S&P 500 Caps Biggest Three-Day Advance Since February

By Rita Nazareth - Apr 27, 2012 4:00 AM GMT+0700

U.S. stocks gained, giving the Standard & Poor’s 500 Index its biggest three-day advance since February, after better-than-estimated housing data overshadowed disappointing earnings at United Parcel Service Inc.

A measure of homebuilders in S&P indexes rose 4.8 percent as PulteGroup Inc. rallied 10 percent amid a narrower loss. Chevron Corp. (CVX) advanced 2.3 percent as the energy company lifted its dividend. Amazon.com Inc. (AMZN), the largest Internet retailer, surged 12 percent at 4:57 p.m. New York time as revenue beat estimates. UPS (UPS), the biggest package-delivery company that is considered a proxy for the economy, retreated 1.8 percent.

The S&P 500 increased 0.7 percent to 1,399.98 at 4 p.m. New York time. It has advanced 2.4 percent in three days. The Dow Jones Industrial Average climbed 113.90 points, or 0.9 percent, to 13,204.62 today. About 6.7 billion shares changed hands on U.S. exchanges, almost in line with the three-month average.

“Things are better,” said Michelle Gibley, director of international research at San Francisco-based Charles Schwab Corp. Her firm has $1.83 trillion in client assets. “We did get several months of better-than-expected economic data. The earnings season has been pretty good.”

Equities rose as data showed that signed contracts to buy U.S. homes increased more than forecast in March. The Federal Reserve yesterday upgraded its estimates for growth and unemployment this year. Policy makers are holding off on additional steps to boost the economy amid signs that the more than two-year expansion is gaining strength. Yet earlier today, data signaled a cooling labor market as more Americans than forecast filed applications for unemployment benefits.

Earnings Season

Investors also watched earnings data as profits have topped forecasts at 75 percent of S&P 500 companies reporting since April 10, according to data compiled by Bloomberg. Per-share profits are forecast to have grown 3.3 percent in the first- quarter, Bloomberg data show. That’s up from the 0.8 percent growth projection before the earnings season started.

“The most recent concern of the bears was that earnings this quarter were going to disappoint and take the market lower,” Birinyi Associates Inc., the Westport, Connecticut- based firm founded by Laszlo Birinyi, said in a note to clients. “That this was a concern last quarter, as well, was conveniently forgotten.”

Today’s gain extended this year’s advance in the S&P 500 to 11 percent and the benchmark gauge for American equities trimmed its monthly decline to 0.6 percent. If the S&P 500 erases its April drop, it will cap the fifth straight month of gains, the longest winning streak since 2009. Financials and energy shares had the biggest losses in April, while telephone companies rose.

Homebuilders Rally

All 11 stocks in a measure of homebuilders in S&P indexes gained. PulteGroup (PHM) jumped 10 percent to $9.58. The largest U.S. homebuilder by revenue, which has reported a loss in six of the last seven quarters, has been focused on cutting costs after the acquisition of Centex Corp. in August 2009.

Chevron rose 2.3 percent to $106.22. The second-largest U.S. energy company boosted its quarterly dividend to 90 cents a share from 81 cents.

More S&P 500 companies are paying dividends than at any time since 2000 after Apple Inc., Nasdaq OMX Group Inc. and six other corporations initiated payouts this year. The number has risen to 401, according to Howard Silverblatt, S&P’s senior index analyst. His estimate for total payouts this year, which Silverblatt said is under review, is a record $279 billion.

Companies are increasing shareholder returns in the form of dividends and buybacks after the 2008 financial crisis led them to hoard cash to a record $1 trillion by the end of 2011. The rise in payouts coincides with a 13th quarter of better-than- estimated earnings.

Record High

“Given underlying fundamentals, low payouts and cash reserves, 2012 should set a record high for cash dividend payments,” Silverblatt wrote in an e-mail today.

Amazon surged 12 percent to $220 after the close of regular trading. Chief Executive Officer Jeff Bezos is looking to add customers by pouring money into new versions of the Kindle and warehouses that are equipped to send out products faster. The Kindle Fire tablet is the best-selling item on Amazon’s site, the company said.

Wal-Mart Stores Inc. (WMT) rallied 2.8 percent, the most in the Dow, to $58.95. The world’s largest retailer rebounded after an 8.2 percent slump in three days, which was triggered by allegations that executives in Mexico paid more than $24 million in bribes to speed expansion.

Citrix Systems Inc. (CTXS) surged 12 percent to $86.76. The software maker forecast earnings in 2012 will be at least $2.75 a share, topping the average analyst estimate of $2.72.

UPS Slumps

The Dow Jones Transportation Average (TRAN) slid 1.1 percent. UPS dropped 1.8 percent to $78.25. Package volume gains at UPS, an economic bellwether because it carries goods from mobile devices to pharmaceuticals, have slowed in recent quarters as Asian economic growth cools. Average revenue per piece stagnated as the company struggles to raise rates.

FedEx Corp. (FDX), which operates the world’s biggest cargo airline, last month projected a profit range for this quarter whose low end trailed analysts’ estimates as the company pared its global growth forecast.

Starbucks Corp. (SBUX) slumped 4.5 percent to $57.90 after the market close. The world’s largest coffee-shop chain reported second-quarter same-store sales that trailed analysts’ estimates amid weaker demand in Europe.

Exxon Mobil Corp. (XOM) declined 0.9 percent to $86.07. The world’s largest energy company by market value said net income fell 11 percent as its biggest first-quarter production decline since 2008 wiped out most of the benefit of record oil prices.

Dow Chemical

Dow Chemical Co. slumped 3.4 percent to $34.85 after rising costs for oil-based raw materials in Europe (DOW) and Asia cut earnings in plastics.

Akamai Technologies Inc. (AKAM) plunged 14 percent, the most in the S&P 500, to $33.15 after forecasting profit that missed estimates. The company that helps businesses deliver data at faster speeds over the Internet said Chief Executive Officer Paul Sagan will leave by the end of 2013. Akamai’s sales more than quadrupled during his leadership.

Aetna Inc. (AET) plunged 8.2 percent to $45.31. The third-biggest health insurer by sales reported first-quarter profit that missed analyst estimates.

The S&P 500 may lose as much as 10 percent from current levels given the market’s tendency to give back some gains after a “strong” rally, according to Bank of America Corp.’s Mary Ann Bartels.

‘In a Correction’

“We’re in a correction,” Bartels, the New York-based head of technical and market analysis at Bank of America, said in a phone interview yesterday. “We’re starting to get sell signals on our intermediate indicators.”

Industries such as consumer staples, telecommunications and utilities have fallen too much as investors favor more “defensive” industries, Bartels said. Stocks driven by the economy, including materials, energy and industrial shares, have fallen out of favor, pointing to a potential “deeper pullback” for the U.S. equity market, she said.

“The market is still staying away from commodity-sensitive cyclicals,” Bartels said. “As long as that continues, that means the market is more likely to go down.”

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

Read more...

Cooling Job Market Takes Toll on U.S. Confidence: Economy

By Timothy R. Homan and Shobhana Chandra - Apr 27, 2012 3:29 AM GMT+0700

More Americans than forecast filed applications for unemployment benefits last week and consumer confidence declined by the most in a year, signaling that a cooling labor market may restrain household spending.

Jobless claims fell to 388,000 from a revised 389,000 the prior week that was the highest since early January, Labor Department figures showed today in Washington. The Bloomberg Consumer Comfort Index declined to minus 35.8 from minus 31.4 the previous week.

Enlarge image

Job seekers in New York on April 12, 2012. Photographer: Michael Nagle/Bloomberg

Play Video

April 26 (Bloomberg) -- Mort Zuckerman, chairman and chief executive officer of Boston Properties Inc., talks about the U.S. labor market and the outlook for real estate. Zuckerman, speaking with Betty Liu on Bloomberg Television's "In the Loop," also discusses News Corp. Chairman Rupert Murdoch’s testimony at a U.K. media-ethics inquiry. (Source: Bloomberg)

Play Video

April 26 (Bloomberg) -- U.S. jobless claims fell to 388,000 in the week ended April 21 from a revised 389,000 the prior period that was higher than initially estimated, Labor Department figures showed today in Washington. The median forecast of 48 economists surveyed by Bloomberg News called for a drop to 375,000. Michael McKee and Betty Liu report on Bloomberg Television's "In the Loop." (Source: Bloomberg)

Play Video

April 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke offers his views on the outlook for central bank monetary policy and the U.S. economy. Fed policy makers say they expect growth to accelerate, while refraining from new actions to lower borrowing costs. Bernanke says the central bank stands ready to add to its stimulus if necessary. (Excerpts. Source: Bloomberg)

Enlarge image

People wait in line to attend a job fair in New York, on April 12, 2012. Photographer: Justin Lane/EPA/Landov

“There has been some slowdown in the labor market,” said Yelena Shulyatyeva, a U.S. economist at BNP Paribas in New York, who correctly projected the level of jobless claims. “That makes consumers feel less confident, and makes them more cautious about their spending. We could see some weakness in April payrolls.”

Fewer firings are needed to lay the groundwork for more hiring and support consumer demand, which makes up 70 percent of the economy. Another report today showed that signed contracts to buy homes rose more than forecast in March, more evidence of a stabilizing housing market that may boost confidence.

Stocks climbed for a third day after the housing data and as technology companies rallied on better-than-estimated earnings. The Standard & Poor’s 500 Index (SPX) rose 0.7 percent to 1,399.98 at the close of trading in in New York. The yield on the benchmark 10-year Treasury note fell to 1.94 percent at 4:21 p.m. from 1.98 percent late yesterday.

Confidence is also slipping in the euro region, a report today showed.

Europe Index

An index of executive and consumer sentiment in the 17- nation euro area fell to 92.8 from a revised 94.5 in March, the European Commission in Brussels said today. Economists had forecast a drop to 94.2 from a previously reported 94.4, the median of 29 estimates in a Bloomberg News survey showed.

U.S. jobless claims were forecast to decline to 375,000, according to the median of 48 estimates in a Bloomberg News survey of economists. The Labor Department revised the previous week’s figure from 386,000. Claims in the week ended April 14 were the highest since Jan. 7.

Initial jobless claims reflect weekly firings and tend to fall as job growth -- measured by the monthly non-farm payrolls report -- accelerates.

Among companies cutting positions is AMR Corp. (AAMRQ)’s American Airlines, which said last week it will eliminate 1,200 airport agent, baggage and cargo jobs. The cuts come as part of a bankruptcy restructuring plan to trim annual labor spending by $1.25 billion.

Stable Headcount

CSX Corp. (CSX), the biggest U.S. eastern railroad, is hiring people mainly to keep headcount stable.

“Last year, you may recall we hired 4,000 people --roughly 3,000 was attrition, the other 1,000 was evenly split between train and engine crews to move the products” and others to install safety systems to comply with regulations, Michael Ward, chief executive officer at CSX, said in an April 18 interview. “So those people were hired. This year the 3,000 will be largely attrition.”

A report from the Labor Department on April 6 showed hiring cooled in March. Employers added 120,000 jobs, the fewest in five months. The jobless rate fell to 8.2 percent from 8.3 percent the prior month.

The figures help explain why Federal Reserve policy makers yesterday stuck to a plan to hold borrowing costs close to zero through 2014. Central bankers said that while labor-market conditions have improved, unemployment “remains elevated.”

Buying Climate

Slower job growth may weigh on consumer moods. The Bloomberg comfort data showed the buying climate index decreased to minus 41.5 last week from minus 36.8 the prior week. A measure of Americans’ views of the state of the economy dropped to minus 66.4 from minus 64.3, and a gauge of personal finances slid to 0.4 from 6.8 the prior week.

Men and young Americans, those from 18 to 34 years old, showed the biggest declines in sentiment during the latest week. The gauge for men declined after reaching a four-year high the prior week. Sentiment among the young fell last week to the lowest level since January.

Among independents, a key swing group during this year’s presidential election, the comfort gauge fell to a two-month low of minus 37.7 from minus 29 the prior week. The measure also worsened for Democrats while holding at the prior week’s level for Republicans.

Jobs and the economy are a central theme in political sparring between President Barack Obama and Republican challenger Mitt Romney.

Job Recovery

The former Massachusetts governor and co-founder of the private-equity firm Bain Capital LLC this week vowed to use his business experience to “lead us out of this stagnant Obama economy and into a job-creating recovery.”

Obama’s senior strategist, David Axelrod, said Romney’s “business career was not about job creation.” Rather, “It was about wealth creation for himself and his partners.”

Consumers may get a boost from today’s housing data, which added to evidence this week that the industry at the heart of the financial crisis is bottoming.

New homes sold at an annual pace of 328,000 in March, up 7.5 percent from a year earlier, Commerce Department data showed. Values in 20 U.S. cities fell 3.5 percent in February, the smallest 12-month drop since February 2011, according to the S&P/Case-Shiller index.

Signed contracts to buy previously owned properties jumped 4.1 percent in March to 101.4, the highest level since April 2010, today’s data from the National Association of Realtors showed.

Leading Indicator

Pending home sales are considered a leading indicator of progress in real estate because they track contract signings. Purchases of existing homes are tabulated when a contract closes, typically a month or two later, and made up about 93 percent of the housing market last year.

Compared with a year earlier, March pending home sales climbed 10.8 percent after a 14.9 percent surge in February. Two of four regions saw an increase in pending home sales from the prior month, led by an 8.7 percent jump in the West, while the South posted a 5.9 percent gain.

To contact the reporters on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net Shobhana Chandra in Washington at schandra1@bloomberg.net

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

Read more...

Apple Profit Surge Fueled by China Teachers to Furniture Makers

By Bloomberg News - Apr 26, 2012 8:50 AM GMT+0700
Enlarge image

Apple sold 35.1 million iPhones in the fiscal second quarter, an 88 percent increase from a year earlier. Photographer: Jerome Favre/Bloomberg

Play Video

April 25 (Bloomberg) -- Shaw Wu, an analyst at Sterne Agee & Leach Inc., talks about Apple Inc.'s financial results and business outlook. Apple profit almost doubled last quarter, reflecting robust demand for the iPhone in China and purchases globally of a new version of the iPad, allaying the growth concerns that sliced shares 12 percent in two weeks. Wu speaks from San Francisco with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Play Video

April 25 (Bloomberg) -- Kirk Yang, an analyst with Barclays Plc, talks about Apple Inc.'s financial results and the company's Asian suppliers. Apple profit almost doubled last quarter, reflecting robust demand for the iPhone in China and purchases of a new version of the iPad, allaying the growth concerns that sliced shares 12 percent in two weeks. Yang speaks in Hong Kong with Rishaad Salamat on Bloomberg Television's "On the Move Asia." (Source: Bloomberg)

Enlarge image

Apple Inc. employees cheer at the official opening of the company's new store in Shanghai, China. Apple’s growth probably won’t slow any time soon. Photographer: Qilai Shen/Bloomberg

Enlarge image

Tim Cook, chief executive officer of Apple Inc. Photographer: David Paul Morris/Bloomberg

Li Wenhua, a 35-year-old school teacher in Beijing, left work early last week to buy an iPhone -- even though she didn’t need it for work and wasn’t planning to use many of its features.

“A lot of people in my office use it and said I should get one, so I did,” Li said as she exited Apple (AAPL) Inc.’s Joy City Mall store. “I chose it just because it’s beautiful. I like the style.”

The must-have sentiment helps explain why China made up 20 percent of Apple’s sales and fueled a 94 percent profit surge last quarter. Hundreds of miles from Foxconn Technology Group plants where iPhones are built, shoppers in Beijing, Shanghai and other cities are flocking to the devices and making their country a centerpiece of the company’s growth strategy. Like Starbucks Corp. (SBUX) and Yum! Brands Inc., Apple is benefiting from rising wages that give Chinese citizens more disposable income.

“China has an enormous number of people moving into higher income groups,” Apple Chief Executive Officer Tim Cook said this week on a conference call with analysts. “There’s a tremendous opportunity for companies that understand China, and we’re doing everything that we can to understand it and serve the market as good as we can.”

Apple sold 35.1 million iPhones in the fiscal second quarter, an 88 percent increase from a year earlier, and higher than the average estimate of analysts surveyed by Bloomberg. That came after the January release of the most recent version of the iPhone in China and 21 other countries.

‘Zero to $13 Billion’

China accounted for $7.9 billion of Apple’s $39.2 billion in sales in the period that ended March 31. In the first six months of this fiscal year, Apple’s sales reached $12.4 billion in China, almost matching $13.3 billion, the total for all of last year. Before the iPhone’s debut there in 2009, the company had less than $1 billion in annual sales in China.

“I don’t know of any other company that has driven its sales from virtually zero to $13 billion in a few years,” said Donald Straszheim, a senior managing director who heads China research at ISI Group LLC in Los Angeles. “There’s a growing appetite for Apple products.”

Once considered a niche computer maker with a smaller international footprint than competitors such as Hewlett-Packard Co., Apple has used products including the iPhone and iPad to become one of the world’s biggest electronics makers. The Americas made up only 35 percent of sales last year, down from 48 percent in 2007. In the same period, sales in the Asia- Pacific region, which includes China, grew to 21 percent from 7 percent. Last quarter, international sales made up 64 percent of the total.

Offsetting U.S. Declines

Sales in China and other countries last quarter helped make up for a drop in iPhone sales in the U.S., where the new model went on sale in October. AT&T Inc. (T) and Verizon Wireless, the largest U.S. carriers, said iPhone sales fell last quarter compared with the previous three-month period.

In China, Apple sells its products from six company-run retail outlets and its online store, as well as a network of thousands of authorized resellers. Wireless carriers such as China Unicom (Hong Kong) Ltd. (762) and China Telecom Corp. also sell the iPhone. Lines of unauthorized sellers sell the company’s gadgets a short walk from its flagship stores in Beijing.

The appeal extends beyond the iPhone.

At the same store where teacher Li bought her device, Chu Fuzhan, a 42-year-old manager in a furniture-manufacturing business, said he was buying a new MacBook to go along the iPhone and two iPads he already owns.

‘Quality and Style’

“Everywhere around the world, people love the quality and style of Apple products, and now people want that in China too,” Chu said. “I wanted to be part of that.”

Mac sales rose more than 60 percent in China last quarter, compared with 7 percent globally, Cook said this week.

Apple’s growth probably won’t slow any time soon. According to a report published last year by Credit Suisse Group AG, China may generate almost $30 billion in sales for Apple by 2015.

“They are just scratching the surface with China, with the iPhone being the highlight,” said Chris Jones, an analyst at Canalys in Palo Alto, California. “There’s still a tremendous amount of upside as they get more carriers and more points of sale in the market.”

Apple will get another boost if the iPhone becomes available on China Mobile Ltd. (941), the world’s largest mobile-phone carrier, with more than 660 million users. China Mobile said last month that it and Apple are “working very hard together” on an agreement to have China Mobile carry the iPhone.

Siri in Mandarin

Even without a formal deal to provide an iPhone with a service contract, more than 15 million China Mobile customers are using an iPhone on the company’s 2G network.

To extend its appeal in China, Apple may need to add features tailored to Chinese users, said Nathan Washburn, an assistant professor at the Thunderbird School of Global Management, who studies business management in China.

Many Chinese iPhone owners use separate phones for texting because the Apple’s device isn’t well equipped for Chinese characters. Siri, the voice-recognition software in the new iPhone 4S, doesn’t work with Mandarin, though Apple says the tool is coming this year.

“They need to be sure the product is tailored to the needs of the Chinese market,” said Washburn. Failing that, many customers may regard it as a status symbol with limited appeal beyond that, he said.

Pelted With Eggs

Apple will also need to manage the expectations of the Chinese public eager to own its gadgets. Police were called in to break up a crowd that pelted an Apple store with eggs in January after growing frustrated that iPhone sales were delayed.

The company is hardly alone in attempting to benefit from the spending power of Chinese consumers. Samsung Electronics Co. and other phone makers using Google Inc.’s Android operating system are outselling Apple, said Shaun Rein, managing director of the China Market Research Group. The company ought to release its products sooner in the Chinese market, he said.

“Apple is a good story in China, but they are succeeding in spite of themselves,” Rein said. “They are winning because they have a great product, but they are underperforming when it comes to localizing and understanding the China market. They should be releasing products in China first.”

In a sign of China’s growing importance to Apple, Cook visited the country last month, meeting with government officials and touring factories where its devices are made.

‘Exclusive Few’

The visit came after the company had faced criticism about its labor practices in the country, including excessive overtime and unsafe working conditions.

Foxconn is putting in place changes, such as higher wages and reduced overtime of assembly plant workers. Investors and analysts will be watching to see whether the new policies will reduce Apple’s profit margins. Gene Munster, an analyst at Piper Jaffray Cos., said the impact could be minimal, with costs bringing margins down by 1 percentage point over time.

In another example of the challenges of operating in China, Apple also has been entangled in a legal fight there over the trademark for the iPad. Proview International Holdings Ltd. (334), a Hong Kong-listed company, has claimed ownership of the name in China, an assertion Apple says isn’t true.

If Apple faces obstacles in China, there was no sign of them at the bustling Apple store at the Joy City Mall.

Chu, the furniture worker, summed up his desire for Apple products by saying, “I wanted to have the experience of being one of the exclusive few.”

To contact Bloomberg News staff for this story: Adam Satariano in San Francisco at asatariano1@bloomberg.net; Edmond Lococo in Beijing at elococo@bloomberg.net

To contact the editors responsible for this story: Tom Giles at tgiles5@bloomberg.net; Michael Tighe at mtighe4@bloomberg.net

Read more...

Bernanke Takes On Krugman’s Criticism Ignoring Own Advice

By Jeff Kearns and Craig Torres - Apr 26, 2012 9:28 PM GMT+0700
Enlarge image

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

Play Video

April 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke offers his views on the outlook for central bank monetary policy and the U.S. economy. Fed policy makers say they expect growth to accelerate, while refraining from new actions to lower borrowing costs. Bernanke says the central bank stands ready to add to its stimulus if necessary. (Excerpts. Source: Bloomberg)

Play Video

April 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke speaks about the central bank's monetary policy and the U.S. economy. He speaks a news conference following a meeting of the Federal Open Market Committee in Washington. (Source: Bloomberg)

Play Video

April 26 (Bloomberg) -- Eric Pellicciaro, head of global rates investment at BlackRock Inc., talks about Federal Reserve monetary policy. He speaks with Sara Eisen on Bloomberg Television's "InsideTrack." (Source: Bloomberg)

Federal Reserve Chairman Ben S. Bernanke took on Nobel prize-winning economist Paul Krugman yesterday and called his advice to reduce unemployment by boosting inflation “reckless.”

“The question is, does it make sense to actively seek a higher inflation rate in order to achieve” a slightly faster reduction in the unemployment rate, Bernanke said yesterday to reporters after a Federal Open Market Committee meeting. “The view of the committee is that that would be very reckless.”

Krugman, whom Bernanke hired at Princeton University in 2000 when he was chairman of the economics department, said in a New York Times Magazine article that the Fed should raise its 2 percent inflation target to cut unemployment. Such a policy shift would align with Bernanke’s comment in 2000 that the Bank of Japan (8301) should pursue faster inflation to escape deflation, he said. Japan’s consumer prices fell 0.2 percent that year.

“While the Fed went to great lengths to rescue the financial system, it has done far less to rescue workers,” Krugman wrote. “Higher expected inflation would aid an economy” because it would persuade investors and businesses “that sitting on cash is a bad idea,” Krugman said.

Bernanke, during yesterday’s press conference in Washington, denied that the FOMC’s policy contradicts his prior academic work. The chairman spoke in response to a reporter’s question referring to Krugman’s story, titled “Earth to Ben Bernanke,” published April 24. The article cited “the divergence between what Professor Bernanke advocated and what Chairman Bernanke has actually done.”

‘Completely Consistent’

“So there’s this view circulating that the views I expressed about 15 years ago on the Bank of Japan are somehow inconsistent with our current policies,” Bernanke said. “That is absolutely incorrect. My views and our policies today are completely consistent with the views that I held at that time.”

Krugman didn’t respond to telephone and e-mail messages to his publicist, Sarah Fogarty.

Bernanke said the main difference between Japan’s economic slump 15 years ago and the U.S. today is that Japan was in deflation and the world’s largest economy isn’t, with an inflation rate that’s close to the Fed’s objective.

The U.S. today doesn’t face a deflation threat, in part because the Fed expanded its balance sheet to $2.88 trillion through $2.3 trillion in bond purchases, Bernanke said. The FOMC yesterday raised its estimate for the personal consumption expenditures price index for this year to 1.9 percent to 2 percent versus 1.4 percent to 1.8 percent in January.

Inflation, Deflation

Bernanke said pushing the increase in prices above the Fed’s 2 percent goal would risk undermining inflation expectations and erode the central bank’s credibility as a force for stable prices.

“There are academics who have suggested that the Fed actively seek very high inflation for a couple of years,” said Laurence Meyer, senior managing director at Macroeconomic Advisers LLC in St. Louis and a former Fed governor. “Central bankers appreciate that credibility helps stabilize inflation and makes the real sector more stable. The costs of getting it back when you lose it are enormous.”

If the Fed can’t convince investors that it can contain inflation, “we would in fact have less rather than more flexibility to use accommodative monetary policy to achieve our employment goals,” Bernanke said.

‘Doubtful Gains’

“We, the Federal Reserve, have spent 30 years building up credibility for low and stable inflation, which has proved extremely valuable in that we’ve been able to take strong accommodative actions in the last four, five years,” Bernanke told reporters. “To risk that asset for what I think would be quite tentative and perhaps doubtful gains on the real side would be, I think, an unwise thing to do.”

The Standard & Poor’s 500 Index rose 0.1 percent to 1,391.92 as of 10:16 a.m. in New York. Yields on benchmark 10- year Treasury notes slumped four basis points to 1.95 percent.

Krugman, who won the 2008 Nobel Prize in Economics, said in a blog posting on the New York Times’ opinion page yesterday that Bernanke’s response was “disappointing stuff.”

Krugman, 59, has previously proposed higher inflation to boost employment and criticized Bernanke in a Bloomberg News interview last year for not taking more aggressive action.

Bernanke, 58, joined Princeton, in New Jersey, as a professor in 1985, according to the central bank’s website. He was a member of the Fed’s Board of Governors from 2002 to 2005 and chairman of President George W. Bush’s Council of Economic Advisers from 2005 to 2006, when he took office as Fed Chairman.

“Krugman’s views are not closely related to the reality in which Bernanke is forced to operate,” said Anthony Karydakis, an adjunct professor of economics at New York University’s Leonard N. Stern School of Business and former chief U.S. economist at JPMorgan Asset Management. “One of them has the responsibility of steering the economy through treacherous waters and the other has the luxury of sitting in his office and sending articles to the New York Times,” Karydakis said.

To contact the reporters on this story: Jeff Kearns in Washington at jkearns3@bloomberg.net; Craig Torres in Washington at ctorres3@bloomberg.net

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

Read more...

Bernanke Says ‘Prepared to Do More’ as Policy Unchanged

By Caroline Salas Gage and Joshua Zumbrun - Apr 26, 2012 3:22 AM GMT+0700

Federal Reserve Chairman Ben S. Bernanke said the central bank stands ready to add to its stimulus if necessary even after leaving its policy unchanged today and upgrading its view of the economy for this year.

“We remain prepared to do more as needed to make sure that this recovery continues and that inflation stays close to target,” he said at a press conference today following a meeting of the Federal Open Market Committee in Washington. Additional bond-buying is still “very much on the table.”

Enlarge image

Ben S. Bernanke, chairman of the Federal Reserve, at a Federal Open Market Committee (FOMC) meeting in Washington on April 25, 2012. Photographer: Andrew Harrer/Bloomberg

Play Video

April 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke speaks about the central bank's monetary policy and the U.S. economy. He speaks a news conference following a meeting of the Federal Open Market Committee in Washington. (Source: Bloomberg)

Play Video

April 25 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the central bank remains prepared to take additional action if needed to boost the economy. Bernanke spoke at a news conference following a meeting of the Federal Open Market Committee. (This is an excerpt. Source: Bloomberg)

Play Video

April 25 (Bloomberg) -- Federal Reserve Chairman Ben Bernanke says the economy will expand moderately over coming quarters and then pick up "gradually." He spoke at a news conference following a meeting of the Federal Open Market Committee. (This is an excerpt. Source: Bloomberg)

Play Video

April 25 (Bloomberg) -- Bloomberg's Peter Cook reports that Federal Reserve policy makers said they expect growth to gradually accelerate, while refraining from new actions to lower borrowing costs. He speaks on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

Play Video

April 25 (Bloomberg) -- David Trone, an analyst at JMP Securities LLC, and Bloomberg's Michael McKee talk about Federal Reserve monetary policy and transparency, Chairman Ben S. Bernanke's remarks at a news conference today and the outlook for the U.S. economy. They speak with Trish Regan and Adam Johnson on Bloomberg Television's "Street Smart." (Source: Bloomberg)

Play Video

April 25 (Bloomberg) -- Michael Feroli, chief U.S. economist at JPMorgan Chase & Co., talks about Federal Reserve monetary policy and the outlook for the membership of the Federal Open Market Committee. Feroli speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)

Play Video

April 25 (Bloomberg) -- Federal Reserve policy makers said they expect growth to slowly accelerate, while refraining from new actions to lower borrowing costs. Mesirow Financial's Diane Swonk and Bloomberg's Joseph Brusuelas report on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

Play Video

April 25 (Bloomberg) -- John Silvia, chief economist at Wells Fargo Securities LLC, talks about the Federal Reserve's policy statement, Richmond Fed President Jeffrey Lacker's dissent and the outlook for the U.S. economy. Silvia, speaking with Tom Keene on Bloomberg Television's "Surveillance Midday," also discusses the U.S. labor and housing markets. (Source: Bloomberg)

Play Video

April 25 (Bloomberg) -- Dean Curnutt, chief executive officer of Macro Risk Advisors LLC, talks about the impact of Federal Reserve monetary policy and U.S. fiscal policy on risk management by investors and companies. Curnutt, speaking with Deirdre Bolton on Bloomberg Television's "Money Moves," also discusses gold and European sovereign-debt spreads as hedges against risk. (Source: Bloomberg)

Treasuries pared losses after Bernanke kept speculation alive that the Fed might embark on a third round of monetary easing after expanding its balance sheet to a record of almost $3 trillion. Central bankers today raised their forecasts for growth and the labor market this year while repeating that borrowing costs are likely to remain “exceptionally low” at least through late 2014.

The FOMC “expects economic growth to remain moderate over coming quarters and then to pick up gradually,” it said in a statement after a two-day meeting. The statement pointed to “some signs of improvement” in housing while saying the industry at the heart of the financial crisis “remains depressed.”

Policy makers are holding off on additional steps to boost the economy amid signs the more than two-year expansion is gaining strength. Still, the jobless rate isn’t declining fast enough to satisfy central bankers, who are also concerned about potential shocks from the European debt crisis.

Global Strains

“Strains in global financial markets continue to pose significant downside risks to the economic outlook,” according to today’s statement. The Fed has cited the risk in its previous five meetings. In March it said those strains had “eased.”

The yield on the benchmark 10-year note was little changed at 1.99 percent at 4:15 p.m. in New York, according to Bloomberg Bond Trader prices, after rising as high as 2.04 percent.

Stocks rose for a second day after Bernanke’s comments and as earnings beat estimates at companies from Apple Inc. to Boeing Co. The Standard & Poor’s 500 Index climbed 1.4 percent to 1,390.7.

Bernanke said that fiscal tightening may weigh on growth as lawmakers seek an agreement to narrow the budget deficit by year-end, before a deficit-reduction law requiring cutbacks takes effect.

‘Bar Is High’

“The bar is high, but it is still on the table given uncertainty with Europe and fiscal policy in the U.S.,” said Diane Swonk, chief economist at Mesirow Financial Inc. in Chicago, speaking about the prospects for new easing.

Policy makers today upgraded their forecasts for growth and unemployment this year. They now see the jobless rate at between 7.8 percent and 8 percent, compared with January estimates of 8.2 percent to 8.5 percent. The economy is forecast to expand at 2.4 percent to 2.9 percent, compared with 2.2 percent to 2.7 percent.

They also raised their projections for the inflation rate this year, as measured by the personal consumption expenditures index (SPX), to 1.9 percent to 2 percent, from 1.4 percent to 1.8 percent. The forecasts reflect the so-called central tendency, which excludes the three highest and three lowest projections of 17 policy makers.

Inflation “has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline,” the Fed said today. Gas prices will affect inflation “only temporarily,” it said.

Oil prices have declined since the Fed’s March meeting, and the national average cost of gasoline has fallen to $3.84 a gallon from a 2012 peak of $3.94 on April 4, according to the American Automobile Association.

Inflation Goal

Bernanke rejected suggestions that the Fed should allow inflation to rise above its 2 percent goal in order to stimulate growth, saying such a move would undercut the Fed’s credibility.

“To risk that asset for what I think would be quite tentative and perhaps doubtful gains on the real side would be unwise to do,” the Fed chairman said. It would be “very reckless” to “actively seek a higher inflation rate in order to achieve a slightly” faster reduction in unemployment.

The central bank said it would continue its swap of $400 billion of short-term debt with long-term debt to lengthen the average maturity of its holdings, a move dubbed Operation Twist. The Fed is scheduled to complete the program at the end of June. The Fed also didn’t alter its policy of reinvesting its portfolio of maturing housing debt into agency mortgage-backed securities.

Echoes Yellen

Bernanke echoed Vice Chairman Janet Yellen’s April 11 remarks that the end of Operation Twist won’t amount to a tightening of policy. The benefits of the plan stem from the total amount of new purchases, rather than the “flow” of such buying, he said.

“If that theory is correct, then at such a time that our purchases come to an end, there should be relatively minimal effects on interest rates,” Bernanke said.

Richmond Fed President Jeffrey Lacker dissented for the third meeting in a row. Lacker has said he believes the first increase in interest rates will likely be necessary in 2013.

Fed policy makers met amid renewed concern over Europe’s fiscal crisis. The benchmark Stoxx Europe 600 Index of European countries hit a three-month low on April 23 and has since rallied as companies, including Electrolux AB (ELUXB), posted earnings that beat estimates.

In the U.S., consumer spending is starting to power growth as business investment cools. A report today showed orders for durable goods fell in March by the most in three years, indicating manufacturing will contribute less to growth this year.

Retail Sales

Retail sales rose more than forecast in March as Americans snapped up everything from cars and furniture to clothes and electronics. The 0.8 percent gain was almost three times as large as projected and followed a 1 percent advance in February, Commerce Department figures showed April 16.

An April 27 government report may show that gross domestic product rose at a 2.5 percent annual rate in the first quarter, according to the median forecast in a Bloomberg News survey of economists, driven by the biggest increase in household demand in a year.

While Fed officials raised their projections for growth in 2012, they lowered their estimates for next year and 2014. The economy will expand by 2.7 percent to 3.1 percent in 2013 and 3.1 percent to 3.6 percent in 2014, they projected. In January, they predicted growth of 2.8 percent to 3.2 percent next year and 3.3 percent to 4 percent in 2014.

Fiscal Impact

Bernanke said that the lower forecasts may reflect the impact from fiscal tightening, and that Congress needs to reach an agreement to address shortfalls. Bush-era tax cuts are set to expire at the end of the year.

“If no action were to be taken by the fiscal authorities, the size of the fiscal cliff is such that there’s no chance that the Federal Reserve could or would have any ability whatsoever to offset that effect on the economy,” Bernanke said.

Corporate earnings and an improving economic outlook are powering stock-market gains. The S&P 500 is up more than 10 percent this year.

“Despite its struggle with the sustained period of relative high unemployment, we’re pleased to see some early signs of a slowly improving macroeconomic environment” in the U.S., Muhtar Kent, president and chief executive of Coca-Cola Co. (KO), the world’s largest soft-drink maker, said in an April 17 earnings call.

More than 82 percent of companies in the S&P 500 that reported quarterly results since April 10 topped the average analyst earnings estimate, according to data compiled by Bloomberg as of yesterday. Companies from AT&T Inc. to 3M Co. beat analysts’ earnings projections. International Business Machines Corp. boosted a stock buyback by $7 billion and increased its dividend yesterday.

To contact the reporters on this story: Caroline Salas Gage in New York at salas1@bloomberg.net; Joshua Zumbrun in Washington at jzumbrun@bloomberg.net;

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

Read more...

Iran Says It May Halt Nuclear Program Over Sanctions

By Stepan Kravchenko and Henry Meyer - Apr 26, 2012 2:32 AM GMT+0700

Iran is considering a Russian proposal to halt the expansion of its nuclear program in order to avert new sanctions, the country’s envoy in Moscow said.

“We need to study this proposal and to establish on what basis it has been made,” Ambassador Mahmoud-Reza Sajjadi said in an interview at the Iranian embassy in Moscow today. The Russian plan, announced by Deputy Foreign Minister Sergei Ryabkov last week, would let Iran avoid a European Union ban on its crude that is scheduled to come into force in July.

Enlarge image

Tugboats escort the BP Plc British Pride oil tanker into the harbor in Long Beach, California. Photographer: Jonathan Alcorn/Bloomberg

Iran will ensure it maintains its right to produce nuclear energy, Sajjadi said. The U.S. and European Union allege Iran is seeking to build a bomb, not just make fuel for electricity production and medical research, as the country maintains.

The EU is planning on July 1 to impose an embargo on crude from Iran, which accounts for about 4 percent of the world’s supply, as it works with the U.S. to ratchet up pressure on the Persian Gulf state. Oil prices retreated from a one-week high, dropping more than $1 today on the report.

In Washington, State Department spokeswoman Victoria Nuland dismissed Sajjadi’s remarks, saying the Iranian is “not a central player” in international talks over Iran’s nuclear program. “Frankly, what’s most important is what Iran says and does at the negotiating table,” Nuland said at briefing with journalists.

The U.S. and EU have imposed financial sanctions on Iran and are pressuring nations including China to buy less of its oil as they seek to curtail its nuclear activities.

Mutual Concessions

Ryabkov, who leads Prime Minister and President-elect Vladimir Putin’s delegation to the Iran talks, said the Russian proposal would be the first in a series of mutual concessions designed to end in an accord that would remove suspicions about Iranian intent regarding atomic weapons.

Iran might also be willing to ratify the so-called Additional Protocol, a step urged by the United Nations Security Council that includes more thorough inspections of Iranian facilities, as part of a wider settlement, Sajjadi said.

Under the Russian proposal, Iran would stop building centrifuges, machines used to enrich uranium, and mothball ones that haven’t been put into use yet.

“At that stage, as part of the step-by-step approach, the other side could announce that it will refrain from introducing new sanctions,” Ryabkov said April 17 after the latest round of talks in Istanbul between Iran and the five permanent Security Council members -- the U.S., U.K., China, Russia and France -- plus Germany. Those talks were the first Iran held with the so- called 5+1 group in 15 months. The next round, in Baghdad, is scheduled for May 23.

The EU will complicate efforts to resolve the feud if the 27-nation bloc goes ahead with the oil ban, Sajjadi said.

‘Not Serious’

“If they actually impose the embargo, it will mean that they’re not serious about resolving the nuclear issue,” the Iranian ambassador said. “How can they want to pursue nuclear talks on the one hand and introduce sanctions on the other? What meaning will these talks have then?”

The UN’s nuclear watchdog said in February that the number of centrifuges at Iran’s underground Natanz facility had grown 14 percent to 9,156 from 8,000 in November, of which 8,808 were operating. Iran began enriching uranium with more than 300 centrifuges at a different underground site, Fordo, the International Agency for Atomic Energy said in a Feb. 24 report.

The IAEA report said Iran had tripled monthly output of enriched uranium from November to 31 pounds (14 kilograms). The country may be able to produce bomb-grade uranium in a matter of months, Olli Heinonen, the IAEA’s former top inspector for Iran, said on April 12.

‘A Big Step’

“The proposed plan will keep the capacity to enrich uranium at the current level,” said Elena Sokova, executive director at the Center for Disarmament & Non-Proliferation in Vienna, by e-mail. “Thus it helps to avoid the expansion of enrichment but not to scale it back. In other words, no buildup of the program in exchange for no new sanctions.”

If Iran then ratified the Additional Protocol to the Nuclear Non-Proliferation Treaty it would be “a big step forward as it would allow for much better transparency of the Iranian nuclear program and for the IAEA to carry out rather intrusive inspections,” Sokova said.

The Iranian nuclear program is an “imaginary threat,” Sajjadi said, adding that he was astonished by comments made by Nikolai Makarov, head of the Russian military’s General Staff, warning about the risk of a nuclear-armed Iran in an interview with state broadcaster RT.

Won’t Benefit

Russia won’t benefit by cooperating with the U.S. and Europe, and the threatened EU oil embargo will damage the world economy by squeezing global supplies, the ambassador said.

Iran’s oil production, currently about 3.4 million barrels a day, may decline by as much as 950,000 barrels a day by the middle of this year as EU and U.S. embargoes take effect, the International Energy Agency said in its monthly Oil Market Report on April 12.

Crude oil for June delivery slipped 22 cents to $103.33 a barrel at 11:27 a.m. on the New York Mercantile Exchange. The contract earlier touched $104.49, the highest intraday level since April 18. Brent oil traded 31 cents lower at $117.83 in London after reaching $119.25.

Tensions over the Iranian program, including Israel and the U.S. leaving open the possibility of a military attack, helped drive Brent crude prices to about $125 a barrel last month, the highest level in more than 3 1/2 years. Prices fell more than 2 percent on the next trading day after the April 14 talks in Istanbul, which the U.S. and EU said made progress.

“There are two ways we can proceed after the Istanbul talks,” said Sajjadi. “Either the West understands that it’s pointless to use the language of force with Iran or their flexibility is a temporary phenomenon. I hope the first is true as we would like to see a resolution.”

To contact the reporters on this story: Stepan Kravchenko in Moscow at skravchenko@bloomberg.net Henry Meyer in Moscow at hmeyer4@bloomberg.net

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

Read more...

Arizona’s Immigration Crackdown Gets Support at Top Court

By Greg Stohr - Apr 26, 2012 2:12 AM GMT+0700

U.S. Supreme Court justices spanning the ideological divide signaled they were prepared to uphold the core of Arizona’s trailblazing crackdown on illegal immigrants in what would be a blow to President Barack Obama.

Both Republican and Democratic appointees, hearing arguments today in Washington in a case with ramifications for this year’s elections and for laws across the country, aimed skeptical questions at U.S. Solicitor General Donald Verrilli as he argued that the measure would lead to the harassment of U.S. citizens and legal residents.

Enlarge image

Arizona Gov. Jan Brewer with the media after arguments at the U.S. Supreme Court, on April 25, 2012 in Washington. Photographer: Mark Wilson/Getty Images

Play Video

April 24 (Bloomberg) -- Arizona Governor Jan Brewer, a Republican, Todd Landfried, executive director of Arizona Employers for Immigration Reform, Todd Sanders, president and chief executive officer of the Greater Phoenix Chamber of Commerce, and Lisa Urias, co-founder of the Real Arizona Coalition, talk with Bloomberg's Amanda J. Crawford about Arizona's 2010 immigration law. The U.S. Supreme Court tomorrow will hear arguments on whether the measure, known as Senate Bill 1070, goes too far by requiring police to check the status of those they suspect are in the U.S. illegally. (Source: Bloomberg)

“You can see it’s not selling very well,” Justice Sonia Sotomayor, the first Hispanic named to the high court, told Verrilli half way through his presentation.

Like the health-care case argued last month, the immigration dispute pits the Obama administration against Republican-controlled states over the federal-state balance of power. The court’s decision, likely to come in June, may affect laws enacted during the past two years in Alabama, South Carolina, Georgia, Utah and Indiana.

Both cases have placed the court in the middle of a campaign. Mitt Romney, who along with Obama is vying for Hispanic votes, has taken a tough stance on illegal immigration in his bid for the Republican presidential nomination even with a report this week that the wave of illegal immigrants from Mexico has ended as many return to their native country.

Activists on both sides demonstrated outside the court as the justices heard the case.

Defending the Borders

Inside, court members voiced skepticism about parts of the Arizona law, including penalties on illegal immigrants who seek jobs. Still, the justices made clear they see states as having a role to play in addressing the presence of what the government has estimated is 11.5 million unauthorized aliens in the U.S.

“What does sovereignty mean if it does not include the ability to defend your borders?” Justice Antonin Scalia said during the 80-minute session, which ran 20 minutes beyond its scheduled time.

The central legal question is whether the U.S. Immigration and Nationality Act, which says states may cooperate in enforcing federal law, pre-empts the Arizona law.

The administration sued to challenge four provisions in the 2010 Arizona law, known as S.B. 1070. Probably the measure’s most contentious part says police officers must check immigration status when they arrest or stop someone and have “reasonable suspicion” that the person is in the U.S. illegally. The disputed provisions haven’t taken effect.

Playing Down Impact

Early on, Paul Clement, representing Arizona, sought to minimize the provision’s impact. Answering questions from Sotomayor, Clement -- who argued against Verrilli in the health- care case as well -- said if federal officials said they didn’t want to take custody of an illegal immigrant, Arizona police officers would have to release the person unless they had a basis under state law for making an arrest.

That statement set the tone for much of the rest of the session, undercutting Verrilli’s contention that the law encroaches on the exclusive federal right to set immigration policy.

Chief Justice John Roberts repeatedly said federal officials would make the final call about whether a person should be deported or prosecuted for violating federal law.

“All it does is notify the federal government, ‘Here is someone who is here illegally,’” Roberts said. “The discretion to prosecute for federal immigration offenses rests entirely with the attorney general.”

Don’t Want to Know

Later, Roberts said, “It seems to me that the federal government just doesn’t want to know who is here illegally or not.”

Two Democratic appointees -- Sotomayor and Justice Stephen Breyer -- joined in that line of questioning. Breyer raised the possibility of upholding the provision with the understanding that it wouldn’t cause people to be detained “significantly longer” than they would have been previously.

“If that were the situation, and we said it had to be the situation, then what in the federal statute would that conflict with?” Breyer asked Verrilli.

The Obama administration says the measure would undermine its efforts to give highest priority to illegal aliens who threaten public safety and those who belong to gangs that smuggle other aliens, drugs and weapons.

“These decisions have to be made at the national level,” Verrilli argued.

‘Unusual Theory’

Clement said many Arizona police officers already are routinely checking immigration status when they stop a person or make an arrest. The new law would simply extend those “ad hoc” checks into a statewide policy, he said.

“The government’s rather unusual theory that something that’s OK when done ad hoc becomes pre-empted when it’s systematic, I think that theory largely refutes itself,” Clement argued.

One issue not directly before the justices is the contention that the law will lead to racial profiling by police officers. That claim is part of a separate lawsuit being waged by civil rights advocates against the Arizona measure.

‘Probable Cause’

In addition to the status-check provision, Arizona’s law would authorize officers to arrest anyone they have “probable cause” to believe is eligible to be deported.

The law also would bar aliens without proper papers from seeking or performing work. It would be a state criminal offense for a foreigner to be in Arizona without correct documentation, subjecting violators to as much as 30 days in prison.

Roberts suggested he was skeptical about the employment provision. Federal law punishes employers that hire illegal aliens rather than focusing on workers seeking jobs.

The Arizona employment provision “does seem to expand beyond the federal government’s determination about the types of sanctions that should govern the employment relationship,” he said.

Verrilli was making his first appearance before the justices since he argued the health-care case in March, squaring off again against Clement, the former solicitor general who represented 26 states challenging the health-care law.

Justice Elena Kagan didn’t take part today’s case. She played a role in the litigation as Obama’s top Supreme Court lawyer before her 2010 appointment to the court.

4-4 Split?

Her disqualification creates the possibility that the court might divide 4-4 on some aspects of the law. That would leave intact a lower court ruling blocking those provisions, without setting a nationwide precedent.

Arizona says its 370-mile border with Mexico is the crossing point for half the nation’s illegal immigrants, giving it the right to tackle a problem the national government has failed to address.

Arizona had 360,000 unauthorized immigrants in 2011, according to the U.S. Homeland Security Department. During the last four decades, 12 million immigrants came to the U.S. from Mexico, most illegally, according to a report released April 23 by the Pew Hispanic Center, a nonpartisan research group in Washington. Net Mexican migration to the U.S. has now stopped and may have reversed, the report said.

The court last year upheld a separate Arizona law that threatens companies with loss of their corporate charters if they hire illegal immigrants. The 5-3 ruling said a federal law governing immigrant hiring leaves room for states to impose their own penalties for non-compliance.

The current case is Arizona v. United States, 11-182.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net

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

Read more...

Coke’s Stock Split Recalls Buffett’s Pickpocket Warning

By Andrew Frye and Duane D. Stanford - Apr 26, 2012 3:45 AM GMT+0700

Coca-Cola Co. (KO) Chairman Muhtar Kent, who pushed for the beverage maker’s 11th stock split with an appeal for greater market liquidity, may be philosophically at odds with his biggest investor, Warren Buffett.

Buffett, who controls a Coca-Cola stake of almost $15 billion, has resisted splitting Class A shares of his Berkshire Hathaway Inc. (BRK/A), which closed yesterday at $119,700. Splits, he said in a 1984 letter, may encourage short-term investment strategies that enrich brokers at the expense of the business.

Enlarge image

Cans of Coca-Cola Co. soda move along a conveyor belt at the company's Swire bottling plant in Salt Lake City, Utah. Photographer: George Frey/Bloomberg

Enlarge image

Muhtar Kent, chief executive officer of Coca-Cola Co., at the World Economic Forum (WEF) in Davos. Photographer: Simon Dawson/Bloomberg

“I don’t know what he would say about this one,” said Howard Buffett, the investor’s son and a director at Atlanta- based Coca-Cola. Howard Buffett, who spoke today on the sidelines of the soft-drink maker’s annual meeting, said he voted for the 2-for-1 split and had not discussed the transaction with his father. “Every situation is different.”

The transaction will halve the price of Coca-Cola, which ended yesterday at $74.12, making it more affordable for retail investors, said Jack Russo, an analyst at Edward Jones & Co. It “reflects our desire to share value with an ever-growing number of people and organizations around the world,” Kent, also the chief executive officer, said today in a statement.

“It’s somewhat ironic that a stock that’s been part of the Buffett portfolio all these years is playing that stock- splitting game,” said David Rolfe, chief investment officer of Berkshire shareholder Wedgewood Partners Inc. “Be careful what you wish for. Is it more and better shareholders that are going to have a long term view? I doubt it.”

Coca-Cola rose 1.1 percent to $74.93 at 4 p.m. in New York. Berkshire, where Buffett is chairman and CEO, accumulated its stake in the world’s largest soft-drink maker from 1988 to 1994 at a cost of about $1.3 billion.

‘Pickpocket of Enterprise’

Coca-Cola split its stock in 2-for-1 transactions three times while Buffett, a Coca-Cola director from 1989 to 2006, was on the board. Howard Buffett, also a director at Berkshire, joined the Coca-Cola board in 2010.

“One of the ironies of the stock market is the emphasis on activity,” Warren Buffett said in the 1984 letter. “But investors should understand that what is good for the croupier is not good for the customer. A hyperactive stock market is the pickpocket of enterprise.”

Shareholders at today’s annual meeting stood and applauded when Kent told them of the newly proposed split. Warren Buffett didn’t mention the action in a video he taped to open the meeting.

‘Never Sold a Share’

“I’ve had a relationship with Coke for over 70 years,” Buffett, who drinks Cherry Coke, said in the video. “Today we own 200 million shares. We’ve never sold a share of Coca-Cola.”

Kent Landers, a spokesman for Coca-Cola, declined to comment about the statements in Buffett’s letter. Warren Buffett didn’t return a message seeking comment.

Buffett, who holds more than $40 billion in Berkshire stock, has said gains represent a barrier to entry for short- term investors and encourage shareholders to think like owners. Berkshire shares cost a minimum of $33,200 each 16 years ago. The cost of entry fell as Buffett added a second class of stock and, two years ago, split the B shares to facilitate the $26.5 billion cash-and-stock takeover of railroad Burlington Northern Santa Fe.

‘One Opinion’

Berkshire Class B shares rose 15 cents to $79.94. Buffett split the B shares 50 for 1 in 2010, and said it enabled Burlington Northern investors to convert more of their holdings into Berkshire shares, reducing cash proceeds and tax costs. Howard Buffett said his father has “one opinion about how Berkshire should handle a stock split and another about how Coke would handle it.” The stock split requires shareholder approval.

Coca-Cola’s quarterly dividend has advanced more than 10- fold since Berkshire began buying shares, and Buffett said in 2011 that he expected the payouts to double in the next 10 years. Berkshire’s share of the quarterly payout rose to $102 million this year.

“Time is the friend of the wonderful business,” Buffett said of Coca-Cola in his letter to shareholders last year.

To contact the reporters on this story: Andrew Frye in New York at afrye@bloomberg.net; Duane D. Stanford in Atlanta at dstanford2@bloomberg.net.

To contact the editors responsible for this story: Dan Kraut at dkraut2@bloomberg.net; Kevin Orland at korland@bloomberg.net.

Read more...

Nasdaq-100 Has Biggest Advance in 2012 as Apple Jumps

By Rita Nazareth - Apr 26, 2012 3:39 AM GMT+0700

U.S. stocks advanced, giving the Nasdaq-100 Index (NDX) its biggest gain this year, as Apple Inc.’s earnings almost doubled and Federal Reserve Chairman Ben S. Bernanke said he’s prepared to do more to stimulate growth.

Apple, the most valuable company, surged 8.9 percent for the biggest gain since November 2008. Boeing Co. (BA) added 5.3 percent as earnings beat estimates after the company delivered more commercial jets while pushing production to record levels. Caterpillar Inc. (CAT), the world’s largest maker of construction equipment, slumped 4.6 percent as revenue missed projections.

Enlarge image

Apple , the most valuable company, surged 10 percent after reporting that robust demand for the iPhone in China fueled a 94 percent jump in quarterly profit. Photographer: David Paul Morris/Bloomberg

Play Video

April 25 (Bloomberg) -- Bloomberg's Deborah Kostroun reports on the performance of the U.S. equity market today. U.S. stocks advanced, giving the Nasdaq-100 Index its biggest gain this year, as Apple Inc.’s earnings almost doubled and Federal Reserve Chairman Ben S. Bernanke said he’s prepared to do more to stimulate growth. (Source: Bloomberg)

Play Video

April 26 (Bloomberg) -- James Haynie, a senior equity portfolio manager at BNP Paribas Investment Partners, talks about the U.S. stock market, economy, and Federal Reserve monetary policy. Haynie also discusses Apple Inc.'s stock valuation. He speaks in Hong Kong with Susan Li on Bloomberg Television's "First Up." (Source: Bloomberg)

Play Video

April 25 (Bloomberg) -- Bloomberg’s Trish Regan, Adam Johnson and Matt Miller report on today’s ten most important stocks including Sears, Panera Bread and Apple. (Source: Bloomberg)

The Nasdaq-100 Index jumped 2.7 percent to 2,709.62 at 4 p.m. New York time. The Standard & Poor’s 500 Index added 1.4 percent to 1,390.69. The Dow Jones Industrial Average rose 89.16 points, or 0.7 percent, to 13,090.72. Apple (AAPL) is not a member of the 30-stock gauge. About 6.8 billion shares changed hands on U.S. exchanges, almost in line with the three-month average.

“It’s encouraging,” James Swanson, who oversees about $250 billion as chief investment strategist at Boston-based MFS Investment Management, said in a telephone interview. “The earnings season shows that companies can have good profitability in a low growth environment. As long as these earnings hold up, I’d say that’s a bright sign for the market.”

The S&P 500 has risen 11 percent in 2012 on better-than- estimated economic and corporate data. U.S. companies are beating earnings estimates at the highest rate in two years as economic growth at home helps counter a drag from Europe. Profits have topped forecasts at 80 percent of S&P 500 (SPX) companies reporting since April 10.

Earnings Growth

Earnings rose 11 percent on average, exceeding the 0.6 percent increase analysts projected when reporting began, according to data compiled by Bloomberg. All 10 industry groups in the S&P 500 delivered better-than-forecast results, with financial, telephone and technology companies leading with a positive rate of more than 10 percent, the data showed.

Stocks also rallied as policy makers said they expect growth to gradually accelerate, while refraining from new actions to lower borrowing costs. Central bankers today upgraded their forecasts for economic growth and unemployment while repeating their view that borrowing costs are likely to remain “exceptionally low” at least through late 2014.

“The Fed is providing an insurance policy to the economy,” said Ann Miletti, senior portfolio manager for Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin. Her firm manages $213 billion. “There’s a sense that things are improving, yet there’s some instability. The Fed is saying that it will be there to help keep things going. Earnings have been strong. The market likes it.”

Technology Gains

All 10 groups in the S&P 500 rallied today as gains were led by technology, which comprises 20 percent of the index. The group jumped 3.2 percent, the biggest advance since November. The Morgan Stanley Cyclical Index of companies most-tied to the economy increased 1.6 percent. The Russell 2000 Index of small companies rallied 1.8 percent to 812.12.

Apple surged 8.9 percent to $610. Demand from Chinese consumers helped Apple sell a higher-than-predicted 35.1 million iPhones last quarter and made the world’s most populous country responsible for 20 percent of sales. Chief Executive Officer Tim Cook said there will be “a lot more opportunity” in China as he introduces the iPad and expands operations there.

Before today, the company’s shares had tumbled $75.95 since a record close of $636.23 on April 9 amid reports that indicated a possible shortage in key components for Apple’s mobile devices and showed a quarter-over-quarter decline in iPhone sales at wireless carriers.

Erasing Doubts

“This report should erase any doubt in investors’ minds that this company can’t continue to deliver,” said Jack Ablin, chief investment officer of Harris Private Bank in Chicago, which oversees about $60 billion, including Apple shares.

Boeing gained 5.3 percent to $77.08. It shipped 137 jetliners last quarter, compared with 131 deliveries by rival Airbus SAS. Boeing is boosting output by more than 60 percent in the four years through 2014 to pare a record order backlog from customers seeking more fuel-efficient jets.

Aflac Inc. (AFL) jumped 7.8 percent to $45.26. The world’s biggest seller of supplemental health insurance said first- quarter profit doubled as investment results improved.

Coca-Cola Co. (KO) rose 1.1 percent to $74.93 after voting to recommend a 2-for-1 stock split to keep the shares available to smaller investors. Chairman Muhtar Kent, who pushed for the company’s 11th stock split, may be philosophically at odds with his biggest investor, Warren Buffett.

1984 Letter

Buffett, who controls a Coca-Cola stake of almost $15 billion, has resisted splitting Class A shares of his Berkshire Hathaway Inc. Splits, he said in a 1984 letter, may encourage short-term investment strategies that enrich brokers at the expense of the business.

“I don’t know what he would say about this one,” said Howard Buffett, the investor’s son and a director at Atlanta- based Coca-Cola. Howard Buffett, who spoke today on the sidelines of the soft-drink maker’s annual meeting, said he voted for the 2-for-1 split.

Exxon Mobil Corp. (XOM) rose 0.6 percent to $86.85, after swinging between gains and losses today. The energy company raised its quarterly dividend to 57 cents a share from 47 cents a share, according to an e-mailed statement.

Caterpillar slumped 4.6 percent, the most in the Dow, to $103.44. The company says sales in developing nations this year will be lower than anticipated, a reversal after 2011 growth in Latin America and the Asia-Pacific region outpaced North America, helping to drive record revenue and profit.

Sales in China

The company is the latest manufacturer to report sales in China have been curbed. United Technologies Corp. yesterday posted a drop in Chinese orders while 3M Co. (MMM) forecast below- trend growth in the country.

Goldman Sachs Group Inc. (GS) Chairman and Chief Executive Officer Lloyd C. Blankfein said he’s more optimistic about markets than some economists and investors.

“I tend to be a little more positive than what I’m hearing from other people,” Blankfein, 57, told Bloomberg Television today in an interview at the investment bank’s New York headquarters. “One of the big risks that people have to contemplate is that things go right.”

U.S. stocks look reasonably priced when the value of companies is measured against the size of the country’s economy, said David R. Kotok, Cumberland Advisors Inc.’s chairman and chief investment officer. He made a comparison between the total market capitalization of companies in the S&P 500 and nominal gross domestic product, which isn’t adjusted for inflation.

Bull Market End

Yesterday’s ratio was 83 percent, according to data compiled by Bloomberg. The gauge peaked at 101 percent in May 2007, near the end of a five-year bull market, and 131 percent in August 2000, when the Internet bubble of the 1990s had begun to burst. The earlier readings are circled in the chart.

“We are still two years away from a new high” for the S&P 500, Kotok wrote in the report. The prediction stems from the outlook for corporate profits and labor costs along with the index’s ratio to GDP, he wrote.

The S&P 500 may climb in 2014 to 1,600, which would lift the total market value of its companies to 90 percent of GDP, according to Kotok. His estimate for the index exceeds the record close of 1,565.15 on Oct. 9, 2007.

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

Read more...