Economic Calendar

Thursday, March 22, 2012

Google Said to Rethink Wallet Strategy Amid Slow Adoption

By Olga Kharif - Mar 22, 2012 12:53 AM GMT+0700

Google Inc. (GOOG) is weighing changes aimed at improving its Google Wallet mobile-payment system following slow adoption and the departure of two key managers, according to people with knowledge of the project.

The company is considering sharing revenue with carriers such as Verizon Wireless and AT&T Inc. (T) to get them to embrace the technology, which lets users pay for items at checkout by tapping phones on a reader device, said the people, who asked not to be named because the discussions are private.

The Google Inc. Mobile Wallet application for cardless payment is displayed on a smartphone screen at the Mobile World Congress in Barcelona, Spain, on Feb. 29, 2012. Photographer: Chris Ratcliffe/Bloomberg

Nov. 3 (Bloomberg) -- Bloomberg's Rich Jaroslovsky reviews Google Inc.'s Google Wallet mobile-payment application. It is one of the first systems in a push by companies like Visa Inc., Mastercard Inc. and the wireless carriers to encourage the use of smartphones to replace cash and credit cards in retail transactions. (Source: Bloomberg)

Google aims to spur demand for its Wallet app, which is designed to boost its share of the multibillion-dollar market for mobile advertising by letting it target shoppers with coupons and promotions. The challenge: Few phones have the right technology installed, and rivals are readying their own systems, including one called ISIS that’s backed by carriers.

“They are in a bit of a re-evaluation pattern right now,” said Rick Oglesby, an analyst at Boston-based research firm Aite Group. “It’s going much slower than anticipated.”

One of the two original creators of the Google Wallet software, Jonathan Wall, left Google this month to start his own company focused on mobile shopping, Tappmo Inc. Marc Freed- Finnegan, lead product manager for Google Wallet, also departed to join Tappmo.

Making Progress

Google said it’s enthusiastic about Google Wallet’s progress so far. The company is enlisting retailers such as the Pinkberry frozen-yogurt chain, which announced this week that it is using the system. Google Wallet relies on a system called near field communications, a wireless standard that works from within a few inches.

“We continue to work hard to develop Google Wallet and build the partner ecosystem to make it possible for everyone to pay with their phones and get great deals while shopping,” Nate Tyler, a spokesman for Mountain View, California-based Google, said in an e-mailed statement.

The mobile-payment market has drawn scads of competitors, including startups and more established companies such as Visa Inc. (V), all aiming to capitalize on the growth of smartphones. The idea is to free shoppers from having to carry credit cards or cash -- they just need their handsets. Mobile-payment transactions will top $170 billion by 2015, up from about $60 billion last year, according to Juniper Research.

ISIS System

As the owner of both the world’s most popular search engine and smartphone operating system, Google has an inside track with consumers. Still, it lacks the support of the two biggest U.S. carriers, Verizon and AT&T, which are backing the ISIS system. For now, Google Wallet’s NFC functions only work on two phones from Sprint Nextel Corp. (S), the third-largest U.S. carrier. While 50,000 to 100,000 people have downloaded the software, only a small percentage use it, Oglesby estimates.

“The reception has been lukewarm,” said Chetan Sharma, an independent consultant focused on the wireless industry.

Gaining a bigger foothold in the wireless-payment market would help solidify Google’s role as the leading seller of ads on phones and other mobile devices. That industry is projected to reach almost $11 billion in 2016, up from $2.61 billion this year, according to research firm EMarketer Inc.

The proposal to share revenue with carriers would involve the coupons and special offers that run on the Google Wallet app, the people familiar with the matter said. Carriers might get a cut of the proceeds when consumers accept the deals.

‘No Incentive’

“Today, the operators have no incentive to adopt Google Wallet, given that they have their own ambitions in this space,” said Sharma, who is based in Issaquah, Washington.

Verizon, AT&T and T-Mobile USA have joined forces to create ISIS, which is slated to roll out in the next few months. At the same time, carriers aren’t making it easy for their customers to use Google Wallet. In December, Verizon blocked the app from its new Galaxy Nexus smartphone, citing security concerns.

“We are continuing our commercial discussions with Google on this issue,” Brenda Raney, a Verizon spokeswoman, said in an e-mail. Mark Siegel, an AT&T spokesman, declined to comment on whether the carrier might offer the app in the future.

Another option Google is exploring: sidestepping the carriers altogether and relying more heavily on in-store terminals to complete mobile-payment transactions, the people said. This approach could involve additional hardware or software for the terminals, coupled with software that runs on Google’s servers, they said.

Work Around

So instead of requiring phones to authenticate payments -- something that needs assistance from carriers -- the system might send transactions to Google’s servers for approval and then clear it with the retailer.

Google currently works with VeriFone Systems Inc. (PAY), Ingenico (ING) and ViVOtech Inc., which make hardware and software for cash registers and other payment systems. Other Google Wallet partners include retailers such as Macy’s Inc. (M), Subway Restaurants and American Eagle Outfitters Inc. (AEO)

Google is adding more employees to the effort, seeking to fill eight Google Wallet positions. Last November, the company folded its Checkout service, which lets customers make online purchases, into Google Wallet.

Sprint will introduce as many as 12 new phones able to run the Wallet app this year. Even so, Google’s retail partners aren’t seeing much traffic for now.

“We knew from the get-go we won’t see a lot of volume,” said Robert Notte, chief technology officer at Jamba Juice (JMBA), which accepts Google Wallet NFC payments at 276 stores. “We are in very early stages of this.”

To contact the reporter on this story: Olga Kharif in Portland, Oregon, at okharif@bloomberg.net

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




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U.S. Stocks Fall as Energy Shares Drop on Profit Concern

By Rita Nazareth - Mar 22, 2012 3:38 AM GMT+0700

U.S. stocks fell, sending the Standard & Poor’s 500 Index down a second day, on concern the best first-quarter since 1998 has outpaced economic prospects and as Baker Hughes Inc. drove a selloff in energy shares.

Baker Hughes, the world’s third-largest oilfield-services provider, tumbled 5.8 percent after saying that a shift away from gas rigs will hurt earnings. Morgan Stanley (MS) and Fifth Third Bancorp dropped at least 1.7 percent to pace losses in financial companies. Hewlett-Packard Co. (HPQ) slumped 2.2 percent for the biggest decline in the Dow Jones Industrial Average.

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

March 21 (Bloomberg) -- Bloomberg's Pimm Fox and Deborah Kostroun report on the performance of the U.S. equity market today. U.S. stocks fell, sending the Standard & Poor’s 500 Index down a second day, on concern the best first-quarter since 1998 has outpaced economic prospects and as Baker Hughes Inc. drove a selloff in energy shares. (Source: Bloomberg)

March 21 (Bloomberg) -- Adam Parker, head of U.S. equity strategy at Morgan Stanley, talks about investment strategy and some of his industry picks. He speaks with Adam Johnson and Trish Regan on Bloomberg Television's "Street Smart." (Source: Bloomberg)

March 21 (Bloomberg) -- Kate Moore, senior global equity strategist at Bank of America Merrill Lynch, talks about the outlook for stocks, investor sentiment and investment strategy. She speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

Sales of previously owned homes probably rose in February to the highest in almost two years, a report at 10 a.m. in Washington may show. Photographer: Jim R. Bounds/Bloomberg

The S&P 500 slipped 0.2 percent to 1,402.89 at 4 p.m. New York time. The Dow retreated 45.57 points, or 0.4 percent, to 13,124.62. About 6.1 billion shares changed hands on U.S. exchanges, or 7.9 percent below the three-month average.

“People won’t play real hard at these levels,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, which oversees more than $300 billion. “I don’t think you should get bearish. Yet the market’s energy seems to be used up after the strong rally.”

The S&P 500 has rallied 12 percent this year amid better- than-estimated economic and corporate data. More than $3.6 trillion was restored to U.S. equity values since last year’s low for the benchmark gauge in October. The rally drove the index to about 14.6 times reported earnings this week, the highest valuation level since July.

Data today showed purchases of previously owned U.S. houses dropped 0.9 percent to a 4.59 million annual rate from a revised 4.63 million pace in January that was faster than previously estimated. The median forecast in a Bloomberg News survey called for a rise to 4.61 million.

‘One-Way Ride’

“The housing situation is not a quick turnaround,” Hank Smith, chief investment officer at Haverford Trust Co. in Radnor, Pennsylvania, said in a telephone interview. His firm manages about $6.5 billion. “In addition, the stock market had an almost one-way ride. It’s due for a pause.”

Energy shares in the S&P 500 slumped 1 percent for the biggest decline among 10 groups.

Baker Hughes (BHI) tumbled 5.8 percent to $45.04. North American first-quarter profit margin will drop to as low as 13.2 percent from 18.7 percent because of lower prices, higher costs and supply shortages as U.S. operators shift rig locations, the company said. Companies are drilling for oil because it’s worth about eight times more on an energy-equivalent basis than gas on U.S. markets, according to data compiled by Bloomberg.

Financials Fall

A measure of financial shares in the S&P 500 lost 0.4 percent for the second-biggest decline among 10 industries. Morgan Stanley fell 1.7 percent to $20.06. Fifth Third retreated 1.8 percent to $14.24.

Hewlett-Packard slid 2.2 percent to $23.46. The company will combine its personal-computer unit with the division that sells printers into a group led by Todd Bradley, who ran the PC business, to help cut expenses amid declining sales and profit.

“Deeper issues will likely take more than management changes,” Maynard Um, an analyst with UBS AG in New York, said in a note to investors.

Hartford Financial Services Group Inc. (HIG) rose 1.4 percent to $22.02. Chief Executive Officer Liam McGee responded to billionaire John Paulson’s call for a breakup with plans to shut or sell parts of the 201-year-old insurer. Hartford will stop selling individual annuities and seek buyers for its individual life, Woodbury Financial Services and retirement-plan operations.

LinkedIn Corp. (LNKD) surged 6.5 percent to $97.78. The biggest professional-networking website was raised to buy from neutral at Goldman Sachs Group Inc.

Netflix Jumps

Netflix Inc. (NFLX) gained 4.4 percent to $120.10. The online and mail-order video-rental service said the mystery series “Hemlock Grove” will be available exclusively to its members for instant viewing early in 2013.

Stocks will probably begin a “steady upward trajectory” over the next few years because any declines in economic growth are already reflected in share prices, Goldman Sachs Group Inc. said. The MSCI World Index (MXWO) is trading at 13.2 times estimated earnings after falling 7.6 percent last year, data compiled by Bloomberg show.

“Given current valuations, we think it’s time to say a ‘long goodbye’ to bonds, and embrace the ‘long good buy’ for equities as we expect them to embark on an upward trend over the next few years,” Peter Oppenheimer, chief global equity strategist at Goldman Sachs in London, wrote in a report today.

The prospects for returns in equities versus bonds “are as good as they have been in a generation,” he wrote.

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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Zynga Said to Pay $200 Million for ‘Draw Something’ Creator

By Douglas MacMillan - Mar 22, 2012 3:37 AM GMT+0700

Zynga Inc. (ZNGA) agreed to acquire OMGPOP Inc., adding the popular application “Draw Something” to its portfolio of games played on Facebook Inc. (FB) and Apple Inc. iPhones.

Zynga will pay about $200 million for the startup, said a person familiar with deal, who asked not to be identified because the terms weren’t made public. OMGPOP will remain headquartered in New York, the companies said in a statement, which didn’t disclose the purchase’s financial terms.

Zynga Inc. employees through the "time tunnel" at the company's new headquarters in San Francisco on March 15, 2012. Photographer: David Paul Morris/Bloomberg

Zynga Inc. headquarters in San Francisco on March 15, 2012. Photographer: David Paul Morris/Bloomberg

Zynga Inc. signage and logo are displayed on the facade of the company's new headquarters in San Francisco. Photographer: David Paul Morris/Bloomberg

The biggest maker of social games is stepping up spending on acquisitions after paying a combined $147.2 million for 22 companies in 2010 and 2011. Zynga, which raised $1 billion in a December initial public offering, aims to lessen its reliance on Facebook, accounting for more than 90 percent of its sales.



“They have done a lot of acquisitions of small game companies along the way,” said Brian Blau, research director at Gartner Inc. “Most of those acquisitions were for talent rather than titles. This is a case where they are buying a title” already popular with users, he said.

OMGPOP’s “Draw Something,” a game where users take turns guessing what their friends draw, has 22.4 million monthly users on Facebook, according to the website AppData. A mobile version for iPhones and iPads released in February is currently the most popular program in Apple’s App Store.

Adam Isserlis, a spokesman for San Francisco-based Zynga, declined to comment on the price of the acquisition.

Facebook takes a 30 percent cut of virtual goods sold in Zynga’s games. Earlier this month, Zynga took the wraps off of Zynga.com, a game-playing hub separate from the social network.

In 2010, Zynga acquired Newtoy Inc., the developer of the mobile application “Words With Friends,” for $53.3 million, according to a company filing.

Zynga shares rose 2.5 percent to $13.72 at the close in New York. The stock has climbed 46 percent this year.

Technology blog TechCrunch reported earlier this week that Zynga could pay between $150 million and $250 million to acquire OMGPOP.

To contact the reporter on this story: Douglas Macmillan in San Francisco at dmacmillan3@bloomberg.net;

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



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JPMorgan Joins BofA in Cutting Senior Mortgage Traders

By Hugh Son and Dawn Kopecki - Mar 22, 2012 4:48 AM GMT+0700

JPMorgan Chase & Co. (JPM) and Bank of America Corp., the two biggest U.S. banks, are cutting senior mortgage traders and salesmen amid a decline in the asset-backed securities market, people with knowledge of the moves said.

Raphael Gonzalez, JPMorgan’s co-head of trading in subprime mortgages, and John Angelica, a securitized-products salesman, resigned from the New York-based bank within the past four weeks in exchange for severance packages that included all their deferred stock awards, said the people, who declined to be identified because the terms are private. Roy Kim, who traded adjustable-rate mortgages, left on his own accord with a similar exit deal, the people said.

JPMorgan and Bank of America, based in Charlotte, North Carolina, are re-evaluating staffing on mortgage-trading desks amid pressure to cut expenses and stricter capital requirements tied to the assets. Some employees were offered severance packages allowing them to keep millions of dollars of deferred stock that otherwise may have been forfeited, the people said.

“When you start doing something like this, you’re making a forward statement about the mortgage-backed security market -- they are saying it isn’t going to be as active,” said Brad Hintz, an analyst covering banks at Sanford C. Bernstein & Co. in New York. “Firms are right-sizing for the fixed-income market of the future. We’ll probably be seeing this in a lot of other Wall Street businesses as the regulations become clear.”

Trading Decline

Trading revenue from securitized products at the 10 biggest global investment banks dropped to roughly $10 billion last year from about $17.5 billion in 2010, according to data from consultant Coalition Ltd.

The three JPMorgan executives left amid involuntary reductions in the past four weeks in the bank’s securitized- products division, which trades and sells mortgage bonds, derivatives and other asset-backed securities, according to two of the people with knowledge of the matter. Jennifer Zuccarelli, a JPMorgan spokeswoman, said she couldn’t comment on the departures, as did Gonzalez and Angelica. Contact information for Kim couldn’t immediately be located.

The bank also dismissed about 5 percent of its equities traders and salesmen yesterday and cut about 100 employees in its treasury and securities services unit in January, according to three people with knowledge of those moves. Andy Taylor, the bank’s head of commercial mortgage bond trading, was shifted to run the loan-trading book. Justin Perras, a company spokesman, confirmed Taylor’s move.

Bank of America eliminated at least half a dozen mortgage traders and salesmen this week. That included John McNiff, a managing director who served as co-head of commercial mortgage securities trading, said people with knowledge of the moves.

Jackier, Eck

Managing directors Seth Jackier in mortgage sales and John Eck in asset-backed trading also opted to leave Bank of America, said the people. Michael Case, a director in commercial mortgage security banking, and salesmen John Livingstone and Michael L. Miller also departed, one of the people said.

Some Bank of America employees volunteered to resign in exchange for a so-called garden leave, a period of 90 days in which they receive full salary and benefits while staying at home, and severance packages including stock, the people said.

“This isn’t necessarily bad news” for people who are weighing moves to other firms, said Jeanne Branthover, managing director at Boyden Global Executive Search Ltd. in New York. “Areas like this that didn’t come back as expected are the ones that companies are now evaluating.”

European Crisis

Banks pulled back from making new loans to package into bonds last year as Europe’s debt crisis roiled credit markets and sent relative yields soaring. Credit Suisse Group AG is shutting its unit responsible for making loans, while the retreat has left other firms short on mortgages to pool for sale.

Bank of America is also cutting outside the U.S., dismissing almost a dozen workers at its Canadian capital- markets business as part of a global staff reduction, one person said. The move leaves the bank with almost 500 people at offices in Toronto, Montreal, Vancouver and Calgary, the person said.

Wall Street firms are firing staff and reducing pay as revenue wanes from trading and underwriting. More cuts are coming at Bank of America as part of Chief Executive Officer Brian T. Moynihan’s efficiency plan, which may target as much as $8 billion in total annual savings. Moynihan, 52, already announced as many as 30,000 job cuts in retail banking and technology.

Bank of America lost market share last year to rivals including New York-based Morgan Stanley (MS) in the trading of equities, bonds, currencies and commodities, Matthew O’Connor, an analyst at Deutsche Bank AG, said in a Jan. 19 research note.

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

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





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Kraft’s Name Change to Mondelez Leaves Experts Guessing

By David Welch - Mar 22, 2012 3:19 AM GMT+0700

Is it pronounced mon-dah-lay? Mon- dah-lezz? Oh, it’s mohn-dah-LEEZ.

That, according to corporate naming expert Nina Beckhardt, is the first problem with Mondelez, the name Kraft Foods Inc. (KFT) plans to give its global snacks business after spinning off its U.S. grocery unit this year.

Photographer: Brent Murray

The second problem: What does it mean? The name is a combination of the word “monde,” derived from the Latin for “world,” and “delez,” an expression for delicious. The name might suit a company commanding $32 billion in revenue from Beijing to Berlin if the connection was apparent. It’s not, Beckhardt said.

“The public gets sick of compressed words if they aren’t intuitive,” said Beckhardt, founder and president of The Naming Group, a New York-based firm that has named shoes for Puma SE (PUM) and high-end stereos for Sony Corp. (6758) “When the pronunciation isn’t accessible, it looks bad. It’s not intuitive.”

Mondelez isn’t the first corporate name to generate confusion. When Andersen Consulting switched to Accenture in 2001, pundits wondered why they would leave behind such name recognition. The move paid off later when Arthur Andersen accounting -- once under the same corporate umbrella as the consulting firm -- became embroiled in the Enron Corp. (ENRNQ) accounting scandal.

Philip Morris changed its name to Altria Group Inc. (MO), claiming that the Latin word “altus,” suggested high performance. The name also disassociated the company from the baggage of tobacco litigation and health concerns.

Corporate Versus Brand

Corporate name changes tend to have less of an impact, either good or bad, than brand name changes, Beckhardt said. That could be good news for Northfield, Illinois-based Kraft, which plans to use Mondelez strictly on the back of packages of such snack foods as Oreo cookies and Newtons snacks. After the split, the snacks business will market those brands directly to consumers and Mondelez will remain in the background.

Establishing the corporate name will take time, said Sharon Shedroff, founder of San Diego consulting firm Strategic Vision Inc. The Mondelez name may be understood in European countries where Latin-based languages are spoken. People speaking other languages will have a tougher time figuring it out.

“Until the brand is established, it will be difficult for people to give it meaning in the U.S. and probably in Asia,” Shedroff said in a phone interview. “Brands under it, like Oreo, could lend credibility to Mondelez.”

Kraft Groceries

Kraft’s grocery business will retain the Kraft name as it continues selling cheese and other items that have borne founder J.L. Kraft’s moniker since he started as a wholesaler in 1903.

Nissan Motor Co. (7201)’s decision to put its corporate name on Datsun cars sold in the U.S. in 1981 was a disaster, said Jim Hall, principal of 2953 Analytics in Birmingham, Michigan.

Americans liked the Datsun 510 sedan and 240Z sports car, and Datsun was the second-best selling Japanese brand in the U.S. behind Toyota Motor Corp. (7203) at the time. The change to Nissan caused confusion, Hall said. Today, Nissan trails Toyota and Honda Motor Co. (7267)

Kraft asked employees to suggest names, and more than 1,000 participated, submitting more than 1,700 potential names, the company said. The inspiration for Mondelez came from two employees, one in Europe and another in North America.

Kraft realizes that the pronunciation of Mondelez isn’t easily picked up by everyone, said Michael Mitchell, a company spokesman. People will figure it out before too long, he said.

“It will take a while to get used to,” Mitchell said in a phone interview. “People will learn how to pronounce it, and it will be good.”

To contact the reporter on this story: David Welch in Detroit at dwelch12@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net




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Madonna Vows to Oppose Gay Law in Putin’s Hometown

By Anastasia Ustinova - Mar 22, 2012 4:22 AM GMT+0700

Madonna’s first tour in Russia drew the ire of orthodox Christian activists. Now she vows to defy a new law against promoting homosexuality when she performs in President-elect Vladimir Putin’s hometown in August.

“I will come to St. Petersburg to speak up for the gay community and to give strength and inspiration to anyone who is or feels oppressed,” the pop star said by e-mail late yesterday. “I’m a freedom fighter.”

Madonna performs during the Bridgestone Super Bowl XLVI Halftime Show at Lucas Oil Stadium on Feb. 5, 2012 in Indianapolis, Indiana. Photographer: Christopher Polk/Getty Images

The law, signed on March 7 by St. Petersburg Governor Georgy Poltavchenko, a Putin ally and former KGB officer, bans lesbian, gay, bisexual and transgendered “propaganda” that could give minors “the false perception that traditional and nontraditional relationships are socially equal.”

Homosexuality was outlawed in the Soviet era and wasn’t decriminalized in Russia until 1993. Seventy-six of the 193 members of the United Nations deem homosexuality illegal, according to Human Rights Watch. At least five countries, including Iran, impose the death penalty for consensual same-sex relations, the New York-based advocacy group says.

Madonna, ranked the 8th highest-earning celebrity in Forbes magazine’s 2010 list with estimated earnings of $58 million, plans to return to Russia for the third time with a concert in Moscow on Aug. 7, followed two days later by St. Petersburg. Tickets for both performances range from 1,500 rubles ($51) to 50,000 rubles apiece, according to PMI Corp. and Euro Entertainment, the organizers of the events.

‘Ridiculous Atrocity’

“I don’t run away from adversity,” Madonna, who has used her fame to support gay rights, said in the e-mail. “I will speak during my show about this ridiculous atrocity.”

Madonna’s first show in Russia six years ago was marred by protests of Russian Orthodox activists who objected to her performance of the song “Live to Tell,” which she sang while wearing a crown of thorns and dangling from a cross.

During the singer’s second visit in 2009 on the Sticky and Sweet tour, a Communist group urged her to sing a revolutionary anthem like the Marseillaise as she performed near the Winter Palace in St. Petersburg, which was stormed by the Bolsheviks in 1917. The palace now houses the Hermitage Museum.

The American pop star’s financial interests in Russia extend beyond show business. She opened a Hard Candy upscale fitness center in Moscow last year, a 35,000 square-foot (3,250 square-meter) facility less than 650 yards (600 meters) from the Kremlin. This was the second Madonna-themed gym in the world, after Mexico City. She plans to open a third in St. Petersburg, Europe’s fourth-largest city.

‘Lots of Criticism’

The Russian Orthodox Church, the dominant religious body in a country of 143 million people, considers homosexuality a sin. About 69 percent of Russians identify themselves as Orthodox, according to a poll last August by the Moscow-based Levada Center.

“There’s lots of criticism from the media community about this law, but somehow most of the media forget about this crucial word -- minors,” said Vladimir Vigilyansky, a spokesman for the Moscow Patriarchy, by phone. “It’s about propaganda among minors, not about banning homosexuality itself.”

Russia, which is preparing to host the Winter Olympics in 2014 and the soccer World Cup in 2018, was chastised for the legislation by Canada, which issued a warning to its citizens who plan to travel to St. Petersburg to avoid “displaying affection in public, as homosexuals can be targets of violence.”

The former imperial capital, founded by Peter the Great in 1703, is the country’s top tourist destination and a host city for the World Cup. About 2.3 million foreigners visited the city in 2010, the last year for which government data is available.

To contact the reporter on this story: Anastasia Ustinova in в Чикаго at austinova@bloomberg.net

To contact the editor responsible for this story: Brad Cook at bcook7@bloomberg.net



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Wednesday, March 21, 2012

Free Lunches Pushing U.S. to Insolvency, Columbia’s Mundell Says

By Allison Bennett and Tom Keene - Mar 20, 2012 11:39 PM GMT+0700

Political competition for votes and lack of fiscal discipline are pushing the world’s largest economy toward solvency issues, according to the Nobel Prize- winning economist Robert Mundell.

“The public is looking for free lunches, and the political competition for votes makes the politicians offer them free lunches,” Mundell, a professor of economics at Columbia University, said on Bloomberg Radio interview with Tom Keene and Ken Prewitt. “That’s what gets us in to the difficulties of insolvency.”

Robert Mundell, Nobel Prize winning economist. Photographer: Forbes Conrad/Bloomberg

The U.S. plans to finance a budget deficit forecast to exceed $1 trillion for a fourth year, and outstanding U.S. marketable debt expanded to $10 trillion in February.

Even as the jobless rate has fallen from a high of 10 percent in October 2009 to 8.3 percent in February, it remains almost 2 percent above the average of the past decade and the central bank has called unemployment “persistent.”

“You could have fiscal stimulus back in the day of Keynes, when the government was a small proportion of gross domestic product and there was no insolvency problem,” he said, referring to British economist John Maynard Keynes. “You can’t just issue more bonds to pay for deficits and expect it to solve the employment problem.”

The euro area is forecast to have fiscal spending of 3.3 percent of GDP in 2012, compared to 7.1 percent in the U.S. this year.

“The United States is not in as bad a situation as Europe,” he said, “but it’s getting that way.”

‘Political Glue’

As the International Monetary Fund said Greece may require additional funding or a third debt restructuring, the odds of the fiscal union breaking up by the end of 2013 have reached 36.5 percent, based on bets made at Intrade.com. Mundell, often referred to as the father of the common currency, sees a different outcome.

“It’s political glue inside Europe to keep it together -- the euro is the best thing going for it since the creation of the common market,” he said. “The end game is going to be deeper integration in Europe and more centralization of the fiscal authority.”

To contact the reporter on this story: Tom Keene in New York at tkeene@bloomberg.net

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




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U.S. Exempts Japan, 10 EU Nations From Iran Oil Sanctions

By Indira A.R. Lakshmanan - Mar 21, 2012 4:11 AM GMT+0700

The Obama administration won’t impose sanctions on Japan and 10 European Union nations that have “significantly” cut back their imports of Iranian oil this year, Secretary of State Hillary Clinton said.

The U.S. didn’t grant exemptions today to China (CCCIIQIR), the top importer of Iranian crude in the first half of last year, or to India and South Korea, the No. 3 and No. 4 buyers, according to the U.S. Department of Energy.

March 21 (Bloomberg) -- Robert Kaplan, chief geopolitical analyst at Stratfor Global Intelligence and previously an adviser to former U.S. Secretary of Defense Robert Gates, talks about tension between Western nations and Iran over the Middle Eastern nation's nuclear ambitions. Kaplan also discusses the outlook for the North Korean regime. He speaks with Susan Li from the Credit Suisse Asian Investment Conference in Hong Kong on Bloomberg Television's "First Up." (Source: Bloomberg)

Under a U.S. law enacted Dec. 31, countries have until June 28 to demonstrate that they have “significantly reduced” the volume of their Iranian crude purchases or their banks and other institutions financing oil trade with Iran may be cut off from the U.S. financial system. The European countries exempted are Belgium, the Czech Republic, France, Germany, Greece, Italy, the Netherlands, Poland, Spain, and the United Kingdom -- the only EU nations that purchased Iranian oil in the past year.

The 10 EU nations and Japan have taken actions that “were not easy,” Clinton said in a statement today. “They had to rethink their energy needs at a critical time for the world economy and quickly begin to find alternatives to Iranian oil, which many had been reliant on for their energy needs.”

Today’s decision means Japan, which was the No. 2 importer of Iranian oil after China in the first half of last year, according to the U.S. Department of Energy, may continue buying some Iranian oil after U.S. sanctions take effect on June 28, without exposing Japanese banks to penalties.

Pressuring Iran

Under the sanctions law, the president must cut off the U.S. bank accounts of any foreign financial institution that transacts petroleum-related business with Iran’s central bank -- unless its country receives an exemption for reducing Iranian oil imports.

The sanctions are part of a coordinated campaign by the U.S. and the EU to ratchet up economic pressure on Iran to abandon any illicit aspects of its nuclear program. Iran is the No. 2 producer in the Organization of Petroleum Exporting Countries, and earns more than half of its government revenue from oil sales, according to the International Monetary Fund.

The European Union decided two months ago to bar Iranian oil imports effective July 1.

A U.S. official who spoke on condition of anonymity because he wasn’t authorized to be quoted said the administration announced today’s exemptions to signal that the EU and Japan are being rewarded for their efforts in the hope that other countries will follow suit before the June 28 deadline.

Japan managed to cut its imports of Iranian oil by 15 percent to 22 percent in the second half of last year, according to public data, during a difficult time when it was reeling from an earthquake and subsequent nuclear disaster, and its energy needs were high, the official said.

‘Sanctions Are Working’

Senator Bob Menendez, a New Jersey Democrat and co-author of the sanctions law enacted Dec. 31, said he supports the decision and applauds “the actions of our friends and allies in the EU and Japan for their forthright and expedient action” in reducing purchases of Iranian oil.

“The sanctions are working,” Menendez said in an interview. “Since President Obama signed the National Defense Authorization Act on December 31, we have seen Iran’s currency plummet and oil shipments in February fell to a 10-year low.”

Mark Dubowitz, executive director of the Foundation for Defense of Democracies in Washington, said in an interview the action “begins to reduce some of the uncertainty in oil markets over how the administration will apply oil market sanctions.”

“It gives Japan, in particular, which needs to keep buying Iranian oil, a clear pathway to continue those purchases without putting their financial institutions at risk,” said Dubowitz, who has advised the administration and Congress on sanctions. “It also establishes an early precedent that puts pressure on South Korea, India, China, Turkey, South Africa and other major buyers of Iranian oil to also comply with US law.”

To contact the reporter on this story: Indira A.R. Lakshmanan in Washington at ilakshmanan@bloomberg.net

To contact the editor responsible for this story: John Walcott at jwalcott9@bloomberg.net




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Pentagon’s Iran Buildup Call for Adding Laser Weapons

By Tony Capaccio - Mar 20, 2012 12:06 AM GMT+0700

The U.S. Central Command plans to bolster military capabilities against Iran by fielding new laser target-trackers for machine guns, enhanced sensors for underwater vehicles, improved protection against drone attacks and upgrades of U-2 spy planes.

The Tampa, Florida-based command, which is responsible for U.S. forces in the Persian Gulf region, also wants to shift $5.5 million in previously approved funds to buy Gatling guns for Navy coastal patrol craft, according to budget documents.

A U.S. Air Force U-2 Dragon Lady takes off from an undisclosed location in Southwest Asia. Source: U.S. Air Force

March 19 (Bloomberg) -- Jonathan Schanzer, vice president of research at the Foundation for Defense of Democracies, talks about Iran's reaction to the severing of a key link between the world financial system and Iranian banks subject to European Union sanctions. Schanzer speaks on Bloomberg Television's "InBusiness With Margaret Brennan." (Source: Bloomberg)

Iranian officials have periodically threatened this year to block the Strait of Hormuz, through which 20 percent of the world’s daily oil transits, in retaliation for Western sanctions aimed at slowing its nuclear program. The U.S. Navy would move to stop any Iranian attempt to lay mines in the Strait or Gulf as an “act of war,” the services’s top Gulf commander, Vice Admiral Mark Fox, has said.

The Central Command’s intentions are spelled out in two “reprogramming” requests that Pentagon Comptroller Robert Hale sent Congress last month. The four congressional defense committees have approved the requests to move defense funds, which were to go to other programs, and the changes are being implemented, according to the comptroller’s website.

“There’s no significant area where I’ve got to come in and say, we’ve got a big problem here.” Central Command commander General James Mattis told the House Armed Services Committee on March 7. “They’re just areas I want to make certain we maintain our edge.”

Faster Than Anticipated

In a “couple of cases,” Iran improved capabilities “faster than we anticipated,” he said.

The Command requested the additional funds because “our growing reliance on our maritime forces requires an ability to project power against asymmetric threats, particularly in the confined and crowded sea lanes” of the Strait of Hormuz and the Persian Gulf, Major David Nevers, spokesman for the Central Command, said in an e-mailed statement.

Funds were shifted from Pentagon biological and chemical weapons defensive programs and Navy and Air Force shipbuilding, satellite and aircraft programs deemed to have excess funds or experiencing delays.

Congress approved a $28 million shift to provide six U-2 spy planes with upgraded satellite links that increase their capability to “provide real-time, high bandwidth video feeds to ships, ground forces and command and control centers,” according to the reprogramming documents.

Air Combat Command spokeswoman Kelly Sanders declined to discuss the upgrade, citing its classification.

Anti-Radar Missile

Congress also backed the shift of $10 million to increase funding for a joint Navy-National Reconnaissance Office program to equip the service’s new anti-radar missile -- the Advanced Anti-Radiation Guided Missile made by Alliant Techsystems Inc. (ATK) - - with a “Special Target Engagement” capability that includes a broadcast receiver.

The National Reconnaissance Office is the spy agency that manages U.S. intelligence satellites.

An additional $4.8 million was approved for integrating new sensors on a Navy underwater vehicle “for very shallow water- mine countermeasures missions,” according to the documents.

The Central Command also won congressional approval to shift $3.7 million to developing a defense against drone attacks. The system will cover “vulnerable areas below typical air-defense radar coverage areas,” according to the documents.

Iran’s Drones

Iran “has an active program and two families of reconnaissance, target and lethal” drones, an April 2010 Pentagon report on Iran’s military capabilities found.

Congress also approved plans to accelerate installation on coastal patrol craft of the “MK 38 Mod 2” system, which includes the laser-tracker for precision aiming of machine guns. Lawmakers rejected the planned source of $4 million in funds so the Comptroller is looking to other sources, a document said.

As described by BAE Systems Plc (BA/) and subcontractor Boeing Co. (BA), the tactical laser system “brings high precision accuracy against surface and air targets such as small boats and unmanned aerial systems. The system also provides the ability to deliver different levels of laser energy, depending on the target and mission objectives.”

Iran has increased the number of small, fast patrol vessels, some of which have been outfitted with large warheads for a suicide run at U.S. vessels, Fox told reporters last month.

Iran’s Subs, Speedboats

The Pentagon’s 2010 assessment of Iran’s military power listed four midget submarines, 80 patrol craft and 18 guided missile patrol boats under control of the Islamic Revolutionary Guard Corps navy. The Corps also “controls hundreds of small patrol boats,” it said.

The Guard navy since the 1990s has purchased Italian-made speedboats and has been making them domestically, according a 2009 report by the U.S. Office of Naval Intelligence.

It also has Chinese-built C-14 missile boats and North Korean-made “semi-submersible” vessels that can carry two torpedoes.

The planned Central Command improvements are in addition to deploying four additional mine-sweeping vessels and four more MH-53 helicopters within three months, doubling U.S. counter- mine capabilities, Admiral Jonathan Greenert, the chief of naval operations, told reporters on March 16.

Greenert said he determined new capabilities were warranted after making a trip the Gulf and a carrier transit through the Strait of Hormuz. He likened the improvements to giving vessels a “hunting rifle” or a “sawed-off shotgun” if needed in the Strait’s narrow waters.

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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U.S. Stocks Fall as Commodities Decline on China Concern

By Rita Nazareth - Mar 21, 2012 3:56 AM GMT+0700

U.S. stocks declined, snapping a three-day advance for the Standard & Poor’s 500 Index, as commodities fell on concern about a Chinese economic slowdown.

Industrial and commodity shares slumped as China raised fuel prices by the most in two years and BHP Billiton Ltd. said the nation’s steel production is slowing. Caterpillar Inc. and Alcoa Inc. (AA) dropped more than 1.5 percent. Adobe Systems Inc. (ADBE) sank 3.9 percent as its profit forecast missed some estimates. Bank of America Corp. jumped 2.9 percent. Tiffany & Co. (TIF) surged 6.7 percent after forecasting profit that beat projections.

March 20 (Bloomberg) -- Bloomberg's Pimm Fox and Deborah Kostroun report on the performance of the U.S. equity market today. U.S. stocks declined, snapping a three-day advance for the Standard & Poor’s 500 Index, as commodities fell on concern about a Chinese economic slowdown. (Source: Bloomberg)

March 20 (Bloomberg) -- David Kelly, chief market strategist for JPMorgan Funds, discusses investment strategy and the outlook for financial markets. He speaks with Betty Liu, Dominic Chu and Josh Lipton on Bloomberg Television's "In the Loop." (Source: Bloomberg)

March 21 (Bloomberg) -- Brian Barish, president of Cambiar Investors LLC in Denver, talks about U.S. stocks and investment strategy. Stocks in the U.S. declined, snapping a three-day advance for the Standard & Poor’s 500 Index, as commodities fell on concern about a Chinese economic slowdown. Barish speaks with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

March 20 (Bloomberg) -- Xia Bin, a researcher with China's State Council's Development Research Center and a former adviser to the nation's central bank, talks about the country's economic outlook. Xia said China won't see a steep slowdown in its economy in part because many local governments are still targeting annual growth above 10 percent. He spoke with Bloomberg's Susan Li in Hong Kong at the Credit Suisse Asian Investment Conference. (Translated excerpt. Source: Bloomberg)

The S&P 500 retreated 0.3 percent to 1,405.52 at 4 p.m. New York time, after the benchmark measure yesterday advanced to the highest level since May 2008. (SPX) The Dow Jones Industrial Average declined 68.94 points, or 0.5 percent, to 13,170.19 today. The Russell 2000 Index of small companies slumped 1 percent to 829.24. About 6.2 billion shares changed hands on U.S. exchanges, or 6.5 percent below the three-month average.

“A Chinese slowdown is inevitable,” said Peter Jankovskis, who helps manage about $2.9 billion at Oakbrook Investments in Lisle, Illinois. “It’s possible that will take some of the heat out of commodities. Yet China is not the only growth story out there. China will continue to be an important player, but the U.S. economy seems to have found its legs.”

Equities fell as China is raising fuel prices for the second time in less than six weeks. The nation’s vehicle sales may miss industry forecasts this year as economic growth slows, an official from the China Association of Automobile Manufacturers said. BHP Billiton (RIO), the world’s biggest mining company, said China’s steel production is slowing. In the U.S., housing starts hovered in February near a three-year high.

$3.6 Trillion

The S&P 500 has rallied 12 percent this year amid better than estimated economic and corporate data. More than $3.6 trillion was restored to U.S. equity values since last year’s low for the benchmark gauge in October. The rally drove the index to about 14.6 times reported earnings yesterday, the highest valuation level since July.

Companies most dependent on economic growth had the biggest declines in the S&P 500. The Dow Jones Transportation Average retreated 1.3 percent. A gauge of homebuilders in S&P indexes dropped 1 percent as 10 of its 11 stocks fell.

Measures of industrial and commodity shares in the S&P 500 dropped more than 0.5 percent. Caterpillar (CAT), the world’s biggest maker of construction and mining-equipment, slumped 2.6 percent to $110.76. Alcoa Inc., the largest U.S. aluminum producer, slid 1.5 percent to $10.44. Peabody Energy Corp. (BTU), the biggest U.S. coal producer, declined 5.4 percent to $31.64.

Adobe, Disney

Adobe sank 3.9 percent to $33.16. Excluding some costs, profit will be 57 cents to 61 cents a share in the second quarter, Adobe said. The midpoint of that range -- 59 cents -- missed the 60 cents predicted by analysts, according to data compiled by Bloomberg.

Walt Disney Co. (DIS) dropped 0.5 percent to $43.24. The world’s largest entertainment company said the box-office disappointment “John Carter” will post a loss of about $200 million, possibly the biggest ever for a single film.

A rally in financial companies helped the S&P 500 trim a decline of as much as 0.9 percent. The KBW Bank Index (BKX) added 0.4 percent. Bank of America rallied 2.9 percent, the most in the Dow, to $9.81. Morgan Stanley (MS) gained 1.7 percent to $20.41.

Jefferies Group Inc. (JEF) climbed 2.3 percent to $19.49. The investment bank that surged by almost half during the fiscal first quarter reported a profit decline that was smaller than analysts estimated as net revenue climbed to a record.

Tiffany Surges

Tiffany surged 6.7 percent to $73.27. The company is benefiting from stock-market gains that have prompted luxury consumers to resume jewelry purchases, a turnabout from January, when the retailer said weak spending from U.S. customers had slowed holiday sales.

Apple Inc. (AAPL) added 0.8 percent to a record $605.96. The Cupertino, California-based technology provider yesterday disclosed plans to pay a dividend and buy back $10 billion of stock.

Barton Biggs, the hedge-fund manager who increased bets on equities before the S&P 500 rallied this year, is getting more bullish.

“I’ve been gradually increasing and I’m up to 90 percent now,” said Biggs, referring to the proportion of his fund that benefits from higher share prices. He spoke in a radio interview today on “Bloomberg Surveillance” with Tom Keene. “There is an awful lot of money that is out of stocks and in very low- yielding fixed-income instruments. I think the odds are that money is going to migrate back.”

Net Long

Biggs, the founder of the Traxis Partners LP, said last month that his net-long position, a gauge of bullish versus bearish investments, in stocks is about 75 percent, up from 65 percent in January.

Treasuries rebounded today following the longest drop since 2006, with yields on 10-year notes falling to 2.36 percent. U.S. stocks posted the best returns when 10-year Treasury yields rose to close to 4 percent, according to a study by S&P that tracked market performance since 1953.

The S&P 500 advanced 1.7 percent a month on average during periods when 10-year yields climbed to a range of 3 percent to 4 percent, according to data compiled by New York-based S&P. That’s the best performance among six categories of rising yields studied by the firm. Stocks began to fall when yields exceeded 6 percent, the study found.

While rising yields tend to boost borrowing costs for companies and act as “a depressant in intrinsic value calculations,” they can also suggest a strengthening economy and prompt investors to switch to equities, according to Sam Stovall, S&P’s chief equity strategist.

“The ‘sweet spot’ for equity prices appears to be a rising rate environment between 3 percent and 4 percent, as a growing economy reduces unemployment while increasing corporate earnings, yet does not trigger growth-slowing efforts by the central bank,” Stovall wrote in a report yesterday.

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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Buffett Rule Tax Bill Would Raise $47 Billion Over 10 Years

By Richard Rubin - Mar 21, 2012 8:35 AM GMT+0700

Implementing a “Buffett rule” to require a minimum 30 percent tax rate for the highest U.S. earners would raise $47 billion over the next decade, according to a government projection.

The estimate for the proposal backed by President Barack Obama comes from the Joint Committee on Taxation, Congress’s scorekeepers. Lawmakers updated the projection late today to reflect different assumptions about how taxpayers would adjust their capital gains realizations from an earlier $31 billion version.

Warren Buffett in Omaha. Photographer: Nati Harnik/AP Photo

“The president’s so-called Buffett rule is a dog that just won’t hunt,” Senator Orrin Hatch of Utah, the top Republican on the Finance Committee, said in a statement, adding that the proposal would have little effect on reducing the federal budget deficit. “It was designed for no other reason than politics. There is no economic rationale for it.”

The $47 billion would have covered about half the cost of the 10-month extension of a payroll tax cut that Congress enacted last month. In a broader context, the Congressional Budget Office estimates that Obama’s 2013 budget plan would expand the deficit by $6.4 trillion over the next decade. The bill would reduce that by 0.7 percent.

At the request of the Republican staff on the Finance Committee, the Joint Committee on Taxation analyzed a bill written by Senator Sheldon Whitehouse, a Rhode Island Democrat.

Minimum Rate

The proposal would require a minimum rate for taxpayers with adjusted gross income exceeding $1 million. The bill would phase in the tax so that it would fully affect taxpayers with incomes exceeding $2 million, and it would allow charitable contributions to be deducted.

“No matter how you slice it, that’s real money that could help bring down our deficit,” Whitehouse said in a statement today. “Most important: It’s simply the right thing to do.”

Obama has said he sees the Buffett rule as a guideline for a tax-code overhaul. His budget didn’t include a specific proposal like Whitehouse’s.

The so-called rule is named for billionaire Warren Buffett, who says tax rates on investment income should be raised.

Expiring Rates

Under current law, wages and other ordinary income are taxed at a top rate of 35 percent and capital gains and dividends are taxed at a top rate of 15 percent.

The Joint Committee on Taxation analyzed the bill under a scenario in which expiring income-tax cuts would be allowed to lapse. Under that scenario, wages and dividends would be taxed at a top rate of 39.6 percent, capital gains would be taxed at a top rate of 20 percent and a 3.8 percent tax on unearned income would be in effect.

Continuing current tax policy beyond this year, as many Republicans want, would prevent those rates from going up and keep the effective tax rates of more high-income taxpayers under the 30 percent mark. Under that scenario, which isn’t part of today’s estimate, the bill would raise more money for the government.

The bill is S. 2059.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net





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Apple’s IPad ‘Significantly Hotter,’ Consumer Reports Says

By Sarah Frier and Adam Satariano - Mar 21, 2012 3:28 AM GMT+0700

Apple Inc. (AAPL)’s new iPad runs “significantly hotter” than the earlier model when conducting processor-intensive tasks such as playing graphics-heavy games, according to Consumer Reports, which tested the device.

The newest version of the market-leading tablet computer ran as hot as 116 degrees Fahrenheit (47 degrees Celsius), the magazine said on its website. Consumer Reports, published by the consumer-watchdog group Consumers Union, used a thermal-imaging camera to record the temperature while playing the action game “Infinity Blade II.”

The Apple iPad, released for sale on March 16, 2012, is shown here deconstructed. Photographer: Courtesy ifixit

March 20 (Bloomberg) -- Paul Reynolds, electronics editor for Consumer Reports, talks about the magazine's temperature test of Apple Inc.'s new iPad. The newest iPad runs “significantly hotter” than the earlier model when conducting processor-intensive tasks such as playing graphics-heavy games, Consumer Reports said on its website. Reynolds and Cory Johnson speak with Emily Chang on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

A new iPad at a store in London on March 16, 2012. Photographer: Chris Ratcliffe/Bloomberg

Even with the increased temperature, Consumer Reports said the device wasn’t uncomfortable to hold.

“When it was at its hottest, it felt very warm but not especially uncomfortable if held for a brief period,” the magazine said on its website.

Consumer Reports isn’t the only reviewer to note the heating issue. Websites such as Engadget have cited a study by Dutch site Tweakers.net, which found the tablet runs hotter by 10 degrees Fahrenheit. Some consumers in online discussions have cited high temperatures with the iPad.

The new device operates “well within our thermal specifications,” Trudy Muller, a spokeswoman for Cupertino, California-based Apple, said in a statement. “If customers have any concerns they should contact AppleCare.”

Consumer Reports didn’t notice the higher temperature in its initial examination of the new iPad, a process that included testing with games such as “Infinity Blade II.” In the March 16 review, the magazine praised the device, saying it was “shaping up to be the best tablet we’ve ever tested.”

Consumer Reports didn’t say whether the heating issue would determine whether it would recommend the device. When Apple released the iPhone 4, the magazine declined to recommend it, saying it dropped calls when gripped a certain way. After initially playing down the matter, which became known as “Antennagate,” Apple gave out free cases and issued a software update designed to fix the glitch.

To contact the reporters on this story: Sarah Frier in New York at sfrier1@bloomberg.net; 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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Tuesday, March 20, 2012

Asian Stocks Fall After China Raises Fuel Prices; Oil Retreats

By Lynn Thomasson - Mar 20, 2012 10:00 AM GMT+0700

Asian shares dropped after China increased gasoline and diesel prices for the second time in less than six weeks. Gold fell and oil snapped two days of gains in New York amid speculation supplies are rising.

The MSCI Asia Pacific Excluding Japan Index (MXAPJ) lost 0.3 percent as of 11:12 a.m. in Tokyo. The Shanghai Composite Index slid 0.8 percent, while Standard & Poor’s 500 Index futures were little changed. Australian bond yields rose while crude dropped 0.6 percent to $107.50 a barrel. Gold for immediate delivery slid 0.4 percent to $1,658.40 an ounce.

“Higher energy costs and falling profits may worry investors that the economy is slowing even further,” said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co. in Shanghai.

Signs the U.S. economy is improving don’t dispel risks that include rising gasoline prices and a weak housing market, Federal Reserve Bank of New York President William C. Dudley said yesterday. China’s retail gasoline prices will increase as much as 6.6 percent, according to data compiled by Bloomberg. Reports later today may show U.S. housing starts gained in February and U.K. inflation slowed for a fifth month, according to economists surveyed by Bloomberg.

Transurban Group (TCL), Australia’s biggest operator of toll roads, dropped 2.6 percent in Sydney trading after the company’s biggest shareholder sold a 7.9 percent stake at a discount. Sun Hung Kai Properties Ltd. (16), a Hong Kong property developer, lost 1.6 percent after saying an executive director was arrested as part of an investigation into alleged bribery.

Refiners Rally

SK Innovation Co., South Korea’s largest oil refiner, advanced 2 percent. Korea Gas Corp. and Hong Kong and China Gas Co. rose at least 2.8 percent. Gasoline advanced to a 10-month high in New York yesterday on speculation that refinery closures will lower supply as peak driving season approaches.

Oil dropped for the first time in three days. U.S. inventories climbed to the highest level in six months last week as processors idled units and imports from Canada increased, according to a Bloomberg News survey before a government report tomorrow.

U.S. housing starts probably climbed to a 700,000 annual rate last month from a 699,000 pace in January, according to the median estimate of economists surveyed by Bloomberg.

To contact the reporter on this story: Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net

To contact the editor responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net




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Microsoft Said to Finish Windows 8 in Summer, With October Debut

By Dina Bass - Mar 20, 2012 3:47 AM GMT+0700

Microsoft Corp. (MSFT) will finish work on Windows 8 this summer, setting the stage for personal computers and tablets with the operating system to go on sale around October, according to people with knowledge of the schedule.

The initial rollout will include devices running Intel Corp. (INTC) and ARM Holdings Plc (ARM) chips, making good on Microsoft’s promise to support both standards, said the people, who declined to be named because the plans are confidential. In embracing ARM technology, Microsoft is using the same kind of processors as Apple Inc.’s iPad. Still, there will be fewer than five ARM devices in the debut, compared with more than 40 Intel machines.

The Microsoft booth at the 2010 International Consumer Electronics Show on Jan. 7, 2010 in Las Vegas. Photographer: Justin Sullivan/Getty Images

The timing would let Microsoft target Christmas shoppers with the new software, which works with touch-screen devices as well as laptops and desktop PCs. The Redmond, Washington-based company, which hasn’t announced timing for the Windows 8 release, aims to take back sales lost to the iPad and reinvigorate the sluggish PC market. Apple (AAPL) released the third version of the iPad this month, creating an even bigger challenge for Microsoft.

“If they miss the September-October timeframe, they’re going to be stuck without being able to ship anything in 2012,” said Michael Gartenberg, an analyst at Stamford, Connecticut- based Gartner Inc. “The last thing Microsoft wants to have is a situation where there are no compelling Windows tablets at a time when the new iPad looks like it’s going to be a good seller for the holidays.”

April Event

Microsoft will host an event for its industry partners in early April, the people said. The company will spell out its release strategy for Windows 8, giving more details on timing and marketing, they said.

There will be fewer ARM-based devices in the rollout because Microsoft has tightly controlled the number and set rigorous quality-control standards, said one of the people. The new version of Windows will be the first to use ARM processors, which are most commonly found in smartphones. Windows 7, the current version, only works with Intel’s technology. Three of the Windows 8 ARM devices will be tablets, the people said.

Mark Martin, a spokesman for Microsoft, declined to comment, as did Intel’s Jon Carvill. Representatives of Nvidia Corp. (NVDA), Texas Instruments Inc. (TXN) and Qualcomm Inc. (QCOM), the three chip companies that are supplying ARM-based processors to the makers of the new computers, referred questions on the availability of devices to Microsoft.

More than 103 million tablet devices will be sold in 2012, with sales rising to 326.3 million in 2015, according to Gartner. For now, Apple remains dominant, accounting for two- thirds of the market in 2012, Gartner estimates. The company’s share will drop to 46 percent by 2015, while Microsoft’s percentage will climb to 11 percent.

Difficult Adjustment

Getting Windows 8 ready for Intel processors is the easier part -- Windows has always run on Intel chips. The full version of Windows has never run on ARM products, meanwhile, so that process is taking longer. When Microsoft released a test version of Windows 8 for developers in September, the software only ran on Intel technology.

Steven Sinofsky, president of the Windows business, has said repeatedly that Microsoft plans to have both ARM and Intel- based systems available when Windows 8 is released.

“Our collective goal is for them to ship at the same time,” he said in an interview last month. “I wouldn’t be saying it’s a goal if I didn’t think we could do it.”

To contact the reporters on this story: 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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Bales Faced Losing Houses as He Fought 6,700 Miles Away

By Peter Robison, James Nash and Alison Vekshin - Mar 20, 2012 5:59 AM GMT+0700

A world away from the isolated camp in the plains southwest of Kandahar, Afghanistan, where U.S. soldiers seized homemade bombs and weapons caches in nighttime raids, Robert Bales’s other life was crumbling.

The Army sniper’s home in Lake Tapps, Washington, where wife Karilyn once made Impossibly Easy taco pie and watched Mickey Mouse Clubhouse with his young daughter, was to be sold for $50,000 less than what they’d paid. They’d already defaulted on another home, scheduled for public auction in 2009 after the couple fell $15,644.19 behind in payments. Bales had failed to get the promotion that stood to ease their financial stress.

Staff Sgt. Robert Bales, 1st platoon sergeant, Blackhorse Company, 2nd Battalion, 3rd Infantry Regiment, 3rd Stryker Brigade Combat Team, 2nd Infantry Division, in 2011. Source: Spc. Ryan Hallock, 28th Public Affairs/U.S. Army via Bloomberg

March 14 (Bloomberg) -- Michael Courts, a retired U.S. army colonel who served at Joint Base Lewis-McChord in Washington state, talks about the base's Madigan Army Medical Center and mental health-care treatment for service members and veterans. Lewis-McChord was the home base of a U.S. Army staff sergeant who is accused of killing at least 16 civilians in Afghanistan villages. Courts, who is now a city council member in nearby DuPont, Washington, spoke with Bloomberg's Alison Vekshin and Britton Staniar yesterday. (Source: Bloomberg)

March 16 (Bloomberg) -- John Henry Browne, a lawyer representing the U.S. army sergeant held in connection with the killings of 16 civilians in Afghanistan, discusses his communication with the soldier and his family. Emma Scanlan and Richard Adler also spoke at the news conference yesterday in Seattle, about 50 miles (80 kilometers) north of Joint Base Lewis-McChord, the soldier's home station. (Source: Bloomberg)

Sometime before dawn on March 11, the Army alleges, the decorated veteran hiked to two villages and killed 16 Afghanistan civilians including women and children in their homes. A U.S. official has said family stress and alcohol may have combined to prompt the shootings. Friends, neighbors and experts in post-traumatic stress disorder contend that something else must have driven a man they know as unfailingly polite to such horrific acts.

“It is PTSD plus something,” said Harry Croft, a former Army doctor who has reviewed about 7,000 cases of post-traumatic stress disorders. “To kill innocent women and children indicates to me that something happened during these killings that was simply more than the product of PTSD,” said Croft, who’s the author of “I Always Sit with My Back to the Wall,” a book aimed at people who suffer from PTSD.

‘Not Thinking’

“He was not thinking of his family,” Croft said. “I do not think he was thinking about the children. I do not think he was thinking about the women. I do not think he was thinking about the reprisals.”

Karilyn Bales, in a statement today, extended her family’s condolences to the victims and said she can’t shed any light on how “such a terrible thing” happened. “What has been reported is completely out of character of the man I know and admire,” she wrote.

The polite neighbor who answered “yes, ma’am” also had a dark side, once completing court-ordered anger counseling to resolve an assault charge. A high school football player who grew up in a Cincinnati suburb, he was unfulfilled in early attempts to establish a direction in life. Bales left college without finishing and helped start an investment firm in Florida that closed after 16 months.

A Purpose

The military he entered less than two months after the Sept. 11, 2001 terrorist attacks gave him a purpose. It also burdened his young family, as four combat deployments lasting more than 1,000 days left Bales’s wife alone caring for their children, Quincy, now 5, and Bobby, 2, according to a blog she kept chronicling struggles with housework and appointments. Their stresses were compounded by $506,250 in mortgage debt they took on in 2006 at the height of the U.S. housing boom, records show.

The nation’s military families are taking the brunt of repeated deployments as Middle East engagements continue more than 10 years after the Sept. 11 attacks. More than 107,000 of 570,000 active-duty troops have been dispatched more than three times since Sept. 11, military figures show. About 21 percent of Iraq and Afghanistan veterans who sought medical treatment from 2004 to 2009 were diagnosed with PTSD, the Congressional Budget Office said in a February report.

Showing Strains

While none of that can excuse or explain the murder of women and children, former soldiers say it does show why an all- volunteer force prosecuting a decade of war may show strains.

A soldier at Joint Base Lewis-McChord, where Bales was based, threatened to blow up the barracks over the weekend in the latest incident at a station under scrutiny for suicides, killings and other crimes. Military police took the unnamed suspect into custody, according to Lieutenant Colonel Gary Dangerfield, a spokesman for the installation.

“We’re going on 11 years since this started,” Mike Courts, a retired army colonel who is now a council member in the nearby city of DuPont, said in an interview last week. “I think we’re seeing the results of repetitive deployments.”

John Henry Browne, Bales’s lawyer, called his client “in general very mild-mannered” with “a very strong marriage” at a news briefing last week, denying that alcohol or marital stress were factors. The possibility of post-traumatic stress disorder and the adequacy of his screening for a concussive head injury will be examined, according to the lawyer.

The U.S. Army will probably file “really bad” charges on March 22 against Bales, Browne said in an interview today.

‘Really Bad’

“We know what they are going to say -- it’s something really bad,” Browne said in Lansing, Kansas, near the Fort Leavenworth base where Bales is detained. The two men planned to meet today and tomorrow, said Browne, whose only previous contact with Bales was a brief phone call last week.

Navy Captain John Kirby, a Pentagon spokesman, declined today to comment on Browne’s remarks except to say “look to Kabul for release of the charges,” a reference to the U.S. Army’s operations there. Kirby said Bales also has been assigned military counsel.

Bales, 38, grew up in Norwood, Ohio, a Cincinnati suburb of 19,000, on a residential street near a United Dairy Farmers’ plant. He graduated from Norwood High School in 1991.

The youngest of five brothers, Bales was a guard and linebacker on the football team, said Michael Blevins, a neighbor who considered Bales his role model.

‘Little Guy’

“He was always the one to stand up for the little guy,” Blevins, 35, said, remembering that Bales spent time with a neighbor boy who had cerebral palsy.

Sitting on the porch of his mother’s house across from the former Bales family home, Blevins kept saying of the killings in Afghanistan: “That’s not Bobby.”

Bales starred on Norwood’s team before he lost his starting middle linebacker position as a junior to freshman Marc Edwards, according to “Odyssey: From Blue Collar, Ohio to Super Bowl Champion,” a 2010 biography of Edwards by Aaron M. Smith. Edwards would go on to play for the New England Patriots and other National Football League teams.

The NFL player would remain friendly with Bales, crediting his teammate as an early mentor who helped him learn the position. “That was huge motivation for me,” Edwards is quoted as saying in the book. “This guy was a junior and one of the stars of the team and he’s sucking up his pride to help me out.”

Stock Broker

After high school, Bales first studied physical therapy and then decided he wanted to get into finance, Blevins said.

He attended the College of Mount St. Joseph, a private, liberal arts school in suburban Cincinnati, for two semesters in 1991 to 1992, said Jill Eichhorn, the college’s communications manager. Bales went to Ohio State University in Columbus from 1993 to 1996 and studied economics, though he didn’t graduate, university spokesman Jim Lynch said in a telephone interview.

In 1997, Edwards and Bales, identified in the book as a Columbus, Ohio, stock broker, spent a weekend together at the PGA Memorial Tournament in Columbus watching golf, “drinking a couple beers,” and singing at a dueling piano bar, according to the book.

“People were watching us make complete idiots of ourselves, but we were having an absolute ball,” Edwards says in the book. “We were talking to girls, we were dancing. It was fun.”

Bales started Spartina Investments Inc., based in Doral, Florida, in 1999, with Edwards and Bales’ brother, Mark. It dissolved after 16 months, according to state records.

‘Business Relationship’

“Marc had a brief and very limited business relationship with Mr. Bales,” said Marina Ein, a spokeswoman for the former NFL player. It ended “as a result of marketplace forces at the time and other issues,” and “did not affect the friendship,” she said.

In a statement, Edwards called Bales “one of my oldest and best friends” and said the tragedy “has saddened my wife and me greatly and caused us great concern on Bob’s behalf.”

Before enlisting, Bales lived in Jensen Beach, Florida, according to the Army, and records there show he registered to vote as a Republican in St. Lucie County.

Bales’ enlistment in the Army, on Nov. 8, 2001, set him on a new course. He won medals for superior performance and spoke proudly of his combat experiences. He spent nine years at Lewis- McChord, the largest base in the western U.S., in the Second Battalion, Third Infantry Regiment of the Third Stryker Brigade.

Sense of Duty

“He wanted to be a soldier,” said Tim Burgess, 59, a retired warehouse worker who was a neighbor of Bales’s in Auburn, Washington, and remembered him talking about it with a sense of duty more than “rah-rah-rah.”

Court records show Bales was arrested at a hotel in Tacoma, Washington, in 2002 for investigation of assault in a case Browne said involved a woman he dated before he married his wife, according to the Associated Press. The lawyer didn’t return a call seeking comment on the case.

Bales, listed in his driver’s license at the time as five feet, 9 inches (1.75 meters) tall and 230 pounds (104 kilograms), pleaded not guilty. He underwent 20 hours of anger management counseling and the charge was dismissed, according to Tacoma Municipal Court records.

He left for combat in Iraq a year later, serving from Nov. 1, 2003, to Oct. 1, 2004, the Army says.

Wife Karilyn

The next year, he married Karilyn Primeau, according to the blog his wife later set up. She now works for Amaxra Inc., a Redmond, Washington, business communications company, according to the firm. Her LinkedIn profile lists her as an associate technical project manager and says she earlier worked for Washington Mutual, the Seattle lender that filed for bankruptcy in 2008 and was taken over by JPMorgan Chase & Co. (JPM)

“The Bales Family Adventures” blog and the companion “BabyBales” site were closed to public view after Robert Bales was identified as the shooting suspect. The sites were linked to others associated with Karilyn Bales and an e-mail that uses her maiden name. Karilyn Bales didn’t respond to an e-mailed request for comment.

The couple lived in Auburn at a house Karilyn owned for about a year. They moved when Karilyn became pregnant, according to neighbor Burgess. At the time, in 2005, Bales was nursing a war-related injury to his foot and walked with a pronounced limp, he said. Bales’s lawyer has said he lost part of his foot.

“He wanted to go back over there,” Burgess said. “His mission was to rehabilitate himself, to get back into another combat situation and get over there.”

Karilyn’s dad, who drove a brand-new Ford diesel pickup truck, took the couple out on his boat, Burgess said. Bales bought a new Ford Mustang, he said.

‘Total Military’

Edith Bouvette, 52, remembers when Bales once helped an elderly neighbor fix her roof. “He was always, ‘yes, ma’am, yes sir,’” Bouvette said. “Total military.”

The Baleses bought a four-bedroom home with 2.25 bathrooms in Lake Tapps, Washington, in 2005 for $280,000, county property records show. They rented the other home to neighbors, according to Burgess, vice president of the local homeowners association.

On June 19, 2006, Army records show, Bales returned to war, where his service coincided with the surge in Iraq ordered by George W. Bush.

With Karilyn’s baby on the way, the couple borrowed $506,250 on two residential properties in October 2006, public records show -- $178,500 on the Auburn house and $327,750 on the Lake Tapps home. Karilyn had a power of attorney to sign on her husband’s behalf, the records show.

While it’s unclear what his wife was earning, the debt was a stretch on the salary of a staff sergeant -- more than $60,000 a year, based on military pay scales.

‘$300,000 Houses’

“I’ve rarely seen staff sergeants who lived in $300,000 houses,” said John S. Odom Jr., a retired Air Force judge advocate and partner in Jones, Odom & Politz LLP law firm in Shreveport, Louisiana. “Other than the fact that his job was as an infantryman carrying a rifle and supervising a squad of infantrymen, he isn’t different than if he had been a lineman for the local power company.”

Daughter Quincy arrived Dec. 11, 2006, Karilyn Bales wrote in her blog. As Quincy, 7 pounds, eight ounces, was getting her first bath, Karilyn’s cell phone rang. “It was Bob calling from the airport in Kuwait!!” she wrote. “It was so good to hear his voice. I told him how the birth went and he got to hear Quincy squeaking in the background.”

Returning home with the baby a few days later, her phone rang again. It was Bales; he was in Dallas and would be home soon. “We would be a family,” she wrote.

Najaf Battle

The next month, in January 2007, Bales and his unit fought in the Battle of Najaf near the Euphrates River. They found villagers and family members of Iraqi fighters in the aftermath of the battle, also known as the Battle of Zarqa, which left 250 insurgents dead, according to a 2009 report by the Northwest Guardian, the military-authorized newspaper at his base.

They piled the injured on litters. Some had lost limbs or eyes, according to the report.

“We’d go in, find some people that we could help, because there were a bunch of dead people we couldn’t, throw them on a litter and bring them out to the casualty collection point,” Bales was quoted as saying.

His second deployment ended in September 2007. A year later, Bales was charged in the municipal court of a town near his home after a single-vehicle rollover that damaged property, AP reported. He told police he fell asleep at the wheel and paid a fine to get the charges dismissed, AP said.

Easter Eggs

Bales’s wife wrote of decorating Easter eggs, swimming at a local pool and trying to keep up with dishes and laundry. “Quincy is a much better egg hunter than last year, which was really fun to witness and enjoy with Bob,” she wrote.

In August 2009, Bales left for Iraq for a third time. “I had bad dreams and a pit in my tummy from missing Bob,” Karilyn wrote. “Thankfully I got a text message from Bob at 2pm, he was on the plane to Maine.”

Two months later, the couple’s Auburn house was scheduled to be auctioned at the entrance to the King County Administration Building.

The Baleses owed $15,644.19 on the house plus $1,333.46 in trustee’s fees, according to the auction notice. The auction subsequently was canceled without explanation. A Bank of America Corp. filing in King County in August 2011 said the couple was $16,978 in arrears on the rental property.

‘Do Not Occupy’

The home, visited yesterday, is a discolored light blue. Tire rims, an oil pan and part of a drivetrain rust outside in the driveway. A “Do Not Occupy” sign from the Auburn building department is displayed on the door, along with other signs in the window warning against unauthorized entry.

The homeowners association president, Bob Baggett, said the couple had lapsed on making $120 annual maintenance dues payments for at least two years.

“I suspect they fell on hard times financially,” Baggett said. “It could have been a matter of priorities.”

In March 2011, with their household further expanded by son Bobby, Bales failed to win promotion to sergeant first class, Karilyn wrote in her blog. The family was “disappointed after all of the work Bob has done and all the sacrifices he has made for his love of his country, family and friends.”

Bales, with 10 years of military service, would have received about $431 more a month for a total of $5,673 a month in salary if he had been promoted to sergeant first class, according to a pay calculator on the website of Army Times Publishing Co.

They hoped to make the best of the situation by going on an “adventure” instead -- with assignments in Germany, Italy or Hawaii their top options, Karilyn Bales wrote.

‘In Shock’

“Who knows where we will end up,” she said. “I just hope that we are able to rent out the house so we can keep it. I think we are both still in shock.”

Instead, in December, Bales left for Afghanistan, the Army says.

“He and the family were told that his tours in the Middle East were over, and then literally overnight that changed,” lawyer Browne told reporters last week.

The accused soldier’s job in Afghanistan was providing “force protection” for a Special Forces compound, according to a U.S. official familiar with the case.

The Panjwai plain where he was based is densely dotted with villages whose local mullahs helped found the Taliban movement in 1994. The district has remained a Taliban stronghold since NATO’s International Security Assistance Force, or ISAF, took control in heavy fighting in 2006.

Joint Patrols

U.S. forces there typically conduct joint patrols with the Afghan National Army in the villages surrounding their bases, seizing homemade bombs, weapons caches and hashish, according to ISAF news releases over the past seven months.

On March 12, villagers in southern Afghanistan buried 16 men, women and children shot dead in their homes after the killings by the accused soldier later identified as Bales.

Back at home, Karilyn had approached realtor Phillip Rodocker to list their house in Lake Tapps as a “short sale,” for less than the mortgage balance, according to Rodocker, who listed the house. Purchased for $280,000, it went on the market March 12 for $229,000. Karilyn called on March 13 and asked to cancel the sale because of a “family emergency,” Rodocker said.

Bales’s friends say they don’t want to believe the charges are true. Blevins said he exchanged Facebook messages with the soldier about three weeks ago in which Bales said he was looking forward to his son’s 3rd birthday.

“They always say you never know somebody, what’s in their heart, but that kid’s got the biggest heart anywhere there is,” said Blevins’ sister Michelle Caddell, who also lives on the street where he grew up. “I can’t see that kind of person living inside there, unless something completely destroyed his whole entire being.”

To contact the reporters on this story: Peter Robison in Seattle at robison@bloomberg.net; James Nash in Los Angeles at jnash24@bloomberg.net; Alison Vekshin in San Francisco at avekshin@bloomberg.net

To contact the editors responsible for this story: John Walcott at jwalcott9@bloomberg.net; Jeffrey Taylor at jtaylor48@bloomberg.net




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