Hedge Funds Bet Wrong Before Biggest Slump Since October

By Elizabeth Campbell - May 8, 2012 3:24 AM GMT+0700

Hedge funds raised bets on higher commodity prices for the first time in six weeks, just before the biggest three-day slump since October as U.S. jobs data fell short of expectations and European manufacturing contracted.

Money managers increased net-long positions across 18 U.S. futures and options by 6.9 percent to 895,240 contracts in the week ended May 1, the biggest gain since Feb. 28, Commodity Futures Trading Commission data show. Bullish copper wagers surged sevenfold before prices fell for three days, and soybean bets reached the highest since at least June 2006 as the oilseed capped the biggest weekly loss since mid-January.

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Stockpiles of copper monitored by the London Metal Exchange tumbled 38 percent this year to the lowest level since October 2008. Photographer: Bartek Sadowski/Bloomberg

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May 7 (Bloomberg) -- Barry Knapp, head of equity strategy at Barclays Capital, talks about the outlook for U.S. markets. He speaks with Scarlet Fu on Bloomberg Television's "InBusiness." (Source: Bloomberg)

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Chinese home prices fell to a 14-month low in April. Photographer: Qilai Shen/Bloomberg

The Standard & Poor’s GSCI Spot Index of 24 raw materials tumbled 4.9 percent in the three sessions ended May 4, the most since Oct. 4. Reports showed last week that services and manufacturing output shrank last month in the euro region and the U.S. added fewer jobs than forecast in April. Open interest, or contracts outstanding, across commodities fell 2 percent in the seven sessions through April 30, the longest slide since November, data compiled by Bloomberg show.

“We had some soft data points along the edges that’s taken some of the steam out of the market,” said Kelly Wiesbrock, who helps manage $1.3 billion of assets for San Francisco-based hedge fund Harvest Capital Strategies. “It’s hard to know whether this is a just a little bit of a pause, or if this is something bigger.”

Prices Slide

The S&P GSCI plunged 4.5 percent last week, the most since Dec. 16. The MSCI All-Country World Index of equities dropped 2.3 percent, and the dollar rose 1 percent against a basket of six major currencies. Treasuries returned 0.3 percent, a Bank of America Corp. index shows.

The GSCI extended its drop today, falling 0.2 percent to close at 652.27. The gauge capped a fourth straight decline, the longest slide since August.

Twenty-two of the raw materials tracked by the S&P GSCI declined last week. Gasoline plunged 7.2 percent, copper dropped 2.7 percent and soybeans fell 1 percent. On May 4, crude oil slumped below $100 a barrel for the first time since February.

Payrolls in the U.S. rose 115,000 in April, the smallest gain in six months, the Labor Department said May 4. That compared with the median estimate of 160,000 in a Bloomberg survey of 85 economists. Unemployment in the 17 countries that use the euro rose to a 15-year high and manufacturing contracted for a ninth month, reports from the European Union’s statistics office and Markit Economics on May 2 showed. European Central Bank President Mario Draghi said May 3 that the economic outlook has become “more uncertain.”

Chinese Homes

Chinese home prices fell to a 14-month low in April, SouFun Holdings Ltd. (SFUN), the nation’s biggest real-estate website owner, reported May 2. The country is the biggest buyer of everything from copper to cotton to soybeans.

The outlook for commodity markets is weaker as China’s growth slows, Europe’s debt crisis intensifies and because the Federal Reserve is less likely to purchase more debt to stimulate growth, ABN Amro Bank NV said in a report May 2. The S&P GSCI rose more than 80 percent from December 2008 to June 2011 as the Fed bought $2.3 trillion of debt in two rounds of quantitative easing and held borrowing costs at a record low.

Soy Crops

Commodity prices may prove resilient as drought damages soybean crops in South America, copper inventories tumble and rains disrupt sugar supplies in Brazil, the biggest grower.

Sixteen of 24 analysts surveyed by Bloomberg expect soybeans to gain this week and one was neutral, the highest proportion since March 16. Prices reached $15.125 a bushel on May 2, the most since July 2008. Hedge funds lifted their wagers by 4.3 percent to 253,889 contracts, the CFTC data show.

Stockpiles of copper monitored by the London Metal Exchange tumbled 38 percent this year to the lowest level since October 2008. Jiangxi Copper Co. plans to ship metal to nearby LME warehouses to bring down prices, China’s largest producer of the metal said May 2.

“While there may be some slack from Europe, if the U.S. and emerging market economies continue to show signs of improvement, that will bode well for the commodity markets longer term,” said Nelson Louie, the global head of commodities at New York-based Credit Suisse Asset Management who helps manage $11 billion of assets.

Commodity Funds

Investors withdrew $357 million from commodity funds in the week ended May 2, according to data from Cambridge, Massachusetts-based EPFR Global, which tracks money flows. Gold and precious-metals outflows totaled $349 million, Cameron Brandt, the director of research, said by phone.

Speculators raised bets on higher crude-oil prices by 12 percent to 219,817 contracts, the biggest gain since Feb. 14, the CFTC data show. Crude oil declined 6.1 percent in New York last week.

U.S. crude stockpiles increased 2.84 million barrels to 375.9 million in the seven days ended April 27, the most since September 1990, according to an Energy Department report May 2. Domestic output gained 8,000 barrels a day to 6.12 million, the highest level since November 1999.

Wagers on copper increased sevenfold to 15,582, as prices slumped 2.7 percent, the first weekly drop in three. Bullish gold bets climbed 7.9 percent to 116,061, a four-week high. Bullion slumped 1.2 percent in New York last week on speculation that the Fed will be reluctant to buy more debt to shore up growth, easing concern that inflation will accelerate.

Chicago Futures

A measure of net-longs for 11 U.S. farm goods rose 0.1 percent to 512,512 contracts, the CFTC said. Corn holdings climbed 9 percent to 112,328, the biggest increase since March 6. Futures in Chicago dropped 0.8 percent last week, leaving prices down 4.1 percent this year.

Global food costs fell for the first time this year in April, the United Nations’ Food & Agriculture Organization said on May 3, and prices are down 10 percent from the all-time high reached in February 2011.

“Agriculture and other energy type commodities will most likely be dragged down due to concerns on slow growth of the U.S. and negative growth in Europe,” said Stephen Hammers, the Nashville, Tennessee-based chief investment officer at Compass EMP Funds, which manages about $1 billion of assets. “News is not expected to be as bright as it was last quarter.”

To contact the reporter on this story: Elizabeth Campbell in Chicago at ecampbell14@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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No Repeating Slowdown Seen by U.S. With Banks to Housing

By Joshua Zumbrun - May 8, 2012 3:26 AM GMT+0700

The smallest gain in U.S. payrolls in six months need not presage the kind of slowdown that bedeviled the world’s largest economy for the past two years.

Rising auto sales, improving bank credit and stabilization of housing are among the signs the economy is more resilient now than it was around the same time in 2010 and 2011, according to Marisa Di Natale, an economist at Moody’s Analytics in West Chester, Pennsylvania.

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Allen Zimney and his girlfriend Leila Alvarez shop for a Ford Edge at the Star Ford dealership on March 23, 2012 in Glendale, California. Photographer: Kevork Djansezian/Getty Images

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May 7 (Bloomberg) -- Michelle Meyer, a senior economist at Bank of America Merrill Lynch, talks about the U.S. economy and real estate market. She speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

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May 7 (Bloomberg) -- Barry Knapp, head of equity strategy at Barclays Capital, talks about the outlook for U.S. markets. He speaks with Scarlet Fu on Bloomberg Television's "InBusiness." (Source: Bloomberg)

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The average price of regular gasoline fell to $3.80 a gallon on May 3 from a 2012 high of $3.94 on April 4. Photographer: Daniel Acker/Bloomberg

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Consumer spending rose at a 2.9 percent pace in the first quarter, the fastest in more than a year. Photographer: David Paul Morris/Bloomberg

“From where we sit right now, we think the economy looks fundamentally stronger,” Di Natale said. “Surveys of business and consumer confidence are better, the labor market data looks a lot better than it did last year, even some of the housing data looks better.”

Stocks and bond yields fell on May 4 after a report showing payrolls climbed 115,000 in April, less than the 160,000 median forecast in a Bloomberg News survey of 85 economists. The slowdown followed data showing the pace of economic expansion cooled in the first quarter, prompting concerns that another pickup in growth may again be sputtering.

In 2011, the economy was rocked by repeated shocks. Oil prices soared as a result of political upheaval in the Middle East, a tsunami and earthquake in Japan disrupted manufacturing supply chains, Europe’s debt woes deepened and U.S. lawmakers struggled to reach an accord to raise the debt ceiling.

Payroll growth slowed to an average monthly pace of 80,000 in the period from May through August 2011, from 207,000 in the first four months of the year.

Tax Credit

The expiration of a U.S. government tax credit to homebuyers contributed to a slowdown in residential construction that hurt growth in late 2010. The economy grew at an average 2.4 percent pace in the last six months of that year after expanding at a 3.9 percent pace in the first half.

Most stocks rose following the biggest weekly decline of the year, as investors weighed Francois Hollande’s election as France’s president and Greek voters flocking to anti-bailout parties. About six stocks rose for every five that fell on U.S. exchanges at the close in New York. The Standard & Poor’s 500 Index increased less than 0.1 percent to 1,369.58.

Elsewhere, German factory orders climbed more than forecast in March as demand from outside the euro area helped Europe’s largest economy weather the sovereign debt crisis.

In Australia, retail sales jumped 1.8 percent in the first quarter from the final three months of last year, the strongest performance since 2009, the Bureau of Statistics said in Sydney.

Comparisons Overstated

Comparisons between the U.S. economy this year and last are overstated, said Ian Shepherdson, chief U.S. economist for Valhalla, New York-based High Frequency Economics.

“The economic cause of the slowdown last year was much more substantial,” ” he said, adding that energy prices are already declining and Europe’s debt crisis hasn’t spread to U.S. banks. “There’s nothing I see fundamentally changed in the economy over the last couple of months.”

The average price of regular gasoline fell to $3.78 a gallon on May 6 from a 2012 high of $3.94 on April 4, according to data from AAA, the biggest U.S. auto group. The price of oil fell to $98.49 a barrel on the New York Mercantile Exchange on May 4 from a 2012 high of $109.77 on Feb. 24.

First-time applications for unemployment benefits are also falling. Jobless claims dropped to 365,000 in the week ended April 28 from 392,000 the previous week, close to the lowest level since the economic recovery began in June 2009.

Average Jobless Claims

Claims this year have averaged 373,000, compared with 417,000 in the first four months of 2011 and 475,000 in the same period of 2010.

The current level of claims is consistent with gains in payrolls of about 200,000, Shepherdson said. He forecasts the economy will add 230,000 jobs in May.

Not everyone agrees the U.S. economy is out of the danger zone. Oil prices may yet rise again, Europe’s debt crisis is still smoldering and Congress is gridlocked over budget cuts, said Jason Schenker, president of Prestige Economics LLC in Austin, Texas.

“There are big risks out there, and those haven’t gone away,” Schenker said. “And the current state of the economy, even excluding those risks, is one of very modest job creation and modest growth.”

Still, consumer confidence is higher this year, underpinning the spending that accounts for 70 percent of the world’s largest economy. Consumer spending rose at a 2.9 percent pace in the first quarter, the fastest in more than a year.

Comfort Index

The Bloomberg Consumer Comfort Index reached a four-year high in early April. Other measures also improved, with the Thomson Reuters/University of Michigan sentiment gauge reaching a one-year high last month, and the Conference Board’s index hovering near the one-year high reached in February.

Stock-market gains, propelled by better-than-forecast corporate earnings, are helping to boost consumer wealth and optimism. The S&P’s 500 Index was up almost 9 percent this year through May 4, even after last week’s jobs report trimmed its rally.

About 70 percent of S&P 500 companies that reported results since the start of the earnings season have beaten projections, according to data compiled by Bloomberg.

Visa Inc. (V), the biggest payments network, said May 2 that its fiscal second-quarter profit surged 47 percent as customer spending on credit and debit cards rose. The company boosted its profit outlook and its stock is now up 16 percent this year.

Credit Products

“Our strong financial performance this quarter was fueled by continued growth of U.S. credit products, strong cross-border spending and expansion of Visa’s core business in international markets,” Chairman and Chief Executive Officer Joseph W. Saunders said in a statement.

Job gains, record low mortgage rates and cheaper properties are underpinning residential real estate. Data released last month showed better-than-estimated new-home sales and a slowdown in price declines are bolstering optimism that the market is poised for a sustainable recovery.

Warren Buffett, whose Berkshire Hathaway Inc. has more than $19 billion invested in U.S. banks, said the lenders have ample liquidity and are a class apart from European rivals.

“I would put European banks and American banks in two very different categories,” Buffett, Berkshire’s chairman and chief executive officer, said May 5 at the firm’s annual meeting in Omaha, Nebraska. “The American banking system is in fine shape.”

Loan Standards

U.S. banks “reported having eased standards on credit card, auto and other consumer loans,” according to the Federal Reserve’s survey of senior loan officers, released April 30. “Demand for consumer loans reportedly continued to increase, especially for auto loans.”

Julia Coronado, chief economist for North America at BNP Paribas in New York, said that report shows “there is some credit easing, and I would categorize it as the fading of a headwind” for the economy.

Loan growth has helped bolster U.S. auto sales that reached an annual pace of 14.4 million in April, up from an average of 12.7 million in 2011 and 11.6 million in 2010, according to data from Ward’s Automotive Group.

Stronger demand for automobiles bolstered U.S. manufacturing, which grew in April at the fastest pace in almost a year, according to Institute for Supply Management. The group’s factory index climbed to 54.8 last month, the best reading since June.

Skipping Shutdowns

Chrysler Group LLC, the biggest gainer of U.S. market share through April, said four plants will skip normally scheduled two-week midyear shutdowns to meet increased demand.

Factories in Belvidere, Illinois; Toluca, Mexico; and Detroit, and a parts factory in Toledo, Ohio, will stay open, the company said May 2 in a statement on its website. Two more plants will shut for one week instead of two, according to Auburn Hills, Michigan-based Chrysler.

“We need to build a few more vehicles, so they’re staying open,” Jodi Tinson, a company spokeswoman, said in a phone interview last week.

To contact the reporter on this story: Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

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

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S&P 500 Halts 3-Day Slump After Europe Vote as Banks Rise

By Rita Nazareth - May 8, 2012 3:59 AM GMT+0700

The Standard & Poor’s 500 Index (SPX) advanced, halting a three-day decline, as bank shares rallied after Warren Buffett said American lenders are in “fine shape” and investors weighed elections in France and Greece.

Banks had the biggest gain among 24 groups in the S&P 500 as Buffett said the nation’s lenders have “liquidity coming out of their ears” and are in better shape than European rivals. Walt Disney Co. (DIS) rose 2.1 percent as the movie “Marvel’s The Avengers” earned a record $200.3 million in its opening weekend. American International Group Inc. retreated 3 percent as the U.S. Treasury Department sold $5 billion of shares.

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France's Socialist Party (PS) newly elected president Francois Hollande celebrates at the Place de la Bastille in Paris on May 7, 2012 after the announcement of the first official results of the French presidential second round. Photographer: Thomas Coex/AFP/Getty Images

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May 8 (Bloomberg) -- Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, talks about U.S. stocks and his investment strategy. Sargen also discusses France's presidential election, Europe's sovereign debt crisis, and the region's common currency. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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May 7 (Bloomberg) -- Gina Martin Adams, an equity strategist at Wells Fargo Securities LLC, talks about the outlook for U.S. markets and investor sentiment. She speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

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Traders work on the floor of the New York Stock Exchange. Photographer: Michael Nagle/Bloomberg

The S&P 500 advanced less than 0.1 percent to 1,369.58 at 4 p.m. New York time, following a 2.6 percent drop in three days. The measure fell as much as 0.4 percent earlier today. The Dow Jones Industrial Average slid 29.74 points, or 0.2 percent, to 13,008.53. About 6.3 billion shares changed hands on U.S. exchanges today, or 5.1 percent below the three-month average.

“U.S. banks are in pretty good shape,” said Paul Zemsky, the New York-based head of asset allocation for ING Investment Management. His firm oversees $160 billion. “In addition, the perception is that European governments are not going to do anything stupid. We’re not talking about a wholesale change in fiscal policy. There was a big reaction to well-telegraphed news. It’s good to see a bounce from the lows.”

Stocks swung between gains and losses after Francois Hollande’s election as France’s president and as Greek voters flocked to anti-bailout parties. Hollande, who defeated Nicolas Sarkozy, pledged to push for less austerity. European stocks rebounded as German Chancellor Angela Merkel said she will receive Hollande with “open arms” as they work together to tackle the debt crisis.

‘On Surviving’

Barton Biggs, founder of the Traxis Partners LP hedge fund, said he isn’t adding to bearish equity bets in Europe. Biggs said on Bloomberg Television’s “In the Loop” with Betty Liu today that he continues to short German and French benchmark equity indexes, while being 70 percent net long on U.S. stocks. The region’s shared currency is “50/50 on surviving,” he said.

Voters are “signaling to their politicians that they want more stimulus and less austerity,” Biggs said today in a telephone interview. “If they don’t get it, they’re going to vote in new leaders. That’s a big deal, and I happen to think stimulus combined with reforms is the way to go.”

The S&P 500 dropped the most since December last week as a report showed employers added fewer jobs than forecast. The gauge was still up 8.9 percent in 2012 on better-than-estimated earnings. About 70 percent of S&P 500 companies that reported results since the start of the earnings season have topped projections, according to data compiled by Bloomberg.

Banks Rally

A measure of banks in the S&P 500 rose 1.2 percent. All 24 stocks in the KBW Bank Index (BKX) advanced as the gauge rose 1 percent. Bank of America Corp. (BAC) added 2.8 percent, the most in the Dow average, to $7.96. Wells Fargo & Co. gained 1.4 percent to $33.50.

“I would put European banks and American banks in two very different categories,” Buffett, Berkshire’s chief executive officer, said May 5 at the firm’s annual meeting in Omaha, Nebraska. “The American banking system is in fine shape. The European system was gasping for air a few months back” until getting assistance from the European Central Bank, he said.

Wall Street firms including JPMorgan Chase & Co. (JPM) and Bank of America, emboldened after raising capital levels ahead of stricter international guidelines, are contesting efforts by U.S. policy makers to limit trading and risk. European banks have struggled amid the continent’s sovereign debt crisis and turned to the ECB for 1 trillion euros ($1.3 trillion) in three- year loans at a 1 percent interest rate.

‘The Avengers’

Walt Disney rose 2.1 percent to $43.82. “The Avengers” surpassed the previous-best opening weekend of $169.2 million in the U.S. and Canada, set last year by “Harry Potter and the Deathly Hallows: Part 2,” researcher Hollywood.com Box-Office said yesterday in a statement.

Tyson Foods Inc. climbed 3.3 percent to $18.63. The largest U.S. meat processor reported second-quarter earnings that beat analysts’ estimates and said it will boost stock buybacks by 35 million shares.

Vertex Pharmaceuticals Inc. (VRTX) surged 55 percent to $58.12. The maker of the first medicine to target the underlying cause of cystic fibrosis said a combination of the drug and a second therapy improved some patients’ ability to breathe in a mid- stage study.

AIG (AIG) lost 3 percent to $31.84. The Treasury is selling 163.9 million shares at $30.50 each, compared with the May 4 closing price of $32.83, the department said yesterday. The transaction reduces the Treasury’s stake in the insurer to 63 percent from 70 percent.

Cognizant Technology Solutions Corp. (CTSH) tumbled 19 percent to $56.30. The provider of consulting and outsourcing services cut its full-year sales and earnings forecasts.

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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Most U.S. Stocks Climb, Led by Banks, While Euro Weakens

By Michael P. Regan and Rita Nazareth - May 8, 2012 3:32 AM GMT+0700

May 7 (Bloomberg) -- Most U.S. stocks rose, led by banks, after billionaire investor Warren Buffett said American lenders are in “fine shape.” The euro slid for a sixth day and commodities fell after French Socialist Francois Hollande was elected president and Greek voters picked anti-bailout parties.

The Standard & Poor’s 500 Index (SPX) added less than 0.1 percent to 1,369.58 at 4 p.m. in New York as six stocks gained for every five that fell on U.S. exchanges. The euro lost 0.3 percent to $1.3051 as the shared currency extended its longest losing streak since September. Ten-year French yields slipped three points to 2.80 percent and the CAC-40 Index of stocks rallied 1.7 percent. The S&P GSCI Index of commodities fell for a fourth day, declining 0.2 percent. Ten-year U.S. Treasury yields were little changed at 1.88 percent.

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Traders work on the floor of the New York Stock Exchange on May 3, 2012. Photographer: Richard Drew/AP Photo

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May 7 (Bloomberg) -- Barry Knapp, head of equity strategy at Barclays Capital, talks about the outlook for U.S. markets. He speaks with Scarlet Fu on Bloomberg Television's "InBusiness." (Source: Bloomberg)

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May 8 (Bloomberg) -- Nick Sargen, chief investment officer at Fort Washington Investment Advisors in Cincinnati, talks about U.S. stocks and his investment strategy. Sargen also discusses France's presidential election, Europe's sovereign debt crisis, and the region's common currency. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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May 7 (Bloomberg) -- Vasu Menon, vice president for wealth management at Oversea-Chinese Banking Corp. in Singapore, talks about U.S. and Asia stocks and his investment strategy. Menon speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

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May 7 (Bloomberg) -- Barton Biggs, managing partner and co-founder of Traxis Partners LP, talks about the outlook for the euro region and his investment strategy. He speaks with Betty Liu and Dominic Chu on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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May 7 (Bloomberg) -- Dan Scott, an analyst at Credit Suisse AG, talks about investing in Europe after the French and Greek election results. He speaks from Zurich with Linzie Janis on Bloomberg Television's "Countdown." (Source: Bloomberg)

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May 7 (Bloomberg) -- Francois Hollande defeated French President Nicolas Sarkozy to become the first Socialist in 17 years to control Europe’s second-biggest economy. Hollande inherits an economy that is barely growing, with jobless claims at their highest in 12 years and a rising debt load that makes France vulnerable to the financial crisis that has rocked the euro region the past two years. Susan Li reports on Bloomberg Television's "First Up." (Source: Bloomberg)

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May 7 (Bloomberg) -- Anne Stevenson-Yang, co-founder of Beijing-based J Capital Research, talks about China's financial markets and economy. She speaks with John Dawson on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

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The euro fell 1.3 percent last week, the most in a month. Photographer: Simon Dawson/Bloomberg

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Socialist Hollande got about 52 percent against about 48 percent for Nicolas Sarkozy Photographer: Balint Porneczi/Bloomberg

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Pedestrians are reflected on an electronic stock board outside a securities firm in Tokyo, Japan. Photographer: Tomohiro Ohsumi/Bloomberg

Financial shares rose 0.7 percent as a group to lead gains among the 10 main industries in the S&P 500 after Buffett said U.S. lenders have “liquidity coming out of their ears.” Speculation that European austerity measures will be curbed grew after Hollande’s victory made him the first Socialist to take the helm of Europe’s second-biggest economy in 17 years. The Greek parliament will have three new anti-bailout parties represented.

“Every time Buffett gives the seal of approval, it helps certain stocks or segments of stocks,” Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private-banking unit of KeyCorp in Cleveland, said in a telephone interview. “As for Europe, we’ve priced in some of what’s happened. Yet investors are not really quite sure of what to make of those trends.”

Retreat From April High

U.S. stocks rebounded from early losses, including a 1.5 percent drop in S&P 500 futures before exchanges opened in New York. The S&P 500 halted a three-day slump. The index tumbled 2.4 percent last week, its biggest drop of the year, as data on American and European labor markets boosted concern the global economy is weakening. The benchmark gauge of U.S. stocks has retreated 3.5 percent from an almost four-year high on April 2.

Walt Disney Co. (DIS) rallied 2.1 percent after “Marvel’s The Avengers” set box-office records with $200.3 million in ticket sales over the weekend. Fifth Third Bancorp and Bank of America Corp. rose almost 3 percent each, pacing gains in financial shares, after Buffett said U.S. lenders have “liquidity coming out of their ears.”

“I would put European banks and American banks in two very different categories,” Buffett, Berkshire Hathaway Inc. (BRK/A)’s chairman and chief executive officer, said May 5 at the firm’s annual meeting in Omaha, Nebraska. “The American banking system is in fine shape. The European system was gasping for air a few months back” before getting assistance from the European Central Bank.

Dow Average Retreats

Hewlett-Packard Co. and Caterpillar Inc. lost more than 1.2 percent to lead the Dow Jones Industrial Average (INDU) down 29.74 points to 13,008.53. The Dow and S&P 500 drifted between gains and losses for much for much of the day. American International Group Inc. (AIG) dropped 3 percent as the U.S. Treasury Department agreed to sell $5 billion of shares, with the bailed-out insurer buying $2 billion of the total.

Risk perceptions among U.S. equity and credit investors are diverging by the most since 2009 as signs of an economic slowdown spur bigger increases in prices to protect against losses in bonds than stocks. The VIX, the benchmark gauge of U.S. equity derivatives that usually rises when shares fall, closed last week at 0.032 times the level of the Markit CDX North America High Yield Index, which increases when confidence in debt issuers deteriorates, according to data compiled by Bloomberg. That’s near the 2 1/2-year low of 0.027 times reached in March.

European Markets

European stocks rose the most in more than a week as German Chancellor Angela Merkel said she will receive French president- elect Hollande with “open arms” as they work together to tackle the debt crisis. Hollande’s platform calls for policies Merkel opposes, including increased spending and a delayed deficit-reduction effort

The Stoxx Europe 600 Index (SXXP) reversed early losses to climb 0.7 percent, even as Greece’s ASE Index (ASE) plunged 6.7 percent in its worst drop since November. National Bank of Greece (TELL) SA tumbled 8.3 percent. Roche Holding AG (ROG) fell 3.5 percent, the most since November, after abandoning development of an experimental cholesterol drug. CSM NV, the world’s biggest maker of bakery ingredients, jumped 19 percent after saying it will sell its U.S. and European bakery-supply units.

Benchmark stock indexes in Italy and Spain led gains, rallying more than 2.5 percent each. Among European bond markets, Italy’s 10-year yield lost three basis points to 5.40 percent and Spain’s increased two points to 5.76 percent.

Euro Weakens

The euro weakened against 14 of 16 major peers. The shared pared losses after dipping below $1.30 for the first time since April 16, and slid 0.5 percent versus the pound. The Dollar Index, which tracks the U.S. currency against those of six trading partners, advanced 0.1 percent, rising for a sixth day in the longest streak since September

“Incumbents took a beating across Europe this weekend in what has been widely interpreted as a backlash against austerity,” Michala Marcussen, global head of economics at Societe Generale SA in Paris, wrote in a report today. “Failure to secure a political majority to meet the terms of the second Greek program could see the country inch towards euro exit. This would in our opinion be seen as a negative event, even beyond Greece’s borders.”

Euro Bets

The euro is confounding bears who predicted a meltdown as it gets an unexpected boost from the economic and political turmoil gripping Europe. The 17-nation currency has risen about 1 percent against nine peers from this year’s low on Jan. 16, while the dollar slid 2.3 percent, data compiled by Bloomberg show. Futures traders are trimming bets that it will fall against the dollar, while options show investors are less bearish.

In other European elections, Merkel’s party had its worst election result in more than half a century in the state of Schleswig-Holstein. Austerity measures aimed at stemming Europe’s turmoil have driven economies from the Netherlands to Spain back into recession, emboldening politicians campaigning for growth.

A reduction in austerity could put more pressure on the European Central Bank to act, according to David R. Kotok, Cumberland Advisors’ chairman and chief investment officer.

“Political momentum moves toward more monetary ease,” Kotok wrote in a note to clients. “We expect some form of balance sheet expansion before the end of this year. We expect credit spreads of weaker sovereigns to widen until the ECB enters the market or discusses that it may do so.”

Cotton, silver and soybeans dropped at least 0.9 percent to lead the S&P GSCI index lower. Crude oil slipped 0.6 percent to $97.94 a barrel, the lowest settlement price in three months.

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

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

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Greek Election Surprise Rejects ‘Barbarism’ of Bailout Austerity

By Natalie Weeks and Maria Petrakis - May 7, 2012 6:17 AM GMT+0700

Alexis Tsipras became the surprise package of the Greek election by telling Angela Merkel to get lost.

“The people of Europe can no longer be reconciled with the bailouts of barbarism,” Tsipras, 37, said on state-run NET TV late yesterday after his Syriza party unexpectedly came second in the country’s election. “European leaders, and especially Ms. Merkel, should realize that her policies have undergone a crushing defeat.”

Tsipras’s calls to tax the rich, delay debt repayments and cut defense spending struck a chord with voters angry at austerity measures imposed by the European Union and the International Monetary Fund in return for bailouts. As far as euro membership is concerned, Tsipras told voters that a Greek exit would put the currency itself in jeopardy and they shouldn’t feel “blackmailed” into more austerity.

The result put Syriza ahead of the Socialist Pasok party, potentially derailing efforts to implement the terms of the country’s financial lifeline. Syriza, which means Coalition of the Radical Left, won 16 percent of the vote, projections showed. That exceeded the 13 percent won by Pasok, one of the two pillars of the political establishment since 1974. New Democracy, led by Antonis Samaras, topped the poll with 20 percent.

The result, the best since the party was founded in 2004, puts Tsipras in a position to try and form a government should New Democracy fail to put a coalition together in the first round of talks.

Greek Rivalries

What may stop Tsipras from taking power are the traditional rivalries among the Greek left.

“They have already achieved what they could achieve,” said Wolfango Piccoli, an analyst at Eurasia Group in London. “They have become the second-largest party but nobody will strike a deal with them. They can only make their voice heard more by the Greek public thanks to a larger presence in parliament but not much more than that.”

Before yesterday’s election result, Tsipras had proposed joining forces with the Communist Party of Greece, the oldest parliamentary party in the country, and the Democratic Left, which won 6 percent of the vote, to form a coalition.

Both parties have rejected the overture, with Communist Party chief Aleka Papariga repeating her refusal last night.

Tsipras suggested such a combination would be able to draw some informal support from other anti-bailout parties, such as the Independent Greeks, led by former New Democracy lawmaker Panos Kammenos, which yesterday scored 10 percent.

Anti-Bailout

“If we as the left, despite the differences, submit our proposal and get five votes of support or tolerance from Kammenos we won’t reject them,” Tsipras said in an interview on April 25. “We must stop the bailout memorandum,” he said.

Syriza garnered 4.6 percent of the vote in Greece’s last elections in 2009 and 13 seats. Polls during the election put their support between 7 percent and 13 percent.

Greek voters flocked to anti-bailout parties, official results showed yesterday, as the country balks at an unemployment rate of almost 22 percent. That’s throwing doubt on whether, New Democracy and Pasok, can form a coalition to implement spending cuts to ensure the flow of bailout funds.

Pasok party leader Evangelos Venizelos, the former finance minister who negotiated the second rescue packages, said the electorate had provided no clear mandate and called on a pro- European national unity government to be formed.

Austerity Rejection

The election was the first since the country helped trigger the European debt crisis and comes as voters across the region turn their backs on austerity measures backed by Merkel. In France, Francois Hollande defeated President Nicolas Sarkozy yesterday and in Germany Merkel’s party suffered its worst result in more than a half a century in the northern state of Schleswig-Holstein.

Bowing to German austerity, Greece agreed to impose pension and wage cuts in return for two international rescues worth 240 billion euros ($312 billion). Greece must continue spending cuts to keep disbursements flowing. Failure to do that may determine whether the country has a future in the euro area.

For Tsipras, a civil engineer by training, the question of Greece’s continuing membership of the euro is overstated because its exit could mean an end to the currency itself.

“The crisis isn’t just Greek, it’s European,” he said on April 22. “There will either be a collective, sustainable and fair European solution to the public debt issue or it will collectively fall apart. The Greek people should understand that this blackmail is false and they must stop blackmailing them with a supposed exit of just Greece without the destruction of the euro.”

To contact the reporters on this story: Maria Petrakis in Athens at mpetrakis@bloomberg.net; Natalie Weeks in Athens at nweeks2@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

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Buffett’s Son Hated Dealing With Irate Investors

By Andrew Frye and Noah Buhayar - May 7, 2012 4:31 AM GMT+0700

Howard Buffett, the Berkshire Hathaway Inc. (BRK/A) director and potential successor to his father Warren Buffett as chairman, said a previous job where he dealt with angry investors helped inform his advice for shareholders.

“If you don’t like Berkshire, don’t buy it,” Howard Buffett said today in Omaha, Nebraska, during an interview for Bloomberg Television’s “In the Loop” program with Betty Liu.

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Howard Buffett, director of Berkshire Hathaway Inc. Photographer: Daniel Acker/Bloomberg

Howard Buffett, 57, was addressing investor concerns about his father’s political activism. Berkshire hasn’t been hurt, he said, by Warren Buffett’s support of President Barack Obama and his push for higher taxes on the wealthy. The younger Buffett cited his experience in the early 1990s as head of investor relations for Archer Daniels Midland Co. and his distaste for speaking with unhappy shareholders.

“I hated that, but it was part of my job,” he said. “You get these guys calling, they’re mad at you, they want answers and you know you can’t answer it.”

Berkshire, which Warren Buffett has led for 42 years, doesn’t have an investor-relations department and executives don’t court Wall Street analysts with quarterly conference calls and presentations. Shareholders rely on the annual meeting, which draws tens of thousands of people to Omaha each year, to express their views and get feedback from management.

At ADM, the world’s largest grain processor, Howard Buffett said he was troubled by repeat calls from critical investors.

‘Don’t Call Me Again’

After one investor called about 15 times over a year and a half, Buffett said he asked the man how many shares he owned. According to Buffett, whose father is the world’s third-richest person, the investor said he owned 20 shares.

“I’ll tell you what,” Buffett said, recalling what he told the investor. “Take the market price today, add 5 percent, and I’ll buy your shares, and don’t call me again.” The investor never called back.

Warren Buffett was asked repeatedly to explain his stance on different facets of tax policy during yesterday’s meeting. One investor posed the question of whether the billionaire, who has traded barbs with Republicans on taxes over the past year, might be discouraging investors who disagree with his personal views from buying Berkshire stock. The question drew applause.

Buffett, 81, replied that his responsibilities at Berkshire, which include chief executive officer and head of investments, don’t require him to put his “citizenship in a blind trust.”

Natural Disasters

Berkshire has underperformed the Standard & Poor’s 500 Index in six of the last seven quarters. The company has faced insurance claims tied to natural disasters and investor concerns about management succession. Berkshire has said it identified the next CEO without specifying who it is or setting a timeline for the transition. Warren Buffett has said his son would make a good non-executive chairman.

Buffett, the father, has attracted investors to Berkshire by expanding the company from textiles to industries spanning insurance, consumer goods and utilities. In addition to the meetings, Buffett communicates with investors through annual letters and a statement of principles he calls the Berkshire “owner’s manual.” In his 1999 letter, Buffett set out his leadership approach after welcoming new investors.

“We hope also that these new holders find that our owner’s manual and annual reports offer them more insights and information about Berkshire than they garner about other companies from the investor-relations departments that these corporations typically maintain,” Warren Buffett said. “But if it is ‘earnings guidance’ or the like that shareholders or analysts seek, we will simply guide them to our public documents.”

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Noah Buhayar in Omaha at nbuhayar@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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Hollande Vows to Fight Austerity After Beating Sarkozy

By Helene Fouquet - May 7, 2012 5:03 AM GMT+0700

Francois Hollande, who defeated French President Nicolas Sarkozy to become the first Socialist in 17 years to control Europe’s second-biggest economy, pledged to push for less austerity and more growth in the region.

“Austerity is not inevitable,” he told supporters in Tulle, France, last night after he got about 52 percent against about 48 percent for Sarkozy.

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French President-Elect Francois Hollande celebrates victory in the place de la Cathedrale on May 6, 2012 in Tulle, France. Photograph: Getty Images

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May 7 (Bloomberg) -- Francois Hollande defeated French President Nicolas Sarkozy to become the first Socialist in 17 years to control Europe’s second-biggest economy. Hollande inherits an economy that is barely growing, with jobless claims at their highest in 12 years and a rising debt load that makes France vulnerable to the financial crisis that has rocked the euro region the past two years. Susan Li reports on Bloomberg Television's "First Up." (Source: Bloomberg)

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A young supporter with a rose in her mouth waits with other supporters in front of the campaign headquarters of the Socialist Party in Paris. Photographer: Joel Saget/ AFP/Getty Images

Hollande inherits an economy that is barely growing, with jobless claims at their highest in 12 years and a rising debt load that makes France vulnerable to the financial crisis that has rocked the euro region the past two years. Sarkozy became the ninth euro leader to fall in that time and the first French president in more than 30 years to fail to win re-election.

“Hollande’s bet was that rejection of Nicolas Sarkozy was enough to get him elected,” Dominique Reynie, senior researcher at Paris’s Institute of Political Studies, said before the vote. “The message was that if you don’t like Sarkozy then I’m your best bet.”

Sarkozy’s departure may sharpen tensions with key allies as Hollande has advocated a more aggressive European Central Bank role in spurring growth -- a measure opposed by Germany -- and an accelerated withdrawal from Afghanistan.

Hollande’s comments were echoed in Greece, where voters flocked to anti-bailout groups, leaving the two main parties, New Democracy and Pasok, a seat short of a majority if they govern together, an Interior Ministry projection showed.

French Yields

In France, the campaign isn’t over. The country elects its lower house of parliament in five weeks, prompting calls from backers of both Hollande and Sarkozy to keep fighting.

While Socialists stand ready to dominate policy making for the first time since 1993 -- holding both the presidency and the Cabinet -- bond yields suggest Hollande may maintain market confidence. Ten-year French debt yields 124 basis points more than comparable German securities. That’s down from 145 basis points after he won the first round April 22 and lower than the 133 basis points at the start of the year.

Hollande supporters gathered yesterday to celebrate with music, tears of joy and impossibly clotted crowds. Paris’s Bastille square drew thousands of people. Hollande was in rainy Tulle, his home district in central France, where crowds were entertained by giant video screens and Stevie Wonder songs.

“It’s where presidents grow like mushrooms,” said 65- year-old retiree Andre Laurier, noting Tulle’s the region of Jacques Chirac and Georges Pompidou as well.

Hollande’s Task

Conceding defeat yesterday, Sarkozy said, “after 35 years of politics, after 10 years at the highest levels of government, after five years as head of state, I will become a Frenchman among the French.”

Hollande faces the task of increasing competitiveness, cutting the budget deficit and spurring growth while keeping the region’s financial woes at bay. Campaigning against the most unpopular president in postwar France, he avoided specifics.

“We expect resistance to change and proposals to preserve France’s social model to prevail once Parliament reconvenes after June 26,” Natacha Valla, a Paris-based economist at Goldman Sachs Group Inc., wrote on May 4.

Hollande sought to portray himself as the anti-Sarkozy leader, calling himself “normal” to contrast with the incumbent known in the media as “President bling-bling.”

Hollande is the second Socialist president of the Fifth Republic, established in 1958. Francois Mitterrand was first.

His path to power followed a traditional French route. He graduated from the Institute for Political Sciences in Paris and the National School of Administration, schools that trained all post-war presidents, except Sarkozy and Charles de Gaulle.

Fall Into Line

He was educated at HEC-Paris, a business school where he befriended some who were to become corporate leaders, such as Axa SA (CS) Chief Executive Officer Henri de Castries. His social circle includes Jean-Bernard Levy, CEO of Vivendi SA, and Jean- Louis Beffa, former CEO of Cie. de Saint-Gobain.

In the early 1980s, Hollande went to work for Mitterrand, helping him nationalize companies. A decade later, he helped Prime Minister Lionel Jospin sell them to help the Socialist government cut its debts to join the euro.

“The pressure to clarify the position after a change in government will be high and it will be immediate,” said Steven Major, head of fixed-income research at HSBC Holdings Plc in London. Investors are “looking through the election and reasoning that the government will fall into line.”

Hollande has proposed higher taxes for big companies and cuts for small and medium-sized businesses; a 75 percent levy on incomes above 1 million euros a year and special taxes on banks and oil companies.

More Spending

His platform would raise spending by 20 billion euros ($26.3 billion) over his five-year term and the retirement age for those who started working at 18 years old pushed back to 60 from 62. He said he would discuss with France’s banks the split of their retail and investment activities.

Tax increases and eliminating loopholes would seek to raise 29 billion euros. The budget plan aims to eliminate the deficit in 2017, one year later than under Sarkozy’s plan, with a 3 percent of gross domestic product deficit target for 2013.

Minutes after Hollande’s victory was announced, political leaders were already fighting over the legislative elections set for June 10 and June 17.

“We need a majority in parliament,” Jean-Marc Ayrault, who heads the Socialist Party in the National Assembly, said on France 2 television. Former Prime Minister Jean-Pierre Raffarin said, “What’s very important now is to put together a great opposition force.”

Against Austerity

Outside of France, Hollande has called for re-negotiating the German-inspired deficit rules that leaders agreed upon in December. At the same time, he reached out to France’s neighbor and biggest trade partner.

A German government spokesman said that diplomatic contacts had been made with the Hollande camp. Pierre Moscovici, his campaign chief and a possible key member of the future government, told Frankfurter Allgemeine Zeitung newspaper on May 5 that the new government would not create a “crisis” with its main partner.

German Finance Minister Wolfgang Schaeuble indicated May 4 enough flexibility to allow Hollande to “save face.”

“I’ve said that everybody who gets freshly elected into office must be able to save face,” Schaeuble said. “So we will discuss this with Hollande in a very friendly way. But we won’t change our principles.”

Concern of a Franco-German cleavage undermining economic policy making in the euro region is “exaggerated,” Morgan Stanley chief economist Joachim Fels wrote in a note yesterday.

A native of Rouen, the Norman city where Joan of Arc was burned at the stake by the English in the 15th century, Hollande has spent his career mainly behind the scenes and kept his position as party leader even after two humiliating Socialist losses under his watch -- in 2002 and 2007.

In 2007, Segolene Royal, the mother of his four children, lost to Sarkozy. In the subsequent months, she announced their separation. Hollande now lives with Valerie Trierweiler, a journalist for Paris Match magazine.

To contact the reporter on this story: Helene Fouquet in Paris at hfouquet1@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net

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‘The Avengers’ Has Record-Setting $200.3 Million in Sales

By Michael White - May 6, 2012 10:35 PM GMT+0700

“Marvel’s The Avengers” opened as the top film in U.S. and Canadian theaters, kicking off the summer movie season with a record $200.3 million in sales this weekend for Walt Disney Co. (DIS)

Revenue topped the previous best of $169.2 million set by “Harry Potter and the Deathly Hallows: Part 2” last year, researcher Hollywood.com Box-Office said today in an e-mailed statement. Analysts had forecast sales of $150 million to $170 million for “The Avengers.”

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Jeremy Renner, Chris Evans, Scarlett Johansson perform in "The Avengers," from Walt Disney Studios. Photographer: Zade Rosenthal/Marvel via Bloomberg

Summer ticket sales are expected to surpass the record of $4.4 billion set last year, according to Jeff Bock, box-office analyst at Exhibitor Relations Co. Other films scheduled in the coming weeks include Warner Bros.’ “The Dark Knight Rises,” directed by Christopher Nolan, and Sony Corp. (6758)’s “Men in Black 3,” a sequel that reunites Will Smith and Tommy Lee Jones as government agents managing Earth’s secret alien population.

“The Avengers” is the first Marvel movie Disney is distributing since buying the comic-book company for $4.2 billion in 2009. The movie provides Burbank, California-based Disney with a hit after the box-office failure of “John Carter,” the science-fiction film released in March that resulted in a $200 million loss for the company.

Rich Ross, the head of Disney’s film unit, resigned in April, and the company hasn’t yet hired a replacement. Disney is scheduled to report fiscal second-quarter results on May 8.

Marvel Heroes

“The Avengers” brings together several Marvel heroes, including Iron Man, Thor and Captain America, who were featured singly in previous films. They must overcome egos and discord to band together to fight an army led by Loki, the unscrupulous god of Norse mythology. The movie stars Robert Downey Jr., Chris Evans and Scarlett Johansson.

The film took in $80.5 million in first-day ticket sales on May 4, according to Hollywood.com. The revenue was the second- best single-day performance after “Deathly Hallows: Part 2,” which took in $91.1 million.

“The Avengers,” directed by Joss Whedon, was the only movie opening in wide release this weekend.

To contact the reporter on this story: Michael White in Los Angeles at mwhite8@bloomberg.net

To contact the editor responsible for this story: Anthony Palazzo at apalazzo@bloomberg.net

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Buffett Shuns $22 Billion Deal to Protect Stock Holdings

By Noah Buhayar, Margaret Collins and Andrew Frye - May 6, 2012 12:33 AM GMT+0700

Warren Buffett, who built Berkshire Hathaway Inc. (BRK/A) with stock picks before focusing on takeovers, said he recently opted against a $22 billion acquisition because he didn’t want to sell investments in marketable securities.

“We considered one here just a month or two ago, which we would have liked to do,” Buffett, Berkshire’s chairman and chief executive officer, said today at the company’s annual meeting in Omaha, Nebraska. “I would have had to sell some securities I didn’t want to sell.”

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Warren Buffett, chairman of Berkshire Hathaway Inc., talks with his daughter Susie Buffett at the Berkshire Hathaway annual shareholders meeting in Omaha. Photographer: Daniel Acker/Bloomberg

Buffett, 81, divested portions of Berkshire’s stock portfolio to help fund his $26.5 billion acquisition of railroad Burlington Northern Santa Fe in 2010. Since then, he has spent more than $15 billion on stocks, while assuring Berkshire shareholders that he was seeking further takeovers.

“We wish we could have made it,” Buffett said of the deal he opted against, without naming the target company.

Berkshire’s equity portfolio, which includes the largest shareholdings of Coca-Cola Co. (KO) and Wells Fargo & Co. (WFC), surged 41 percent to $89.1 billion in the 12 months ended March 31. In that period, the Standard & Poor’s 500 Index rose 6.2 percent and Buffett built what has become a $13.1 billion stake in International Business Machines Corp. (IBM)

To contact the reporters on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net; Margaret Collins in Omaha at mcollins45@bloomberg.net; Andrew Frye in New York at afrye@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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Apple Wins Ruling, Sanctions in Samsung Infringement Suit

By Joel Rosenblatt - May 6, 2012 6:23 AM GMT+0700

Apple Inc. (AAPL) won sanctions against Samsung Electronics Co. for its failure to produce source code in a patent-infringement case in federal court in San Jose, California.

U.S. Magistrate Judge Paul S. Grewal wrote in his ruling yesterday that Samsung “plainly violated” a court order requiring it to turn over code to Apple, and ruled that Samsung won’t be able to offer evidence in the case about its efforts to “design around” three patents at issue in the case.

In its lawsuit, Apple claims that Samsung’s 4G smartphone and Galaxy Tab 10.1 tablet computer infringe its patents. In December, U.S. District Judge Lucy Koh in San Jose ruled against Apple’s request to block Suwon, South Korea-based Samsung from selling that phone and tablet in the U.S. That order followed an Australian court ruling lifting an injunction on the tablet there.

Samsung, which was the world’s largest seller of smartphones last year, and Cupertino, California-based Apple have filed at least 30 lawsuits against each other on four continents since April 2011.

In his ruling, Grewal said producing source code in patent litigation is “disruptive, expensive, and fraught with monumental opportunities to screw up.” Still, under federal law there is no exception to the requirement, especially when a defendant in a patent suit challenges the opposition’s failure to analyze the accused product’s source code, the judge said.

Design-Around

Grewal said he focused on Samsung’s so-called design-around source code developed for products with the “specific intent” of avoiding Apple’s patent claims. The ruling targets that code because “by their very nature design-arounds impact key questions of liability, damages and injunctive relief,” Grewal wrote.

“They are inevitably designed with substantial input from counsel for the specific purpose of distinguishing other products at issue,” Grewal wrote. “In short, they matter. A lot.”

Adam Yates, a Samsung spokesman, didn’t immediately return an e-mail after business hours seeking comment on the ruling.

“It’s no coincidence that Samsung’s latest products look a lot like the iPhone and iPad, from the shape of the hardware to the user interface and even the packaging,” Apple said today in an e-mailed statement. “This kind of blatant copying is wrong, and we need to protect Apple’s intellectual property when companies steal our ideas.”

The case is Apple Inc. v. Samsung Electronics Co. (005930), 11-01846, U.S. District Court, Northern District of California (San Jose).

To contact the reporter on this story: Joel Rosenblatt in San Francisco at jrosenblatt@bloomberg.net

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

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Yahoo Investor Steps Up Pressure to Have CEO Fired

By Nick Turner and Dina Bass - May 5, 2012 11:01 AM GMT+0700

Yahoo! Inc. (YHOO) is under pressure from Third Point LLC, one of its largest investors, to dismiss Chief Executive Officer Scott Thompson for failing to correct false academic information on his biography.

Third Point, which is fighting for representation on Yahoo’s board because it says the company is poorly managed, said Yahoo should “terminate Mr. Thompson for cause immediately,” after his resume erroneously said he had a degree in computer science. Yahoo is reviewing the matter.

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A section of a Yahoo! billboard moved in San Francisco. Photographer: Justin Sullivan/Getty Images

The investor highlighted the discrepancies in Thompson’s record on May 3, and yesterday complained that Yahoo isn’t responding adequately. The dispute adds to challenges facing Yahoo, which is struggling to revive growth and stem customer losses. The company hired Thompson from EBay Inc. in January after ousting his predecessor, Carol Bartz, who failed to gird Yahoo against threats from Google Inc. and Facebook Inc.

“It is so clear-cut whether one has a degree or not that it is a deliberate lie and the only reason to do it is to misrepresent yourself,” said Janice Bellace, professor of legal studies and business ethics at the Wharton School at the University of Pennsylvania. “The board should certainly be looking at his capacity to lead the company and the example he sets for others in the company.”

Yahoo declined 1.6 percent to $15.15 yesterday in New York. That left it down 6.1 percent since the beginning of the year.

‘Inadvertent Error’

While Thompson lists a bachelor’s degree in computer science from Stonehill College, the school didn’t begin offering such a degree until four years after he graduated, Third Point CEO Daniel Loeb said this week in a letter to the board. Thompson has an accounting degree from the school.

Yahoo’s board plans to review the matter, and will later “make an appropriate disclosure to shareholders,” the company said in response late on May 3. Yahoo, in its first public statement on the issue, had earlier called the discrepancy an “inadvertent error” and said it “in no way alters that fact that Mr. Thompson is a highly qualified executive with a successful track record leading large consumer technology companies.”

Third Point, the owner of about 5.8 percent of Yahoo, announced plans in March to seek shareholder votes for its slate of four directors. Yahoo has been struggling to keep pace with rivals Google and Facebook, which have lured away users and ad dollars. Third Point has demanded changes at Yahoo, calling it one of technology’s “most mismanaged companies.”

Thompson Biography

In his May 3 letter, Loeb said that Stonehill only had one computer-science course when Thompson attended the Boston-area school. “Presumably, Mr. Thompson took that course,” he said.

Martin McGovern, a spokesman for Stonehill in Easton, Massachusetts, said that Thompson received a bachelor’s of science in business administration, with a major in accounting on May 20, 1979. He declined to comment further.

Thompson’s biography from his time at EBay’s PayPal unit, as submitted to events such as the 2009 Web 2.0 Summit, also stated that he had a degree in computer science. Anuj Nayar, a spokesman for PayPal, said that in recent EBay filings, Thompson’s degree was listed correctly.

“Under Mr. Thompson’s leadership, Yahoo is moving forward to grow the company and drive shareholder value,” Sunnyvale, California-based Yahoo said on May 3.

Questioning Hart’s Background

Loeb said that Patti Hart, a Yahoo board member who chairs the search committee, inflated her degree too. Hart, who also serves as CEO of International Game Technology (IGT), is listed in filings as holding a “bachelor’s degree in marketing and economics” from Illinois State University, Loeb said. “However, we understand that Ms. Hart’s degree is in business administration. She received a degree in neither marketing nor economics.”

Yahoo said in its response that “Patti Hart holds a bachelor of science degree in business administration with specialties in marketing and economics from Illinois State University.”

Jay Groves, a spokesman for Illinois State, corroborated the business administration degree, saying Hart graduated in 1978 with a concentration in economics and marketing.

‘Ethical Lapse’

Embellishing resumes has led to executive firings and resignations. In 2009, Intrepid Potash Inc. President Patrick Avery stepped down after confirming he hadn’t received degrees from two universities listed on a company prospectus. RadioShack Corp. CEO David Edmondson resigned in 2006 after acknowledging he hadn’t earned the degrees in theology and psychology that he listed on his resume.

Kenneth Lonchar, chief financial officer at Veritas Software Corp., quit in 2002 after admitting he had lied about having a master’s degree in business administration from Stanford University.

“It’s an incredibly serious ethical lapse to falsify information on a resume,” said Wharton’s Bellace. “The holes we dig for ourselves, once you start a lie, sometimes it’s very difficult to step back.”

Others who misrepresented their education kept their jobs. Microsemi Corp. CEO James Peterson was censured and fined after a 2009 review found fabricated degrees from Brigham Young University, but the company retained him as CEO. In 2002, Ronald Zarrella, CEO of Bausch & Lomb Inc., was found to have listed an MBA from New York University on his resume, when he had only taken classes at its business school. He kept his job.

‘Overhaul’ Needed

Third Point faulted Thompson last month for embarking on a round of job cuts before he articulated a more complete strategy. Thompson is the former president of eBay’s PayPal (EBAY) payment business.

Yahoo named three new independent directors in March, part of its own effort to shake up the board and appease investors. The company had negotiated with Third Point’s Loeb about adding one of his nominees and another that both sides could agree on. The discussions broke down when Loeb insisted that he himself be added, Yahoo said at the time.

“If misrepresentations were made, they would confirm yet again that Yahoo is in dire need of a complete corporate governance overhaul,” Loeb said on May 3. “As we have asserted repeatedly and forcefully, as Yahoo’s largest outside shareholder and a voice for our fellow investors, we believe the Yahoo board requires fresh, outside perspectives from individuals who have no connection to a failed regime and have the expertise to address the serious challenges facing the company.”

To contact the reporters on this story: Nick Turner in San Francisco at nturner7@bloomberg.net; Dina Bass in Seattle at dbass2@bloomberg.net

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

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Buffett Says U.S. Banks a Class Apart From Europeans

By Noah Buhayar, Andrew Frye and Hugh Son - May 5, 2012 11:48 PM GMT+0700

Warren Buffett, whose Berkshire Hathaway Inc. (BRK/A) has more than $19 billion invested in U.S. banks, said the lenders have ample liquidity and are a class apart from European rivals.

“I would put European banks and American banks in two very different categories,” Buffett, Berkshire’s chairman and chief executive officer, said today at the firm’s annual meeting in Omaha, Nebraska. “The American banking system is in fine shape. The European system was gasping for air a few months back” before getting assistance from the European Central Bank.

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Warren Buffett, chairman of Berkshire Hathaway. Photographer: Jeff Bundy/The Omaha World-Herald/AP Photo

Wells Fargo & Co. (WFC) and JPMorgan Chase & Co. posted record profits last year and their CEOs are contesting efforts by U.S. policy makers to strengthen banking regulations. European banks have struggled amid the continent’s sovereign debt crisis and turned to the ECB, starting in December, for extraordinary three-year loans at interest rates of 1 percent.

“I’d like to have a lot of money for three years at 1 percent, but I’m not in trouble,” said Buffett, 81. U.S. banks have “liquidity coming out their ears.”

Berkshire, which Buffett has led for 42 years, is the biggest shareholder of San Francisco-based Wells Fargo, with a more than $12 billion stake. Buffett injected $5 billion into Bank of America Corp. (BAC) last year in exchange for preferred stock and warrants. Berkshire’s shareholding of U.S. Bancorp (USB) was valued at $2.2 billion as of yesterday.

To contact the reporters on this story: Noah Buhayar in New York at nbuhayar@bloomberg.net; Andrew Frye in New York at afrye@bloomberg.net; Hugh Son in New York at hson1@bloomberg.net.

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net

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