S&P 500 Trims Losses as Treasuries Gain While Oil Tumbles

By Stephen Kirkland and Rita Nazareth - Mar 30, 2012 3:46 AM GMT+0700

Andrew Burton/Getty Images

On the floor of the New York Stock Exchange on March 26, 2012.

The Standard & Poor’s 500 Index (SPX) trimmed losses in the final two hours of trading ahead of data forecast to show growth in consumer confidence and spending tomorrow, the final day of the best first-quarter rally since 1998. Treasuries and the dollar rose, while oil tumbled.

The S&P 500 slipped less than 0.2 percent to close at 1,403.28 at 4 p.m. in New York after tumbling as much as 1 percent. The Dow Jones Industrial Average increased 19.61 points to 13,145.82. The yen appreciated against all 16 most-traded peers and the dollar climbed versus 11. Ten-year Treasury yields fell five basis points to 2.16 percent, while Italian and Spanish bonds slid. Oil lost 2.5 percent, the biggest drop of the year, as France said governments are moving closer to releasing stockpiles from emergency reserves.

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March 29 (Bloomberg) -- Michael Darda, chief economist and chief market strategist at MKM Partners LP, talks about the outlook for financial markets and investor sentiment. Darda speaks with Betty Liu, Julie Hyman and Josh Lipton on Bloomberg Television's "In the Loop." (Source: Bloomberg)

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March 29 (Bloomberg) -- Joseph Quinlan, chief market strategist at U.S. Trust, Bank of America Private Wealth Management, talks about risk in emerging markets and investment opportunities in U.S. large-capitalization stocks. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

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March 29 (Bloomberg) -- Bloomberg’s Trish Regan, Adam Johnson and Matt Miller report on today’s ten most important stocks including Research In Motion, Best Buy and Apple. (Source: Bloomberg)

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March 29 (Bloomberg) -- Daniel Morris, global strategist at JPMorgan Asset Management, discusses bonds, equities, oil and China. He talks with Mark Barton on Bloomberg Television's "On the Move." (Source: Bloomberg)

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March 29 (Bloomberg) -- Kieron Launder, chief investment officer at Schroders Private Banking, discusses bank deleveraging, corporate bonds and equity markets. He talks with Maryam Nemazee and Manus Cranny on Bloomberg Television's "The Pulse." (Source: Bloomberg)

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March 29 (Bloomberg) -- Kit Juckes, head of foreign-exchange research at Societe Generale SA, talks about the outlook for the U.S and Australian dollars, euro and yen. He speaks with Owen Thomas on Bloomberg Television's "Countdown." (Source: Bloomberg)

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Traders work at the New York Stock Exchange. Photographer: Scott Eells/Bloomberg

U.S. benchmark equity indexes recovered from their lows of the session, with the Dow reversing a 94-point loss, amid speculation a three-day slump was overdone given improving economic data and as investors prepared for the final session of the quarter. More than $5.6 trillion has been added to equity values worldwide this year on signs of a U.S. economic recovery and efforts to contain Europe’s debt crisis.

“The market’s momentum is decidedly upward,” David Sowerby, a Bloomfield Hills, Michigan-based portfolio manager at Loomis Sayles & Co., which oversees about $160 billion, said in a phone interview. “The decline that we’ve had is normal after the run-up in stocks. The better economic news is winning a tug- of-war with any concerns about the economy.”

U.S. stocks followed global equities lower earlier after S&P said Greece may have to restructure its debt again and lower-than-forecast profits fueled concern China’s growth is slowing.

U.S. Movers

Alcoa Inc., Caterpillar Inc. (CAT) and Coca-Cola Co. climbed more than 1.5 percent for the biggest gains in the Dow. Red Hat Inc. surged 20 percent to a 12-year high of $61.43 after profit and sales topped projections. Aetna Inc. and Cigna Corp. (CI) added at least 4 percent as investors speculated the U.S. Supreme Court will overturn aspects of the Affordable Care Act, benefitting the health-insurance industry.

Best Buy Co. (BBY), the largest consumer-electronics retailer, slumped 7 percent as sales missed estimates. American Express Co. (AXP), the biggest credit-card issuer by purchases, dropped 2 percent as Wells Fargo & Co. cut its recommendation on the shares.

Retreat From Four-Year High

The S&P 500 has retreated for three straight days after reaching an almost four-year high on March 26. The index will likely remain stuck in the 500-point range where it’s been four- fifths of the time since 2000 until the Federal Reserve allows interest rates to rise, according to Piper Jaffray Cos.

The benchmark gauge of U.S. stocks has traded between 1,000 and 1,500 for about 80 percent of the time since 2000, according to data compiled by Bloomberg. Equity gains stalled in the past 12 years as the economy suffered from the bursting of bubbles in technology and real estate, forcing the central bank to cut its benchmark interest rate to near zero from 6.5 percent to spur growth. Fed Chairman Ben S. Bernanke has pledged to keep borrowing costs low through at least late 2014.

“The S&P 500 is approaching the upper end of the secular trading range,” Craig W. Johnson, a Minneapolis-based technical market strategist with Piper Jaffray, wrote in a note yesterday. “This resistance will likely remain intact until 2014-2015, and will correspond with a secular change in bond yields.”

Treasury Auction

Thirty-year U.S. bonds also rallied today, sending their yield down four basis points to 3.27 percent. Rates on two-year notes slipped one basis point to 0.34 percent. Treasuries remained higher after the U.S. auctioned $29 billion in U.S. seven-year securities, the last of three note offerings this week totaling $99 billion. The notes drew a yield of 1.590 percent, compared with a forecast of 1.572 percent in a Bloomberg News survey of nine of the Federal Reserve’s primary dealers.

S&P 500 futures extended losses before the open of exchanges in New York today as government data showed initial jobless claims fell by 5,000 to 359,000 last week, the lowest since April 2008 while above the 350,000 median forecast of economists in a Bloomberg News survey. The government data also contained revisions dating back to 2007.

The Thomson Reuters/University of Michigan index of consumer confidence is forecast to rise to 74.5 in March, near the highest level in a year, after a preliminary reading of 74.3, according to a Bloomberg survey of economists. Personal income is projected to have grown 0.4 percent and consumer spending rose 0.6 percent, economists predicted before government data tomorrow.

GDP Growth

The economy in the U.S. grew at a 3 percent annual rate in the last three months of 2011, the same as previously estimated, while corporate profits climbed at the slowest pace in three years, raising the risk that business investment and hiring will cool.

The increase in gross domestic product was the biggest in more than a year and followed a 1.8 percent gain in the prior period, revised figures from the Commerce Department showed today. Company earnings were up 0.9 percent from the third quarter, the smallest advance since the last three months of 2008.

About ten shares fell for every one that advanced in the Stoxx 600 (SXXP). Hennes & Mauritz AB, Europe’s second-largest clothing retailer, slid 4.9 percent as increased textile costs and markdowns led to the weakest profitability in eight years. Banks led declines among 19 industries, falling 2.9 percent as a group. Banca Monte dei Paschi di Siena SpA, Italy’s third- biggest bank, tumbled 11 percent after posting a record loss. FirstGroup Plc, Britain’s biggest train operator, sank 14 percent amid “challenging trading conditions” at its bus unit.

European Bonds

In European bond markets, rates on 10-year Italian, Spanish and Portuguese debt climbed at least 10 basis points. The Italian 10-year bond yield rose 11 basis points to 5.21 percent even as borrowing costs fell at the sale of 3.25 billion euros ($4.3 billion) of bonds due in September 2022. The yield on similar-maturity German bunds, Europe’s benchmark government security, fell three basis points to 1.81 percent.

Greece will probably have to restructure its debt again and this may involve bailout partners such as European governments, said Moritz Kraemer, head of sovereign ratings at S&P.

European governments are preparing for a one-year increase in the ceiling on rescue aid to 940 billion euros to keep the debt crisis at bay, according to a draft statement written for finance ministers before a meeting in Copenhagen tomorrow. The European Union had its AAA long-term issuer default rating affirmed by Fitch Ratings, which cited the support from the EU’s 27 member states, nine of which are rated AAA by Fitch. The outlook is stable.

Oil fell to a six-week low of $102.78 a barrel in New York, extending yesterday’s 1.8 percent decline. French Prime Minister Francois Fillon said the prospects of an accord on tapping strategic reserves are good and the International Energy Agency said it’s ready to act if supplies are disrupted.

The Hang Seng China Enterprises Index slumped 1.6 percent after China’s PICC Property & Casualty Co., Sany Heavy Industry Co. and Zijin Mining Group Co. reported net income that trailed estimates.

The MSCI Emerging Markets Index (MXEF) lost 1.1 percent. Russia’s Micex tumbled 1.7 percent as oil retreated. Benchmark gauges in Taiwan, Israel, Poland and the Czech Republic sank at least 1.4 percent.

To contact the reporters on this story: Stephen Kirkland in London at skirkland@bloomberg.net; Lynn Thomasson in Hong Kong at lthomasson@bloomberg.net; Rita Nazareth in New York at rnazareth@bloomberg.net

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

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Obama Says Oil Profits Justify Ending U.S. Tax Breaks

By Roger Runningen - Mar 29, 2012 10:00 PM GMT+0700

President Barack Obama said oil company profits justify abolishing $4 billion in annual oil and natural gas subsidies and shifting those savings to research on clean-energy fuels.

With the Senate scheduled to vote on the matter later today, Obama again urged Congress to repeal the tax breaks. The measure is opposed by Republicans, who have the votes to block the legislation.

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President Barack Obama speaks about rising gas prices and oil company tax breaks in the Rose Garden at the White House on March 29, 2012. Photographer: Mark Wilson/Getty Images

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March 29 (Bloomberg) -- President Barack Obama talks about U.S. oil company profits and federal tax subsidies. The U.S. Senate later rejected a Democratic bill to repeal about $24 billion in tax breaks to oil companies and use the money to pay for clean energy development and deficit reduction. The president speaks in the White House Rose Garden. (Source: Bloomberg)

“It’s not like these are companies that can’t stand on their own,” Obama said in prepared remarks delivered in the White House Rose Garden. Last year, the three biggest U.S. oil companies took home more than $80 billion in profit, with Exxon Mobil Corp. collecting almost $4.7 million each hour, he said.

“And when the price of oil goes up, prices at the pump go up, and so do these companies’ profits,” he said. “Meanwhile, these companies pay a lower tax rate than most other companies on their investments -- partly because we’re giving them billions in tax giveaways every year.”

Energy company subsidies are a staple of Obama’s re- election campaign rhetoric, meant to highlight the differences between himself and Republican presidential candidates and cast them as defenders of such spending as they propose cuts in health and other social programs to reduce a deficit forecast at $1.3 trillion this year.

In his Feb. 13 budget, Obama said existing tax “loopholes and expenditures” for the oil and natural gas companies amount to an unwarranted “preference” of these industries over others.

Criticism of Republicans

At Ohio State University March 22, Obama ridiculed Republican presidential candidates as the “flat Earth crowd,” who’d “rather give $4 billion in taxpayer subsidies to oil companies this year than to invest in clean energy.”

“We have been subsidizing oil companies for a century. That’s long enough,” he said.

Republicans today cited a March 3 Congressional Research Service report that found repealing $22.8 billion in tax breaks over five years would reduce the tax breaks for independent companies and, on a small scale, “would make oil and natural gas more expensive for U.S. consumers and likely increase foreign dependence.”

Senate Republican Leader Mitch McConnell of Kentucky, in an e-mailed statement, said Obama’s proposal is a political gambit in an election year and called the plan a “tax hike on American energy manufacturers” that he’d oppose.

Brendan Buck, a spokesman for House Republican Speaker John Boehner, said today in an e-mail that the president is giving a speech “with gas prices at $3.92 per gallon, calling for policy that would make gas more expensive and increase foreign dependence on oil. You wouldn’t believe it, right? Yet this is happening.”

Ending such breaks would reduce the deficit by $41 billion over a decade, according to Obama’s budget for fiscal 2013.

Subsidies were worth $24 billion for the five largest oil companies operating in the U.S., including Irving, Texas’s Exxon Mobil Corp. (XOM) and Chevron Corp. in San Ramon, California, Senate Democrats said.

To contact the reporter on this story: Roger Runningen in Washington at rrunningen@bloomberg.net

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

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Pimco’s Gross Says Fed to Shift Operation Twist to Mortgages

By Margaret Brennan and Liz Capo McCormick - Mar 29, 2012 12:29 AM GMT+0700

Pacific Investment Management Co.’s Bill Gross said the Federal Reserve will probably shift focus to mortgage securities to keep borrowing rates low when its so- called Operation Twist program ends in June.

It will be a “twist on another twist going forward,” Gross, who runs the world’s biggest bond fund, said from Pimco’s headquarters in Newport Beach, California, during an interview on Bloomberg Television’s “InBusiness with Margaret Brennan.”

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Bill Gross, co-chief investment officer of Pacific Investment Management Co. Photographer: Scott Eells/Bloomberg

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March 28 (Bloomberg) -- Bill Gross, manager of the world's biggest mutual fund at Pacific Investment Management Co., talks about the ticker-symbol change on his month-old Pimco Total Return Exchange-Traded Fund to BOND, investment strategy in the debt market and Federal Reserve policy. Pimco Total Return ETF was listed on the NYSE Arca exchange on March 1 under the ticker TRXT. Gross speaks on Bloomberg Television's "InBusiness With Margaret Brennan." (Source: Bloomberg)

Fed Chairman Ben S. Bernanke said this week unemployment remains too high, the U.S. economic recovery isn’t assured and policy makers don’t rule out any further options to boost growth, including additional debt purchases. Investor expectations for more monetary stimulus declined after Fed policy makers raised their assessment of the economy March 13.

“The Fed is outcome oriented,” Gross said. “And what he said on Monday in terms of the employment picture basically suggested that, up until now we’ve done very well in terms of reducing unemployment but it will be a tougher row to hoe going forward.”

The central bank is pursuing a maturity-extension program announced in September to replace $400 billion of short-term debt in its portfolio with longer-term securities. The Fed purchased $2.3 trillion of debt in two rounds of quantitative easing that have become known as QE1 and QE2 as part of its efforts to support the world’s biggest economy.

Sterilized Twist

What the Fed will “try to do is twist in the mortgage market; basically buy current-coupon mortgages in agency space, 3 percent and 3.5 percent coupons,” Gross said. “And basically twist by repoing out the Treasuries they currently own in short-term space.”

A so-called sterilized version of debt purchases would involve the Fed buying longer-term debt while draining cash from the banking system through the repurchase agreement market, preventing a rise in bank reserves. This option may allow the central bank to take further action to bolster growth while containing investors and political leaders’ concern the actions might threaten future inflation.

Repos are transactions used for short-term funding, typically involving the sale of U.S. government securities in exchange for cash, with the debt held as collateral for the loan. In a reverse repo, the Fed lends securities for a set period, temporarily draining cash from the banking system. At maturity, the securities are returned to the Fed, and the cash to its counterparties.

Buying Mortgages

Pimco’s $252 billion Total Return Fund reduced holdings of Treasuries last month for the first time since February 2011, when it cut its stake in the securities to zero.

Gross lowered the proportion of U.S. government securities in the fund to 37 percent of assets from 38 percent in January, according to a report on the company’s website. He raised mortgages to 52 percent from 50 percent.

The Total Return Fund has earned 2.9 percent for investors this year, beating about 97 percent of its competitors, according to data compiled by Bloomberg. The fund has gained 0.1 percent over one month, topping 80 percent of rivals, the data show.

Pimco, a unit of the Munich-based insurer Allianz SE, managed $1.35 trillion of assets as of September.

The five-year notes that Russia plans to sell offer more value than U.S. Treasuries of the same maturity, Gross said.

Russian Debt

“At 230 basis points over the U.S. five-year, that’s an attractive situation,” Gross said. “It’s a BBB+ type of security in terms of sovereign space. Obviously it has a history of default -- 10 to 11 to 12 years back. But we think at these spreads, and with the situation currently, it’s an attractive situation compared to U.S. Treasures.”

The Russian government is issuing $2 billion of five-year bonds at 230 basis points over U.S. Treasuries, $2 billion of 10-year bonds at a spread of 240 basis points and $3 billion of 30-year bonds at 250 basis points, said a banker with knowledge of the deal who declined to be identified because the information isn’t yet public. The yield spread on a 2044 bond for similarly rated Mexico is 150 basis points and 131 basis points for Brazil’s note due in 2041.

The last time Russia issued 30-year notes was in August 2000, two years after its $40 billion domestic debt default. The sale will be the biggest among emerging markets since Qatar issued $7 billion of bonds in November 2009.

To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net

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

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Facebook Said to Halt Secondary-Market Trading This Week

By Douglas MacMillan and Brian Womack - Mar 29, 2012 3:22 AM GMT+0700

Facebook Inc. (FB) is halting the trading of its shares on secondary markets by the beginning of April as it prepares for an initial public offering, two people with knowledge of the matter said.

Representatives of Facebook instructed firms that help investors buy and sell stock in closely held companies to cease trading of its equity this week, said the people, who asked to not be identified because the conversations were private. Facebook aims to hold its IPO in early May, one person said.

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Facebook’s implied value dropped 5 percent to about $93 billion in a late-February auction of a fund that holds shares of the social-networking company's stock. Photographer: Frank May/DPA/Zuma Press

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March 28 (Bloomberg) -- Samer Hamadeh, chief executive officer of PrivCo, talks about Facebook Inc.'s plan to halt trading of its shares on secondary markets by the beginning of April, according to two people with knowledge of the matter. He speaks with Emily Chang and Cory Johnson on Bloomberg Television's "Bloomberg West." (Source: Bloomberg)

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The Facebook Inc. thumbs-up "Like" icon is displayed on a sign at the company's campus in Menlo Park, California. Facebook is making preparations for an IPO. Photographer: David Paul Morris/Bloomberg

Facebook, which filed in February to raise $5 billion in the largest-ever Internet public-market debut, is actively traded on secondary markets, including SharesPost Inc. and SecondMarket Inc. The halt gives the company time to account for its shareholding base and would end price fluctuations as Facebook confers with bankers and investors to determine its IPO valuation, said Lise Buyer, principal at Class V Group.

“It wouldn’t surprise me if they wanted to let the market settle down before they head out on a roadshow” to meet with would-be investors, said Buyer, who helped advise Google Inc. on its 2004 IPO. Her firm is based in Portola Valley, California.

Jonathan Thaw, a spokesman for Menlo Park, California-based Facebook, declined to comment.

SharesPost moved the date of a Facebook-share auction to March 30, the online marketplace said in an e-mail to its users yesterday. Previously, the auction had been set for April 2.

Facebook’s Request

“At Facebook’s request, SharesPost will cease facilitating transactions in Facebook stock as of Friday end of day to help ensure the company’s orderly transition into the public markets,” the company said in note to clients today.

While the trading of startup shares lets early employees and investors make money from holdings, it has come under regulatory scrutiny because the transactions can lure investors who may not understand the company and the risks involved.

Earlier this month, the U.S. Securities and Exchange Commission settled with SharesPost to resolve claims that the online marketplace acted as an unregistered broker of shares, its first action in a broad probe of trades involving nonpublic startups.

Facebook’s implied value dropped 5 percent to about $93 billion in a late-February auction of a fund that holds shares of the social-networking company’s stock. The sale set a price of $40 apiece for 125,000 units of the fund, according to San Bruno, California-based SharesPost, which managed the auction. A Feb. 14 fund auction valued Facebook at about $98 billion.

To contact the reporters on this story: Douglas Macmillan in New York at dmacmillan3@bloomberg.net; Brian Womack in San Francisco at bwomack1@bloomberg.net

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

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MF Global Treasurer Declines to Answer Questions From Panel

By Phil Mattingly and Silla Brush - Mar 29, 2012 5:17 AM GMT+0700

Edith O’Brien, the MF Global Holdings Ltd. (MF) assistant treasurer who has become a key figure in the disappearance of as much as $1.6 billion in customer funds, declined to answer questions from U.S. lawmakers.

O’Brien, who appeared today under subpoena before a House Financial Services subcommittee, invoked her constitutional right against self-incrimination during a hearing on the New York firm’s Oct. 31 bankruptcy, the eighth largest in U.S. history.

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Edith O'Brien, assistant treasurer with MF Global Inc., at the start of a House Financial Services subcommittee hearing in Washington on March 28, 2012. Photographer: Andrew Harrer/Bloomberg

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March 28 (Bloomberg) -- Seth Berenzweig, managing partner at Berenzweig Leonard, and Richard Roth, founder and partner at The Roth Law Firm PLLC, talk about hearings before a U.S. House of Representatives subcommittee on MF Global Holdings Ltd.'s bankruptcy and use of customer funds. They speak with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

After saying twice that she would not answer a question on the advice of counsel, O’Brien told lawmakers she would not answer any questions during today’s hearing.

“We’re extremely disappointed that you’ve chosen to do that,” Representative Randy Neugebauer, the chairman of the Financial Services oversight and investigations panel, said before he dismissed her.

Although O’Brien was not present for the question-and- answer period, her role in the transfers was a topic lawmakers - - and the other MF Global executives present --returned to multiple times.

O’Brien was pulled from back-office obscurity onto center stage last year when former MF Global chief executive Jon S. Corzine identified her several times as an employee with knowledge of transfers that may have included customer funds.

‘Direct Instructions’

Attention on O’Brien heightened after the March 23 release of a memo drafted by congressional staff. The memo cites an e- mail from O’Brien noting that a transfer made in the days before the firm’s bankruptcy was done “Per JC’s [Jon Corzine’s] direct instructions.”

Christine Serwinski, chief financial officer of the firm’s North American broker-dealer, said O’Brien and another employee had the authority to transfer funds from a customer segregated account. She also said that Corzine’s personal involvement in the transfer would have been “unusual.”

Vinay Mahajan, the firm’s global treasurer who was not in attendance, was identified by Serwinski as a second executive who had the authority to sign off on transfers. Mahajan also was identified in the House memo as informing colleagues in an Oct. 28 e-mail that an overdrawn account in London had to be “fully funded ASAP.”

“Mr. Mahajan worked for only 10 weeks at MF Global and we’re confident that he at all times acted appropriately,” Gregory John O’Connell, Mahajan’s attorney, said today in an statement.

Two-Stage Transfer

Another MF Global executive, General Counsel Laurie Ferber, testified that she sought O’Brien’s assurance of the propriety of the two-stage transfer -- a $200 million transfer from a segregated account at the firm’s brokerage to a “house” account, followed by the move of $175 million from the house account to a London subsidiary’s account at JPMorgan Chase & Co. (JPM)

JPMorgan, by mid-afternoon of Oct. 28, contacted Corzine to request confirmation in writing that the transferred money was made up only of the firm’s funds, Diane Genova, a deputy general counsel for the bank, said in her prepared remarks.

“Mr. Corzine said he understood the request and would have someone in his organization review it,” Genova said. The bank then “e-mailed a proposed draft letter to Mr. Corzine.”

Corzine, 64, told lawmakers last year the firm’s back- office staff had “explicitly” informed him that the $175 million transfer made before the bankruptcy filing was legal.

‘Never Intended’

“I never gave any instruction to misuse customer funds, I never intended anyone at MF Global to misuse customer funds and I don’t believe that anything I said could reasonably have been interpreted as an instruction to misuse customer funds,” Corzine told lawmakers in December.

Ferber said she spoke with O’Brien about the transfers and was was provided with copies of the transaction accounts.

“My very clear understanding was that if the compliance certificate was limited to those two transactions she would sign it,” Ferber said of O’Brien.

The letter was never returned to JPMorgan, according to Genova. Serwinski, asked if she would have approved the transfer if she knew all of the information about the funds involved, said she would not have made the transaction.

Justice Department Investigates

Serwinski, Ferber and Henri Steenkamp, the firm’s chief financial officer, told lawmakers they were all in contact with the Department of Justice, which is investigating the bankruptcy. Serwinski said she had met with the the department twice, Steenkamp said he was in contact with federal authorities through his lawyers and Ferber said she is meeting with authorities next month.

Lawmakers from both parties expressed frustration with the way the three executives responded to their questions, reminding them that MF Global’s clients included farmers and ranchers around the country who have lost money. Representative Steve Pearce, a New Mexico Republican, compared them to legendary thieves “Bonnie and Clyde.”

“Looks like there’s been a great effort to maintain plausible deniability,” said Representative Nan Hayworth, a New York Republican.

Representative Michael Capuano of Massachusetts, the top Democrat on the panel, told the executives that criticism from lawmakers is the least of their problems.

“Here’s your concern: The people sitting next to you,” Capuano said. “Because somebody is going to say something to the appropriate investigators to say this is the person who had final responsibility. And when that happens, there’s going to be problems for those individuals.”

To contact the reporters on this story: Phil Mattingly in Washington at pmattingly@bloomberg.net; Silla Brush in Washington at sbrush@bloomberg.net

To contact the editor responsible for this story: Maura Reynolds at mreynolds34@bloomberg.net

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U.S. Stocks Fall on Economic Data as Energy Shares Slump

By Rita Nazareth - Mar 29, 2012 3:44 AM GMT+0700

U.S. stocks fell, sending the Standard & Poor’s 500 Index down for a second day, as a slump in crude oil drove energy producers lower and government data showed that orders for durable goods rose less than forecast.

Exxon Mobil Corp. and Occidental Petroleum Corp. (OXY) paced losses in 42 out of 43 energy companies in the S&P 500 as oil slumped following an increase in supplies. The Morgan Stanley Cyclical Index of companies most-tied to the economy lost 1.6 percent as Federal Reserve Chairman Ben S. Bernanke said the recovery isn’t assured. Caterpillar Inc. (CAT) and Alcoa Inc. (AA) slid more than 2.2 percent. Financial shares had the only gain among 10 S&P 500 groups as Bank of America Corp. rallied 1.6 percent.

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March 28 (Bloomberg) -- Tom McClellan, co-founder and editor of the McClellan Market Report, talks about the U.S. stock market. He speaks with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

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(Corrects reporter's name.) March 28 (Bloomberg) -- Troy Gayeski, senior portfolio manager at SkyBridge Capital LLC, discusses the outlook for U.S. equities and bonds. He speaks with Scarlet Fu, Stephanie Ruhle and Adam Johnson on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

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March 28 (Bloomberg) -- Russ Koesterich, global chief investment strategist for the IShares unit of BlackRock Inc., talks about global stocks and investment strategy. Koesterich speaks with Betty Liu, Julie Hyman and Josh Lipton on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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March 28 (Bloomberg) -- Bloomberg's Scarlet Fu reports on U.S futures, overseas markets and the headlines that will impact today's trading. She speaks on Bloomberg Television's "Inside Track." (Source: Bloomberg)

The S&P 500 slid 0.5 percent to 1,405.54 at 4 p.m. New York time. While the benchmark gauge has lost 0.8 percent in two days, it rebounded from its intraday low of 1,397.20 in the final two hours of trading. The Dow Jones Industrial Average declined 71.52 points, or 0.5 percent, to 13,126.21 today.

“Investor jitters have been heightened by another economic report coming in a bit light and by the Fed chairman suggesting the economy may be vulnerable to another period of turbulence,” said James Paulsen, who helps oversee about $333 billion as chief investment strategist at Minneapolis-based Wells Capital Management. “The selloff is also being fueled by a collapse in energy stocks. After such a significant advance in the market, investors are already worried about a correction.”

Today’s loss pared this month’s rally in the S&P 500 to 2.9 percent. The index is still poised for the best first quarter since 1998, up 12 percent. Financial and technology shares have risen the most among 10 groups, surging more than 21 percent so far in 2012.

Economic Data

Stocks fell today after a Commerce Department report showed that bookings for goods meant to last at least three years advanced 2.2 percent, less than projected after a revised 3.6 percent decline the prior month. Bernanke said unemployment remains too high, the economic recovery isn’t guaranteed and policy makers don’t rule out any further options to boost growth.

“It’s far too early to declare victory,” Bernanke said, according to a transcript of last night’s interview with ABC News anchor Diane Sawyer provided by the network. “The recent news has been good. But I think we need to be cautious and make sure this is sustainable. And we haven’t quite yet got to the point where we can be completely confident that we’re on a track to full recovery.”

Energy and raw-material producers had the biggest losses in the S&P 500 among 10 groups, falling at least 1.2 percent. Crude oil for May delivery tumbled 1.8 percent to $105.41 a barrel on the New York Mercantile Exchange. Exxon (XOM) slipped 0.9 percent to $85.86. Occidental Petroleum dropped 3.6 percent to $94.85.

Coal Shares

Coal producers slipped. U.S. electricity generators are on track to burn 22 percent less coal this year than in 2011, said Lucas Pipes, an analyst at Brean Murray Carret & Co. in New York, citing data published in Coal & Energy Price Report, an industry newsletter. Alpha Natural Resources Inc. (ANR) fell 4.2 percent to $14.87. Peabody Energy Corp. (BTU) declined 3.4 percent to $28.83.

Concern about the economy weighed on companies whose earnings are most-dependent on growth. Alcoa retreated 2.3 percent to $9.83. Caterpillar lost 3.5 percent to $104.26.

Walt Disney Co. (DIS) dropped 1.5 percent to $43.51. Rupert Murdoch’s News Corp. is taking steps to start a national U.S. sports network on cable television aimed at challenging Disney’s ESPN, according to people with knowledge of the situation.

Defective Packs

A123 Systems Inc. (AONE) plunged 13 percent to $1.22, the lowest price since it went public in 2009. The battery maker may be unable to raise capital and could lose contracts as a result of its recall of defective packs sent to customers, a Deutsche Bank AG analyst said.

Arena Pharmaceuticals Inc. (ARNA) fell 10 percent to $2.92 in its biggest drop since August. The biotechnology company was cut to neutral from overweight at Piper Jaffray Cos., which cited the share price. The stock had gained 85 percent from March 16 through yesterday.

The KBW Bank Index rallied 1.1 percent as 22 of its 24 stocks gained. Bank of America increased 1.6 percent to $9.75 after the lender slumped 3.3 percent yesterday..

Medco Health Solutions Inc. (MHS) added 3.2 percent to $71.20 after saying it expects its $29.1 billion takeover by Express Scripts Inc. (ESRX) to close as soon as next week. Express Scripts will probably get a Federal Trade Commission ruling on the deal as early as March 30, said two people familiar with the case who declined to be identified because the review is private. Express Scripts increased 1.3 percent to $53.89.

Takeover Offer

Amylin Pharmaceuticals Inc. (AMLN) surged 54 percent, the most in the Russell 1000 Index (RIY), to $23.77. The maker of the diabetes drug Bydureon rejected a $3.5 billion unsolicited takeover bid from Bristol-Myers Squibb Co. earlier this year, two people with knowledge of the matter said.

Pentair Inc. (PNR) rallied 15 percent to $46.32. The maker of Everpure water filters agreed to combine with the Tyco (TYC) International Ltd. division that makes valves and other flow- control instruments in a deal that values Tyco Flow at $4.53 billion. Tyco increased 4.3 percent to $55.81.

U.S. companies are better positioned for “cashing out” shareholders than at any other time in more than half a century, according to Myles Zyblock, chief institutional strategist at RBC Capital Markets.

Corporate cash increased by more than $200 billion in each of the past three years, including a $340.9 billion surge last year. Companies are poised to sustain the growth rate in their “cash mountain,” Zyblock wrote two days ago in a report.

Low Rates

Many companies are raising more money through bond sales because interest rates are low, the Toronto-based strategist wrote. The yield on a Moody’s Investors Service index of Baa rated corporate debt has averaged 5.2 percent this quarter, about 0.9 percentage point less than a year earlier.

Increased cash and relatively cheap debt financing will lead to growth in dividends as well as stock repurchases, the report said.

Health-care and technology companies have the most room to lift payouts and buy back more shares, Zyblock wrote. The groups have the highest percentage of cash to assets for non-financial companies, based on figures for the S&P 500 that he cited. Energy producers are another possibility, he added, because they have relatively little debt.

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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Unemployment May Drop to 6% by Mid-2013, N.Y. Fed Study Finds

By Carlos Torres - Mar 28, 2012 10:14 PM GMT+0700

The jobless rate in the U.S. could drop to as low as 6 percent by the first half of 2013, a bigger decrease than most economists currently project, according to research from the Federal Reserve Bank of New York.

The relationship between the number of Americans newly unemployed and those recently finding work indicates joblessness will continue to decline, according to economist Aysegul Sahin. The jobless rate held at a three-year low of 8.3 percent last month after falling by 0.8 percentage point in the year ended January, according to figures from the Labor Department.

“Simulations based on historical patterns suggest that the fall in the unemployment rate could be quicker than many forecasters predict,” Sahin wrote in a note on the bank’s Liberty Street Economics blog co-written by research associate Christina Patterson.

The analysis looked at flows into and out of unemployment since the end of World War II, likening it to water in a bathtub. The unemployment rate, or level of water in the tub, would be determined by the difference in the volume of water pouring in and draining out.

The number of those exiting unemployment, which include people finding a new job as well as those leaving the labor force, takes precedence in determining changes in joblessness at this stage of a recovery, the economists found.

The flow into and out of unemployment over the three prior recoveries indicates the jobless rate will decrease to 6 percent by at least the end of 2014, the economists said. Should the pattern be similar to that following the rebound from the 1990- 91 recession, the rate could get close to there by early next year.

Median Forecast

Unemployment will average 7.6 percent in the last three months of 2013, according to the median forecast of economists surveyed by Blue Chip Economic indicators this month. The average for the 10 lowest estimates was 7 percent.

Fed policy makers predict an unemployment rate of 7.4 percent to 8.1 percent in the fourth quarter of 2013, based on their so-called central tendency forecasts, which exclude the three highest and three lowest of 17 projections.

The study doesn’t make a projection for the unemployment rate in the fourth quarter of this year. The Obama administration’s handling of the economy is a central issue in the Nov. 6 presidential election.

The post on the Fed’s blog said researchers will discuss the importance of flows into and out of the labor force in determining the level of unemployment in a report on March 30.

To contact the reporter on this story: Carlos Torres in Washington at Ctorrres2@bloomberg.net

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

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Bernanke Says Fed Crisis Response Prevented Global Meltdown

By Joshua Zumbrun - Mar 28, 2012 1:54 AM GMT+0700

Federal Reserve Chairman Ben S. Bernanke said the central bank’s aggressive response to the 2007-2009 financial crisis and recession helped prevent a worldwide catastrophe.

“We did stop the meltdown,” Bernanke said today in the third of four lectures to undergraduates at George Washington University. “We avoided what would have been, I think, a collapse of the global financial system.”

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Ben S. Bernanke, chairman of the U.S. Federal Reserve. Photographer: Andrew Harrer/Bloomberg

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March 27 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke speaks about the central bank's response to the global financial crisis. Bernanke speaks in Washington in the third of four lectures to undergraduate students at George Washington University. (Source: Bloomberg)

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March 27 (Bloomberg) -- Axel Merk, president at Merk Investments LLC, talks about Federal Reserve monetary policy and the outlook for global currencies. Merk speaks with Tom Keene on Bloomberg Television’s “Surveillance Midday." (Source: Bloomberg)

The lectures are the latest effort by the Fed to explain its actions to the public as it comes under scrutiny by critics in Congress and on the campaign trail. Representative Ron Paul, a Texas Republican who is seeking his party’s presidential nomination, today criticized the Fed for its aid to the European Central Bank.

Today’s talk in Washington focused on the Fed’s response to the crisis. In the previous one, Bernanke examined its roots, including the boom and bust in home prices and the Fed’s failure to recognize vulnerabilities in the financial system.

Following the bankruptcy of Lehman Brothers Holdings Inc. in 2008, the central bank flooded the financial system with liquidity, expanding its balance sheet to $2.3 trillion by December of that year from $900 billion in September.

Recession Deepens

Even as the crisis ebbed, the recession deepened, with gross domestic product shrinking at an 8.9 percent annual rate in the fourth quarter of 2008, the worst quarter in 50 years. The unemployment rate rose to 10 percent in October 2009, the highest since June 1983.

The threat of a second Great Depression “was very real,” Bernanke told the class.

The financial system came under pressure in the summer of 2007 as the market for subprime mortgage bonds began to collapse, and by August the Fed responded by cutting the interest rate it charges on loans to banks borrowing at its discount window.

The Fed lowered its benchmark interest rate in a series of cuts, to 3 percent in January 2008 from 5.25 percent in August 2007. Yet in March 2008, the crisis intensified with the collapse of Bear Stearns Cos., the fifth-biggest U.S. securities firm, prompting the Fed to intervene and help JPMorgan Chase & Co. acquire the bank.

Lehman Brothers Fails

That didn’t end the crisis. In September 2008, Lehman Brothers filed the largest bankruptcy in U.S. history after the central bank and U.S. Treasury declined to intervene. One day later, the Fed made an $85 billion loan to American International Group Inc. (AIG) to avert the collapse of the New York- based insurance company.

Bernanke defended the central bank’s bailout of AIG. Its failure “would have had a massive effect on other financial firms and markets,” Bernanke said.

“The rescue of AIG prevented even greater shocks to the global financial system,” Bernanke said in slides. “Over time, AIG stabilized. It has repaid the Fed with interest and has made progress in reducing Treasury’s stake in the company.”

Bernanke has used his lecture series to defend the central bank’s track record during the housing crisis and to criticize the gold standard.

During the last three years, Bernanke has given television interviews and appeared at town hall-style meetings. He toured a Philadelphia shipyard and a Tasty Baking Co. cupcake factory in 2010 and last year traveled to El Paso, Texas, to speak to soldiers at Fort Bliss. He also began holding press conferences in 2011, after each of the Fed’s four two-day policy meetings.

Paul Hearing

Paul, who chairs a subcommittee of the House Financial Services Committee, today held a hearing on the Fed’s aid to the euro region. He said that the dollar swaps the Fed is making available to the ECB, as well as other central banks, are being used to “prop up a system that’s not viable.”

William C. Dudley, president of the Federal Reserve Bank of New York, defended the swaps, saying they have succeeded in ensuring the flow of credit to U.S. citizens and firms that borrow from European banks.

Bernanke’s lectures to 30 students are streamed live on the central-bank’s website and on ustream.tv. Afterwards, it will be posted on the Fed’s YouTube page.

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

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

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Providence Bankruptcy Seen as Unavoidable on Budget Gap

By Brian Chappatta and Romy Varghese - Mar 28, 2012 5:35 AM GMT+0700

Providence (1055MF), Rhode Island’s capital and biggest city, probably will seek bankruptcy court protection to deal with a budget deficit, Robert Flanders, the state- appointed receiver for nearby Central Falls, said today.

“I don’t see how they can get out of it without going there,” said Flanders, a former state Supreme Court justice and a partner at Hinckley, Allen & Snyder LLP. He put Central Falls into bankruptcy in August and has used the city’s legal status to tear up contracts with city workers and cut pension benefits.

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Robert Flanders Jr., the Rhode Island state appointed receiver running the financially troubled city of Central Falls, during a meeting. Photographer: Stephan Savoia/AP Photo

Providence Mayor Angel Taveras has put pressure on Brown University and other nonprofit organizations to help close a budget gap of at least $20 million, while Governor Lincoln Chafee is pressing lawmakers for action on measures to help communities curb pension costs. Unsustainable retiree expenses helped push Central Falls (1058MF) into insolvency. Moody’s Investors Service cut Providence debt a step to Baa1, third-lowest investment grade, yesterday citing its “strained” finances.

“Bankruptcy is not the preferred option for restoring Providence’s fiscal health; it is the last option, and I will do everything in my power to prevent it from happening,” Taveras said in a statement in response to a request for comment on Flanders’ remark. “I respectfully disagree with Judge Flanders that bankruptcy is unavoidable.”

More Common

Chapter 9 bankruptcy may become more common in the near future, Flanders said in an interview before a Bond Buyer conference on distressed cities in Philadelphia. Once municipal officials become aware of how useful a tool court protection can be, it will be hard to resist, he said, suggesting as many as 20 cities a year may take the option, if it’s open to them.

Entering bankruptcy remains a rare move by municipalities. Since 1937, 635 municipalities have sought Chapter 9 protection, according to James Spiotto, a lawyer with Chapman & Cutler LLP in Chicago. Some states prohibit communities from doing so.

Legal analysts consider bankruptcy as something to be avoided at all costs. Governments already have the tools they need to deal with debt and budget issues, Richard L. Sigal, who teaches at the University of Connecticut Law School and is a partner at Hawkins Delafield & Wood LLP, said during a panel discussion at the conference.

‘Lawyer’s Heaven’

Bankruptcy is “a lawyer’s heaven and doesn’t seem to be worthwhile,” said Sigal, who helped resolve New York City’s fiscal crisis in 1975. Even Orange County, California, the biggest municipal bankruptcy before Jefferson County, Alabama, entered Chapter 9 last year, could have gotten its finances in order by borrowing, he said.

“Bankruptcy is never a desirable option,” Chafee said today in a statement. “It has broad implications and consequences in terms of bond assessments, property values, and negative national perception.”

“That is why the state of Rhode Island is taking every possible step to help our municipalities -- including our capital city of Providence -- avoid bankruptcy,” Chafee said.

Many municipalities are at risk of defaulting on their debts, said William Rhodes, a partner at Ballard Spahr LLP who moderated a conference panel discussion. Some community leaders must choose between paying bondholders and maintaining vital services, such as police and fire protection, he said.

Making Payroll

Flanders cited the need to keep paying the Central Falls workforce as a reason to seek bankruptcy. Once under the court’s wing, he cut the city’s workforce by 32 percent and trimmed pensions by as much as half, while continuing to pay debts.

“The decision to file Chapter 9 is not the cause of the municipality’s dire financial condition -- it’s the remedy,” Flanders said. “Do you want to die an inevitable financial death by being unable to meet your obligations and defaulting, or do you want to get right financially by coming up with a plan of reorganization?”

In Providence, Taveras refuted Flanders’ view of the situation for his city.

“Providence is not Central Falls,” Taveras said. “We’ve already accomplished much in our work to put Providence back on firm financial ground.”

Naomi Richman, a Moody’s managing partner in public finance said she is monitoring how municipal-bond issuers view bankruptcy. In the 1980s, the stigma attached to seeking court protection declined for companies and has more recently started to fade for individuals who take that step, she said during a panel discussion.

Perception Issue

Whether the perception of municipal bankruptcy will also change is “something we’re watching and cautious about because you can see more if there is a perception that the outcome is favorable,” she said.

“Central Falls’ bankruptcy came with painful experiences for residents, employees, and retirees -- lessons that should discourage anyone from thinking bankruptcy is a quick, easy fix to complex financial problems,” Chafee said. “Bankruptcy should be pursued only when there are no other options, and I will continue to push for passage of my legislative package so that other municipalities do not go the way of Central Falls.”

To contact the reporters on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net; Romy Varghese in Philadelphia at rvarghese8@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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Pro-Romney PAC Killing Machine With Attack Ads

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

Eric Thayer/The New York Times/Redux

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

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

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

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

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

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

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

3 Majority-Vote Wins

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

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

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

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

‘Troubling’ Ads

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

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

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

Role of Super-PACs

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

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

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

Restore Backers

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

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

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

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

Convicted Felons Ad

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

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

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

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

Right-to-Work

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

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

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

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

Ohio Results

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

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

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

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

Gingrich Pelosi Ad

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

‘Better Times Ahead’

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

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

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

Case-Shiller Index

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

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

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

Supply of Homes

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

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

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

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

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

Negative Equity

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

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

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

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

Lagging Indicator

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

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

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

‘Demand Picks Up’

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

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

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

Competition Increases

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

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

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

‘Hottest Housing Market’

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

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

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

Shopper Sentiment Improves

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

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

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

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

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

‘Pricing a Little Low’

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

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

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

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

‘Best Spring Season’

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

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

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

Foreclosures to Come

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

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

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

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

Time to Move

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

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

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

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

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

Seller’s Patience

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

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

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

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

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

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

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

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