Pentagon’s Asia Shift Favors Subs, Tankers

By Tony Capaccio - Jan 27, 2012 6:40 AM GMT+0700

The Pentagon’s shift to forces focused on Asia and the Middle East in a budget outlined today may protect from deep cuts U.S. makers of aircraft carriers, submarines, surface-combat vessels, electronic-warfare sensors, drones, long-range bombers and tankers.

While the plan would slow the pace of shipbuilding, its emphasis on naval forces in an era of budget-cutting may help vessel-makers Huntington Ingalls Industries Inc., General Dynamics Corp. (GD), Lockheed Martin Corp. (LMT) and Austal Ltd. It also may provide opportunities for aircraft companies Northrop Grumman Corp. (NOC) and Boeing Co. (BA) and missile maker Raytheon Co. (RTN)

“This budget protects, and in some cases increases, investments that are critical to our ability to project power in Asia and the Middle East,” Defense Secretary Leon Panetta said at a news conference at the Pentagon today disclosing elements of a $613 billion defense proposal for fiscal 2013. That includes $88.4 billion for continuing combat, led by the war in Afghanistan.

Panetta and Joint Chiefs of Staff Chairman General Martin Dempsey presented the budget proposal as part of an effort to cut $487 billion, or 8.5 percent, from $5.62 trillion in spending that had been planned for 2012 to 2021. Of that, $259 billion in reductions would occur by 2017.

The fiscal 2013 budget proposes to save about $45 billion, increasing to $53 billion in fiscal 2014 and $54 billion by 2017, according to Pentagon figures.

‘Far More Lethal’

The biggest initiative other than military hardware is a reduction of the Army -- “gradually,” according to Panetta -- to 490,000 personnel from about 565,000 today. The Army numbered about 480,000 in February 2002, one year before the Iraq invasion. The budget also calls for reducing the Marines to 182,000 from about 202,000 today.

“They will be fundamentally shaped by a decade of war, far more lethal, battle-hardened and ready,” Panetta said of U.S. forces. The Army was increased by as much as 95,000 and the Marines by 30,000, largely because of the Iraq war.

Representative Howard “Buck” McKeon, a California Republican who is chairman of the House Armed Services Committee, said President Barack Obama “has abandoned the defense spending structure that has protected America for two generations, turning 100,000 soldiers and Marines out of the force.

‘‘Unmanned assets’’ and special forces that Panetta is relying on ‘‘are a vital component in defending America, but they are insufficient to meet the challenges America faces,’’ McKeon said.

Base Closings

Panetta said the troop reduction will be accompanied by a request to Congress for a new round of domestic base closings ‘‘with a goal of identifying additional savings and implementing them as soon as possible.’’ He provided no specifics about what bases might be at risk.

The Pentagon’s Asia and Middle East emphasis reinforces the need for a long-range, stealthy bomber, and sustaining the Navy’s 11-carrier force with 10 air wings and big-deck amphibious vessels, Panetta said.

Huntington Ingalls of Newport News, Virginia, is building the three-ship, $40 billion Gerald R. Ford class of carriers to be equipped with a new electromagnetic catapult system built by closely held General Atomics Aeronautical Systems Inc.

‘‘Modernizing our submarine fleet will be critical to our efforts to maintain maritime access in these vital regions,” Panetta said.

‘Strike Option’

The plan calls for increasing the size of the Navy’s current Virginia-class attack submarines to carry more Tomahawk cruise missiles and to develop an undersea, non-nuclear “strike option” similar to an intercontinental ballistic missile. Raytheon of Waltham, Massachusetts makes the Tomahawk. Huntington Ingalls and General Dynamics make the submarine.

The “strike option” concept was first proposed by the Bush administration and resurrected in fiscal 2011 under Obama.

The Littoral Combat vessels, made for operating close to shore by Lockheed Martin of Bethesda, Maryland, and Austal of Henderson, Australia, get an expanded role in the plan. Panetta said the Navy intends to base some of them in Singapore and other patrol craft in Bahrain. Still, two vessels are being cut from plans for 2013 to 2017, which had called for buying during that period at least 15 of the 55 ships planned.

The plan calls for retiring some existing ships, including seven cruisers that aren’t capable of defending against ballistic missiles.

Amphibious Vessel Delay

The largest shipbuilding reduction would eliminate, through 2017 eight of nine planned Austal Joint High Speed Vessels designed to carry Army personnel. There was no indication the vessels would be purchased later.

The budget proposal delays by one year the start of construction for the LHA-8 large-deck amphibious vessel to be built by Huntington Ingalls.

The budget doesn’t slow the Navy’s plan to buy additional Arleigh Burke-class DDG-51 destroyers from General Dynamics and Huntington.

F-35 Plans

Panetta said the Pentagon was making “substantial reductions to programs that are experiencing schedule, cost or performance issues.”

They include Lockheed Martin’s Joint Strike Fighter, the F-35, and the Army Ground Combat Vehicle that’s in competition between General Dynamics and a team of BAE Systems Plc (BA/) and Northrop Grumman.

The Pentagon remains committed to the F-35 “but in this budget we have slowed procurement to complete more testing and allow for developmental changes before buying significant quantities,” he said.

The Defense Department will propose spending about $9.2 billion to buy 29 F-35 jets in its fiscal 2013 budget, 13 fewer than previously planned.

Beyond the next budget year, the Pentagon’s previous plan to purchase 62 F-35s in fiscal 2014 is being reduced to 29, according to budget data. The request for 2015 is dropping to 44 from 81, and the planned purchase for 2016 will decline to 66 from 108.

The Pentagon plans to postpone 179 aircraft beyond 2017, according to officials who spoke on condition of anonymity before today’s announcement.

Global Hawk Curtailed

The Pentagon is canceling the final 10 of one version of Northrop Grumman’s Global Hawk drones it was to buy, stopping at 21 of the Block 30 model because of rising costs. Dollars will be shifted instead into maintaining U-2 manned aircraft made by Lockheed Martin.

Experience with the Block 30 version “will help other Global Hawk programs,” including the advanced Block 40 and maritime and NATO versions, according to the budget document.

The Pentagon reversed a decision to cancel the $6.8 billion Joint Air-to-Ground Missile, pitting Lockheed against Raytheon, “significantly reducing” the program instead, and continuing to buy Hellfire missiles from several contractors including Lockheed.

The Pentagon also is delaying by as much as five years an Army helicopter modernization program and terminating a multi- billion dollar program to upgrade its fleet of Humvee all- terrain vehicles.

Northrop Grumman’s Defense Weather Satellite System program also was canceled.

The fiscal 2013 budget proposal is 1 percent less, unadjusted for inflation, than this year’s $531 billion plan. The numbers include spending on military construction.

The defense number, not including combat, grows to $534 billion in fiscal 2014, $546 billion in fiscal 2015, $556 billion in fiscal 2016 and $567 billion in 2017.

Adjusted for inflation, the Pentagon projects a 1.6 percent reduction in real spending power between 2013 and 2017.

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net

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

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‘Extreme’ S&P 500 Momentum, VIX Signal Drop: Technical Analysis

By Lu Wang - Jan 27, 2012 12:00 AM GMT+0700

The Standard & Poor’s 500 Index’s best January rally since 1997 has pushed a pair of momentum and sentiment gauges to levels seen only 6 percent of the time since 1993, a sign the market is due for a pullback, BTIG LLC said.

The benchmark index’s 14-day relative strength index, which measures the degree that gains and losses outpace each other, rose above 70 yesterday for the first time since Feb. 18, according to data compiled by Bloomberg. Some technical analysts consider RSI readings above 70 a sign that stocks have risen too far, too fast. The Chicago Board Options Exchange Volatility Index (VIX), a gauge known as the VIX, fell below 20 for the first time since July on Jan. 19.

The last time RSI exceeded 70 while the VIX stayed below 20, 11 months ago, the S&P 500 reached a 32-month high before dropping 6.4 percent over the next month, data compiled by Bloomberg show. The VIX is the benchmark gauge of S&P 500 options prices.

“We’re definitely in a rare spot,” Josh Dollinger, Chief quantitative and technical strategist at BTIG in New York, said in a telephone interview. “These are extreme readings. They more often than not prove to be exhaustion tops.”

The S&P 500 rose 5.4 percent this year through yesterday, poised for the best January since it rose 6.1 percent during the first month of 1997, according to data compiled by Bloomberg. Stocks are extending the measure’s 11 percent rally in the October-December period, its best fourth-quarter increase since 2003 as improvements in hiring, manufacturing and home sales bolstered confidence in the world’s largest economy.

To contact the reporter on this story: Lu Wang in New York at lwang8@bloomberg.net

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net

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‘Stop-Newt’ Republicans Confront New Base

By Julie Hirschfeld Davis - Jan 27, 2012 3:28 AM GMT+0700

Two days after Newt Gingrich defeated Mitt Romney in the South Carolina presidential primary one of Romney’s big-name backers offered a grim prediction for his fellow Republicans.

“The possibility of Newt Gingrich being our nominee against Barack Obama I think is essentially handing the election over to Obama,” former Minnesota Governor Tim Pawlenty told reporters on a Jan. 23 conference call. “I think that’s shared by a lot of folks in the Republican Party.”

Pawlenty’s comments echoed those being uttered publicly and behind the scenes by elected Republicans, party activists, fundraisers and pundits, who represent a portion of the party establishment -- a “stop-Newt” caucus -- populated largely by people who have known the former U.S. House speaker for decades.

The question is: Can they?

For two decades, the Republican Party has seen an erosion of its traditional, top-down hierarchy, a decline aided by Gingrich himself in 1990 when he led a House revolt against a budget agreement negotiated by President George H.W. Bush that raised taxes. The rise of the anti-tax Tea Party wing in 2009 splintered the internal levers of power further, making it even harder to impose a choice on the rank and file.

“There really is no Republican establishment left that can control anything,” said Matthew Dowd, a onetime aide to President George W. Bush and now a Bloomberg Television contributor. “Some try to act like they are in charge, but the fraternity is now running the campus.”

South Carolina Dynamics

Those dynamics were on display in South Carolina. Romney, a former Massachusetts governor, lost by 12 percentage points even after campaigning throughout the state with Governor Nikki Haley and just a day after receiving the endorsement of Virginia Governor Bob McDonnell, the chairman of the Republican Governors Association. Haley, who rose to power with Tea Party backing, didn’t deliver either her state or its grassroots activists.

Meanwhile, Gingrich’s campaign gained momentum after Sarah Palin, the former Alaska governor who also has support from the Tea Party faction, said she’d vote for Gingrich in South Carolina if only to extend the length of the primary.

Similar signs of an insurgence came to light in the 2010 midterm elections, when Nevada voters tapped Sharron Angle -- a Tea Party-endorsed politician opposed by many of the state’s prominent Republicans -- to challenge Senate Majority Leader Harry Reid. And Delaware Republicans chose Christine O’Donnell over former governor and nine-term U.S. House Representative Mike Castle to seek an open Senate seat. Both Angle and O’Donnell lost.

Voters ‘in Charge’

“The voters are now in charge, and Republican leaders need to come to terms with that,” Dowd said. “The media needs to drop the myth that there is a Republican establishment capable of orchestrating anything more than a one-float GOP parade.”

Romney’s campaign, backed by well-known party strategists and fundraisers, has kept up a steady rollout of endorsement announcements from Republican elected leaders that demonstrate his broad support among the insiders. As of Jan. 20, he had the nods of five governors, 14 senators and 59 U.S. House members. That compares with two governors and a dozen congressmen who have endorsed Gingrich, according to Democracy in Action, a political web site that tracks endorsements.

‘Terrified About Newt’

“There are a lot of major players in the Republican Party who are terrified about Newt,” said Gary Gerstle, a specialist on social and political movements a Vanderbilt University in Nashville, Tennessee. “At a more conventional moment in American politics, the establishment would count for a lot more, but this is not a conventional moment. There are now big segments of the Republican Party that will not bow down to the establishment.”

Gingrich -- who served 20 years in Congress, four of them as speaker, and then began a lucrative career in Washington consulting on federal policy -- has been working to turn party leaders’ angst about his candidacy to his advantage, portraying himself as a candidate feared by the ruling class.

Campaigning today in Mount Dora, Florida, Gingrich called Romney’s campaign attacks against him “the desperate last stand of the old order throwing the kitchen sink, hoping something sticks.” He added that when he speaks out about it, “the entire establishment jumps up and says, ‘That’s cheating. How can you tell the truth? Don’t you know that’s politically incorrect?’”

Internal Power Struggle

The Romney-Gingrich face-off is bringing the simmering power struggle between the Republican grassroots and the party establishment to the fore, said Richard Viguerie, a veteran Republican direct-mail strategist and the chairman of ConservativeHQ.com.

“There is a war going on here between the grassroots and the establishment,” said Viguerie, who is backing former Pennsylvania Senator Rick Santorum. “People in the grassroots see the Republican establishment as part of the problem, not part of the solution, and Gingrich has the ability to go over the heads of the Republican leaders.”

Some political analysts and Gingrich backers argue he has harnessed a transformed landscape of presidential politics, in which technology and social media -- decentralized means of communication with voters -- are powerful forces, and campaign money flows more freely from outside traditional party channels.

Social Media

Gingrich has capitalized on the social media networks Facebook and Twitter to trumpet his message, and his campaign has benefited from the super-PAC Winning Our Future, largely funded by casino magnate Sheldon Adelson, that is raising and spending unlimited sums on his behalf. The Supreme Court legalized such groups in the 2010 ruling Citizens United v. Federal Election Commission.

“It’s a different communications beast, a different communications infrastructure and vehicle out there today” than in years past, former Oklahoma Congressman J.C. Watts told reporters Jan. 23. “Newt tapped into something that I think Republicans like. I think there is a backlash.”

At the root of the concern about Gingrich is whether he will be able to appeal to the broader U.S. electorate. Polls indicate that he has high unfavorable ratings and wouldn’t fare well in a head-to-head matchup against Obama. A January Gallup study found that all national political figures are viewed negatively.

‘Intensely Negative’

Still, “Americans have become more intensely negative in their evaluations of Newt Gingrich -- who now has the lowest score overall,” the study concluded.

Some prominent Republicans say there isn’t yet enough of a consensus that Gingrich is unelectable to give rise to a concerted effort among party operatives to thwart his ascent.

“I haven’t seen that there’s an all-hands-on-deck movement to try to block any candidate -- Newt or anyone else,” said Frank Donatelli, the chairman of GOPAC, a training organization for state and local Republican candidates once headed by Gingrich, and a former top party official.

The last time there was such an effort was in 1996, he added, after Pat Buchanan won the New Hampshire primary and prominent Republicans quickly coalesced around Bob Dole, who ultimately claimed the nomination.

“I haven’t heard that kind of alarm emanating about Newt,” Donatelli said.

Other prominent Republicans are sounding just such a warning. Dole endorsed Romney today, writing in a letter that the party should nominate the former governor “if we want to avoid an Obama landslide in November.”

Former Pennsylvania Congressman Bob Walker, a senior adviser to Gingrich’s campaign, said that rationale is backfiring on Romney with voters.

“It took them a little bit of time to realize that Newt Gingrich is capable of beating Obama, but now, I don’t think that they’re going to listen to party bosses anymore,” Walker said. “Newt is basically channeling the people’s anger.”

To contact the reporter on this story: Julie Hirschfeld Davis in Washington at jdavis159@bloomberg.net

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

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BofA Said to Limit Bonuses for Investment Bankers, Traders

By Dawn Kopecki and Hugh Son - Jan 27, 2012 4:10 AM GMT+0700

Bank of America Corp., the U.S. lender seeking to preserve capital, will freeze base salary levels and limit cash bonuses to $150,000 for some investment bankers, said two people with knowledge of the plans.

The cap on cash payments applies to those getting as much as $1 million in total year-end bonuses, with the rest coming in shares of the Charlotte, North Carolina-based lender, said the people, who asked for anonymity because the matter is private. Employees are being told of their payments today and can sell some of the stock starting on Feb. 15, the people said.

“I can’t think of one banker who doesn’t have two or three times that in expenses,” said Gustavo Dolfino, a former UBS AG banker and now president of Whiterock Group LLC, a New York- based executive search firm, referring to the $150,000 limit. “They are probably making exceptions for their superstars. You haven’t seen the end of this, there will be musical chairs.”

Wall Street firms are getting bolder in curbing pay and shifting compensation methods as companies move to limit expenses. Bank of America Chief Executive Officer Brian T. Moynihan, 52, has said he may target as much as $3 billion in cost cuts in units including the investment bank as part of his plan to revive profit.

Cuts Are Coming

Earlier this month, Bank of America told investment bankers to expect compensation that averages 25 percent less than last year, people said this week. Employees in some departments were told packages were 30 percent smaller, and some managing directors will get no bonuses, said one of the people.

Awards include a combination of cash and shares, some of which can’t be sold for as long as three years. The firm’s decision to leave salaries unchanged comes after companies boosted them in 2009 to de-emphasize bonuses, which lawmakers said encouraged unwarranted risks that fueled the financial crisis. The bank uses a tiered system based on the size of the bonus when determining the percentage to pay in cash.

At Bank of America, a typical vice president’s base salary is about $175,000, while a director may make $250,000 and managing directors may earn $400,000, the people said. Bonuses, especially for senior workers, can be several times base pay.

Who Gets Cash

The restricted part of bonuses typically rises with the size of the total payout. For instance, bonuses less than $100,000 will be paid all in cash, the people said. Awards above that amount are a combination of cash and stock that vests over three years and unrestricted shares that can be sold immediately.

Bank of America said last week that it would issue about $1 billion in new stock to replace some cash incentives. The bonuses are called “special equity awards,” the people said. Jessica Oppenheim, a spokeswoman for the company, said she couldn’t comment. Reuters reported last week that the bank plans to give investment bankers more of their bonuses in stock.

Traders and investment bankers getting from $100,000 to $249,999 were told they will get 20 percent of that in cash, 20 percent in restricted stock and 60 percent in the new unrestricted shares, the people said. Employees (BAC) in this level typically received about 70 percent of awards in cash and 30 percent in restricted shares.

Bonus Allocations

Payouts between $250,000 and $499,999 will be split among 18.75 percent in cash, 25 percent in restricted stock and 56.25 percent in unrestricted stock. Historically, bonuses of that size would be split between 60 percent cash and 40 percent restricted stock.

Bonuses between $500,000 and $999,999 will be paid 15 percent in cash, 40 percent in restricted stock and the rest in unrestricted shares. That breakdown is more closely aligned with the historical practice of paying out 60 percent of awards in cash and 40 percent in restricted shares. Senior managers will get about 70 percent of their packages in restricted shares with the rest in cash or unrestricted shares.

The division, run by co-chief operating officer Thomas K. Montag, posted annual profit that plunged by half to $2.97 billion in 2011 as the European sovereign-debt crisis roiled markets. Montag, 55, told employees on Jan. 19 that the investment bank was rebounding after credit-rating downgrades last year sparked concern among clients.

Fees from investment banking, which includes advising clients on mergers and acquisitions as well as managing sales of shares and bonds, declined 35 percent in the fourth quarter to $1.1 billion, the bank said. The market was “challenging” because of Europe and the fallout from Standard & Poor’s downgrade of the U.S. credit rating, the lender said.

Cash Bonus

Compensation declines at Bank of America mirror actions by other firms. Morgan Stanley (MS) is reducing pay for senior investment bankers and traders by an average of 20 percent to 30 percent for 2011, people with knowledge of the move said. The firm is also capping immediate cash bonuses at $125,000 as it seeks to defer the pay of senior executives.

Credit Suisse Group AG, the second-biggest bank in Switzerland, told senior investment bankers that compensation for 2011 will be 30 percent lower on average than the previous year, four people briefed on the discussions said. Goldman Sachs Group Inc. (GS) Chief Financial Officer David Viniar said last week that discretionary compensation declined “significantly more” than the firm’s 26 percent drop in revenue.

To contact the reporters on this story: Dawn Kopecki in New York at dkopecki@bloomberg.net; Hugh Son in New York at hson1@bloomberg.net

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

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Gingrich Attacks Romney in Florida as Swiss Account Owner

By Jonathan D. Salant and John McCormick - Jan 27, 2012 5:46 AM GMT+0700

Newt Gingrich opened a new line of attack against Mitt Romney, focusing on his wealth and ties to Goldman Sachs Group Inc. (GS), a firm he says added to the housing crisis.

Gingrich’s remarks, ahead of the Jan. 31 Florida (BEESFL) primary, were designed to blunt criticism of his work for Freddie Mac, the government-backed mortgage-lending company that Republicans link to the financial meltdown.

“We’re not going to beat Barack Obama with someone who owns Swiss bank accounts, Cayman Island accounts,” Gingrich said during a stop today in Mount Dora, Florida. “I am running for president to represent you, not to represent the Washington establishment, not to represent Goldman Sachs.”

Gingrich portrayed himself as the victim of attack ads run by Romney and his allies, calling them a “desperate last stand of the old order.” The former U.S. House speaker suggested that the ads ware being paid for by companies that foreclosed on the homes of Floridians.

With both men planning to appear tonight at a debate in Jacksonville, Gingrich also said Romney is spreading lies about him.

“We aren’t that stupid and you aren’t that clever,” Gingrich said, referring to Romney, the former Massachusetts governor and business executive.

Romney Response

Andrea Saul, a Romney spokeswoman, said it’s “puzzling to see Speaker Gingrich and his supporters continue their attacks on free enterprise. Unlike President Obama and Speaker Gingrich, Mitt Romney spent his career in business and knows what it will take to turn around our nation’s bad economy.”

Meeting later with reporters, Gingrich again brought up New York-based Goldman Sachs, whose employees and their families have provided more contributions to Romney than any other single employer. The company’s employees gave $367,200 to Romney through Sept. 30, according to the Washington-based Center for Responsive Politics, which tracks campaign finance. That’s more than the $235,275 he received from the company’s employees during his failed 2008 White House bid.

Gingrich said Romney had personal holdings in “a part of Goldman Sachs that was explicitly foreclosing on Floridians.”

David Wells, a Goldman Sachs spokesman, declined to comment.

Basis of Attack

When asked for the basis of his attacks, Gingrich’s campaign provided a link to an online post by Think Progress, whose website says it seeks to advance “progressive ideas and policies.”

The post’s author focused on Romney’s August financial disclosure that reported investments, through a blind trust, of between $1 million and $5 million in the Goldman Sachs Strategic Income Fund. Romney’s wife, Ann, also in a blind trust, placed between $200,001 and $500,000 in the fund, according to the disclosure.

That fund, which began in June 2010, held mortgage-backed obligations that constituted about a quarter of its investments as of March 31 last year, according to an annual report. Those obligations included adjustable-rate securities issued by Countrywide Financial Corp. and Washington Mutual Inc., lenders that were later purchased by Bank of America Corp. and JPMorgan Chase & Co., respectively.

Gingrich Investment

While the Think Progress report mentions that Countrywide and Wamu are involved in thousands of foreclosures filed in Florida, it doesn’t say that any of those foreclosed properties were held in the securitizations owned by the fund.

Gingrich, in a disclosure filed in July, listed retirement account investments of between $15,001 and $50,000 in the Pimco Total Return Fund and the Blackrock Global Allocation Fund, both of which listed holdings of mortgage-backed securities in their latest annual filings.

Gingrich also pointed to connections between Romney’s supporters and Freddie Mac. Romney has criticized Gingrich for his earnings of $1.6 million from Freddie Mac as a consultant.

Former Representatives Vin Weber of Minnesota, a Romney campaign adviser, and Susan Molinari of New York, who has made an anti-Gingrich TV ad, both were registered to lobby for Freddie Mac, according to the Center for Responsive Politics.

Another Romney supporter, Representative Mary Bono Mack, a California Republican, disputed Gingrich’s statements that Freddie Mac hired him as a historian.

‘Very Disingenuous’

“It is very disingenuous to say that he’s not an influence peddler,” she said in a conference call arranged by the Romney campaign. “There’s no doubt that he is. You cannot leave the speakership and not have influence, not only with your former colleagues, but future colleagues and the country as well.”

Romney, who has assailed Gingrich more vigorously following the former speaker’s Jan. 21 South Carolina primary win, pivoted back to his standard message today and focused on Obama.

Speaking at Paramount Printing in Jacksonville, a paper factory in the process of closing a plant there, Romney, 64, criticized the president for his handling of the economy.

“This has been a groundhog-day presidency,” Romney said. “He keeps saying the same things and we keep waking up to the same things going on.”

Dole Letter

The Romney campaign today released a letter from former Senate Majority Leader Bob Dole of Kansas, who led the Senate when Gingrich led the House. Dole said he is backing Romney for president.

“If we want to avoid an Obama landslide in November, Republicans should nominate Governor Romney as our standard bearer,” Dole, who lost the 1996 presidential election to incumbent President Bill Clinton by 8 percentage points, wrote.

Dole called Gingrich, 68, a “one-man-band who rarely took advice. It was his way or the highway.” Dole said Gingrich had “a new idea every minute and most of them were off the wall.”

Two polls released yesterday showed Romney and Gingrich in a virtual tie in Florida, heightening the pressure on both as they prepare for their televised debate. The surveys by Hamden, Connecticut-based Quinnipiac University and CNN/Time/ORC each showed Romney with 36 percent support and Gingrich with 34 percent.

The race’s two other remaining candidates -- former Senator Rick Santorum of Pennsylvania and U.S. Representative Ron Paul of Texas -- trailed far behind in the polls.

Santorum said today that Romney and Gingrich have refused to debate on policies because both agree on “the big issues of the day” such as cap-and-trade, health care mandates and the Wall Street bailout.

‘Real Contrasts’

“We want to have the real contrasts with President Obama,” Santorum told reporters in Tallahassee, the state capital. “Those two don’t disagree and I do. And that’s what makes us a much stronger and more viable candidate in the general election.”

As Romney’s Jan. 24 release of tax returns has provided fodder for his opponents, he has been emphasizing that he “didn’t inherit” his wealth. He also discussed yesterday why his tax rate is lower than those of many Americans.

“One of the reasons why we have a lower tax rate on capital gains is because capital gains are also being taxed at the corporate level,” Romney said during a stop in Miami. “The tax rate is really closer to 45 or 50 percent” for such income.

Romney Disclosure

His disclosure earlier this week showed he made $21.6 million in 2010 and used preferential rates for investment income and charitable contributions to hold his overall tax rate to 13.9 percent.

In Congress, Romney’s returns reignited a debate on the tax treatment of so-called carried interest, which provides some investment executives with preferential tax rates.

Romney said in an interview yesterday with CNBC that he would seek to keep the provision in the tax code, if elected, because he doesn’t want to raise taxes on anyone.

“If it’s actually a capital investment, and it’s fairly priced at the time people invest in it, and then it rises in value as a capital gain, then you treat it as a capital gain,” he said. “If someone turns it into what looks like ordinary income or a bonus, why then, obviously, it’s not a capital gain.”

To contact the reporters on this story: Jonathan D. Salant in Mount Dora, Florida at jsalant@bloomberg.net; John McCormick in Hollywood, Florida at jmccormick16@bloomberg.net

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

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New Yorkers Face “Downward Mobility”

By Elizabeth Ody - Jan 27, 2012 1:54 AM GMT+0700

About one third of New York City residents nearing retirement age won’t be able to quit or will have to rely entirely on Social Security because they have less than $10,000 in savings, according to a study released today.

About 40 percent of New York workers had access to an employer-sponsored retirement plan in 2009, compared with the national average of 53 percent, according to the report by the New School’s Bernard Schwartz Center for Economic Policy Analysis. It was released by the Office of New York City Comptroller John Liu.

“It’s going to mean a generation of retirees will do worse than their parents and grandparents,” Teresa Ghilarducci, the center’s director, said in a telephone interview. “This means a lot more downward mobility.”

About 36 percent of households near retirement had less than $10,000 in liquid assets and about 19 percent had $10,000 to $99,999, according to the report. The median net worth of New York households where the head is nearing retirement, defined as age 55 to 64, was $442,450 including home equity, for married couples. It was $46,000 for single people.

“We have a large proportion of people who are nearing retirement, but without enough money to live comfortably,” Liu said in a telephone interview. For those households with less than $10,000, “that gives you probably a movie every couple of months,” said Ghilarducci.

The top 1 percent of New York taxpayers earned an average of $2.2 million in 2009, according to a Dec. 6 letter by the city’s Independent Budget Office. There were almost 35,000 taxpayers in that group.

Retirement Assets

Total retirement assets in the U.S. were $17 trillion in September, according to the Washington-based Investment Company Institute, a trade group for the mutual-fund industry. That included about $4.2 trillion in government-sponsored pension plans and $2.3 trillion in private-sector defined-benefit plans.

The study from the Comptroller’s Office included data from 2001 and 2010 surveys by the U.S. Census Bureau and the U.S. Bureau of Labor Statistics, in addition to data from a 2008 nationwide survey on income levels and 2009 New York State income-tax returns, according to the report.

To contact the reporter on this story: Elizabeth Ody in New York eody@bloomberg.net

To contact the editor responsible for this story: Rick Levinson at rlevinson2@bloomberg.net.

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U.S. Stocks Fall After Dow Average Gains

By Rita Nazareth - Jan 27, 2012 5:03 AM GMT+0700

U.S. stocks fell, reversing a rally that sent the Dow Jones Industrial Average toward its highest level since 2008 earlier today, as banks (S5BANKX) tumbled and a report showed that sales of new homes unexpectedly declined.

Banks had the biggest drop in the Standard & Poor’s 500 Index among 24 groups on concern about the industry’s ability to boost profits after the Federal Reserve yesterday pledged to keep the benchmark interest rate low. Wells Fargo & Co. (WFC) and Fifth Third Bancorp slumped at least 3 percent. PulteGroup Inc. (PHM) and Lennar Corp. (LEN) retreated more than 2.3 percent to pace losses in homebuilders. AT&T Inc. (T), the largest U.S. phone company, slid 2.5 percent as its profit forecast trailed estimates.

The S&P 500 lost 0.6 percent to 1,318.43 at 4 p.m. New York time, reversing a gain of as much as 0.6 percent. The Dow fell 22.33 points, or 0.2 percent, to 12,734.63, after earlier rising to the highest level on a closing basis since May 2008.

“It’s a little bit of cold water in the face,” 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. “We’re in risk territory because we’ve come a long way in the market and in terms of optimism on the economy. It’s premature to think that we’ve solved all problems.”

The S&P 500 has risen 4.8 percent so far this year, poised for the best January since it gained 6.1 percent during the first month of 1997, according to data compiled by Bloomberg. Stocks are extending the measure’s 11 percent rally in the October-December period, its best fourth-quarter increase since 2003, as improvements in hiring, manufacturing and home sales bolstered confidence in the world’s largest economy.

Economic Data

Equities reversed gains today after a report showed that sales of new U.S. homes unexpectedly declined in December for the first time in four months, capping the slowest year on record for builders. Claims for U.S. jobless benefits rose last week, displaying the usual volatility around holidays that has masked an improvement in the labor market. Orders for U.S. durable goods advanced more than forecast in December.

Benchmark gauges rose yesterday as the Fed signaled low rates through at least late 2014 and didn’t rule out bond purchases to bolster the economy. Investors also watched earnings reports. Of the 151 S&P 500 companies that reported results since Jan. 9, 103 posted per-share earnings that beat projections, according to data compiled by Bloomberg.

A measure of banks in the S&P 500 slumped 3.3 percent. Wells Fargo lost 3.8 percent to $29.05. Fifth Third Bancorp (FITB) slid 3 percent to $13.08.

Fed’s Pledge

The Fed’s low interest rate pledge may hurt lenders’ profits as they struggle to find loans or securities with yields high enough to support their net interest margins, a gauge of profitability that measures the difference between the cost of funds and what they earn on assets.

“The statement itself was market friendly in terms of reiterating that the Fed is going to remain largely accommodative,” Ryan Larson, Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.) Inc., said in a telephone interview. His firm oversees $250 billion in assets. “When you talk about the banking environment and some of these companies that are directly tied to interest rates, it’s going to probably put a cap on some of those companies going forward until rates start to increase.”

A gauge of homebuilders in S&P indexes slumped 3.4 percent. PulteGroup retreated 2.4 percent to $7.80. Lennar decreased 2.9 percent to $22.13.

AT&T Slumps

AT&T lost 2.5 percent to $29.45, the biggest decline in the Dow. The carrier projected “mid-single-digit or better earnings growth” for 2012. Analysts predicted 11 percent on average. AT&T also reported a fourth-quarter net loss of $6.68 billion because of a pretax charge of about $4 billion for the failed takeover of T-Mobile USA, and expenses for revaluing benefit plans and other assets.

E*Trade Financial Corp. (ETFC) tumbled 15 percent, the most in the S&P 500, to $7.99 after the online brokerage reported results that missed analyst estimates and Sandler O’Neill & Partners LP cut its rating.

SanDisk Corp. (SNDK) dropped 11 percent to $46.39. The biggest maker of flash-memory cards gave a sales forecast that fell short of estimates, citing lower prices for chips that store data in mobile phones.

Caterpillar Inc. (CAT) rallied 2.1 percent, the biggest gain in the Dow, to $111.31. The largest construction and mining- equipment maker posted fourth-quarter earnings and forecast full-year profit that topped analysts’ estimates as demand rose for shovels and trucks.

3M, Netflix

3M Co. (MMM) added 1.3 percent to $87.58. The maker of Post-it Notes and fuel system tuneup kits reported higher profit than analysts had estimated as demand increased for aerospace and auto industry products.

Netflix Inc. (NFLX) surged 22 percent, the most since January 2010, to $116.01. The online and mail-order video-rental service reported fourth-quarter profit that topped analysts’ estimates and forecast improving margins in its streaming business.

J.C. Penney Co. climbed 19 percent to $40.72 after saying cost reductions from new Chief Executive Officer Ron Johnson’s turnaround plan may boost 2012 profit more than analysts estimated.

Time Warner Cable Inc. (TWC) advanced 7.8 percent, the biggest gain since April 2009, to $74.51. The second-largest U.S. cable- television provider reported fourth-quarter profit that beat analysts’ estimates and said it would repurchase $4 billion in shares.

‘Nightmare’

“The backdrop that is coming forth is a nightmare for those who are way underinvested,” Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, said in a phone interview. His firm manages $300 billion. “Earnings continue to come in better than expected, our economy is improving. In addition, it looks like the ‘euro-quake’ situation appears at least in the short term to be on the backburner.”

European stocks advanced, climbing 20 percent from a September low and entering a bull market. The Stoxx Europe 600 Index added 1.1 percent to 257.86 today.

The S&P 500’s best January rally since 1997 has pushed a pair of momentum and sentiment gauges to levels seen only 6 percent of the time since 1993, a sign the market is due for a pullback, BTIG LLC said.

Too Far

The benchmark index’s 14-day relative strength index, which measures the degree that gains and losses outpace each other, rose above 70 yesterday for the first time since Feb. 18, according to data compiled by Bloomberg. Some technical analysts consider RSI readings above 70 a sign that stocks have risen too far, too fast. The Chicago Board Options Exchange Volatility Index (VIX), a gauge known as the VIX, fell below 20 for the first time since July on Jan. 19.

The last time RSI exceeded 70 while the VIX stayed below 20, 11 months ago, the S&P 500 reached a 32-month high before dropping 6.4 percent over the next month, data compiled by Bloomberg show. The VIX is the benchmark gauge of S&P 500 options prices.

“We’re definitely in a rare spot,” Josh Dollinger, Chief quantitative and technical strategist at BTIG in New York, said in a telephone interview. “These are extreme readings. They more often than not prove to be exhaustion tops.”

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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Apple Investors Await a Dividend Gusher

By Adam Satariano - Jan 26, 2012 12:01 PM GMT+0700

Apple Inc. (AAPL) has Wall Street’s full attention after hinting at plans for the company’s $100 billion cash pile that may lead to stockholders receiving a dividend.

Apple is “actively discussing” uses for its cash, including a dividend, buyback, acquisitions and supply-chain investments, Chief Financial Officer Peter Oppenheimer told analysts and investors Jan. 24 in an earnings conference call.

The comments were a welcome sign for investors who have called for a dividend as Cupertino, California-based Apple has added to its balance sheet. Apple’s $97.6 billion in cash and investments is larger than the market value of all but 26 companies in the Standard & Poor’s 500 index. The total could reach $150 billion by year-end if the company doesn’t give money back to shareholders, said David Rolfe, chief investment officer of Wedgewood Partners Inc.

“They have turned into the First National Bank of Cupertino,” said Rolfe, whose firm manages $1.3 billion in assets, including Apple shares. “Common sense dictates that they don’t need a cash hoard of $150 billion.”

Apple reported fiscal first-quarter profit this week that more than doubled to a record $13.1 billion, boosted by holiday purchases of the iPhone and iPad tablet. Sales jumped 73 percent to $46.3 billion. Gross margin, the percentage of sales remaining after deducting the cost of production, rose to 44.7 percent, from 38.5 percent a year earlier, the company said.

Shares Surge

A dividend is a recurring payment made by companies to its shareholders, typically as a percentage of profit given each quarter. For Apple, a dividend of 3 percent could propel the stock as high as $550 a share, said Rolfe, who expects Apple to announce such a move later this year.

Apple rose 6.2 percent to $446.66 at the close of trading yesterday. The stock is up 31 percent in the past 12 months.

A policy change would attract a new class of investors who only buy shares of companies that offer dividends, said Brian White, an analyst at Ticonderoga Securities LLC.

“It’s going to be a gusher when they tap into that thing,” White said. “It’s like tapping into an oil field out in Texas.”

Analysts at Canaccord Genuity Corp., Jefferies & Co. and Morgan Stanley also expect Apple to announce a dividend or buyback.

Showing Confidence

Even so, not all analysts say a dividend is a good idea. Apple’s refusal to return the money to shareholders -- even a one-time payment that wouldn’t recur each quarter -- speaks to the confidence of a company that intends to chase giant growth opportunities, said Trip Chowdhry, an analyst at Redwood City, California-based Global Equities Research.

“If Apple declares a dividend, it would be an indication to me that it’s time to get out of the stock,” Chowdhry said.

Oppenheimer, Apple’s finance chief, didn’t say if, or when, Apple would disclose a decision about use for its cash.

“We’re examining all uses of our cash balance -- what we might do in the supply chain, what we can do from an acquisition perspective, and otherwise,” said Oppenheimer. “In the meantime, we’re not letting it burn a hole in our pockets.”

Apple Chief Executive Officer Tim Cook said last year that he wasn’t “religious” about holding on to Apple’s cash. That signaled a change from co-founder Steve Jobs, who had been more resistant to shareholder calls for a dividend or buyback.

Ticonderoga’s White said it would be a surprise if Apple made a large acquisition, something it typically doesn’t do.

On the call, Oppenheimer described Apple’s approach to making acquisitions.

“We have done acquisitions where they tended to be smaller or medium-sized companies that have just great engineering and other talent, a great start on a product or a technology that we’d like to bring into Apple,” he said. “We tend to do several a year. We’re very, very disciplined in how we think about this and how we do it, and I think our track record here has been very strong.”

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

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

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Apple Surges on Net Income Doubling

By Adam Satariano - Jan 26, 2012 6:02 AM GMT+0700

Apple Inc. (AAPL) shares rose to a record after quarterly profit more than doubled as holiday demand for the iPhone and iPad cemented its position as the most valuable technology company.

Apple’s stock gained 6.2 percent to a $446.66 after reporting results yesterday. Apple’s increase, the company’s biggest one-day rise since May 2010, made it the day’s best performer in the Standard & Poor’s 500 Index.

The company sold 37 million iPhones in the period ended Dec. 31, with customers snapping up the new 4S model that went on sale in October, a week after the death of co-founder Steve Jobs. Record revenue vaulted Apple ahead of Hewlett-Packard Co. as the world’s biggest computer maker by sales and quelled concern that the company’s allure may dim as it embarks on a new era with Chief Executive Officer Tim Cook at the helm.

“The momentum that Steve Jobs created, Tim Cook is maintaining,” Gene Munster, an analyst at Piper Jaffray Cos., said in a televised interview on “Bloomberg West.” “We kind of run out of adjectives to describe this quarter.”

Net income of $13.1 billion in the period that ended Dec. 31 ranked among the highest quarterly profits on record, putting Apple in the same league as energy companies such as Exxon Mobil Corp. (XOM) and Russia’s Gazprom OAO (OGZPY), data compiled by Bloomberg show. Per-share profit of $13.87 for the period was more than Apple earned in any full year before 2010, as the success of the new iPhone ramped up pressure on rivals Google Inc. and Samsung Electronics Co.

‘Stunning’ Numbers

The gain gives Apple a market value of about $416 billion, just below Exxon’s $418 billion. The two companies have been trading places atop the Standard & Poor’s 500 Index since August.

“Look at the Apple numbers, they were stunning,” Alcatel- Lucent CEO Ben Verwaayen said in an interview with Maryam Nemazee on Bloomberg Television’s “Countdown” show at the World Economic Forum’s annual meeting in Davos, Switzerland. “It shows that even in a time of difficult circumstances, if you have the right product and the right focus, you can make a difference.”

Sales rose 73 percent to $46.3 billion in the fiscal first quarter, Cupertino, California-based Apple said yesterday in a statement. Analysts surveyed by Bloomberg on average estimated net income of $10.14 a share on sales of $39 billion.

‘Unimaginable’ Numbers

In looking ahead to the second quarter, Apple forecast revenue of about $32.5 billion and profit of $8.50 a share. That compares with average analysts’ predictions for sales of $31.9 billion and profit of $7.96 a share.

Except for the period that ended in September 2011, when customers put off iPhone purchases in anticipation of the 4S, Apple’s profit has exceeded analysts’ projections in every quarter for at least six years, according to data compiled by Bloomberg.

The quarterly results mark the first time Apple’s revenue topped Hewlett-Packard’s, underscoring how the company’s focus on sleek, touch-screen mobile devices has rearranged the technology industry’s pecking order.

Apple’s net income exceeded total revenue at Google (GOOG), Apple’s largest rival in mobile operating systems, for the period.

“Those numbers are just unimaginable,” said Michael Obuchowski, chief investment officer at First Empire Asset Management, which has $4 billion under management, including Apple shares. “It’s still an extremely well-managed company and they are showing that the product pipeline is sufficient even now to generate growth rates that are unrivaled.”

Amazon’s Kindle

Apple wasn’t harmed by Amazon.com Inc.’s introduction of the Kindle Fire, a tablet designed to compete against the iPad at less than half the price. Apple sold 15.4 million iPads, topping the 13.5 million projected by analysts.

“Everybody expected the Kindle Fire to affect their sales,” said Carl Howe, an analyst at the Yankee Group in Boston. “All evidence shows it had none.”

Apple has accumulated $97.6 billion in cash and investments, money it’s “actively” discussing how to use, Chief Financial Officer Peter Oppenheimer said on a conference call yesterday. That could include supply-chain investments, acquisitions or other expenditures, he said.

The recent period was the first full quarter since Cook took over in August, when Jobs stepped down, six weeks before his death. Jobs co-founded the company with Steve Wozniak in 1976.

“This shows that the business model has lasting momentum without Steve Jobs,” said Keith Goddard, CEO of Capital Advisors Inc. in Tulsa, Oklahoma, whose firm manages more than $13 million in Apple shares.

Microsoft, Intel

Apple’s report contrasted with those of companies such as Microsoft Corp. (MSFT) and Intel Corp. (INTC), which are grappling with slower personal-computer sales in part because customers are choosing to buy smartphones and tablets like the iPad instead. While Microsoft and Intel are benefiting from business demand for servers and software, they’re playing catch-up in the consumer arena by rolling out new mobile products, including Microsoft’s Windows 8 operating system, designed to integrate more smoothly with smartphones and tablets.

Rival smartphone makers also have struggled to keep pace with Apple. HTC Corp. (2498) and Motorola Mobility Holdings Corp. (MMI), two of the biggest companies whose devices run Google’s Android operating system, disappointed investors with results for their most recent quarters. Research In Motion Ltd., which has lost 90 percent of its market value since June 2008, replaced its co- CEOs this week.

IPhone Demand

Holiday iPhone demand helped Apple gain market share on manufacturers including Samsung and HTC. In December, about 45 percent of U.S. shoppers who bought a smartphone in the previous three months said they purchased an iPhone, up from 25 percent in a study done two months earlier, according to Nielsen Co. Android phones were selected by 47 percent of buyers, down from 62 percent.

Cook said Apple couldn’t manufacture iPhones fast enough and that the record number announced yesterday could have been bigger.

Competitors also haven’t been able to match the success of the iPad, with Apple controlling 62 percent of the tablet market in the third quarter, according to researcher IDC.

The popularity of the iPad and iPhone has also buoyed sales of Apple’s lineup of Mac computers. The company sold a record 5.2 million Macs in the first quarter, up from 4.9 million in the previous period.

Hewlett-Packard (HPQ) had revenue of $32.1 billion in its most recent quarter, which ended in October. The Palo Alto, California-based computer maker will report fiscal first-quarter results next month.

On the call yesterday, Cook was asked to assess his early months at the helm.

“You can see our results,” Cook said. “The team is doing a fantastic job. We feel very good about where we are.”

To contact the reporter on this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net

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

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Apple Restores S&P 500 Earnings With Enough Cash to Cover Greece Payments

By Whitney Kisling - Jan 26, 2012 4:12 AM GMT+0700
Call it the iEconomy.

With its report yesterday, Apple Inc. (AAPL), the Cupertino, California-based iPhone maker, single-handedly erased a drop in Standard & Poor’s 500 Index earnings for the December quarter, turning a 4.2 percent decline into a 4.4 percent gain. Apple’s 116 percent profit growth helped push its total cash to $97.6 billion -- enough to cover Greece’s debt payments due in the next two years, according to data compiled by Bloomberg.

While results at companies from Google Inc. to Citigroup Inc. have trailed analyst estimates and Alcoa Inc. posted a loss, the world’s largest technology company beat revenue forecasts by $7.3 billion, the most ever. The performance came during a quarter in which U.S. unemployment averaged 8.7 percent and about 12.7 million Americans were looking for work.

“They can probably bail out Greece,” Ian Ainsworth, a Toronto-based money manager at Mackenzie Financial Corp., said in a telephone interview. His firm owns Apple shares and manages $60.9 billion. “It just puts the power of the company in perspective with near $100 billion in cash on the balance sheet and generating that kind of free cash flow. It’s hard to conceive of a company with that kind of power.”

Net income more than doubled to $13.1 billion as Apple sold 37 million iPhones and posted $46.3 billion in sales. The total ranks among the highest quarterly profits on record. MediaOne Group Inc., acquired by AT&T Inc. in 2000, earned $26.6 billion in the second quarter of 1998. Ford Motor Co. earned $17.6 billion in the first three months of 1998. Apple’s earnings were about 11 times the size of Zambia’s gross domestic product.

Earnings Season

The report may salvage a fourth-quarter earnings season that was in danger of being the first since 2009 in which profits declined from a year ago. Analysts project income for S&P 500 companies climbed 3.4 percent in the period, according to data compiled by Bloomberg.

Apple shares rose 6.2 percent to $446.66 today, gaining the most in a day since May 10, 2010. The stock is trading at its highest price ever, while the S&P 500 remains 15 percent below the record reached in October 2007, data compiled by Bloomberg show.

The company’s almost $100 billion in cash and equivalents is larger than the combined market value of Boeing Co., Alcoa Inc. and Travelers Cos. -- three of the 30 Dow Jones Industrial Average companies. That’s enough money to cover Greece’s 48.2 billion euros ($62.56 billion) due in 2012 and 27.9 billion euros due next year, depending on the exchange rate. The country is facing a 14.5 billion-euro bond payment on March 20.

New Zealand

For calendar 2011, Apple’s sales rose to $127.8 billion, bigger than the size of New Zealand’s economy, according to data compiled by Bloomberg. More iPhones were sold each day in the quarter ending Dec. 31 than babies were born in the world, according to data compiled by Bloomberg and the United Nations.

Apple’s $97.6 billion in cash and equivalents is enough for the company to buy 2,000 tons of gold at current prices, the weight of 10 blue whales.

“One word: impressive,” Thomas Garcia, head of equity trading at Santa Fe, New Mexico-based Thornburg Investment Management Inc., which oversees about $75 billion, said in an e- mail. “Steve Jobs has a smile on his face wherever he is.”

To contact the reporter on this story: Whitney Kisling in New York at wkisling@bloomberg.net

To contact the editor responsible for this story: Michael P. Regan at mregan12@bloomberg.net

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Asia Stocks, Oil Rise as Fed Signals Low Rates

By Lynn Thomasson and Mariko Ishikawa - Jan 26, 2012 12:39 PM GMT+0700

Play Video

Jan. 26 (Bloomberg) -- Robert Horrocks, chief investment officer at Matthews Asia, talks about Federal Reserve monetary policy, Asia stocks and his investment strategy. He speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Play Video

Jan. 26 (Bloomberg) -- Khiem Do, Hong Kong-based head of multi-asset strategy at Baring Asset Management Ltd., talks about Hong Kong and mainland China stocks, and his investment strategy. Do also discusses Europe's sovereign debt crisis and Federal Reserve monetary policy. He speaks with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Play Video

Jan. 26 (Bloomberg) -- Puru Saxena, chief executive officer of Puru Saxena Wealth Management, talks about the outlook for global financial markets, Federal Reserve monetary policy and his investment strategy. Saxena speaks with Susan Li on Bloomberg Television's "Asia Edge." (Source: Bloomberg)

Asian stocks rose to a three-month high, copper climbed and South Korea’s won strengthened after Federal Reserve Chairman Ben S. Bernanke signaled plans to maintain near-zero interest rates through 2014. Crude oil advanced on data showing a pickup in U.S. fuel demand.

The MSCI Asia Pacific Index (MXAP) gained 0.7 percent as of 2:36 p.m. in Tokyo, poised for the highest close since Oct. 28. Standard & Poor’s 500 Index futures were little changed after the U.S. benchmark rallied 0.9 percent yesterday. Crude rose 0.7 percent and natural gas climbed for a fifth day. South Korea’s won reached a 10-week high, while the dollar traded near its weakest level in a month against the euro.

The Fed said yesterday it sees “exceptionally low” interest rates through 2014, having previously pledged to refrain from raising borrowing costs until at least the middle of 2013. New Zealand’s central bank signaled interest rates may stay at a record low for longer than previously intended and South Korea reported its slowest economic growth in more than a year as Europe’s debt crisis weighs on Asian exports.

“Mr. Bernanke is presenting the world with a gift,” Khiem Do, the Hong Kong-based head of multi-asset strategy at Baring Asset Management Ltd., said in a Bloomberg Television interview. The firm oversees $46 billion. “He wants to underwrite the recovery and underwriting the recovery is very good for equity markets and risk assets.”

Talks on a debt swap to avert a Greek default resume today. Charles Dallara and Jean Lemierre, negotiating on behalf of private creditors, return to Athens after European finance ministers insisted bondholders take bigger losses on their Greek debt.

Hyundai, Nintendo

NEC Corp. and Nintendo Co. are among Asian companies scheduled to report earnings today. Hong Kong’s Hang Seng Index rallied 1.2 percent in the first day of trading this week after the Lunar New Year holiday, while South Korea’s Kospi Index climbed 0.2 percent. Financial markets are shut in Australia, China, India and Taiwan.

Hyundai Motor Co. (005380) tumbled 1.9 percent. South Korea’s largest automaker said net income climbed to 2 trillion won ($1.8 billion) in the three months ended Dec. 31, missing the average analyst estimate from a Bloomberg survey.

The S&P 500 closed yesterday at the highest level since July after Apple Inc. reported quarterly profit more than doubled. The maker of iPhones and iPads single-handedly erased a drop in S&P 500 earnings for the December quarter, turning a 4.2 percent decline into a 4.4 percent gain. Apple’s 116 percent profit growth helped push its total cash to $97.6 billion -- enough to cover Greece’s debt payments due in the next two years, according to data compiled by Bloomberg.

Foxconn Jumps

Foxconn International Holdings Ltd. (2038), whose parent Hon Hai Precision Industry Co. manufactures Apple products, jumped 3.2 percent to a two-month high in Hong Kong.

Five-year Treasuries yielded 0.79 percent, after the rate reached a record-low 0.76 percent yesterday. The 10-year yield slipped two basis points to 1.97 percent. Policy makers are “prepared to provide further monetary accommodation” and bond buying is “an option that’s certainly on the table,” Bernanke said after officials gathered for a meeting yesterday. The Treasury Department is scheduled to sell $29 billion of seven- year securities today.

Ringgit, Won

The dollar traded at $1.311 per euro, little changed from yesterday when it reached $1.3121, the weakest level since Dec. 21. Malaysia’s ringgit strengthened the most in seven months, climbing 1.5 percent to 3.03075 per dollar and the won advanced 0.4 percent to 1,121.55.

Crude for March delivery rose as much as 0.8 percent to $100.19 a barrel on the New York Mercantile Exchange. U.S. total fuel consumption increased 7.5 percent to 19.2 million barrels a day in the week ended Jan. 20, the largest increase since Nov. 4, the Energy Department said yesterday.

“Most of the price movement has been driven by the announcement” from the Fed, said Tetsu Emori, a commodity fund manager at Astmax Ltd. in Tokyo. “Continuing the zero-interest- rate policy should fuel the economy. People could expect oil demand to go up.”

Natural gas headed for the longest winning streak in a year on speculation a supply glut may ease. Gas for February delivery rose 0.9 percent to $2.753 per million British thermal units on the New York Mercantile Exchange. It has gained 19 percent since Jan. 19.

Copper, Gold

Three-month copper climbed 0.9 percent to $8,459.75 per metric ton on the London Metal Exchange. The LME Index of the six main industrial metals has jumped 12 percent this month, after tumbling 22 percent in 2011. Gold futures for April delivery advanced as much as 0.8 percent to $1,717.20 an ounce, the highest level in more than six weeks.

The cost of protecting bonds in Asia against non-payment declined, according to credit-default swap traders. The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan dropped four basis points to 185.5, Royal Bank of Scotland Group Plc prices show. The gauge is on course for its lowest close since Oct. 31, according to data provider CMA.

To contact the reporters on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Mariko Ishikawa in Tokyo at mishikawa9@bloomberg.net.

To contact the editor responsible for this story: James Regan in Hong Kong at jregan19@bloomberg.net.

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Geithner: Obama Wouldn’t Ask Me to Stay

By Ian Katz and Trish Regan - Jan 26, 2012 12:00 PM GMT+0700

Treasury Secretary Timothy F. Geithner, the last member of the Obama administration’s original economic team, said he doesn’t expect to remain in office if the president is re-elected.

“He’s not going to ask me to stay on, I’m pretty confident,” Geithner said in an interview with Bloomberg Television yesterday in Charlotte, North Carolina. “I’m confident he’ll be president. But I’m also confident he’s going to have the privilege of having another secretary of the Treasury.”

Geithner, 50, has led President Barack Obama’s efforts to pull the U.S. economy out of the worst recession since World War II, including overseeing bailouts of automakers General Motors Co. (GM) and Chrysler Group LLC, which have since emerged from bankruptcy. Before joining the administration in 2009, Geithner was president of the Federal Reserve Bank of New York, playing a key role in the government’s rescue packages for banks such as Citigroup Inc. (C) and Bank of America Corp. (BAC)

In the interview, Geithner said he would do “something else” after leaving the Treasury Department, without specifying what that would be. In August, an administration official said Geithner would stay in his job at least through this year’s presidential election.

Erskine Bowles, chief of staff under President Bill Clinton, and Democratic Senator Kent Conrad of North Dakota could be among the potential candidates to succeed Geithner, said Mark Calabria, director of financial regulation studies at the Cato Institute in Washington.

‘Budget Hawk’

Conrad, 63, chairman of the Senate Budget Committee who said a year ago he won’t seek another term, is “a serious budget hawk on the left, well-liked and respected,” Calabria said.

Bowles, 66, is the former co-leader of Obama’s commission that drafted a plan to reduce the federal government’s debt.

Geithner told White House officials earlier last year that he was considering leaving after negotiations on raising the nation’s debt limit were completed. An agreement was signed into law by Obama in August.

The Treasury secretary said in June that his son would be returning to New York to finish high school, and that “I’m going to be commuting for a while.”

Geithner is the last remaining member of Obama’s original economic team after the departures of advisers including National Economic Council Director Lawrence Summers, Office of Management and Budget Director Peter Orszag, and Austan Goolsbee, who was a member of the Council of Economic Advisers and later replaced Christina Romer as chairman.

Dodd-Frank

Geithner also said in the Bloomberg TV interview he wasn’t concerned about Wall Street complaints over the Dodd-Frank Act’s financial overhaul and regulation.

“I would not worry too much about them,” Geithner said. “I would worry more about the basic confidence of Americans that they’re going to face more opportunities, more likely to find a job, keep a job, save for college, save for a dignified retirement.”

Geithner said that “no industry likes reforms that change the way we do business. But we’re doing that because we have to protect the economy from ever facing again the type of crisis we saw. And I am very confident that these reforms will make our financial system a stronger financial system.”

The unemployment rate in December dropped to 8.5 percent, almost a three-year low, and employers expanded payrolls by 200,000, twice the rate of the previous month and an indication that the job market is gaining momentum.

The U.S. automobile industry is reviving after the Obama administration helped push what ended up as an $82 billion bailout. President George W. Bush also supported aid for the industry as he was leaving office in late 2008.

Investing, Manufacturing

Geithner said he’s confident the administration, working with Congress, can design changes in the corporate tax system to “improve the incentives for investing, make manufacturing stronger.” Manufacturing can play “a broader role” in the economy, he said.

On Europe, Geithner said leaders there are “making some progress. They got a lot of work to do.” He said he tells European leaders that they need to “put in place a stronger, more credible firewall.”

Geithner is due to arrive today in Davos, Switzerland, for the 42nd annual meeting of the World Economic Forum, his sixth trip to the continent since September.

He also spoke at an event held by the Charlotte Chamber of Commerce in North Carolina yesterday. Geithner visited the state to tour a Siemens AG (SIE) energy plant and promote investments in manufacturing and technology to create jobs.

Geithner last visited North Carolina in October when he spoke at a Corning Inc. (GLW) factory and touted the president’s jobs bill that later stalled in Congress.

North Carolina was one of two Southern states -- the other was Virginia -- that swung for Obama in 2008 after decades of voting for Republican presidential candidates. Obama defeated Republican rival John McCain by 14,000 votes of almost 4.3 million ballots cast.

To contact the reporters on this story: Cheyenne Hopkins in Washington at chopkins19@bloomberg.net; Trish Regan in New York at tregan8@bloomberg.net

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

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Dow Average Rallies to Highest Level Since May

By Rita Nazareth - Jan 26, 2012 4:57 AM GMT+0700

U.S. stocks rose, sending the Dow Jones Industrial Average to the highest level since May, as the Federal Reserve signaled low rates through at least late 2014 and didn’t rule out bond purchases to bolster the economy.

A measure of commodity shares in the Standard & Poor’s 500 Index added 1.6 percent after gold rallied as record-low rates may boost its appeal as a hedge against inflation. Banks had the biggest drop in the S&P 500 among 24 groups as the industry may face pressure on margins from the Fed’s policy on rates. Apple (AAPL) Inc. climbed 6.2 percent to an all-time high as profit more than doubled. Textron Inc. (TXT), the maker of Cessna planes, surged 15 percent after forecasting higher-than-estimated earnings.

The S&P 500 added 0.9 percent to 1,326.06 at 4 p.m. New York time, after dropping 0.5 percent earlier. The Dow gained 83.10 points, or 0.7 percent, to 12,758.85. The Nasdaq-100 Index rose 1.3 percent to 2,465.66, the highest since 2001.

“The Fed is saying that money will stay easy and the cost of money will stay low,” Madelynn Matlock, who helps oversee about $14.5 billion at Huntington Asset Advisors in Cincinnati, said in a telephone interview. “The ability for businesses to find the money they need to grow and for consumers to find the money they need to buy things is going to be easier. That makes the growth path a little simpler.”

Benchmark gauges reversed losses as the Fed extended its previous pledge to keep rates low at least until the middle of 2013 as more than two years of economic growth have failed to push unemployment below 8.5 percent. Fed Chairman Ben S. Bernanke said central bankers are still debating additional asset purchases.

Earnings Season

Investors also watched earnings reports. Of the 112 S&P 500 companies that reported results since Jan. 9, 74 posted per- share earnings that beat projections, according to data compiled by Bloomberg. Earnings probably grew 3.4 percent for S&P 500 companies in the fourth quarter, the data show. The projection has fallen from 6.2 percent at the end of last year.

The Morgan Stanley Cyclical Index of companies most- dependent on economic growth added 1 percent. The Dow Jones Transportation Average advanced 1.5 percent. All 10 groups in the S&P 500 gained.

Gold producers rallied as the metal climbed to a six-week high. Newmont Mining Corp. (NEM), the largest U.S. gold producer, jumped 4.8 percent to $60.25. Freeport-McMoRan Copper & Gold Inc. (FCX), the world’s largest publicly traded copper producer, climbed 4.8 percent to $46.08.

Apple Rallies

Apple rallied 6.2 percent, the most since May 2010, to $446.66. The company sold 37 million iPhones in the period ended Dec. 31, with customers snapping up the new 4S model that went on sale in October, a week after the death of co-founder Steve Jobs. Record revenue vaulted Apple ahead of Hewlett-Packard Co. (HPQ) as the world’s biggest computer maker by sales and quelled concern that the company’s allure may dim as it embarks on a new era with Chief Executive Officer Tim Cook at the helm.

Textron surged 15 percent, the most in the S&P 500, to $24.76. Chief Executive Officer Scott Donnelly is working to leverage the company’s businesses with measures such as having Cessna and Bell share overseas service centers and sales forces. Textron is winding down its finance unit, which struggled during the recession.

The Bloomberg U.S. Airlines Index (BUSAIRL) of 11 companies jumped 4.5 percent. Delta Air Lines Inc. (DAL) and US Airways Group Inc. (LCC) reported fourth-quarter profits that topped analysts’ projections. Delta Air climbed 6.2 percent to $9.96. US Airways rallied 17 percent to $7.52.

M&A Deal

Illumina Inc. (ILMN) surged 46 percent to $55.15. Roche Holding AG offered $5.7 billion in a hostile bid for Illumina to bolster sales of gene-mapping equipment and services. Roche proposed paying $44.50 a share, 18 percent more than yesterday’s close.

Walter Energy Inc. (WLT) gained 3.9 percent to $70.14. The company may finally lure buyers willing to bet on a recovery in coal prices with the industry’s cheapest stock. After losing almost half its value in the past year, the producer of steelmaking coal sold for 9.3 times earnings this week, according to data compiled by Bloomberg. That was less than any North American coal-mining company with $1 billion in market capitalization.

Walter Energy, which bought Western Coal Corp. for $5.3 billion in April, is an attractive target because it produces high-grade steelmaking coal, Brean Murray Carret & Co. said. A buyer could spend double Walter Energy’s closing price of $67.54 a share yesterday and still get the company for less relative to earnings than any coal takeover in the past year, data compiled by Bloomberg show.

Banks (S5BANKX) Decline

Banks had the biggest decline in the S&P 500 among 24 industries, falling 0.3 percent. Bank of America Corp. and Citigroup Inc. (C) are among lenders that may find it harder to boost profits and capital after the Fed’s pledge on low rates. Bank of America rose 0.8 percent to $7.35. Citigroup added 0.2 percent to $29.96.

“This is a very dovish Fed,” David Kelly, who helps oversee $394 billion as chief market strategist for JPMorgan Funds in New York, said in a telephone interview. “It’s an attempt to push down long-term interest rates. They are pushing the rates down to a level where consumers should find them very attractive, but banks will find them very unattractive.”

Corning Inc. (GLW) tumbled 11 percent, the biggest decline in the S&P 500, to $13.05. The largest maker of glass for flat-panel televisions said glass prices contributed to a 53 percent drop in fourth-quarter profit and are still sinking.

Xerox, WellPoint

Xerox Corp. (XRX) slumped 9.9 percent to $7.81. The provider of printers and business services gave earnings forecasts that trailed some analysts’ estimates as Europe weakens.

WellPoint Inc. (WLP) decreased 4.8 percent to $66.10. The largest U.S. health insurer by enrollment forecast 2012 earnings and reported fourth-quarter profit that were less than analyst estimates on higher medical costs.

“It’s going to be a mediocre earnings season,” Russ Koesterich, the San Francisco-based global chief investment strategist for the IShares unit of BlackRock Inc., said in a phone interview. His firm oversees $3.5 trillion as the world’s largest asset manager. “We’re not going to see robust growth this year and this is being reflected in corporate outlooks.”

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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