent Mitt Romney's health-care policy as governor of Massachusetts. Santorum speaks outside the Supreme Court where justices heard arguments on President Barack Obama's health-care law. (Source: Bloomberg)

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Political ads from Republican presidential candidates Newt Gingrich and Mitt Romney at KCCI TV, the CBS affiliate in Des Moines. Photographer: Brian Cahn/Zuma Press

The commercial fits a pattern that has become a defining feature of the 2012 Republican presidential primary race. Since the contests began, Restore Our Future has spent $35 million on commercials attacking Santorum and Newt Gingrich, the former U.S. House speaker, the two candidates who have come closest to knocking Romney out of front-runner status, according to the Washington-based Center for Responsive Politics, which tracks political money. The super-PAC has spent just $1.1 million promoting Romney, the data shows.

“They need to demonize and destroy, they need to slash and burn their opponents,” said David Johnson, a Republican strategist from Atlanta who worked on former Senator Bob Dole’s presidential bid in 1988 and is unaffiliated with any candidate this cycle. “That’s the only way Romney can win” because he has “no base of support,” he said.

3 Majority-Vote Wins

In the 29 states holding primary competitions thus far, Romney has gotten a majority only three times: in his home state of Massachusetts; in Virginia, where Santorum and Gingrich weren’t on the ballot; and in Idaho. In Nevada, he got 50.1 percent support among caucus attendees.

In contrast to the super-PAC, Romney’s campaign has spent $11.8 million on broadcast ads, according to the CRP. The campaign has aired 12,817 spots, almost all of them positive, since January of 2011, according to CMAG.

The Romney commercial run most often is called “Moral Responsibility” and touts his commitment to be a strong financial steward for the nation. Another ad calls Romney a “man of steadiness,” citing his 42-year marriage to Ann Romney, his lifelong membership in the same church and his employment at Bain Capital LLC for 25 years.

Both the Romney campaign and Restore Our Future declined to comment through their spokeswomen, Andrea Saul and Brittany Gross.

‘Troubling’ Ads

John Brabender, a Santorum senior adviser, called the pro- Romney super-PAC ads “troubling,” particularly since they are aimed at Republicans. “Why in the world didn’t he spend his $35 million running ads against Obama instead of brutally attacking Republicans?” Brabender said.

The pro-Santorum political action committee, the Red, White and Blue Fund, today is hitting back with an ad in Wisconsin highlighting Romney’s “job-killing taxes and fees” as governor of Massachusetts, a $1 billion debt and his health-care plan that was a “blueprint for Obamacare.” That ad also leaves out the fact that Romney has said the law was a state-specific solution and that he would repeal Obama’s law if elected president.

In Wisconsin, and elsewhere, the campaign ads illustrate the role that super-PACs are playing in presidential elections after the Supreme Court ruled in 2010 that independent third parties have a constitutional right to raise and spend as much as they want on political ads.

Role of Super-PACs

In the case of Santorum and Gingrich, wealthy donors to their friendly super-PACS, including the pro-Gingrich Winning Our Future, have helped keep them in the race when their own fundraising faltered. Restore Our Future has helped Romney by ensuring neither of those candidacies gained momentum.

The only court stipulation is that the groups can’t coordinate their activities with a campaign. Candidates found a way around that hurdle by dispatching aides to operate them. Restore is run by former Romney advisers, including Charles R. Spies, who was Romney’s general counsel in the 2008 Republican primary. Its board of directors includes Carl Forti, who was political director four years ago.

“The way they function is essentially a parallel presidential campaign,” said Anthony Corrado, a political scientist at Colby College in Waterville, Maine. “The notion that these PACs are independent is nothing more than a legal technicality.”

Restore Backers

The pro-Romney group’s leading contributor last month was Houston homebuilder Bob Perry, according to Federal Election Commission records. Perry helped fund the Swift Boat Veterans for Truth ads that attacked Democratic presidential nominee John Kerry’s Vietnam War service in the 2004 race. Restore’s ads are being made by Larry McCarthy, who in 1988 produced the “Willie Horton” ad that linked a murderer to Democratic nominee Michael Dukakis, a former Massachusetts governor, a smear even Republicans said was unfair.

Since Jan. 1 of last year, Restore has aired the same 16 negative ads 41,612 times in the major media markets of primary states from Michigan to Florida and Colorado, according to data provided by CMAG.

The committees backing Gingrich and Santorum ran 8,172 and 8,121 negative spots, respectively, according to data from CMAG.

Restore concentrated its firepower first on Gingrich in Florida after his Jan. 21 victory in South Carolina and then on Santorum in Ohio after his wins in Colorado and Minnesota on Feb. 7.

Convicted Felons Ad

Another commercial sponsored by Restore accuses Santorum of voting with former Senator Hillary Clinton in favor of granting voting rights to violent convicted felons. The charge that Santorum supported voting rights for convicted felons was repeated 2,671 times before the Ohio March 6 primary.

Santorum confronted Romney about the ad in a debate in South Carolina on Jan. 16, saying it gave the impression that he allowed felons in prison to vote. Santorum said he supported voting rights only for people who had served their sentences.

He also pointed out that Massachusetts gives voting rights to felons who have served their time and that Romney never tried to change it. Romney said he was dealing with a Democratic legislature and opposed voting rights for felons who are released.

Like the felons ad, the latest spot running in Wisconsin about Santorum’s opposition to right-to-work laws doesn’t tell the full story.

Right-to-Work

Santorum has said that when he was a senator he voted to allow states to determine their own right-to-work laws, which prohibit agreements requiring employee union membership as a condition of employment. He’s also said that, as president, he would sign a national right-to-work law.

A CMAG analysis as of March 7 found one of the anti- Santorum ads, titled “Values,” has aired a total of 4,650 times, making it the fourth-most-run spot of the campaign season, including those in support of President Barack Obama.

That commercial criticizes Santorum for voting to raise the nation’s borrowing limit five times. Santorum did vote to raise the debt ceiling -- though he was joined by most of his Republican colleagues in granting the authority to a Republican president.

In March 2006, he was one of 52 Republicans to do so, including Senators Jon Kyl and Mitch McConnell, now the chamber’s top two Republicans, and former Senator Bill Frist, then majority leader. Only four Republicans opposed it.

Ohio Results

In all, Restore ran 3,313 ads in the 10 days before Ohio’s March 6 vote, compared to 722 by the pro-Santorum PAC. Santorum lost narrowly to Romney, by four-fifths of a percentage point.

“He did the same thing in Michigan and Mississippi and every place,” said Brabender. “In Gingrich’s case, he did basically knock him out of the race.”

After his South Carolina win, Gingrich went into Florida’s Jan. 31 race in a dead heat with Romney, according to a Quinnipiac University (78104MF) poll conducted Jan. 19 to 23. In the final days before the primary, Restore ran five different ads in the state’s major media markets, every one of them attacking Gingrich and rated as negative by Kantar.

“Overnight a storm rained dollars on the television,” said Susan MacManus, a University of South Florida political scientist. “They had a big impact,” said MacManus, who also serves as a Tampa television station analyst.

Gingrich Pelosi Ad

“Newt has more baggage than the airlines,” one of the ads said, citing consulting fees he earned from government-backed mortgage lender Freddie Mac. It also claims Gingrich joined with top House Democrat, Nancy Pelosi, to grant $60 million to a United Nations program supporting China’s “brutal one-child policy.”

China’s one-child policy refers to the country’s efforts to limit population growth to one child per couple and human rights advocates say it has led to forced sterilizations and abortions.

PolitiFact Florida, a project by the Tampa Bay Times, rated the claim “pants on fire,” or completely inaccurate. While Gingrich did co-sponsor a resolution with Pelosi to propose funds for the UN Population Fund, the bill prohibited using any of it for involuntary sterilization or abortion.

Romney won 46 percent to Gingrich’s 32 percent, walking away with all 50 of Florida’s delegates. Gingrich picked up no more than 13 percent of the vote in the next four contests.

To contact the reporter on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net

To contact the editor responsible for this story: Jeanne Cummings at jcummings21@bloomberg.net

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Bidding Wars Erupt as U.S. Supply of Homes for Sale Falls

By Prashant Gopal and John Gittelsohn - Mar 27, 2012 9:14 PM GMT+0700

Matthew and Carina Hensley offered $10,000 more than the asking price for a three-bedroom house in suburban Seattle, then lost out to one of seven other bidders.

Their $270,000 proposal last month came with a family portrait and a letter introducing the couple, their eight-month- old daughter, Harper, and their desire to build a family in the Renton, Washington, house with a yard backing onto a woody hillside.

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Amar Shah looks through a condominium at the Ontario Road Flats condominiums in the Adams Morgan neighborhood of Washington, D.C., on March 25, 2012. Photographer: Andrew Harrer/Bloomberg

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March 23 (Bloomberg) -- Jed Kolko, chief economist at Trulia Inc., talks about the U.S. housing market. Kolko talks with Pimm Fox on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

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March 27 (Bloomberg) -- Michael Shaoul, chairman of Marketfield Asset Management, talks about the outlook for the U.S. housing market. He speaks with Betty Liu and Dominic Chu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Audio Download: Case Says Housing Is Still 'Wait & See'

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Realtor Sean Aalai places an open house sign outside a five-bedroom row house for sale in the Logan Circle neighborhood of Washington, D.C. on March 25, 2012. Low prices and interest rates have driven home affordability to an all-time high, making buying a better deal than renting. Photographer: Andrew Harrer/Bloomberg

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Keys hang on the wall of a five-bedroom row house for sale in the Logan Circle neighborhood of Washington, D.C., on March 25, 2012. About 2.43 million existing homes were listed for sale in February, the fewest for the month since 2005, the year U.S. home sales reached a record 7.08 million, the National Association of Realtors reported March 21. Photographer: Andrew Harrer/Bloomberg

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Realtor Lindsay Reihman holds informational folders outside the Ontario Road Flats condominiums in the Adams Morgan neighborhood of Washington, D.C., on March 25, 2012. Photographer: Andrew Harrer/Bloomberg

Bidding wars, absent from most parts of the U.S. residential market since its peak in 2006, are erupting from Seattle and Silicon Valley to Miami and Washington, D.C. The inventory of homes hovers close to a six-year low, while an increase in jobs and record affordability are tempting more buyers. The number of contracts to buy previously owned homes jumped 14 percent in February from a year earlier, the National Association of Realtors reported yesterday.

“We understand there is going to be fierce competition in the offers made for your house but Carina and I both felt very strong about letting you know what it would mean to us if we were given the opportunity to live in your gorgeous and charming house,” wrote Matthew Hensley, 33, a credit union branch manager whose wife is a dental hygienist. Such letters from eager buyers were common during the housing boom.

While listings will probably rise as banks accelerate foreclosures and sellers gain confidence in the market, the U.S. metropolitan areas with the strongest economies may be ready to absorb the additional inventory, said Mark Zandi, chief economist for Moody’s Analytics Inc. in West Chester, Pennsylvania. Low values and interest rates have made buying a better deal than renting in 98 of the largest 100 metropolitan areas, according to Trulia Inc.

‘Better Times Ahead’

“The housing crash is finally giving way to recovery in an increasing number of markets across the country,” Zandi said in an e-mail. “The decline in unsold listings and vacant homes and the increase in rents presage better times ahead for single- family housing.”

The bidding wars seen in such places as Seattle aren’t found everywhere. In metropolitan areas including Atlanta and California’s Riverside and San Bernardino counties, housing remains weak as high unemployment and falling prices deter first-time and move-up homebuyers.

A contraction in supply hasn’t helped increase property values, which are down by a third from their July 2006 peak. Prices, hurt by discounted foreclosures and other distressed sales, will fall 2 percent more this year before rising 1.4 percent in 2013, according to a Moody’s Analytics projection.

Case-Shiller Index

Home prices dropped 3.8 percent in January from a year earlier, the S&P/Case-Shiller index of property values in 20 U.S. cities showed today. The measure is based on a three-month average, which means the January data were influenced by transactions in November and December.

A residential comeback would provide a boost to the U.S. economy. Housing will “contribute modestly” to the economy this year for the first time since 2005, according to Peter de Bruin, an economist at ABN Amro Group Economics in Amsterdam.

Rising demand for homes has cut into the supply, which is already low because many sellers -- especially those with negative equity -- are waiting for prices to increase before putting properties on the market.

Supply of Homes

About 2.43 million existing homes were listed for sale in February, the fewest for the month since 2005, the year U.S. home sales reached a record 7.08 million, the National Association of Realtors reported March 21. The number of listings rose by 100,000 from January, a seasonal bump that occurred every February since 2000 except for 2008, according to data collected by the Realtors.

The February supply of unsold homes listed for sale was down almost 50 percent from a year earlier in markets such as Miami, Phoenix and Oakland, California, according to Realtor.com, the National Association of Realtors’ official website.

The U.S. inventory of new homes stood at 150,000, a 5.8- month supply, in February, when new houses sold at an annual pace of 313,000, slower than analysts expected, the Census Bureau reported March 23.

The supply of new houses rose from 5.7 months in January “as builders put inventory in place for the spring selling season,” Stephen East, an analyst with International Strategy & Investment Group LLC in St. Charles, Missouri, wrote in a note to investors. “This is the fourth consecutive month inventory has remained below six months’ supply, which is broadly considered supply/demand equilibrium.”

The new-home supply peaked at 12.1 months in January 2009, forcing builders to book losses as the economy fell into recession. While the inventory has declined from that high, the housing market still has hurdles to overcome.

Negative Equity

One hurdle for the residential market is the more than 11 million homes that had negative equity at the end of 2011, meaning more is owed on the mortgage than the house is worth, preventing owners from trying to market their properties, according to CoreLogic.

“A big issue is underwater borrowers,” said Sam Khater, senior economist for CoreLogic Inc. (CLGX), a real estate data provider based in Santa Ana, California. “If they want to move, they’re not flexible with their price. The lowest they can sell at is their mortgage amount. So there’s price stickiness.”

In a sign that demand for new homes remains weak, orders fell 8 percent from a year earlier for the quarter ended Feb. 29 at KB Home (KBH), a Los Angeles-based builder that targets first-time buyers.

“In a recovering market, the results did an absolutely ugly U-turn,” East, the International Strategy analyst, wrote in a note after earnings were released March 23.

Lagging Indicator

The median existing-home price in the U.S. climbed 0.3 percent to $156,600 in February from a year earlier. It was the biggest year-over-year gain since July 2010, when President Barack Obama’s homebuyer tax credit temporarily boosted values.

“Prices are a lagging indicator,” Khater said in a telephone interview. “The key metric to look at are sales numbers.”

Existing homes sold at an annual pace of 4.59 million in February, up 8.8 percent from a year earlier and the busiest February since 2007, according to the National Association of Realtors. The February number was down 0.9 percent from January, when an unusually warm winter in much of the country helped increase demand, according to Paul Dales, senior U.S. economist for Capital Economics in London.

‘Demand Picks Up’

“Good weather does not generate extra housing demand -- it just brings it forward from future periods,” he wrote in a March 21 note to clients. “But the bigger point is that a genuine upward trend is under way, with sales 9 percent higher than a year ago and 13 percent above levels seen in July.”

Asking prices tend to be higher and inventory tends to be lower from March through May, while sales peak by June and inventory reaches a top in July, said Jed Kolko, chief economist for Trulia, a consumer-oriented real estate information service.

“As housing comes out of hibernation in the spring, demand picks up,” Kolko said in a telephone interview from San Francisco. “Prices peak early in the season and inventory peaks later. Buyers should be more patient, but sellers should move faster.”

Competition Increases

Agents encountered multiple bids on about half of offers in Seattle, Boston, Washington, D.C. and Oregon this year through March 15, said Tim Ellis, real estate analyst for online brokerage Redfin. In the San Francisco area, Redfin agents reported that three of four offers involved competition, he said.

One home in Palo Alto, California, received 38 offers and sold for $1.65 million, or $452,000 more than its asking price, said Ken DeLeon, a real estate broker in Silicon Valley since 2002. Another client paid $2.56 million for a home in 2007 and is listing it for $3 million, with the expectation of receiving higher offers, he said. The seller wants to use the proceeds to buy a home in Saratoga, about 18 miles southeast of Palo Alto, where the market hasn’t heated up yet, DeLeon said.

Prices are hitting all-time highs, above Palo Alto’s 2007 peak levels, in the 94301 and 94306 ZIP codes, as buyers rush to purchase in advance of an expected flood of newly minted millionaires when Facebook Inc. (FB) has its initial public offering, DeLeon said. The Menlo Park-based social-networking company filed paperwork in February for an IPO that may result in a market valuation of $75 billion to $100 billion.

‘Hottest Housing Market’

“It’s insane,” DeLeon, who brokered 101 home sales last year valued at $275 million, said in a telephone interview. “It’s probably the hottest housing market in the nation.”

In Phoenix, total listings as of March 23 were down 43 percent from a year earlier to 21,346 homes on the market, according to the Cromford Report, a Phoenix-area market research service. When pending sales are excluded, the number of available homes on the market fell 55 percent from a year ago. Distressed offerings dropped more, with the number of short-sale listings down 84 percent and bank-owned homes off 80 percent.

The average home’s time on the market fell to 90 days from 114 a year earlier, and the median sale price rose to $126,000 from $110,000, according to the Cromford Report.

Shopper Sentiment Improves

Contributing to the higher prices and faster sales pace in Phoenix were high investor-buying activity, normal homebuyers attempting to enter the market, speedier short-sale processes and an improvement in shopper sentiment, said Mike Orr, publisher of the Cromford Report. In a short sale, a property is sold for less than the amount owed on it.

“The inventory decline is accelerating,” Orr, who’s also director of the Center for Real Estate Theory and Practice at Arizona State University’s business school, said in an e-mail.

The key ingredients are in place for a housing recovery in the strongest U.S. job markets, where sales are outpacing new listings and banks have worked through the backlog of foreclosures, Douglas Duncan, Fannie Mae (FNMA)’s chief economist, said in an interview.

The unemployment rates have fallen over the past year by more than one percentage point in the Miami, Phoenix, San Francisco, Seattle and Washington, D.C., areas, according to Bureau of Labor Statistics data.

Listings in Washington fell 27 percent from a year earlier in February, while the median price rose 11 percent to $398,500 and homes sold after an average of 74 days on the market, a 20 percent decline, according to Metropolitan Regional Information Systems Inc., a real estate listing service in Rockville, Maryland.

‘Pricing a Little Low’

In neighborhoods such as Capitol Hill, sellers are prompting bidding wars by asking less than they expect to receive, said Sean Aalai, an agent with Lindsay Reishman Real Estate.

“They’re purposely pricing a little low,” Aalai said in a telephone interview. “Buyers walk in and fall in love and the property starts getting bid up.”

Single-family home prices in the Miami area increased 19 percent from a year earlier to a median $175,000 in February, the third consecutive year-over-year increase, the Miami Association of Realtors reported March 21.

The number of listings fell to 5,061 in February, or about six months’ supply, down from a nine-month supply a year earlier, as foreign buyers joined out-of-staters and Floridians seeking to take advantage of low prices, said Ron Shuffield, president of Esslinger Wooten Maxwell Inc., a real estate firm in Coral Gables, Florida.

‘Best Spring Season’

“This has been the best spring season since 2005,” he said in a telephone interview. “The entire world’s buying here. They love the weather.”

The Miami-area inventory of homes selling for less than $100,000 fell to less than three months’ supply in February as investors snapped up low-cost properties and the availability of bank-owned homes shrank as lenders slowed the pace of foreclosures, Shuffield said.

Listings may swell in coming months as lenders allow more foreclosures to flow onto the market. The top U.S. mortgage servicing banks, which agreed to a $25 billion settlement over foreclosure abuses last month, slowed the pace of foreclosures as they negotiated for more than a year with state attorneys general.

Foreclosures to Come

A shadow inventory of an estimated 1.6 million homes either facing foreclosure or already repossessed by banks was being held off the market in January, little changed from a year earlier, CoreLogic reported March 21.

“As we move into what is traditionally the peak selling season for real estate, servicers will certainly be watching closely to see if now is the time to move more inventory out of the shadows,” CoreLogic Chief Executive Officer Anand Nallathambi said in a statement.

Many states that don’t require court approval for foreclosures have worked through much of their shadow inventory. In Arizona and California, where banks take less time to repossess and resell foreclosures because the process doesn’t require judicial review, 7 percent of mortgages were delinquent at least 90 days or in foreclosure in the fourth quarter, down from about 13 percent in 2009, according to the Mortgage Bankers Association.

In Florida, where the court system is clogged with home seizure cases, 18 percent of houses with a mortgage are in the foreclosure pipeline, compared with 20 percent in 2009, the Mortgage Bankers Association reported. In other states that require judicial review, such as New Jersey and New York, the number of homes in the pipeline increased.

Time to Move

“If the foreclosure process has moved efficiently so that whatever problem there was has been taken care of, you’re going to see price appreciation as long as employment is growing,” Fannie Mae’s Duncan said in an interview.

For the most part, sellers are marketing their properties because of life changes, including taking a new job, getting a divorce or having their grown children move out, Khater said.

A four-bedroom home on 1.3 acres (0.53 hectare) in the Detroit suburb of Bloomfield Hills, Michigan, went on the market in October, when the owners decided to “downsize,” said Barbara Nigro, who has lived in the house since 1976.

“Now it’s time for another family to move in and raise their children there,” she said in a telephone interview from Scottsdale, Arizona, where she and her husband own a winter home.

The Nigros dropped their asking price by $150,000 to $950,000 in January, according to the listing. An offer is pending.

Seller’s Patience

“Maybe if I kept it for two more years I’d make more money,” said Michael Nigro, 71, a retired pediatric neurologist. “I don’t have the patience for that. I don’t want the responsibility.”

Lori Bakken, the agent who represents the Hensleys, said three of four bids she submits on behalf of buyers face competition. She said she expects the dearth of supply to be temporary.

“As word gets out there that there is a lack of inventory, I believe sellers will seize on that opportunity,” Bakken said.

The Hensleys haven’t given up on living in the Renton, Washington, area, where both sets of parents live. The winning bidder offered $15,000 above the asking price and didn’t make the sale contingent on successful financing or inspection, according to Kimberly Hobbs, the Seattle broker who represented the seller.

“From this experience we learned that we have to move fast, especially if a house is nice,” Matthew Hensley said. “The competition is fierce out there.”

To contact the reporters on this story: Prashant Gopal in New York at pgopal2@bloomberg.net; John Gittelsohn in Los Angeles at johngitt@bloomberg.net

To contact the editor responsible for this story: Daniel Taub at dtaub@bloomberg.net

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U.S. Stocks Fall After S&P 500 Rallies to Four-Year High

By Rita Nazareth - Mar 28, 2012 3:42 AM GMT+0700

U.S. stocks retreated as a report showing American consumer confidence near the strongest level in a year failed to encourage investors after the Standard & Poor’s 500 Index advanced to an almost four-year high.

Losses accelerated in the final 15 minutes of trading as financial companies slumped. Bank of America Corp. lost 3.3 percent as Robert W. Baird & Co. cut its rating. Apollo Group Inc. (APOL) fell 8.5 percent on new enrollment concern. Homebuilder Lennar Corp. (LEN) surged 4.7 percent amid better-than-estimated earnings. Pfizer Inc. (PFE) added 1.5 percent as Goldman Sachs Group Inc. raised the possibility of a full breakup of the company.

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Traders work on the floor of the New York Stock Exchange in New York. Photographer: Scott Eells/Bloomberg

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March 27 (Bloomberg) -- David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates Inc., talks about the outlook for the U.S. economy. He speaks with Sara Eisen and Scarlet Fu and on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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March 27 (Bloomberg) -- Amanda Crumb, assistant portfolio manager at Birinyi Associates Inc., talks about her stock recommendations for Hermes International SCA, Research In Motion Ltd. and People’s United Financial Inc. She speaks with Maryam Nemazee on Bloomberg Television's "The Pulse." (Source: Bloomberg)

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March 28 (Bloomberg) -- Jeff Schwarte, U.S. equities portfolio manager for Principal Global Investors, talks about the outlook for the U.S. economy and stocks, and his investment strategy. Schwarte also discusses the implications of China's economic slowdown for global markets. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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March 27 (Bloomberg) -- Daniel Oh, director of Fixed Income Research at Estabrook Capital Management, talks about investment strategy. Oh speaks with Erik Schatzker and Stephanie Ruhle on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

The S&P 500 lost 0.3 percent to 1,412.52 at 4 p.m. New York time, after rising 1.7 percent in two days. The Dow Jones Industrial Average slid 43.90 points, or 0.3 percent, to 13,197.73. About 6.1 billion shares changed hands on U.S. exchanged today, or 8.8 percent below the three-month average.

“There’s maybe some short-term vulnerability, but it doesn’t really dent my longer-term optimism,” said Liz Ann Sonders, the New York-based chief investment strategist at Charles Schwab Corp. Her firm has $1.81 trillion in client assets. “We had a huge day yesterday. So, it’s not a big surprise not to see an immediate follow-through.”

The S&P 500 yesterday erased last week’s loss. The index rose 3.4 percent in March, poised for a fourth straight monthly gain, the longest winning streak since 2009. It trades for 14.6 times (SPX) reported earnings, the highest valuation level since July while below the average since 1954 of 16.4.

Economic Data

The Conference Board’s confidence index dropped to 70.2 from a revised 71.6 reading in February that was higher than initially reported. The median forecast of economists surveyed by Bloomberg News called for a decrease to 70. The S&P/Case- Shiller index of property values in 20 cities fell 3.8 percent from a year earlier, after decreasing 4.1 percent in December.

“The trend of economic data has been improving and that’s helped provide a better backdrop for investors to feel comfortable putting money into stocks,” Michael Sheldon, chief market strategist at RDM Financial Group in Westport, Connecticut, which oversees $650 million, said in a telephone interview. “Yet we really haven’t seen much in terms of profit taking. It could be choppy.”

Seven out of 10 groups in the S&P 500 fell. Financial shares had the biggest decline among 10 industries, dropping 1 percent. Bank of America dropped 3.3 percent to $9.60 after being downgraded to neutral at Robert W. Baird. The 12-month share-price estimate is $10.

‘Volatile’

Apollo Group slumped 8.5 percent, the most in the S&P 500, to $39.54. Co-Chief Executive Officer Gregory Cappelli told investors on a conference call that new enrollments will continue to be “volatile.” Credit Suisse Group AG cut its recommendation for the shares to neutral.

A measure of homebuilders in S&P indexes gained 2.9 percent. Lennar rallied 4.7 percent to $27.63. Net income for the three months ended Feb. 29 fell to $15 million, or 8 cents a share, from $27.4 million, or 14 cents, a year earlier. Lennar was expected to earn about 5 cents a share, the average estimate of 20 analysts in a Bloomberg survey.

Pfizer climbed 1.5 percent, the most in the Dow, to $22.50. The shares have increased 8.3 percent since July 6, the day before Pfizer Chief Executive Officer Ian Read said the New York-based company was exploring strategic alternatives for its animal health and nutrition businesses.

Read, at a recent meeting with Goldman analysts, indicated he may be willing to further split up the company after selling or spinning off those two units, Jami Rubin, a Goldman Sachs analyst, wrote in a note to investors.

$20 Billion

American International Group Inc. (AIG) advanced 2.1 percent to $29.67 after Deutsche Bank AG said the insurer may repurchase $20 billion of stock in the next 12 months.

Walgreen Co. (WAG) added 1.3 percent to $34.80. The largest U.S. drugstore chain reported second-quarter profit that topped analysts’ estimates after new grocery and household items boosted sales.

Opnext Inc. (OPXT) surged 53 percent, the most in the Russell 2000 Index, to $1.73. The maker of optical components for communications networks will be purchased by Oclaro Inc. in an all-stock deal. Holders of Fremont, California-based Opnext will get 0.42 shares of Oclaro stock, or about $1.96, for every Opnext share they own.

JDS Uniphase Corp. (JDSU) gained 3.3 percent to $14.79 and Finisar Corp. (FNSR) advanced 3.8 percent to $20.14 after Jefferies & Co. said they may gain market share while Opnext and Oclaro integrate their businesses.

Best Since 1998

The S&P 500 has climbed 12 percent since the end of last year, poised for the best first quarter since 1998, amid better- than-forecast earnings and economic data. Financial companies and computer makers rose the most among 10 groups, surging at least 21 percent so far in 2012.

Peter Lee, the New York-based chief technical analyst for UBS AG, said fund managers’ purchases of the best-performing stocks at the end of the quarter are likely to push the S&P 500 toward his 2012 target range of 1,440 to 1,450 sooner than the second half of the year, as he had anticipated.

The S&P 500 would need to rise 1.7 percent to reach 1,440 from yesterday’s closing level of 1,416.51. A failure of the benchmark index to hold gains above these levels may trigger a pullback of 5 percent to 10 percent, he said.

“When the quarter has been extremely strong, these institutional investors are pressured or motivated to dress up their portfolios to show clients that they actively participated in the marketplace during the quarter,” Lee wrote in a note yesterday. “The focus on momentum stocks and sectors leaves the overall market vulnerable for a correction.”

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 Relies on Debt Collectors Profiting From Student Loan Woe

By John Hechinger - Mar 26, 2012 11:01 AM GMT+0700

The debt collector on the other end of the phone gave Oswaldo Campos an ultimatum:

Pay $219 a month toward his more than $20,000 in defaulted student loans, or Pioneer Credit Recovery, a contractor with the U.S. Education Department, would confiscate his pay. Campos, disabled from liver disease, makes about $20,000 a year.

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A debt collector for the U.S. Education Department insisted that Oswaldo Campos pay $219 a month on his more than $20,000 in student loans -- even though he was entitled to pay less under federal student-loan rules. Photographer: Kelvin Ma/Bloomberg

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Campos holds a letter from the U.S. Department of Education confirming that he is considered disabled. He contracted liver disease from a blood transfusion. Photographer: Kelvin Ma Photographer: Kelvin Ma/Bloomberg

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Oswaldo Campos's handicapped parking tag. Photographer: Kelvin Ma/Bloomberg

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Oswaldo Campos's medications on the counter of the kitchen in his Boston apartment. Photographer: Kelvin Ma/Bloomberg

“We’re not playing here,” Campos recalled the collector telling him in December. “You’re dealing with the federal government. You have no other options.”

Campos agreed to have the money deducted each month from his bank account, even though federal student-loan rules would let him pay less and become eligible for a plan -- approved by Congress and touted by President Barack Obama -- requiring him to lay out about $50 a month. To satisfy Pioneer, Campos borrowed from friends, cut meat from his diet and stopped buying gas to drive his 82-year-old mother to doctor’s visits for her Parkinson’s Disease.

With $67 billion of student loans in default, the Education Department is turning to an army of private debt-collection companies to put the squeeze on borrowers. Working on commissions that totaled about $1 billion last year, these government contractors face growing complaints that they are violating federal laws by insisting on stiff payments, even when borrowers’ incomes make them eligible for leniency.

‘Boiler Room’

Education Department contracts -- featuring commissions of as much as 20 percent of recoveries -- encourage collectors to insist on high payments. Former debt collectors said they worked in a “boiler-room” environment, where they could earn bonuses of thousands of dollars a month, restaurant gift cards and even trips to foreign resorts if they collected enough from borrowers.

In failing health, after contracting hepatitis from a blood transfusion, Campos pleaded with Pioneer, owned by SLM Corp. (SLM), the nation’s largest student-loan company better known as Sallie Mae. He left a $40,000-a-year job at the Massachusetts health department when he got too sick to work and waited for a liver transplant. The 52-year-old former busboy, a naturalized U.S. citizen from El Salvador, earned bachelor’s and master’s degrees in the 1990s from Cambridge College in Massachusetts.

“I know I owe this money and I want to pay it back -- I just can’t,” Campos said, his eyes filled with tears, during an interview at the Boston social-services agency where he works six hours a week leading court-ordered classes for drunk drivers.

181,000 Complaints

Debt collectors are the subject of more complaints to the Federal Trade Commission than any other industry -- almost 181,000 last year. Within the past 17 months, three companies working for the Education Department -- including one that is majority owned by JPMorgan Chase & Co. (JPM)’s private-equity arm -- settled federal or state allegations of abusive debt collections. The companies didn’t acknowledge wrongdoing, and Chase declined to comment. The Education Department said the government investigations didn’t involve the companies’ work for the agency.

The U.S. Consumer Financial Protection Bureau, created in 2010 in the wake of the credit crisis, has proposed supervising the largest debt collectors to ensure they are complying with laws such as the Fair Debt Collection Practices Act. About 5 million federal education-loan borrowers are in default, generally meaning they have failed to make payments for 270 days or more.

“With student-loan defaults rising, we want to make sure borrowers clearly understand their loan-repayment options and debt collectors are following the law,” Rohit Chopra, the agency’s student-loan ombudsman, said in an e-mail.

‘Reasonable and Affordable’

Federal-aid law requires collectors to offer “reasonable and affordable” payments, so debtors can “rehabilitate” their loans, repairing their credit and making good on what they owe taxpayers.

The law mandates no minimum payment for a borrower to enter a rehabilitation program, and collection companies may take borrowers’ finances into account. The fair debt act forbids collectors from making “any false, deceptive or misleading representation.”

Insisting that cash-strapped borrowers make minimum payments and then failing to disclose lower-cost options violates both federal-aid and fair debt-collection laws, according to Deanne Loonin, an attorney with the Boston-based National Consumer Law Center.

Debt collectors said they follow federal laws and use all available tools to recover money for taxpayers. The companies are helping to make sure that future college students have access to financial aid, said Mark Schiffman, spokesman for ACA International, a Minneapolis-based industry trade association.

$1 Billion Commissions

Debt-collection companies helped the Education Department recover $11.3 billion in defaulted loans during the year ended Sept. 30. The agency projects it will collect 85 cents on every dollar that defaults, factoring in collection costs and the time-value of money.

The debt collectors made out well, too. Based on a review of government contracts and Education Department data, the private companies -- working directly for the government and through state agencies -- received commissions of about $1 billion in the year through September.

Sallie Mae and the Education Department declined to answer questions about Campos’s comments. The company cited privacy rules and the terms of its government contracts. Newark, Delaware-based Sallie Mae said it works with borrowers in financial difficulty and offers lower payments when appropriate.

“We have helped thousands of student-loan customers in default get back on track to fulfill their obligations, giving consumers the opportunity to improve their credit and providing cost savings for the American taxpayer,” Patricia Nash Christel, a Sallie Mae spokeswoman, said in an e-mail.

New Rules?

The Education Department this week will hold meetings with industry, government and consumer representatives to consider requiring that debt collectors automatically offer payments based on income to defaulted borrowers who qualify. If approved, the rules could take effect in July 2013.

“We want to make sure we are striking the right balance between helping borrowers who have hit hard times and honoring our responsibility to be good stewards of taxpayer dollars,” Justin Hamilton, an Education Department spokesman, said in a phone interview.

To protect customers, the department randomly monitors tape recordings of student-loan debt-collection calls, Hamilton said. The department is also considering changing the commission structure in its debt-collection contracts, he said.

The agency encourages students to file reports if they feel mistreated, Hamilton said. In the year ended in September, the department received 1,406 complaints against the debt collectors it hires, up 41 percent from the year before.

Collectors’ Power

Under U.S. law, student loans can rarely be discharged, even in bankruptcy, making them more difficult to shake than credit cards or past-due mortgages. The government can also confiscate tax refunds and Social Security payments, as well as paychecks.

“Student-loan debt collectors have power that would make a mobster envious,” Harvard Law Professor Elizabeth Warren, who helped establish the Consumer Financial Protection Bureau and is now running for a U.S. Senate seat from Massachusetts, said in 2005.

Under Education Department contracts, collection companies “rehabilitate” a defaulted loan by getting a borrower to make nine payments in 10 months. If they succeed, they reap a jackpot: a commission equal to as much as 16 percent of the entire loan amount, or $3,200 on a $20,000 loan.

Incentive Pressure

These companies receive that fee only if borrowers make a minimum payment of 0.75 percent to 1.25 percent of the loan each month, depending on its size. For example, a $20,000 loan would require payments of about $200 a month. If the payment falls below that figure, the collector receives an administrative fee of $150.

That differential provides an incentive for collectors to insist on the minimum payment and fail to reveal when borrowers are eligible for a more affordable schedule, according to Loonin, the attorney at the National Consumer Law Center, which is representing borrowers in the Washington talks with the Education Department

Customers benefit from successfully rehabilitating a loan, because they repair their credit, and the government removes thousands of dollars in fees and collection costs, the Education Department and Sallie Mae said. Taxpayers, rather than borrowers, pay the rehabilitation commission, according to the agency. Students who immediately sign up for income-based plans, through a program called consolidation, don’t get those benefits, Sallie Mae and the Education Department said.

Automatic Dialers

Debt collectors are under pressure to extract as much money as they can up front, or lose their jobs, said J.C. Cournan, who worked for Pioneer Credit Recovery from 2004 through 2007.

Collectors, then paid about minimum wage, could earn thousands of dollars a month in bonuses, based on the money that borrowers repaid, said Cournan, who took the upstate New York job out of high school. Pioneer set monthly goals for wage garnishments and loan rehabilitations, he said.

Using automatic dialers to track down borrowers, Cournan would figure out where they worked, then contact their employers. He would tell borrowers that he was going to seize part of their wages if they didn’t make the payments. Using a company loan calculator, Cournan would insist on the minimum payment, he said.

“When wou’re making 8 bucks an hour, it’s all about the bonuses. You’re starving,” said Cournan, 26, now an auto mechanic.

Gift Cards, TVs

Pioneer maintained a “boiler room” environment, with high turnover among those who didn’t perform, said Joshua Kehoe, a former collector. Kehoe worked in Batavia, New York, from July 2006 through October 2008 after managing a pizza stand at a theme park.

Pioneer rewarded collectors with $100 restaurant gift cards, a $500 mahogany jewelry box, televisions and a trip to the Dominican Republic, according to Kehoe, who said he earned $9.60 an hour before the incentives.

It would be “a cold day in Hades” before collectors would tell borrowers about options with lower payments, according to Kehoe, who said “rehab cash was king.” The company pushed collectors to sign borrowers up for the rehabilitation plans, which often required payments equal to 1.25 percent of their loan amount monthly, he said.

Heavy Heart

“It was hard on my mind -- it was hard on my heart,” said Kehoe, 25, who now works as a welder in Akron, New York. “There was the guy with one leg or the single mom with five children.”

Under pressure to meet collection goals, Kehoe falsified documents for verifying the employment of borrowers who were subject to wage garnishment, he said. Pioneer discovered the violation and dismissed him, Kehoe said.

Sallie Mae declined to discuss the former employees’ comments. The company uses a mix of hourly pay “substantially above minimum wage” and performance-based incentives, said Sallie Mae’s Christel.

Like other debt collectors, “we design a compensation system that pays for good performance,” Christel said. “We take compliance seriously and design our policies and practices to meet all applicable fair debt collections laws and federal government service contract requirements.”

The Internal Revenue Service in 2009 stopped using private debt collectors, saying its own employees were more cost effective and flexible for taxpayers facing economic hardship.

‘IRS Was Better’

The IRS let Campos, the Boston student-loan debtor, set up a payment plan he could afford when he fell behind on his taxes, he said.

“The IRS was better,” Campos said. “They bent over backwards to help you.”

The Education Department will “definitely want to take a look” at IRS collections to see “what their experience has been,” Hamilton, the Education Department spokesman, said.

Twenty-three collection companies work directly for the Education Department. Most of the same outfits have contracts with state guarantee agencies that also chase student-loan borrowers on the government’s behalf.

In the past 17 months, three companies have run afoul of federal and state investigators, though the Education Department said their inquiries didn’t involve their government student- loan business.

Wrong Numbers

During this period, Minneapolis-based Allied Interstate Inc. and Atlanta-based West Asset Management Inc. paid $1.75 million and $2.8 million, respectively, to settle lawsuits alleging abusive debt collection filed by the Federal Trade Commission. The companies admitted no wrongdoing. In February, to resolve an investigation by 19 state attorneys general, NCO Group, majority-owned by JPMorgan Chase, agreed to pay $575,000 and provide up to $50,000 per state for consumers who can show wrongful collections. The companies admitted no wrongdoing.

Allied has taken steps to correct mistakes -- primarily repeated phone calls to wrong numbers -- and complaints have fallen, Robert Burke, vice president for marketing of iQor Inc., the company’s parent, said in an e-mail.

West disagreed with the FTC’s findings, Deputy General Counsel Greg Hogenmiller said in an e-mail. Consumers haven’t made claims to NCO since the attorneys general settlement, and no wrongdoing was found, Ronald Rittenmeyer, chief executive officer of Horsham, Pennsylvania-based NCO, said in an e-mail.

Defaults Surge

The collection business is booming as defaults more than doubled since 2003, along with outstanding federal student loans, which totaled $848 billion as of Sept. 30, surpassing credit-card debt.

The U.S. loan program was born in 1965 as a “Great Society” initiative for lower-income students under President Lyndon Johnson. Today, with tuition soaring, two-thirds of college seniors graduate with loans, which average $25,000, according to the Institute for College Access & Success, an Oakland, California, nonprofit education and advocacy group.

Obama -- supported by Congress -- has pledged to give borrowers a break and make college more affordable.

In 2009, Congress expanded a program that lets lower-income students tie payments to their incomes. It’s a sliding scale, based on their debt, salaries and family obligations. Married borrowers with two children, $30,000 in income and $30,000 in student loans wouldn’t have to make any payments, according to a government loan calculator. If circumstances don’t improve, the loans can be canceled after 25 years.

In October, Obama proposed making payments even lower and forgiving loans after two decades for some borrowers, as soon as this year.

Disabled Mom

Kimberly Noland could have used that kind of help.

Noland, 44, lives in Fayetteville, Arkansas, with her husband, a laid-off factory worker now employed at a Wal-Mart store, and their seven-year-old daughter.

Noland injured her leg while working in a day-care center. She started collecting $828 a month in Social Security disability payments in 2010.

Shortly after she qualified, Collection Technology Inc., an Education Department debt collector, called about Noland’s roughly $30,000 in defaulted student loans from attending the University of Arkansas.

A collector told her she had to pay $325 a month, almost as much as her rent, Noland said in a phone interview. She couldn’t afford it on her family’s $20,000 annual income, she said.

“I have a child,” Noland remembered telling the collector. “I can’t give you every bit of money in my house.”

‘Final Number’

“This is our final number,” the collector replied, saying her boss wanted even more, according to Noland. The phone conversation lasted more than an hour, she said. She was given three days to decide, or Collection Technology would seize part of her disability check “forever,” and she would never have another chance to rehabilitate her loan, Noland said.

She bought a prepaid debit card at Wal-Mart, authorizing Collection Technology to make the $325 monthly withdrawals. She visited churches to collect free bread and canned goods.

“I didn’t know why it had to be such a high dollar amount,” Noland said. “They have the power, I guess. You do what you have to do to make them happy.”

Chris Van Dellen, CEO of Collection Technology in Monterey Park, California, referred questions about Noland’s comments to the Education Department, which declined to discuss her case.

In October, Noland and her husband filed for bankruptcy. Last year, she qualified for the Education Department’s income- based plan. Her monthly student-loan payment: zero.

To contact the reporter on this story: John Hechinger in Boston at jhechinger@bloomberg.net

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

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JetBlue Captain Shut Out of Cockpit by Co-Pilot on Behavior

By Mary Schlangenstein and Alan Levin - Mar 28, 2012 5:59 AM GMT+0700

A JetBlue Airways Corp. (JBLU) captain began acting erratically during a flight from New York today and was locked out of the cockpit by his co-pilot before the plane was diverted to Texas, federal officials said.

The captain had to be subdued by passengers when he tried to re-enter the cockpit after briefly stepping out, the Federal Aviation Administration said in an e-mailed statement. The Las Vegas-bound jet landed in Amarillo, Texas, where the captain was taken to a hospital for evaluation, the FAA said.

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Passengers on a JetBlue flight. Photographer: Robert Nickelsberg/Getty Images

“The co-pilot became concerned that the captain exhibited erratic behavior during the flight,” the FAA said. Law enforcement officials “secured the pilot without incident” after landing.

Flight 191 was about halfway into a journey of roughly 2,250 miles (3,620 kilometers) when the incident occurred, based on an e-mailed statement from Allison Steinberg, a JetBlue spokeswoman. An off-duty pilot entered the cockpit and assisted the co-pilot as the twin-engine Airbus SAS A320 touched down safely with 135 passengers and five on-duty crew members.

“I can’t think of another time in my 26-year airline career where I’ve ever heard of something like this happening,” Lee Collins, executive vice president of the Coalition of Airline Pilots Associations trade group in Washington, said in a phone interview. JetBlue pilots aren’t unionized.

‘Screaming, Pounding’

Laurie Dhue, a former Fox News employee who was on the flight, told Fox’s Shepard Smith in an interview that the captain had a “breakdown of some kind.”

“He was running down the aisle screaming, pounding on the cockpit door, saying ‘Let me in, let me in, pull the throttle back, we got to get this plane down,’” Dhue said. “Several huge men who happened to be sitting in front of the plane rushed down the aisle, wrestled him to the ground and got him subdued pretty darn quick.”

The FAA, Federal Bureau of Investigation, Transportation Security Administration and local law enforcement authorities are investigating, according to the FAA statement.

Steinberg said JetBlue wasn’t identifying any of its employees on the jet. The airline sent another plane to collect the travelers and continue the flight to Las Vegas, she said.

New York Departure

Flight 191 left New York’s John F. Kennedy International Airport at 7:28 a.m., more than a half-hour after its scheduled departure. It landed about 10:11 a.m. local time at Amarillo’s Rick Husband International Airport, about 11 minutes after the co-pilot decided to divert there, Steinberg said.

The patient from the airport incident was at Northwest Texas Healthcare System, said Caytie Martin, a spokeswoman for the Amarillo hospital, who declined to comment further.

FAA rules require that airline pilots receive a medical check once a year if under 40 and every six months if older, according to the agency’s website. The exam includes questions about mental health, according to the agency.

Today’s incident was the second flight in less than a month disrupted by an employee at a U.S. airline.

An American Airlines (AMR1) plane had to return to an airport gate on March 9 after a flight attendant began ranting about a possible crash and the Sept. 11 terrorist attacks. She initially was restrained by passengers and later was handcuffed and put in leg restraints by officers when she resisted being taken off the plane at Dallas-Fort Worth International Airport.

The woman, 43, who was taken to a hospital for evaluation of a “mental episode,” had stopped taking medication for bipolar disorder, according to an airport police report. A second flight attendant was injured in the incident.

To contact the reporters on this story: Mary Schlangenstein in Dallas at maryc.s@bloomberg.net; Alan Levin in Washington at alevin24@bloomberg.net

To contact the editors responsible for this story: Ed Dufner at edufner@bloomberg.net; Bernard Kohn at bkohn2@bloomberg.net

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Nokia to Sell $99.99 Windows Phone Via AT&T to Take On Apple

By Scott Moritz - Mar 27, 2012 3:55 AM GMT+0700

AT&T Inc. (T) plans to start selling a Nokia Oyj smartphone with Microsoft Corp. (MSFT) software for half of what it charges for the iPhone, as the device’s makers seek to break Apple Inc. (AAPL) and Google Inc. (GOOG)’s dominance of the U.S. market.

The Lumia 900, which runs on AT&T’s network using faster, so-called long-term-evolution technology, will start selling for $99.99 on April 8, the second-largest U.S. wireless carrier said today in a statement. The latest iPhone and newest handsets running Google’s Android software typically start at $199.

Nokia is counting on Microsoft’s Windows Phone software to reignite sales in the U.S., where the iPhone, Android makers such as Samsung Electronics Co. (005930) and Research In Motion Ltd. (RIM)’s BlackBerry control 92 percent of the market. Microsoft is trying to increase its share of the mobile software market to expand beyond the slower-growing personal-computer market.

“The pricing is aggressive,” said Avi Greengart, an analyst at research firm Current Analysis in Teaneck, New Jersey. “They are hoping to use price to get people to buy a product with an operating system they aren’t familiar with.”

To get the $99.99 price, customers need to sign up to a two-year contract with AT&T. The Dallas-based carrier will also sell the phone without a contract for $449.99, said Steven Schwadron, an AT&T spokesman.

Those price points suggest that AT&T is subsidizing each Lumia by about $350. That compares with a $450 subsidy for the the cheapest version iPhone 4S, which sells for $199 with a contract and $649 without one.

Must Win

Nokia Chief Executive Officer Stephen Elop, a former Microsoft executive, started rebuilding the Espoo, Finland-based company’s smartphone strategy around the Windows Phone operating system last year. Nokia had previously focused on its own MeeGo and Symbian operating systems.

Nokia and Microsoft have said they are willing to spend money to fuel sales. Microsoft said last year it would pay Nokia $1 billion to develop and promote Windows phones. Elop said in October that marketing spending on the Lumia series would be triple the money spent on previous product sales promotions.

Microsoft, based in Redmond, Washington, rose 1.8 percent to $32.59 at the close in New York. Nokia advanced 0.4 percent at 3.99 euros in Helsinki. AT&T added 0.9 percent to $31.79.

The Lumia 900 has a 4.3-inch (11-centimeter) screen, larger than that of the iPhone, and an 8-megapixel camera. Customers can order it online starting March 30, AT&T said.

To contact the reporter on this story: Scott Moritz in New York at smoritz6@bloomberg.net

To contact the editor responsible for this story: Peter Elstrom at pelstrom@bloomberg.net

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Green Mountain Founder Sold Stock Before Starbucks Threat

By Max Abelson and Leslie Patton - Mar 27, 2012 4:08 AM GMT+0700

Robert P. Stiller, founder and chairman of Green Mountain Coffee Roasters Inc. (GMCR), sold $66.3 million of his stock before it plunged the most in four months on news that Starbucks Corp. (SBUX) had developed a rival to its K-Cup brewer.

Stiller’s combined sales on Feb. 15 and 24 were his largest in a single month since at least 2003, when the stock traded below $2, data compiled by Bloomberg show. He would have received $13.7 million less had he sold after March 9, when the shares fell 16 percent on Starbucks’ introduction of a machine for home-brewing single cups of espresso and coffee, a challenge to Green Mountain’s Keurig system.

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Green Mountain Coffee K-Cups at the company's visitor center and cafe in Waterbury, Vermont on Feb. 18, 2011. Photographer: Herb Swanson/Bloomberg

“We recently learned of Starbucks’ planned initiative in the espresso-based single-cup category,” Green Mountain said in a March 9 regulatory filing, a day after the machine was announced. “However, we were not made aware of any additional capabilities.” Spokesmen for Green Mountain wouldn’t specify when it learned of the plan.

Green Mountain is struggling to hold market share as it braces for the September expiration of its main patents on K- Cups. The plastic pods have dominated single-serve coffee making in the U.S., with flavors including Gloria Jean’s Butter Toffee Coffee and Wolfgang Puck’s Jamaica Me Crazy blends. As other companies prepare their own machines, the Waterbury, Vermont- based brewer’s stock has almost halved to $53.51 in the six months through last week.

The shares dropped 2 percent to $52.45 at 4:30 p.m. in New York, after reaching as high as $54.75 during the session.

Must Abstain

“It’s something that the SEC would want to look at,” said James D. Cox, a securities law professor at Duke University in Durham, North Carolina. “If he has inside information, he has to withdraw from the market.” Florence Harmon, a Securities and Exchange Commission spokeswoman, declined to comment.

Starbucks informed Green Mountain of its plans before its announcement, according to Alisa Martinez, a spokeswoman for the Seattle-based company. She wouldn’t elaborate. Darren Brandt, a spokesman for Green Mountain, declined to comment on behalf of the company and Stiller.

Stiller reduced his direct stake last month by 6.9 percent, selling a total of 1 million shares, according to regulatory filings with the SEC. The sales aren’t marked as so-called 10b5- 1 transactions, a type of pre-programmed trade that managers set up in advance to show they aren’t basing decisions on inside information. Starbucks’ March 8 announcement after the close of trading sent Green Mountain’s stock down the next day. By the end of last week, it had regained 1.8 percent.

Stiller’s Background

Stiller, the second-biggest shareholder of Krispy Kreme Doughnuts Inc. (KKD) and the largest stakeholder of pizza chain Noble Romans Inc. (NROM), also co-founded the rolling paper maker E-Z Wider. He founded Green Mountain in 1981 as a small Vermont cafe and remains the largest individual shareholder with 13.4 million shares, or 8.7 percent of the company, according to Bloomberg data. Stiller was listed as 68 in a February proxy statement.

The company has faced criticism from hedge-fund manager David Einhorn, who in October questioned its accounting and said its market share has peaked.

“With Green Mountain’s patents expiring this fall, Starbucks’ entry is part of the competitive onslaught hitting Green Mountain,” said Einhorn, 43, president of New York-based Greenlight Capital Inc., in an e-mail earlier this month.

Stiller submitted paperwork dated Aug. 4 to the SEC showing he wanted to sell as much as 2 million shares. He sold only 500,000 that day, a separate filing shows.

Rival Machines

Even if those documents showed intent to further reduce his stake, the February trades would be “problematic” if he had information from Starbucks about its plans, said Onnig Dombalagian, a professor at Tulane University Law School in New Orleans and former fellow at the SEC.

Green Mountain says its K-Cup system and a new brewer, called Vue, are different from the new Starbucks machine, called Verismo. Green Mountain’s machines use “low pressure to extract maximum flavor,” as opposed to espresso machines using “high pressure and high temperature to produce a more intense taste profile,” according to its March 9 statement.

Starbucks had an existing agreement to sell coffee for Green Mountain’s K-Cup system before introducing the Verismo. On March 21, the companies said Starbucks will also sell cups that work with the Vue. Green Mountain jumped 10 percent on that announcement.

Stiller’s trades probably aren’t the most important of the “smorgasbord of cases” the SEC could be interested in, Boston University School of Law professor Tamar Frankel said. The commission’s resources “are not unlimited -- far from it.”

To contact the reporters on this story: Max Abelson in New York at mabelson@bloomberg.net; Leslie Patton in Chicago at lpatton5@bloomberg.net.

To contact the editors responsible for this story: David Scheer at dscheer@bloomberg.net; Robin Ajello at rajello@bloomberg.net.

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U.S. Stocks Advance Following Bernanke’s Comments

By Rita Nazareth - Mar 27, 2012 3:45 AM GMT+0700

U.S. stocks advanced, sending the Standard & Poor’s 500 Index to the highest level since May 2008, after Federal Reserve Chairman Ben S. Bernanke said that accommodative monetary policy is still needed to spur jobs.

The Morgan Stanley Cyclical Index of companies most-tied to the economy rose 1.3 percent. Apple Inc. (AAPL) jumped 1.8 percent to a record as the world’s most-valuable technology company said it plans to increase investment in China. Amazon.com Inc. (AMZN) and JPMorgan Chase & Co. (JPM) climbed at least 2.2 percent to pace gains among the largest companies. Pfizer Inc. (PFE) added 1.6 percent as health-care shares rose the most among 10 S&P 500 groups.

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Specialist Paul Cosentino, right, directs trading in shares on the floor of the New York Stock Exchange. Photographer: Richard Drew/AP Photo

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March 26 (Bloomberg) -- Bloomberg's Carol Massar reports on the performance of the U.S. equity market today. The Standard & Poor's 500 Index rallied 1.4 percent to close at 1,416.51 at 4 p.m. New York time, returning to its highest level in almost four years. (Source: Bloomberg)

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March 26 (Bloomberg) -- Michael Gayed, chief investment strategist at Pension Partners LLC, and Matthew McCormick, vice president and portfolio manager at Bahl & Gaynor Inc., talk about investing and the U.S. stock market. They speak with Trish Regan, Adam Johnson on Bloomberg Television's "Street Smart." Peter Kiernan, chief executive officer of Kiernan Ventures, also speaks. (Source: Bloomberg)

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March 26 (Bloomberg) -- Fed Chief Ben Bernanke says accommodative policy is needed to cut the unemployment rate. Bloomberg's Betty Liu speaks on Bloomberg Television's "In The Loop." (Source: Bloomberg)

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March 26 (Bloomberg) -- Federal Reserve Chairman Ben Bernanke said while he’s encouraged by the unemployment rate’s decline to 8.3 percent, continued accommodative monetary policy will be needed to make further progress. Bloomberg's Mike McKee reports that Bernanke's view is not held by all on the Federal Reserve. He speaks on Bloomberg Television's "In The Loop." (Source: Bloomberg)

Audio Download: Blackrock’s Doll Cold on Treasuries, Warm on Stocks

The S&P 500 advanced 1.4 percent to 1,416.51 at 4 p.m. New York time, erasing last week’s loss and posting the fourth- biggest gain of 2012. The Dow Jones Industrial Average added 160.90 points, or 1.2 percent, to 13,241.63 today. The Russell 2000 Index (RTY) of small companies rallied 1.9 percent to 846.13, the highest level since July. About 6.2 billion shares changed hands on U.S. exchanges, or 6 percent below the three-month average.

“Bernanke is in a difficult situation because the Federal Reserve is mostly relying on the Fed’s speech as opposed to money to move markets,” said David Kelly, who helps oversee about $394 billion as chief market strategist at JPMorgan Funds in New York. “What he’s trying to say is that they’re going to be pretty slow to remove stimulus.”

Equities rose as Bernanke said in a speech that while he’s encouraged by the unemployment rate’s decline, the economy still needs help. The number of Americans signing contracts to buy previously owned homes held in February near an almost two-year high, a sign that the real estate market may be stabilizing.

Bailout Fund

Gains in stocks were also driven by speculation the European Union will increase the size of its bailout fund. European finance ministers meet March 30 to discuss raising a 500 billion-euro ($664 billion) ceiling on the region’s financial firewall. Chancellor Angela Merkel said Germany may back plans for the temporary and permanent euro-area rescue funds to run in parallel.

“Europe took care of a liquidity problem, but the solvency concern still remains,” E. William Stone, chief investment strategist at PNC Wealth Management in Philadelphia, said in a telephone interview. His firm manages about $107 billion. “Some action to bolster the firewall would be viewed as positive.”

All 10 groups in the S&P 500 rose today as some of the largest companies rallied. The Dow Jones Transportation Average, a proxy for the economy, gained 1.4 percent. The KBW Bank Index added 1.5 percent as 23 of its 24 stocks rose. Amazon.com increased 4 percent to $202.87. JPMorgan climbed 2.2 percent to $46.17.

Apple Rallies

Apple jumped 1.8 percent to a record $606.98. Chief Executive Officer Tim Cook visited the world’s most populous country, where store openings have trailed a forecast the company made two years ago. Cook had “great meetings” with Chinese officials, Carolyn Wu, a Beijing-based spokeswoman, said by phone, without identifying the officials.

A measure of health-care companies in the S&P 500 rose the most among 10 industries, adding 1.7 percent. Pfizer added 1.6 percent to $22.16. Tenet Healthcare Corp. (THC) had the second-biggest advance in the S&P 500, adding 5.5 percent to $5.54.

The U.S. Supreme Court opened historic arguments on President Barack Obama’s health-care overhaul by debating whether it should rule this year at all. The justices are considering whether an 1867 law bars them from ruling for now on the measure that requires almost every American to get health insurance by 2014 or pay a penalty.

Weight Loss

Arena Pharmaceuticals Inc. (ARNA) soared 25 percent to $3.01, the highest level since September 2010. The weight-loss pill maker faces an advisory panel on May 10 as Food and Drug Administration staff said in a report today that obesity treatment manufacturers may need to study the heart risks of their medicines before U.S. regulators weigh approval.

Edwards Lifesciences Corp. (EW) rallied 5.9 percent, the most in the S&P 500, to $75.51. The company’s Sapien device replaces damaged aortic heart valves as well as surgery, without cracking open the chest or triggering higher rates of stroke or death after two years, a company-funded study found.

Lions Gate Entertainment Corp. (LGF) added 4.5 percent to $15.18. “The Hunger Games” collected $155 million in weekend sales in the U.S. and Canada, a record opening for the company and for the month of March.

Safeway Inc. (SWY) declined 3.4 percent, the biggest loss in the S&P 500, to $20.42. The grocer was cut to neutral from outperform at Credit Suisse Group AG, meaning the firm expects the stock to perform in-line with the market over the next 12 months.

Since IPO

A123 Systems Inc. (AONE) tumbled 12 percent to $1.49, the lowest price since it went public in September 2009. The company said it’s replacing defective battery packs and modules it supplies to customers, including Fisker Automotive Inc., and that the flaw caused a Fisker Karma to shut down in a Consumer Reports test.

The S&P 500 today erased last week’s 0.5 percent decline and extended its monthly advance to 3.7 percent. The benchmark measure is poised for a fourth straight monthly gain, the longest winning streak since September 2009. The index has risen 13 percent in 2012 amid better-than-estimated economic and corporate data. It trades for 14.6 times reported earnings, below the average since 1954 of 16.4.

Hedge funds trailing the S&P 500 for the last five months are giving up on bearish bets and buying stocks at the fastest rate in two years.

Hedge-Fund Bullishness

A gauge of hedge-fund bullishness measuring the proportion of bets that shares will rise climbed to 48.6 last week from 42 at the end of November 2011, the biggest increase since April 2010, according to data compiled by the International Strategy & Investment Group. The Bloomberg aggregate hedge fund index gained 1.4 percent last month, lagging behind the S&P 500 by 2.65 percentage points.

Money managers struggling to catch up with the gains have contributed to the rally that pushed the S&P 500 up 27 percent since October.

Market bulls say they are a continuing source of cash that can move stocks higher. Bears say capitulating hedge funds are further evidence that equities have risen too far, too fast as economic growth remains sluggish, warning that the pool of potential buyers is being depleted.

“It’s encouraged me to gradually increase my exposure to stocks,” Barton Biggs, founder of hedge fund Traxis Partners LP in New York, said in a March 23 phone interview, referring to an improving economic outlook. “The shift has occurred gradually in the six or so months since the beginning of October. I’d be inclined to raise my net long further because the potential to the upside would be greater” should the S&P 500 fall 5 percent to 7 percent, he said.

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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