Spending by U.S. consumers increased in January for a fourth consecutive month, a sign that the biggest part of the economy may contribute more to growth in coming months.
The 0.5 percent increase in purchases was more than anticipated and followed a 0.3 percent gain in December that was larger than previously estimated, Commerce Department figures showed today in Washington. Incomes climbed 0.1 percent, short of expectations and reflecting declines in dividends and interest.
Retailers such as Home Depot Inc. and Macy’s Inc. are forecasting rising sales this year, even as they don’t foresee a robust economic recovery. An unemployment rate that’s projected to average 9.8 percent this year may restrain household purchases, which account for about 70 percent of the economy.
“It’s a good start” for the year, said Brian Bethune, chief financial economist at IHS Global Insight in Lexington, Massachusetts, who correctly forecast the increase in purchases. Still, he said, “consumption is not going to be the driver” of economic growth.
Stock-index futures maintained earlier gains following the report. The contract on the Standard & Poor’s 500 Index rose 0.4 percent to 1,107.7 at 9:05 a.m. in New York. Treasury securities were little changed.
Exceeds Forecast
The median estimate of 61 economists surveyed called for a 0.4 percent increase in spending, after an originally reported gain of 0.2 percent the prior month. Projections ranged from gains of 0.2 percent to 0.6 percent.
The increase in incomes followed a 0.3 percent advance in December. The median forecast of economists surveyed anticipated a 0.4 percent gain. Wages and salaries climbed 0.4 percent in January, the most since April, after increasing 0.1 percent the prior month. Interest payments fell 0.3 percent while dividends declined 3 percent.
Disposable income, or the money left over after taxes, dropped 0.4 percent, the largest decrease since July, reflecting an increase in federal non-withheld income taxes.
Today’s report showed stable prices. The inflation gauge tied to spending patterns rose 2.1 percent from January 2009, less than the 2.2 percent survey median forecast.
The Federal Reserve’s preferred price measure, which excludes food and fuel, was unchanged in January from the previous month and was up 1.4 percent from a year earlier.
Adjusted for inflation, spending climbed 0.3 percent following a 0.1 percent rise the prior month.
Because the increase in spending was larger than the gain in incomes, the savings rate fell to 3.3 percent, the lowest level since October 2008, from 4.2 percent the prior month.
Broad-Based Gains
Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, climbed 0.7 percent in January after rising 0.6 percent the prior month.
Purchases of non-durable goods increased 0.8 percent, and spending on services, which account for almost 60 percent of all outlays, increased 0.1 percent.
The economy grew at a 5.9 percent annual rate in the fourth quarter, the fastest pace in six years, figures from the Commerce Department showed last week. Consumer spending slowed to a 1.7 percent pace, from 2.8 percent the previous three months.
Home Depot is among companies projecting stronger sales.
“We recognize that we have more work to do as a company and that the economy is not out of the woods yet, particularly in our market, so we’re not projecting robust growth,” Home Depot Chairman and Chief Executive Officer Frank Blake said on a Feb. 23 conference call with analysts.
To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net
Monday, March 1, 2010
Chile Stocks Plunge, Peso Drops After Quake Halts Copper Mines
Chilean stocks tumbled, heading for the biggest drop in eight months, after an 8.8-magnitude earthquake killed at least 700 people, severed the country’s main highway and damaged 1.5 million homes. The peso pared its loss after weakening as much as 1.5 percent.
Empresa Nacional de Electricidad SA, the nation’s biggest power generator, and Lan Airlines SA, the country’s biggest carrier, dropped following electricity outages and airport closures. Ripley Corp. SA, Chile’s third-largest department store operator, slumped lost 2.9 percent. Antarchile SA, the forestry and energy holding company owned by Chile’s Angelini Group, plunged 5.5 percent.
The Ipsa dropped 2.2 percent to 3,741.78 at 8:41 a.m. New York time, the biggest retreat on a closing basis since June 22. Chile’s peso slid 0.4 percent to 526.65 per U.S. dollar, recovering from an earlier plunge.
“Initial reaction for stocks will be negative,” said Eric Conrads, a hedge fund manager at Armada Capital SA, a Mexico City-based Armada partnership with ING Investment Management that oversees $12 billion in emerging markets, said in an interview yesterday. “Medium and long term Chilean equities will resume their rally.”
Copper jumped to the highest price in five weeks in London after the quake cut supplies from the world’s largest producer. Chile’s benchmark 10-year peso bond yield fell to the lowest since the end of October. Roads and airports were shut due to damage and some copper mines closed. The total economic damage may be as much as $30 billion, or about 15 percent of the South American country’s gross domestic product, according to estimates by disaster-scenario modeler Eqecat Inc.
‘Knee-Jerk’ Retreat
President Michelle Bachelet declared a “state of catastrophe,” saying that about 2 million people have been affected by the earthquake that the U.S. Geological Survey said was the world’s fifth strongest since 1900. The army is deploying about 10,000 troops, Defense Minister Francisco Vidal said.
Chile’s $11.3 billion savings fund will stabilize the peso after today’s “knee-jerk” decline, according to Goldman Sachs Group Inc. and Bulltick Securities Corp.
The government will likely tap the overseas fund, stockpiled with copper revenue, to finance reconstruction projects, bringing in dollars that will help offset a slump in exports, said Alberto Ramos, a Goldman Sachs economist.
The peso rallied 26 percent last year, the most since at least 1982, as the government spent $9.3 billion of the savings to shore up growth amid the global recession.
Chile, whose debt is the highest rated in Latin America, is “by far” the country best suited in the region to fund the spending needed after a disaster, said Alberto Bernal, head of emerging-markets research at Bulltick in Miami. The government will disburse the money for reconstruction at a “rapid pace,” helping sustain growth and fuel a peso rally, he said.
To contact the reporters on this story: Tal Barak Harif in New York at tbarak@bloomberg.net; Ivan Weissman in Santiago at iweissman@bloomberg.net.
Empresa Nacional de Electricidad SA, the nation’s biggest power generator, and Lan Airlines SA, the country’s biggest carrier, dropped following electricity outages and airport closures. Ripley Corp. SA, Chile’s third-largest department store operator, slumped lost 2.9 percent. Antarchile SA, the forestry and energy holding company owned by Chile’s Angelini Group, plunged 5.5 percent.
The Ipsa dropped 2.2 percent to 3,741.78 at 8:41 a.m. New York time, the biggest retreat on a closing basis since June 22. Chile’s peso slid 0.4 percent to 526.65 per U.S. dollar, recovering from an earlier plunge.
“Initial reaction for stocks will be negative,” said Eric Conrads, a hedge fund manager at Armada Capital SA, a Mexico City-based Armada partnership with ING Investment Management that oversees $12 billion in emerging markets, said in an interview yesterday. “Medium and long term Chilean equities will resume their rally.”
Copper jumped to the highest price in five weeks in London after the quake cut supplies from the world’s largest producer. Chile’s benchmark 10-year peso bond yield fell to the lowest since the end of October. Roads and airports were shut due to damage and some copper mines closed. The total economic damage may be as much as $30 billion, or about 15 percent of the South American country’s gross domestic product, according to estimates by disaster-scenario modeler Eqecat Inc.
‘Knee-Jerk’ Retreat
President Michelle Bachelet declared a “state of catastrophe,” saying that about 2 million people have been affected by the earthquake that the U.S. Geological Survey said was the world’s fifth strongest since 1900. The army is deploying about 10,000 troops, Defense Minister Francisco Vidal said.
Chile’s $11.3 billion savings fund will stabilize the peso after today’s “knee-jerk” decline, according to Goldman Sachs Group Inc. and Bulltick Securities Corp.
The government will likely tap the overseas fund, stockpiled with copper revenue, to finance reconstruction projects, bringing in dollars that will help offset a slump in exports, said Alberto Ramos, a Goldman Sachs economist.
The peso rallied 26 percent last year, the most since at least 1982, as the government spent $9.3 billion of the savings to shore up growth amid the global recession.
Chile, whose debt is the highest rated in Latin America, is “by far” the country best suited in the region to fund the spending needed after a disaster, said Alberto Bernal, head of emerging-markets research at Bulltick in Miami. The government will disburse the money for reconstruction at a “rapid pace,” helping sustain growth and fuel a peso rally, he said.
To contact the reporters on this story: Tal Barak Harif in New York at tbarak@bloomberg.net; Ivan Weissman in Santiago at iweissman@bloomberg.net.
Gross Says Sovereign Debt to Resemble Corporate Returns
Bill Gross, who runs the world’s biggest mutual fund at Pacific Investment Management Co., said government bailouts across the globe suggest a “unicredit” type of bond market where rates on sovereign debt will resemble the yields of corporations and industries they guarantee.
“Sovereign yields will become more credit like,” Gross wrote in a monthly investment outlook posted on the Newport Beach, California-based company’s Web site today. “When sovereign issues become more credit-like as evidenced in Greece, Spain, Portugal and a host of others, they move closer in yield to the corporate and agency debt that supposedly rank lower in the hierarchy.”
Investors should focus on those sovereigns where fundamentals promise lower credit or inflationary risk, including Germany and Canada. Investors should be cautious of Greece, Euro land lookalikes and the U.K., Gross said.
Under what Pimco calls the “new normal,” investors should expect lower-than-average historical returns with heightened government regulation, lower consumption, slower growth and a shrinking global role for the U.S. economy.
To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net
“Sovereign yields will become more credit like,” Gross wrote in a monthly investment outlook posted on the Newport Beach, California-based company’s Web site today. “When sovereign issues become more credit-like as evidenced in Greece, Spain, Portugal and a host of others, they move closer in yield to the corporate and agency debt that supposedly rank lower in the hierarchy.”
Investors should focus on those sovereigns where fundamentals promise lower credit or inflationary risk, including Germany and Canada. Investors should be cautious of Greece, Euro land lookalikes and the U.K., Gross said.
Under what Pimco calls the “new normal,” investors should expect lower-than-average historical returns with heightened government regulation, lower consumption, slower growth and a shrinking global role for the U.S. economy.
To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net
Consumer Spending in U.S. Increases for Fourth Straight Month
Spending by U.S. consumers increased in January for a fourth consecutive month, a sign that the biggest part of the economy may contribute more to growth in coming months.
The 0.5 percent increase in purchases was more than anticipated and followed a 0.3 percent gain in December that was larger than previously estimated, Commerce Department figures showed today in Washington. Incomes climbed 0.1 percent, short of expectations and reflecting declines in dividends and interest.
Retailers such as Home Depot Inc. and Macy’s Inc. are forecasting rising sales this year, even as they don’t foresee a robust economic recovery. An unemployment rate that’s projected to average 9.8 percent this year may restrain household purchases, which account for about 70 percent of the economy.
“I view the consumer as playing a secondary role, not leading the recovery but going along for the ride,” Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “As employment improves then consumer spending will be growing.”
The median estimate of 61 economists surveyed called for a 0.4 percent increase in spending, after an originally reported gain of 0.2 percent the prior month. Projections ranged from gains of 0.2 percent to 0.6 percent.
The increase in incomes followed a 0.3 percent advance in December. The median forecast of economists surveyed anticipated a 0.4 percent gain. Wages and salaries climbed 0.4 percent in January after increasing 0.1 percent the prior month. Interest payments fell 0.3 percent while dividends declined 3 percent.
Stable Prices
Today’s report showed stable prices. The inflation gauge tied to spending patterns rose 2.1 percent from January 2009, less than the 2.2 percent survey median forecast.
The Federal Reserve’s preferred price measure, which excludes food and fuel, was unchanged in January from the previous month and was up 1.4 percent from a year earlier.
Adjusted for inflation, spending climbed 0.3 percent following a 0.1 percent rise the prior month.
Because the increase in spending was larger than the gain in incomes, the savings rate fell to 3.3 percent, the lowest level since October 2008, from 4.2 percent the prior month.
Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, climbed 0.7 percent in January after rising 0.6 percent the prior month.
Broad-Based Gains
Purchases of non-durable goods increased 0.8 percent, and spending on services, which account for almost 60 percent of all outlays, increased 0.1 percent.
The economy grew at a 5.9 percent annual rate in the fourth quarter, the fastest pace in six years, figures from the Commerce Department showed last week. Consumer spending slowed to a 1.7 percent pace, from 2.8 percent the previous three months.
Home Depot is among companies projecting stronger sales.
“We recognize that we have more work to do as a company and that the economy is not out of the woods yet, particularly in our market, so we’re not projecting robust growth,” Home Depot Chairman and Chief Executive Officer Frank Blake said on a Feb. 23 conference call with analysts.
To contact the reporter on this story: Timothy R Homan in Washington at thoman1@bloomberg.net
The 0.5 percent increase in purchases was more than anticipated and followed a 0.3 percent gain in December that was larger than previously estimated, Commerce Department figures showed today in Washington. Incomes climbed 0.1 percent, short of expectations and reflecting declines in dividends and interest.
Retailers such as Home Depot Inc. and Macy’s Inc. are forecasting rising sales this year, even as they don’t foresee a robust economic recovery. An unemployment rate that’s projected to average 9.8 percent this year may restrain household purchases, which account for about 70 percent of the economy.
“I view the consumer as playing a secondary role, not leading the recovery but going along for the ride,” Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, said before the report. “As employment improves then consumer spending will be growing.”
The median estimate of 61 economists surveyed called for a 0.4 percent increase in spending, after an originally reported gain of 0.2 percent the prior month. Projections ranged from gains of 0.2 percent to 0.6 percent.
The increase in incomes followed a 0.3 percent advance in December. The median forecast of economists surveyed anticipated a 0.4 percent gain. Wages and salaries climbed 0.4 percent in January after increasing 0.1 percent the prior month. Interest payments fell 0.3 percent while dividends declined 3 percent.
Stable Prices
Today’s report showed stable prices. The inflation gauge tied to spending patterns rose 2.1 percent from January 2009, less than the 2.2 percent survey median forecast.
The Federal Reserve’s preferred price measure, which excludes food and fuel, was unchanged in January from the previous month and was up 1.4 percent from a year earlier.
Adjusted for inflation, spending climbed 0.3 percent following a 0.1 percent rise the prior month.
Because the increase in spending was larger than the gain in incomes, the savings rate fell to 3.3 percent, the lowest level since October 2008, from 4.2 percent the prior month.
Inflation-adjusted spending on durable goods, such as autos, furniture, and other long-lasting items, climbed 0.7 percent in January after rising 0.6 percent the prior month.
Broad-Based Gains
Purchases of non-durable goods increased 0.8 percent, and spending on services, which account for almost 60 percent of all outlays, increased 0.1 percent.
The economy grew at a 5.9 percent annual rate in the fourth quarter, the fastest pace in six years, figures from the Commerce Department showed last week. Consumer spending slowed to a 1.7 percent pace, from 2.8 percent the previous three months.
Home Depot is among companies projecting stronger sales.
“We recognize that we have more work to do as a company and that the economy is not out of the woods yet, particularly in our market, so we’re not projecting robust growth,” Home Depot Chairman and Chief Executive Officer Frank Blake said on a Feb. 23 conference call with analysts.
To contact the reporter on this story: Timothy R Homan in Washington at thoman1@bloomberg.net
Canada's Fourth-Quarter Economic Growth Is Fastest Since 2000
Canada’s economy expanded at a 5 percent annualized rate in the fourth quarter, faster than predicted by the Bank of Canada, raising pressure on policy makers to increase interest rates later this year.
Gross domestic product grew at the fastest pace since the third quarter of 2000, Statistics Canada said today in Ottawa. The median estimate of 23 economists surveyed by Bloomberg News was for a 4.2 percent expansion, and the Bank of Canada had projected a 3.3 percent gain.
The figures come a day before Bank of Canada Governor Mark Carney will keep his key lending rate at 0.25 percent, all 21 economists surveyed by Bloomberg predict. Today’s report and other recent indicators will prompt Carney to raise the key policy rate quickly once his conditional commitment to keep it unchanged through June expires, said Warren Jestin, chief economist at Bank of Nova Scotia.
“There are a lot of signals out there that a shift in monetary conditions is near at hand” said Jestin, who predicts an increase of 2 percentage points between July and next March. “Inflation isn’t an issue on a near-term basis, but almost everything we have seen coming out is stronger than expected.”
The economy’s fourth-quarter growth was supported by consumer spending, capital investment and trade, Statistics Canada said. Government spending also contributed to growth.
Consumer spending increased 0.9 percent in the quarter, led by durable goods such as furniture and cars. Investment in housing rose 6.5 percent.
Exports Increase
Exports rose 3.7 percent in the October-through-December period, led by a 13 percent jump in automotive products, while imports rose 2.2 percent. Fixed-capital investment rose 1.6 percent.
On a monthly basis, the economy grew 0.6 percent in December, the fastest in three years. Economists predicted output would grow 0.4 percent on the month, according to the median estimate of 21 economists surveyed by Bloomberg News.
Statistics Canada revised its estimate of the third-quarter growth rate to 0.9 percent from the earlier reading of a 0.4 percent pace. The agency also revised its earlier figures to show the country’s first recession since 1992 was deeper than thought, with a 7 percent annualized contraction in the first quarter of last year.
The economy shrank 2.6 percent in 2009, the most since 1982 and the third annual contraction in figures dating back to 1961.
Record Low Rate
Carney cut the benchmark lending rate in April to the lowest since the bank was founded in 1934 and pledged to keep it there through the first half of this year unless the inflation outlook shifted.
“Monetary policy has worked very well,” said Sebastien Lavoie, an economist at Laurentian Bank Securities in Montreal. The Bank of Canada estimates consumers will account for more than half of a 2.9 percent expansion this year.
When the bank raises rates “it won’t be baby steps; it will be major jumps,’ Lavoie said. The first increase could be three-quarters of a percentage point, he said, and the rate could reach 3 percent next year, he said.
The return of growth still hasn’t brought unemployment down much from the highest in more than a decade and exporters are still struggling with a strong currency and weak U.S. orders.
The economy “is nowhere near recovery” said Louis Lepine, operations manager at TPG Pritchard Metalfab Inc. in Winnipeg, Manitoba, a contract manufacturer to agricultural, mining and transport companies.
‘Cautious Expansion’
“We have seen quite a decline in business, but we have been fortunate enough to retain most of our staff,” he said. “We will be doing some cautious expansion this year, some capital expenditures.”
Lepine said he’s also struggling with a high Canadian dollar.
Canada’s dollar appreciated 21 percent against the U.S. dollar over the past 12 months to about 95 U.S. cents. The currency traded at about 63.6 U.S. cents at the end of 2002, and manufacturers have been squeezed by its gain, along with increased competition from emerging markets such as China.
The strength of the currency and weak U.S. orders will slow economic growth this year, the Bank of Canada said in January.
Companies tied to consumers are more optimistic. Wal-Mart Stores Inc., the world’s largest retailer, said Feb. 23 it plans to open 35 to 40 stores in Canada in 2010, adding to the current total of 317.
“Even with excess capacity in some industries, there are enough that are going to be ramping up that there will be pinched areas in the economy,” Jestin said. “Those are signs the Bank of Canada will be paying quite close attention to.”
In a separate report, Statistics Canada said that factory prices rose 0.3 percent in January from December, and manufacturers’ raw materials costs increased 3.3 percent. Economists predicted factory prices would rise 0.5 percent, and material costs would gain 2.2 percent, according to the median estimates of economists surveyed by Bloomberg News.
To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.
Gross domestic product grew at the fastest pace since the third quarter of 2000, Statistics Canada said today in Ottawa. The median estimate of 23 economists surveyed by Bloomberg News was for a 4.2 percent expansion, and the Bank of Canada had projected a 3.3 percent gain.
The figures come a day before Bank of Canada Governor Mark Carney will keep his key lending rate at 0.25 percent, all 21 economists surveyed by Bloomberg predict. Today’s report and other recent indicators will prompt Carney to raise the key policy rate quickly once his conditional commitment to keep it unchanged through June expires, said Warren Jestin, chief economist at Bank of Nova Scotia.
“There are a lot of signals out there that a shift in monetary conditions is near at hand” said Jestin, who predicts an increase of 2 percentage points between July and next March. “Inflation isn’t an issue on a near-term basis, but almost everything we have seen coming out is stronger than expected.”
The economy’s fourth-quarter growth was supported by consumer spending, capital investment and trade, Statistics Canada said. Government spending also contributed to growth.
Consumer spending increased 0.9 percent in the quarter, led by durable goods such as furniture and cars. Investment in housing rose 6.5 percent.
Exports Increase
Exports rose 3.7 percent in the October-through-December period, led by a 13 percent jump in automotive products, while imports rose 2.2 percent. Fixed-capital investment rose 1.6 percent.
On a monthly basis, the economy grew 0.6 percent in December, the fastest in three years. Economists predicted output would grow 0.4 percent on the month, according to the median estimate of 21 economists surveyed by Bloomberg News.
Statistics Canada revised its estimate of the third-quarter growth rate to 0.9 percent from the earlier reading of a 0.4 percent pace. The agency also revised its earlier figures to show the country’s first recession since 1992 was deeper than thought, with a 7 percent annualized contraction in the first quarter of last year.
The economy shrank 2.6 percent in 2009, the most since 1982 and the third annual contraction in figures dating back to 1961.
Record Low Rate
Carney cut the benchmark lending rate in April to the lowest since the bank was founded in 1934 and pledged to keep it there through the first half of this year unless the inflation outlook shifted.
“Monetary policy has worked very well,” said Sebastien Lavoie, an economist at Laurentian Bank Securities in Montreal. The Bank of Canada estimates consumers will account for more than half of a 2.9 percent expansion this year.
When the bank raises rates “it won’t be baby steps; it will be major jumps,’ Lavoie said. The first increase could be three-quarters of a percentage point, he said, and the rate could reach 3 percent next year, he said.
The return of growth still hasn’t brought unemployment down much from the highest in more than a decade and exporters are still struggling with a strong currency and weak U.S. orders.
The economy “is nowhere near recovery” said Louis Lepine, operations manager at TPG Pritchard Metalfab Inc. in Winnipeg, Manitoba, a contract manufacturer to agricultural, mining and transport companies.
‘Cautious Expansion’
“We have seen quite a decline in business, but we have been fortunate enough to retain most of our staff,” he said. “We will be doing some cautious expansion this year, some capital expenditures.”
Lepine said he’s also struggling with a high Canadian dollar.
Canada’s dollar appreciated 21 percent against the U.S. dollar over the past 12 months to about 95 U.S. cents. The currency traded at about 63.6 U.S. cents at the end of 2002, and manufacturers have been squeezed by its gain, along with increased competition from emerging markets such as China.
The strength of the currency and weak U.S. orders will slow economic growth this year, the Bank of Canada said in January.
Companies tied to consumers are more optimistic. Wal-Mart Stores Inc., the world’s largest retailer, said Feb. 23 it plans to open 35 to 40 stores in Canada in 2010, adding to the current total of 317.
“Even with excess capacity in some industries, there are enough that are going to be ramping up that there will be pinched areas in the economy,” Jestin said. “Those are signs the Bank of Canada will be paying quite close attention to.”
In a separate report, Statistics Canada said that factory prices rose 0.3 percent in January from December, and manufacturers’ raw materials costs increased 3.3 percent. Economists predicted factory prices would rise 0.5 percent, and material costs would gain 2.2 percent, according to the median estimates of economists surveyed by Bloomberg News.
To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.
Cantor Fitzgerald to Expand Debt Business as Banks Curb Lending
Cantor Fitzgerald & Co., the bond broker that started an investment banking business last year, plans to hire at least nine staff for its debt advisory unit in London amid predictions bank lending will remain subdued.
Cantor is seeking at least five people for debt origination, and four for loan sales, trading, and research, said Michael Johnson, head of European leveraged capital markets in London. Cantor currently has nine people in the debt team.
New York-based Cantor is taking advantage of a slowdown in bank lending to win fees by arranging financing for high-yield, or leveraged, borrowers. Banks worldwide have curbed lending as they try to recover from $1.7 trillion of writedowns and losses from the credit crisis, and as global regulators tighten rules on lenders’ capital requirements.
“It will take another two to four years, at least, for excess leverage to disappear from the financial system,” Johnson said in an interview. “Currently banks aren’t performing their functions as providers of credit.”
Bank lending to leveraged borrowers in Europe may shrink to as low as 50 billion euros ($68 billion) in the next four years, from lenders’ current capacity of 200 billion euros, according to data compiled by Avoca Capital Holdings LP, a Dublin-based credit fund manager that oversees 5 billion euros of assets.
Leveraged debt is graded below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s.
Liquidity Gap
Cantor is among firms stepping in to fill the gap left by banks. TowerBrook Capital Partners LP, a London-based private equity firm, opened Haymarket Financial LLP in October to finance companies valued up to 500 million euros. Chicago-based hedge fund Citadel Investment Group LLC started a credit business specializing in leveraged debt in October.
“There is still not enough liquidity in the bank market for borrowers to just go to that market,” Cantor’s Johnson said.
Johnson joined Cantor at the start of the year from merchant bank Augusta & Co., where he was a managing director. Previously, he was head of leveraged finance at BNP Paribas SA, and head of Credit Suisse First Boston’s leveraged finance unit in New York.
Cantor, one of 18 primary dealers authorized to trade U.S. government securities with the Federal Reserve Bank of New York, has added more than 100 sales and trading specialists in the past year in Europe, according to a statement in February.
To contact the reporter on this story: Patricia Kuo in Hong Kong at pkuo2@bloomberg.net.
Cantor is seeking at least five people for debt origination, and four for loan sales, trading, and research, said Michael Johnson, head of European leveraged capital markets in London. Cantor currently has nine people in the debt team.
New York-based Cantor is taking advantage of a slowdown in bank lending to win fees by arranging financing for high-yield, or leveraged, borrowers. Banks worldwide have curbed lending as they try to recover from $1.7 trillion of writedowns and losses from the credit crisis, and as global regulators tighten rules on lenders’ capital requirements.
“It will take another two to four years, at least, for excess leverage to disappear from the financial system,” Johnson said in an interview. “Currently banks aren’t performing their functions as providers of credit.”
Bank lending to leveraged borrowers in Europe may shrink to as low as 50 billion euros ($68 billion) in the next four years, from lenders’ current capacity of 200 billion euros, according to data compiled by Avoca Capital Holdings LP, a Dublin-based credit fund manager that oversees 5 billion euros of assets.
Leveraged debt is graded below Baa3 by Moody’s Investors Service and BBB- by Standard & Poor’s.
Liquidity Gap
Cantor is among firms stepping in to fill the gap left by banks. TowerBrook Capital Partners LP, a London-based private equity firm, opened Haymarket Financial LLP in October to finance companies valued up to 500 million euros. Chicago-based hedge fund Citadel Investment Group LLC started a credit business specializing in leveraged debt in October.
“There is still not enough liquidity in the bank market for borrowers to just go to that market,” Cantor’s Johnson said.
Johnson joined Cantor at the start of the year from merchant bank Augusta & Co., where he was a managing director. Previously, he was head of leveraged finance at BNP Paribas SA, and head of Credit Suisse First Boston’s leveraged finance unit in New York.
Cantor, one of 18 primary dealers authorized to trade U.S. government securities with the Federal Reserve Bank of New York, has added more than 100 sales and trading specialists in the past year in Europe, according to a statement in February.
To contact the reporter on this story: Patricia Kuo in Hong Kong at pkuo2@bloomberg.net.
Sotheby’s Reports Quarterly Profit After Cost Cuts (Update1)
Sotheby’s reported its highest quarterly profit in 18 months today as commissions increased and the New York-based auctioneer cut staff and other expenses.
Net income was $73.6 million, or $1.09 a share, compared with a loss of $9.3 million, 14 cents a share a year ago. Four analysts surveyed by Bloomberg predicted average earnings of 67 cents a share. It was the highest profit since the second quarter of 2008, when Sotheby’s earned $95.3 million.
A “strong improvement in auction commission margins and our vigilant focus on costs” helped the results, Chief Executive Officer William Ruprecht said in a release.
Revenue increased by 31 percent to $218.3 million. Expenses declined 28 percent in the quarter, to $119.4 million. Three months earlier, Sotheby’s said the weak economy continued to hamper most collecting categories.
As the auctioneer phased out guarantees to sellers, it said losses from buying and selling art for its own account, or principal activity, narrowed by $19.9 million.
For the year, Sotheby’s lost $6.5 million, compared with a profit of $26.5 million in 2008 and $213 million in 2007.
The auctioneer cut staff last year and reduced pension contributions and required unpaid furloughs for certain employees.
Sotheby’s shares more than doubled in 2009, closing on Friday at $24.30, up 73 cents, in New York Stock Exchange trading. Their all-time high close was $57.64.
To contact the reporter on this story: Philip Boroff in New York at pboroff@bloomberg.net.
Net income was $73.6 million, or $1.09 a share, compared with a loss of $9.3 million, 14 cents a share a year ago. Four analysts surveyed by Bloomberg predicted average earnings of 67 cents a share. It was the highest profit since the second quarter of 2008, when Sotheby’s earned $95.3 million.
A “strong improvement in auction commission margins and our vigilant focus on costs” helped the results, Chief Executive Officer William Ruprecht said in a release.
Revenue increased by 31 percent to $218.3 million. Expenses declined 28 percent in the quarter, to $119.4 million. Three months earlier, Sotheby’s said the weak economy continued to hamper most collecting categories.
As the auctioneer phased out guarantees to sellers, it said losses from buying and selling art for its own account, or principal activity, narrowed by $19.9 million.
For the year, Sotheby’s lost $6.5 million, compared with a profit of $26.5 million in 2008 and $213 million in 2007.
The auctioneer cut staff last year and reduced pension contributions and required unpaid furloughs for certain employees.
Sotheby’s shares more than doubled in 2009, closing on Friday at $24.30, up 73 cents, in New York Stock Exchange trading. Their all-time high close was $57.64.
To contact the reporter on this story: Philip Boroff in New York at pboroff@bloomberg.net.
Pound, Euro Slump on Deficit Concern; Copper Soars After Quake
The pound and the euro tumbled on speculation European nations will struggle to rein in record budget deficits. Copper rose the most in 11 months after the earthquake in Chile, the world’s biggest producer.
The British currency dropped as much as 3 percent against the dollar, slumping below $1.50 for the first time since May 8, while the euro sank 0.8 percent. Copper gained as much as 6.2 percent, the most since April. Europe’s Dow Jones Stoxx 600 Index fluctuated between gains and losses, while futures on the Standard & Poor’s 500 Index rose 0.3 percent. Greek bonds rallied, sending the yield on the two-year note down 25 basis points to 5.83 percent.
The U.K. currency slid after a YouGov Plc poll indicated an election due by June 10 would leave neither Gordon Brown’s ruling Labour party nor the opposition Conservatives with a majority of seats in Parliament, hampering efforts to cut the record deficit. European Union officials may demand deeper budget cuts from Greece in meetings today. Mines in Chile, which exports 36 percent of the world’s copper ores and concentrate, were closed by the magnitude-8.8 earthquake Feb. 27.
“Sterling is really suffering and leading the way,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. “And in the eurozone, problems are going to continue and the euro is going to continue to suffer as a result.”
Currency Moves
The pound dropped 2.3 percent to $1.4889 after sliding to $1.4784, the lowest level since May 1. The U.K. currency fell against all 16 of its most-traded counterparts, weakening 1.6 percent to 90.918 pence per euro.
The yen weakened against higher-yielding currencies including South Africa’s rand and the Australian dollar. The Japanese currency depreciated 0.4 percent to 120.81 per euro, and fell 0.4 percent to 89.26 versus the dollar.
U.K. gilts, U.S. Treasuries and German bonds declined. The yield on the 10-year gilt rose 8 basis points to 4.11 percent, and the similar maturity German bund yield climbed 3 basis points to 3.13 percent. The 10-year Treasury yield advanced 1 basis point to 3.62 percent.
Copper rose as high as $3.487 a pound in New York trading, erasing this year’s decline. Lead, zinc and tin also rose in London.
Greek Securities Rally
Greek bonds and stocks rallied as European Union governments crafted a possible rescue package. The yield on the two-year Greek note slid as much as 69 basis points, the biggest decline since Feb. 10. The cost of insuring Greek bonds against default fell, with credit-default swaps tied to the nation’s debt dropping 28.5 basis points to 335.5, according to CMA DataVision.
The ASE Index of equities rose for a second day, advancing as much as 3.1 percent.
The MSCI World Index of 23 developed nations’ stocks fell 0.2 percent. Prudential Plc fell 13 percent after agreeing to buy one of American International Group Inc.’s Asian life- insurance units for $35.5 billion. BHP Billiton Ltd. and Rio Tinto Group both advanced as commodities climbed. Vivendi SA surged as much as 4.2 percent after the owner of the world’s largest video-game company reported earnings that beat estimates.
The gain in U.S. futures suggested the S&P 500 may extend the 0.1 percent gain on Feb. 26. Billionaire Warren Buffett, writing in a Feb. 27 letter to investors, said the U.S. residential real estate slump will end by about 2011.
U.S. Economy
The Institute for Supply Management’s manufacturing index probably declined to 58 last month from a January reading of 58.4, according to the median forecast of economists in a Bloomberg News survey. A figure higher than 50 signals expansion. Personal spending probably rose 0.4 percent in January, double the December gain, while incomes may have increased 0.4 percent for a second month, economists said.
The MSCI Emerging Markets Index headed for its biggest two- day advance since Jan. 5 as gains by commodity producers lifted Russia’s Micex Index 0.6 percent.
Turkey’s ISE National 100 Index jumped 2 percent and the lira strengthened for the first time in three days on speculation tension between the military and the government is easing after the release of eight officers questioned in an investigation into allegations of a 2003 coup plot against Prime Minister Recep Tayyip Erdogan’s government.
To contact the reporter for this story: Stuart Wallace in London at swallace6@bloomberg.net
The British currency dropped as much as 3 percent against the dollar, slumping below $1.50 for the first time since May 8, while the euro sank 0.8 percent. Copper gained as much as 6.2 percent, the most since April. Europe’s Dow Jones Stoxx 600 Index fluctuated between gains and losses, while futures on the Standard & Poor’s 500 Index rose 0.3 percent. Greek bonds rallied, sending the yield on the two-year note down 25 basis points to 5.83 percent.
The U.K. currency slid after a YouGov Plc poll indicated an election due by June 10 would leave neither Gordon Brown’s ruling Labour party nor the opposition Conservatives with a majority of seats in Parliament, hampering efforts to cut the record deficit. European Union officials may demand deeper budget cuts from Greece in meetings today. Mines in Chile, which exports 36 percent of the world’s copper ores and concentrate, were closed by the magnitude-8.8 earthquake Feb. 27.
“Sterling is really suffering and leading the way,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. “And in the eurozone, problems are going to continue and the euro is going to continue to suffer as a result.”
Currency Moves
The pound dropped 2.3 percent to $1.4889 after sliding to $1.4784, the lowest level since May 1. The U.K. currency fell against all 16 of its most-traded counterparts, weakening 1.6 percent to 90.918 pence per euro.
The yen weakened against higher-yielding currencies including South Africa’s rand and the Australian dollar. The Japanese currency depreciated 0.4 percent to 120.81 per euro, and fell 0.4 percent to 89.26 versus the dollar.
U.K. gilts, U.S. Treasuries and German bonds declined. The yield on the 10-year gilt rose 8 basis points to 4.11 percent, and the similar maturity German bund yield climbed 3 basis points to 3.13 percent. The 10-year Treasury yield advanced 1 basis point to 3.62 percent.
Copper rose as high as $3.487 a pound in New York trading, erasing this year’s decline. Lead, zinc and tin also rose in London.
Greek Securities Rally
Greek bonds and stocks rallied as European Union governments crafted a possible rescue package. The yield on the two-year Greek note slid as much as 69 basis points, the biggest decline since Feb. 10. The cost of insuring Greek bonds against default fell, with credit-default swaps tied to the nation’s debt dropping 28.5 basis points to 335.5, according to CMA DataVision.
The ASE Index of equities rose for a second day, advancing as much as 3.1 percent.
The MSCI World Index of 23 developed nations’ stocks fell 0.2 percent. Prudential Plc fell 13 percent after agreeing to buy one of American International Group Inc.’s Asian life- insurance units for $35.5 billion. BHP Billiton Ltd. and Rio Tinto Group both advanced as commodities climbed. Vivendi SA surged as much as 4.2 percent after the owner of the world’s largest video-game company reported earnings that beat estimates.
The gain in U.S. futures suggested the S&P 500 may extend the 0.1 percent gain on Feb. 26. Billionaire Warren Buffett, writing in a Feb. 27 letter to investors, said the U.S. residential real estate slump will end by about 2011.
U.S. Economy
The Institute for Supply Management’s manufacturing index probably declined to 58 last month from a January reading of 58.4, according to the median forecast of economists in a Bloomberg News survey. A figure higher than 50 signals expansion. Personal spending probably rose 0.4 percent in January, double the December gain, while incomes may have increased 0.4 percent for a second month, economists said.
The MSCI Emerging Markets Index headed for its biggest two- day advance since Jan. 5 as gains by commodity producers lifted Russia’s Micex Index 0.6 percent.
Turkey’s ISE National 100 Index jumped 2 percent and the lira strengthened for the first time in three days on speculation tension between the military and the government is easing after the release of eight officers questioned in an investigation into allegations of a 2003 coup plot against Prime Minister Recep Tayyip Erdogan’s government.
To contact the reporter for this story: Stuart Wallace in London at swallace6@bloomberg.net
Soros Signals Gold Bubble as Goldman Predicts Record (Update2)
George Soros is helping drive up gold prices by doubling his bet in a market even he considers a “bubble” as Goldman Sachs Group Inc., Barclays Capital and HSBC Holdings Plc predict more gains before it bursts.
Soros Fund Management LLC, which manages about $25 billion, increased its investment in SPDR Gold Trust, the world’s largest exchange-traded fund for the metal, by 152 percent in the fourth quarter, a Feb. 16 Securities and Exchange Commission filing shows. While prices have fallen 9.2 percent since reaching a record on Dec. 3, 15 of 22 analysts in a Bloomberg survey say gold will reach a new high, with the median forecast predicting a 17 percent advance to as much as $1,300 an ounce this year.
“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment,” Soros said at the World Economic Forum’s annual meeting in Davos, Switzerland, in January. “The ultimate asset bubble is gold,” he said.
In a Jan. 28 Bloomberg Television interview, the 79-year- old billionaire recalled that former Federal Reserve Chairman Alan Greenspan warned of “irrational exuberance” in financial markets three years before the technology bubble burst in 2000. The Standard & Poor’s 500 Index rose 89 percent in the period. Buying at the start of a bubble is “rational,” Soros said.
Gold’s fourfold rally since the end of 2000 has also attracted money managers John Paulson, Paul Tudor Jones and David Einhorn. Paulson’s Credit Opportunities Fund soared almost sixfold in 2007 by betting that subprime mortgages would plummet. Einhorn said in October that his Greenlight Capital Inc. bought gold to bet against the dollar.
‘Just an Asset’
Tudor Investment Corp., based in Greenwich, Connecticut, increased its stake in Newmont Mining Corp., the largest U.S. gold producer, almost fourfold in the final quarter of 2009. Gold is “just an asset that, like everything else in life, has its time and place. And now is that time,” Paul Tudor Jones said in an October letter to clients.
Funds of the four-biggest ETF firms hold 1,583 metric tons of the metal, according to data compiled by Bloomberg. Only the central banks or governments of the U.S., Germany, Italy and France and the International Monetary Fund hold more.
Investment demand, including in bars and coins, doubled to 1,820 tons last year as investors sought a refuge from the global recession, according to GFMS Ltd. That exceeded jewelry demand for the first time in three decades, the London-based research firm said Jan. 13. Prices reached the record $1,226.56 a decade after the metal fell to a 20-year low of $251.95 amid sales by central banks. Gold was at $1,113.70 today in London.
Dollar Rally
The price fell as the economic recovery sparked a dollar rally that has pushed the U.S. Dollar Index, a gauge against six counterparts, up 4.1 percent this year. Gold ended last week at $1,117.60, up 18 percent in the past 12 months and 21 percent since the start of the third quarter, when Soros accumulated 2.44 million shares of the SPDR Gold Trust.
“Perhaps Soros thinks gold is going to bubble but the bubble is going to last for a while and he wants to profit from it,” said Jeffrey Nichols, managing director of American Precious Metals Advisors and an adviser to central banks and mining companies. “We could have a bubble but gold can reach $2,000 or $3,000 before it’s over.”
Soros’ New York-based firm became the fourth-biggest investor in the SPDR Gold Trust by the end of 2009, 17 years after he made $1 billion breaking the Bank of England’s defense of the pound. The SPDR fund holds 1,107 tons, more than either Switzerland or China.
Paulson, Einhorn
Paulson & Co. is the ETF’s biggest investor, with 31.5 million shares, regulatory filings show. With each representing almost a 10th of an ounce of gold, the hedge fund firm’s stake is the equivalent of about 96 tons, exceeding the holdings of Australia and Kuwait.
New York-based Paulson is also the biggest investor in Johannesburg-based AngloGold Ashanti Ltd., Africa’s top producer. The Market Vectors Gold Miners ETF is Einhorn’s seventh-largest holding, according to a Feb. 16 filing.
Goldman predicts gold will reach $1,235 in three months and $1,380 in 12 months. Barclays Capital says the metal will average $1,235 in the fourth quarter. HSBC says it may peak at $1,300 this year.
“I absolutely believe it’s heading into a bubble, but that’s why you buy it,” said Charles Morris, who manages $2.5 billion at HSBC Global Asset Management’s Absolute Return Fund in London. “A bubble is good,” he said, forecasting the metal may rise to $5,000 in five years to explain why 11 percent of his fund is in gold.
World Economic Growth
The metal dropped from the record high as recovering economies pushed up the dollar. The Washington-based IMF increased its forecast for world economic growth in 2010 to 3.9 percent in January, from 3.1 percent in October.
Gold may drop 28 percent to $800 this year if the U.S. raises interest rates, said New York-based Tom Winmill, who manages $120 million at the Midas Fund. Gold generally only earns interest for banks that lend it, so its lure over cash diminishes as borrowing costs increase.
Fed Chairman Ben S. Bernanke said Feb. 24 that the U.S. economy is in a “nascent” recovery that still requires low borrowing costs. U.S. policy makers likely will start raising the target rate for overnight loans between banks from the record low range of zero to 0.25 percent in the third quarter, according to the median estimate of 72 economists.
‘Very Expensive’
“Gold looks very expensive right now,” said Brian Nick, an investment strategist at Barclays Wealth in New York, which manages $221 billion. “Yes, rates are low but are they low enough to produce runaway inflation? Actual inflation numbers haven’t pointed to a worrying trend” that would prompt Fed action to cool an overheating economy, he said.
U.S. consumer prices will rise 2.15 percent this year, compared with last year’s 0.35 percent decline, according to the median of 60 estimates.
Stock-option traders are boosting bearish bets against gold-mining companies’ shares, paying the most in more than a year for options to protect them from declines. Bearish options on the Market Vectors Gold Miners ETF, which tracks 31 producers, were 12 percent more expensive than bullish ones last week, the highest premium since December 2008, according to data compiled by Bloomberg.
Hedge funds and speculators are paring bets that gold will keep rising. There were 200,622 more outstanding futures contracts that profit on the metal gaining than wagers that pay when prices fall as of Feb. 23, down from 262,331 in November, U.S. Commodity Futures Trading Commission data show.
More Bullish
Traders remain more bullish than in past years, with speculative long bets on gold on the New York Mercantile Exchange outnumbering short wagers by more than 7-to-1, compared with less than 5-to-1 in the three years before the September 2008 collapse of Lehman Brothers Holdings Inc. spurred demand for gold’s perceived safety.
Central banks likely will expand their reserves for a second straight year, said CPM Group, a New York commodities researcher. The last time they added to stockpiles, in 1988, gold fell 15 percent and then took 15 years to recoup its losses, suggesting they may not be the best indicator of investment timing. Central banks hold about 18 percent of all gold ever mined.
Through the end of last year, gold was up about 29 percent since its 1980 peak. In that same period, Treasuries rose about 1,090 percent. The S&P 500 earned more than 2,300 percent with dividends reinvested over the three decades. Even cash in the average U.S. checking account outdid gold, gaining 92 percent.
Premature Bubble
The combined holdings of the biggest ETF providers -- State Street Corp., ETF Securities Ltd., Zuercher Kantonalbank and Barclays Capital -- rose more than 16 times from 95 tons five years ago.
It may be premature to declare a bubble by the standards of other commodities. Copper rose 188 percent in the year to May 2006 before falling 38 percent in nine months. Crude oil doubled in about 11 months before peaking in July 2008 and slumped 77 percent in the next five. Gold hasn’t had a 12-month gain of more than 55 percent since October 1980. Adjusted for inflation, it’s still worth about half of its 20th century peak of $850 on Jan. 21, 1980.
Touradji Capital Management LP founder Paul Touradji said in a March 2008 letter to his hedge fund clients that the commodity market was a “buying orgy” of inflated prices. Oil, which had gained 80 percent in the previous 12 months, went up 35 percent more in the next four months. Touradji’s largest equity holding at the end of the fourth quarter was a stake in Toronto-based Barrick Gold Corp., the world’s biggest producer of the metal.
“Gold makes sense as an investment,” said Jeffrey Christian, the managing director of CPM Group. “Just because the price of gold is going up for the 10th year doesn’t mean it’s a bubble.”
To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
Soros Fund Management LLC, which manages about $25 billion, increased its investment in SPDR Gold Trust, the world’s largest exchange-traded fund for the metal, by 152 percent in the fourth quarter, a Feb. 16 Securities and Exchange Commission filing shows. While prices have fallen 9.2 percent since reaching a record on Dec. 3, 15 of 22 analysts in a Bloomberg survey say gold will reach a new high, with the median forecast predicting a 17 percent advance to as much as $1,300 an ounce this year.
“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment,” Soros said at the World Economic Forum’s annual meeting in Davos, Switzerland, in January. “The ultimate asset bubble is gold,” he said.
In a Jan. 28 Bloomberg Television interview, the 79-year- old billionaire recalled that former Federal Reserve Chairman Alan Greenspan warned of “irrational exuberance” in financial markets three years before the technology bubble burst in 2000. The Standard & Poor’s 500 Index rose 89 percent in the period. Buying at the start of a bubble is “rational,” Soros said.
Gold’s fourfold rally since the end of 2000 has also attracted money managers John Paulson, Paul Tudor Jones and David Einhorn. Paulson’s Credit Opportunities Fund soared almost sixfold in 2007 by betting that subprime mortgages would plummet. Einhorn said in October that his Greenlight Capital Inc. bought gold to bet against the dollar.
‘Just an Asset’
Tudor Investment Corp., based in Greenwich, Connecticut, increased its stake in Newmont Mining Corp., the largest U.S. gold producer, almost fourfold in the final quarter of 2009. Gold is “just an asset that, like everything else in life, has its time and place. And now is that time,” Paul Tudor Jones said in an October letter to clients.
Funds of the four-biggest ETF firms hold 1,583 metric tons of the metal, according to data compiled by Bloomberg. Only the central banks or governments of the U.S., Germany, Italy and France and the International Monetary Fund hold more.
Investment demand, including in bars and coins, doubled to 1,820 tons last year as investors sought a refuge from the global recession, according to GFMS Ltd. That exceeded jewelry demand for the first time in three decades, the London-based research firm said Jan. 13. Prices reached the record $1,226.56 a decade after the metal fell to a 20-year low of $251.95 amid sales by central banks. Gold was at $1,113.70 today in London.
Dollar Rally
The price fell as the economic recovery sparked a dollar rally that has pushed the U.S. Dollar Index, a gauge against six counterparts, up 4.1 percent this year. Gold ended last week at $1,117.60, up 18 percent in the past 12 months and 21 percent since the start of the third quarter, when Soros accumulated 2.44 million shares of the SPDR Gold Trust.
“Perhaps Soros thinks gold is going to bubble but the bubble is going to last for a while and he wants to profit from it,” said Jeffrey Nichols, managing director of American Precious Metals Advisors and an adviser to central banks and mining companies. “We could have a bubble but gold can reach $2,000 or $3,000 before it’s over.”
Soros’ New York-based firm became the fourth-biggest investor in the SPDR Gold Trust by the end of 2009, 17 years after he made $1 billion breaking the Bank of England’s defense of the pound. The SPDR fund holds 1,107 tons, more than either Switzerland or China.
Paulson, Einhorn
Paulson & Co. is the ETF’s biggest investor, with 31.5 million shares, regulatory filings show. With each representing almost a 10th of an ounce of gold, the hedge fund firm’s stake is the equivalent of about 96 tons, exceeding the holdings of Australia and Kuwait.
New York-based Paulson is also the biggest investor in Johannesburg-based AngloGold Ashanti Ltd., Africa’s top producer. The Market Vectors Gold Miners ETF is Einhorn’s seventh-largest holding, according to a Feb. 16 filing.
Goldman predicts gold will reach $1,235 in three months and $1,380 in 12 months. Barclays Capital says the metal will average $1,235 in the fourth quarter. HSBC says it may peak at $1,300 this year.
“I absolutely believe it’s heading into a bubble, but that’s why you buy it,” said Charles Morris, who manages $2.5 billion at HSBC Global Asset Management’s Absolute Return Fund in London. “A bubble is good,” he said, forecasting the metal may rise to $5,000 in five years to explain why 11 percent of his fund is in gold.
World Economic Growth
The metal dropped from the record high as recovering economies pushed up the dollar. The Washington-based IMF increased its forecast for world economic growth in 2010 to 3.9 percent in January, from 3.1 percent in October.
Gold may drop 28 percent to $800 this year if the U.S. raises interest rates, said New York-based Tom Winmill, who manages $120 million at the Midas Fund. Gold generally only earns interest for banks that lend it, so its lure over cash diminishes as borrowing costs increase.
Fed Chairman Ben S. Bernanke said Feb. 24 that the U.S. economy is in a “nascent” recovery that still requires low borrowing costs. U.S. policy makers likely will start raising the target rate for overnight loans between banks from the record low range of zero to 0.25 percent in the third quarter, according to the median estimate of 72 economists.
‘Very Expensive’
“Gold looks very expensive right now,” said Brian Nick, an investment strategist at Barclays Wealth in New York, which manages $221 billion. “Yes, rates are low but are they low enough to produce runaway inflation? Actual inflation numbers haven’t pointed to a worrying trend” that would prompt Fed action to cool an overheating economy, he said.
U.S. consumer prices will rise 2.15 percent this year, compared with last year’s 0.35 percent decline, according to the median of 60 estimates.
Stock-option traders are boosting bearish bets against gold-mining companies’ shares, paying the most in more than a year for options to protect them from declines. Bearish options on the Market Vectors Gold Miners ETF, which tracks 31 producers, were 12 percent more expensive than bullish ones last week, the highest premium since December 2008, according to data compiled by Bloomberg.
Hedge funds and speculators are paring bets that gold will keep rising. There were 200,622 more outstanding futures contracts that profit on the metal gaining than wagers that pay when prices fall as of Feb. 23, down from 262,331 in November, U.S. Commodity Futures Trading Commission data show.
More Bullish
Traders remain more bullish than in past years, with speculative long bets on gold on the New York Mercantile Exchange outnumbering short wagers by more than 7-to-1, compared with less than 5-to-1 in the three years before the September 2008 collapse of Lehman Brothers Holdings Inc. spurred demand for gold’s perceived safety.
Central banks likely will expand their reserves for a second straight year, said CPM Group, a New York commodities researcher. The last time they added to stockpiles, in 1988, gold fell 15 percent and then took 15 years to recoup its losses, suggesting they may not be the best indicator of investment timing. Central banks hold about 18 percent of all gold ever mined.
Through the end of last year, gold was up about 29 percent since its 1980 peak. In that same period, Treasuries rose about 1,090 percent. The S&P 500 earned more than 2,300 percent with dividends reinvested over the three decades. Even cash in the average U.S. checking account outdid gold, gaining 92 percent.
Premature Bubble
The combined holdings of the biggest ETF providers -- State Street Corp., ETF Securities Ltd., Zuercher Kantonalbank and Barclays Capital -- rose more than 16 times from 95 tons five years ago.
It may be premature to declare a bubble by the standards of other commodities. Copper rose 188 percent in the year to May 2006 before falling 38 percent in nine months. Crude oil doubled in about 11 months before peaking in July 2008 and slumped 77 percent in the next five. Gold hasn’t had a 12-month gain of more than 55 percent since October 1980. Adjusted for inflation, it’s still worth about half of its 20th century peak of $850 on Jan. 21, 1980.
Touradji Capital Management LP founder Paul Touradji said in a March 2008 letter to his hedge fund clients that the commodity market was a “buying orgy” of inflated prices. Oil, which had gained 80 percent in the previous 12 months, went up 35 percent more in the next four months. Touradji’s largest equity holding at the end of the fourth quarter was a stake in Toronto-based Barrick Gold Corp., the world’s biggest producer of the metal.
“Gold makes sense as an investment,” said Jeffrey Christian, the managing director of CPM Group. “Just because the price of gold is going up for the 10th year doesn’t mean it’s a bubble.”
To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
Soros Signals Gold Bubble as Goldman Predicts Record (Update2)
George Soros is helping drive up gold prices by doubling his bet in a market even he considers a “bubble” as Goldman Sachs Group Inc., Barclays Capital and HSBC Holdings Plc predict more gains before it bursts.
Soros Fund Management LLC, which manages about $25 billion, increased its investment in SPDR Gold Trust, the world’s largest exchange-traded fund for the metal, by 152 percent in the fourth quarter, a Feb. 16 Securities and Exchange Commission filing shows. While prices have fallen 9.2 percent since reaching a record on Dec. 3, 15 of 22 analysts in a Bloomberg survey say gold will reach a new high, with the median forecast predicting a 17 percent advance to as much as $1,300 an ounce this year.
“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment,” Soros said at the World Economic Forum’s annual meeting in Davos, Switzerland, in January. “The ultimate asset bubble is gold,” he said.
In a Jan. 28 Bloomberg Television interview, the 79-year- old billionaire recalled that former Federal Reserve Chairman Alan Greenspan warned of “irrational exuberance” in financial markets three years before the technology bubble burst in 2000. The Standard & Poor’s 500 Index rose 89 percent in the period. Buying at the start of a bubble is “rational,” Soros said.
Gold’s fourfold rally since the end of 2000 has also attracted money managers John Paulson, Paul Tudor Jones and David Einhorn. Paulson’s Credit Opportunities Fund soared almost sixfold in 2007 by betting that subprime mortgages would plummet. Einhorn said in October that his Greenlight Capital Inc. bought gold to bet against the dollar.
‘Just an Asset’
Tudor Investment Corp., based in Greenwich, Connecticut, increased its stake in Newmont Mining Corp., the largest U.S. gold producer, almost fourfold in the final quarter of 2009. Gold is “just an asset that, like everything else in life, has its time and place. And now is that time,” Paul Tudor Jones said in an October letter to clients.
Funds of the four-biggest ETF firms hold 1,583 metric tons of the metal, according to data compiled by Bloomberg. Only the central banks or governments of the U.S., Germany, Italy and France and the International Monetary Fund hold more.
Investment demand, including in bars and coins, doubled to 1,820 tons last year as investors sought a refuge from the global recession, according to GFMS Ltd. That exceeded jewelry demand for the first time in three decades, the London-based research firm said Jan. 13. Prices reached the record $1,226.56 a decade after the metal fell to a 20-year low of $251.95 amid sales by central banks. Gold was at $1,113.70 today in London.
Dollar Rally
The price fell as the economic recovery sparked a dollar rally that has pushed the U.S. Dollar Index, a gauge against six counterparts, up 4.1 percent this year. Gold ended last week at $1,117.60, up 18 percent in the past 12 months and 21 percent since the start of the third quarter, when Soros accumulated 2.44 million shares of the SPDR Gold Trust.
“Perhaps Soros thinks gold is going to bubble but the bubble is going to last for a while and he wants to profit from it,” said Jeffrey Nichols, managing director of American Precious Metals Advisors and an adviser to central banks and mining companies. “We could have a bubble but gold can reach $2,000 or $3,000 before it’s over.”
Soros’ New York-based firm became the fourth-biggest investor in the SPDR Gold Trust by the end of 2009, 17 years after he made $1 billion breaking the Bank of England’s defense of the pound. The SPDR fund holds 1,107 tons, more than either Switzerland or China.
Paulson, Einhorn
Paulson & Co. is the ETF’s biggest investor, with 31.5 million shares, regulatory filings show. With each representing almost a 10th of an ounce of gold, the hedge fund firm’s stake is the equivalent of about 96 tons, exceeding the holdings of Australia and Kuwait.
New York-based Paulson is also the biggest investor in Johannesburg-based AngloGold Ashanti Ltd., Africa’s top producer. The Market Vectors Gold Miners ETF is Einhorn’s seventh-largest holding, according to a Feb. 16 filing.
Goldman predicts gold will reach $1,235 in three months and $1,380 in 12 months. Barclays Capital says the metal will average $1,235 in the fourth quarter. HSBC says it may peak at $1,300 this year.
“I absolutely believe it’s heading into a bubble, but that’s why you buy it,” said Charles Morris, who manages $2.5 billion at HSBC Global Asset Management’s Absolute Return Fund in London. “A bubble is good,” he said, forecasting the metal may rise to $5,000 in five years to explain why 11 percent of his fund is in gold.
World Economic Growth
The metal dropped from the record high as recovering economies pushed up the dollar. The Washington-based IMF increased its forecast for world economic growth in 2010 to 3.9 percent in January, from 3.1 percent in October.
Gold may drop 28 percent to $800 this year if the U.S. raises interest rates, said New York-based Tom Winmill, who manages $120 million at the Midas Fund. Gold generally only earns interest for banks that lend it, so its lure over cash diminishes as borrowing costs increase.
Fed Chairman Ben S. Bernanke said Feb. 24 that the U.S. economy is in a “nascent” recovery that still requires low borrowing costs. U.S. policy makers likely will start raising the target rate for overnight loans between banks from the record low range of zero to 0.25 percent in the third quarter, according to the median estimate of 72 economists.
‘Very Expensive’
“Gold looks very expensive right now,” said Brian Nick, an investment strategist at Barclays Wealth in New York, which manages $221 billion. “Yes, rates are low but are they low enough to produce runaway inflation? Actual inflation numbers haven’t pointed to a worrying trend” that would prompt Fed action to cool an overheating economy, he said.
U.S. consumer prices will rise 2.15 percent this year, compared with last year’s 0.35 percent decline, according to the median of 60 estimates.
Stock-option traders are boosting bearish bets against gold-mining companies’ shares, paying the most in more than a year for options to protect them from declines. Bearish options on the Market Vectors Gold Miners ETF, which tracks 31 producers, were 12 percent more expensive than bullish ones last week, the highest premium since December 2008, according to data compiled by Bloomberg.
Hedge funds and speculators are paring bets that gold will keep rising. There were 200,622 more outstanding futures contracts that profit on the metal gaining than wagers that pay when prices fall as of Feb. 23, down from 262,331 in November, U.S. Commodity Futures Trading Commission data show.
More Bullish
Traders remain more bullish than in past years, with speculative long bets on gold on the New York Mercantile Exchange outnumbering short wagers by more than 7-to-1, compared with less than 5-to-1 in the three years before the September 2008 collapse of Lehman Brothers Holdings Inc. spurred demand for gold’s perceived safety.
Central banks likely will expand their reserves for a second straight year, said CPM Group, a New York commodities researcher. The last time they added to stockpiles, in 1988, gold fell 15 percent and then took 15 years to recoup its losses, suggesting they may not be the best indicator of investment timing. Central banks hold about 18 percent of all gold ever mined.
Through the end of last year, gold was up about 29 percent since its 1980 peak. In that same period, Treasuries rose about 1,090 percent. The S&P 500 earned more than 2,300 percent with dividends reinvested over the three decades. Even cash in the average U.S. checking account outdid gold, gaining 92 percent.
Premature Bubble
The combined holdings of the biggest ETF providers -- State Street Corp., ETF Securities Ltd., Zuercher Kantonalbank and Barclays Capital -- rose more than 16 times from 95 tons five years ago.
It may be premature to declare a bubble by the standards of other commodities. Copper rose 188 percent in the year to May 2006 before falling 38 percent in nine months. Crude oil doubled in about 11 months before peaking in July 2008 and slumped 77 percent in the next five. Gold hasn’t had a 12-month gain of more than 55 percent since October 1980. Adjusted for inflation, it’s still worth about half of its 20th century peak of $850 on Jan. 21, 1980.
Touradji Capital Management LP founder Paul Touradji said in a March 2008 letter to his hedge fund clients that the commodity market was a “buying orgy” of inflated prices. Oil, which had gained 80 percent in the previous 12 months, went up 35 percent more in the next four months. Touradji’s largest equity holding at the end of the fourth quarter was a stake in Toronto-based Barrick Gold Corp., the world’s biggest producer of the metal.
“Gold makes sense as an investment,” said Jeffrey Christian, the managing director of CPM Group. “Just because the price of gold is going up for the 10th year doesn’t mean it’s a bubble.”
To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
Soros Fund Management LLC, which manages about $25 billion, increased its investment in SPDR Gold Trust, the world’s largest exchange-traded fund for the metal, by 152 percent in the fourth quarter, a Feb. 16 Securities and Exchange Commission filing shows. While prices have fallen 9.2 percent since reaching a record on Dec. 3, 15 of 22 analysts in a Bloomberg survey say gold will reach a new high, with the median forecast predicting a 17 percent advance to as much as $1,300 an ounce this year.
“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment,” Soros said at the World Economic Forum’s annual meeting in Davos, Switzerland, in January. “The ultimate asset bubble is gold,” he said.
In a Jan. 28 Bloomberg Television interview, the 79-year- old billionaire recalled that former Federal Reserve Chairman Alan Greenspan warned of “irrational exuberance” in financial markets three years before the technology bubble burst in 2000. The Standard & Poor’s 500 Index rose 89 percent in the period. Buying at the start of a bubble is “rational,” Soros said.
Gold’s fourfold rally since the end of 2000 has also attracted money managers John Paulson, Paul Tudor Jones and David Einhorn. Paulson’s Credit Opportunities Fund soared almost sixfold in 2007 by betting that subprime mortgages would plummet. Einhorn said in October that his Greenlight Capital Inc. bought gold to bet against the dollar.
‘Just an Asset’
Tudor Investment Corp., based in Greenwich, Connecticut, increased its stake in Newmont Mining Corp., the largest U.S. gold producer, almost fourfold in the final quarter of 2009. Gold is “just an asset that, like everything else in life, has its time and place. And now is that time,” Paul Tudor Jones said in an October letter to clients.
Funds of the four-biggest ETF firms hold 1,583 metric tons of the metal, according to data compiled by Bloomberg. Only the central banks or governments of the U.S., Germany, Italy and France and the International Monetary Fund hold more.
Investment demand, including in bars and coins, doubled to 1,820 tons last year as investors sought a refuge from the global recession, according to GFMS Ltd. That exceeded jewelry demand for the first time in three decades, the London-based research firm said Jan. 13. Prices reached the record $1,226.56 a decade after the metal fell to a 20-year low of $251.95 amid sales by central banks. Gold was at $1,113.70 today in London.
Dollar Rally
The price fell as the economic recovery sparked a dollar rally that has pushed the U.S. Dollar Index, a gauge against six counterparts, up 4.1 percent this year. Gold ended last week at $1,117.60, up 18 percent in the past 12 months and 21 percent since the start of the third quarter, when Soros accumulated 2.44 million shares of the SPDR Gold Trust.
“Perhaps Soros thinks gold is going to bubble but the bubble is going to last for a while and he wants to profit from it,” said Jeffrey Nichols, managing director of American Precious Metals Advisors and an adviser to central banks and mining companies. “We could have a bubble but gold can reach $2,000 or $3,000 before it’s over.”
Soros’ New York-based firm became the fourth-biggest investor in the SPDR Gold Trust by the end of 2009, 17 years after he made $1 billion breaking the Bank of England’s defense of the pound. The SPDR fund holds 1,107 tons, more than either Switzerland or China.
Paulson, Einhorn
Paulson & Co. is the ETF’s biggest investor, with 31.5 million shares, regulatory filings show. With each representing almost a 10th of an ounce of gold, the hedge fund firm’s stake is the equivalent of about 96 tons, exceeding the holdings of Australia and Kuwait.
New York-based Paulson is also the biggest investor in Johannesburg-based AngloGold Ashanti Ltd., Africa’s top producer. The Market Vectors Gold Miners ETF is Einhorn’s seventh-largest holding, according to a Feb. 16 filing.
Goldman predicts gold will reach $1,235 in three months and $1,380 in 12 months. Barclays Capital says the metal will average $1,235 in the fourth quarter. HSBC says it may peak at $1,300 this year.
“I absolutely believe it’s heading into a bubble, but that’s why you buy it,” said Charles Morris, who manages $2.5 billion at HSBC Global Asset Management’s Absolute Return Fund in London. “A bubble is good,” he said, forecasting the metal may rise to $5,000 in five years to explain why 11 percent of his fund is in gold.
World Economic Growth
The metal dropped from the record high as recovering economies pushed up the dollar. The Washington-based IMF increased its forecast for world economic growth in 2010 to 3.9 percent in January, from 3.1 percent in October.
Gold may drop 28 percent to $800 this year if the U.S. raises interest rates, said New York-based Tom Winmill, who manages $120 million at the Midas Fund. Gold generally only earns interest for banks that lend it, so its lure over cash diminishes as borrowing costs increase.
Fed Chairman Ben S. Bernanke said Feb. 24 that the U.S. economy is in a “nascent” recovery that still requires low borrowing costs. U.S. policy makers likely will start raising the target rate for overnight loans between banks from the record low range of zero to 0.25 percent in the third quarter, according to the median estimate of 72 economists.
‘Very Expensive’
“Gold looks very expensive right now,” said Brian Nick, an investment strategist at Barclays Wealth in New York, which manages $221 billion. “Yes, rates are low but are they low enough to produce runaway inflation? Actual inflation numbers haven’t pointed to a worrying trend” that would prompt Fed action to cool an overheating economy, he said.
U.S. consumer prices will rise 2.15 percent this year, compared with last year’s 0.35 percent decline, according to the median of 60 estimates.
Stock-option traders are boosting bearish bets against gold-mining companies’ shares, paying the most in more than a year for options to protect them from declines. Bearish options on the Market Vectors Gold Miners ETF, which tracks 31 producers, were 12 percent more expensive than bullish ones last week, the highest premium since December 2008, according to data compiled by Bloomberg.
Hedge funds and speculators are paring bets that gold will keep rising. There were 200,622 more outstanding futures contracts that profit on the metal gaining than wagers that pay when prices fall as of Feb. 23, down from 262,331 in November, U.S. Commodity Futures Trading Commission data show.
More Bullish
Traders remain more bullish than in past years, with speculative long bets on gold on the New York Mercantile Exchange outnumbering short wagers by more than 7-to-1, compared with less than 5-to-1 in the three years before the September 2008 collapse of Lehman Brothers Holdings Inc. spurred demand for gold’s perceived safety.
Central banks likely will expand their reserves for a second straight year, said CPM Group, a New York commodities researcher. The last time they added to stockpiles, in 1988, gold fell 15 percent and then took 15 years to recoup its losses, suggesting they may not be the best indicator of investment timing. Central banks hold about 18 percent of all gold ever mined.
Through the end of last year, gold was up about 29 percent since its 1980 peak. In that same period, Treasuries rose about 1,090 percent. The S&P 500 earned more than 2,300 percent with dividends reinvested over the three decades. Even cash in the average U.S. checking account outdid gold, gaining 92 percent.
Premature Bubble
The combined holdings of the biggest ETF providers -- State Street Corp., ETF Securities Ltd., Zuercher Kantonalbank and Barclays Capital -- rose more than 16 times from 95 tons five years ago.
It may be premature to declare a bubble by the standards of other commodities. Copper rose 188 percent in the year to May 2006 before falling 38 percent in nine months. Crude oil doubled in about 11 months before peaking in July 2008 and slumped 77 percent in the next five. Gold hasn’t had a 12-month gain of more than 55 percent since October 1980. Adjusted for inflation, it’s still worth about half of its 20th century peak of $850 on Jan. 21, 1980.
Touradji Capital Management LP founder Paul Touradji said in a March 2008 letter to his hedge fund clients that the commodity market was a “buying orgy” of inflated prices. Oil, which had gained 80 percent in the previous 12 months, went up 35 percent more in the next four months. Touradji’s largest equity holding at the end of the fourth quarter was a stake in Toronto-based Barrick Gold Corp., the world’s biggest producer of the metal.
“Gold makes sense as an investment,” said Jeffrey Christian, the managing director of CPM Group. “Just because the price of gold is going up for the 10th year doesn’t mean it’s a bubble.”
To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
Greece Now, U.K. Next as Scots Ready for Pound Plunge (Update2)
While the eyes of the world focus on Greece’s debt crisis, investors in Edinburgh are busy preparing for the U.K. to be next.
Turcan Connell, which caters to rich families, expects the pound to lose between 20 percent and 30 percent against the dollar once investors turn their sights on Britain as the government sells a record amount of debt. Sterling slid to a 10- month low versus the U.S. currency today.
“Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,” Haig Bathgate, head of strategy at Turcan Connell, said at the company’s offices in the Scottish capital. “The U.K. is in a similar predicament. It could be hit very hard.”
Money managers in Edinburgh, where investment decisions have been made on behalf of insurers, pensioners and the wealthy for two centuries, are maneuvering to protect assets from the U.K. economy as it limps out of its worst recession on record.
Bruce Stout, whose Murray International Trust Plc in Edinburgh has doubled over the past five years, said the chance of a plummeting pound are “better than even” and his biggest holdings are in Asia and Latin America. He called sterling a “very vulnerable currency.”
U.K. fund managers at Aegon Asset Management and Scottish Widows Investment Partnership, together responsible for more than 30 billion pounds ($45 billion), said in January they are buying companies that do the bulk of their business abroad.
‘Very Dire’
“When there’s a fiscal crisis, the markets tend to punish that country very quickly,” said Bathgate, who is responsible for 560 million pounds. “I don’t think Britain is in nearly as bad a position as Greece. We’ve got a good taxation system, however the position of the economy is very dire.”
The U.K.’s budget deficit is roughly the same as Greece’s, both exceeding 12 percent of economic output. Moody’s Investors Service and Standard & Poor’s said last week they may cut Greece’s credit rating as the five-month-old government struggles to curb spending and control its debt.
Concern that Greece won’t be able to cut its deficit helped send the euro 5.6 percent lower against the dollar this year. The euro today strengthened to a three-month high against the pound, trading above 90 pence.
British Prime Minister Gordon Brown’s government in December increased its planned gilt sales for the financial year ending this month to a record 225.1 billion pounds from the 220 billion pounds announced in April. Moody’s Investors Service said in December the U.K. may “test the Aaa boundaries.”
Hung Parliament
Brown must call an election by June and some polls signal that no party will emerge with a clear majority.
The pound fell below $1.50 today for the first time since May last year, taking this year’s decline to 8 percent. A YouGov Plc poll published yesterday showed Brown’s Labour Party only two percentage points behind the opposition Conservatives, the narrowest margin for more than two years.
A so-called hung parliament or signs retail sales and economic growth aren’t recovering as expected might be the catalysts for the pound to accelerate declines, Bathgate said. The Office for National Statistics last week revised up the rate of economic growth for the fourth quarter to 0.3 percent from a previous estimate of 0.1 percent.
“There could be a number of triggers,” he said. “If there’s indecision about how you deal with a problem, that’s when things start to fall apart. We could be in the position where the spotlight turns to the U.K.”
UBS Report
The pound may fall below parity with the euro and drop to the lowest level against the dollar since the mid-1980s should the U.K. cut spending too quickly, Mansoor Mohi-Uddin, chief currency strategist at UBS AG, said in a Feb. 24 report.
Sterling slid to a nine-month nadir against the dollar last week, trading at $1.52. Zurich-based UBS, the world’s second- biggest currency trader, predicted it could fall “quickly back” to $1.05 or below.
The pound may come under further pressure with the Bank of England resuming its quantitative-easing program, a process of injecting new money into the economy, within the next three to four months, Bathgate said. Policy maker Adam Posen said Feb. 24 the central bank may expand the 200 billion-pound asset-purchase plan should the economic recovery prove weaker than expected.
“If it comes back then we’re likely to be the only people doing that in the world at that time,” said Bathgate. “My strong view is the government is trying to create inflation and devalue the currency.”
Selling Bonds
Bathgate said he sold conventional U.K. government-bond investments at the end of 2008 and only holds index-linked securities because of concern inflation may accelerate.
The firm also has reduced holdings in corporate bonds because of the potential “knock-on impact” from a decline in government securities.
The yield on the benchmark 10-year gilt dropped 24 basis points to 4.03 percent last week. The yield on Greek 10-year bonds fell 6 points to 6.39 percent. German bunds, the region’s benchmark debt, declined 18 points to 3.10 percent.
Turcan Connell, whose clients typically have at least 5 million pounds to invest, was founded in 1998 and oversees about 1 billion pounds in total. Bathgate is responsible for allocating money to different funds, and half is currently in stocks portfolios with 30 percent in hedge funds and other so- called alternative investments.
To contact the reporter on this story: Rodney Jefferson in Edinburgh at r.jefferson@bloomberg.net
Turcan Connell, which caters to rich families, expects the pound to lose between 20 percent and 30 percent against the dollar once investors turn their sights on Britain as the government sells a record amount of debt. Sterling slid to a 10- month low versus the U.S. currency today.
“Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,” Haig Bathgate, head of strategy at Turcan Connell, said at the company’s offices in the Scottish capital. “The U.K. is in a similar predicament. It could be hit very hard.”
Money managers in Edinburgh, where investment decisions have been made on behalf of insurers, pensioners and the wealthy for two centuries, are maneuvering to protect assets from the U.K. economy as it limps out of its worst recession on record.
Bruce Stout, whose Murray International Trust Plc in Edinburgh has doubled over the past five years, said the chance of a plummeting pound are “better than even” and his biggest holdings are in Asia and Latin America. He called sterling a “very vulnerable currency.”
U.K. fund managers at Aegon Asset Management and Scottish Widows Investment Partnership, together responsible for more than 30 billion pounds ($45 billion), said in January they are buying companies that do the bulk of their business abroad.
‘Very Dire’
“When there’s a fiscal crisis, the markets tend to punish that country very quickly,” said Bathgate, who is responsible for 560 million pounds. “I don’t think Britain is in nearly as bad a position as Greece. We’ve got a good taxation system, however the position of the economy is very dire.”
The U.K.’s budget deficit is roughly the same as Greece’s, both exceeding 12 percent of economic output. Moody’s Investors Service and Standard & Poor’s said last week they may cut Greece’s credit rating as the five-month-old government struggles to curb spending and control its debt.
Concern that Greece won’t be able to cut its deficit helped send the euro 5.6 percent lower against the dollar this year. The euro today strengthened to a three-month high against the pound, trading above 90 pence.
British Prime Minister Gordon Brown’s government in December increased its planned gilt sales for the financial year ending this month to a record 225.1 billion pounds from the 220 billion pounds announced in April. Moody’s Investors Service said in December the U.K. may “test the Aaa boundaries.”
Hung Parliament
Brown must call an election by June and some polls signal that no party will emerge with a clear majority.
The pound fell below $1.50 today for the first time since May last year, taking this year’s decline to 8 percent. A YouGov Plc poll published yesterday showed Brown’s Labour Party only two percentage points behind the opposition Conservatives, the narrowest margin for more than two years.
A so-called hung parliament or signs retail sales and economic growth aren’t recovering as expected might be the catalysts for the pound to accelerate declines, Bathgate said. The Office for National Statistics last week revised up the rate of economic growth for the fourth quarter to 0.3 percent from a previous estimate of 0.1 percent.
“There could be a number of triggers,” he said. “If there’s indecision about how you deal with a problem, that’s when things start to fall apart. We could be in the position where the spotlight turns to the U.K.”
UBS Report
The pound may fall below parity with the euro and drop to the lowest level against the dollar since the mid-1980s should the U.K. cut spending too quickly, Mansoor Mohi-Uddin, chief currency strategist at UBS AG, said in a Feb. 24 report.
Sterling slid to a nine-month nadir against the dollar last week, trading at $1.52. Zurich-based UBS, the world’s second- biggest currency trader, predicted it could fall “quickly back” to $1.05 or below.
The pound may come under further pressure with the Bank of England resuming its quantitative-easing program, a process of injecting new money into the economy, within the next three to four months, Bathgate said. Policy maker Adam Posen said Feb. 24 the central bank may expand the 200 billion-pound asset-purchase plan should the economic recovery prove weaker than expected.
“If it comes back then we’re likely to be the only people doing that in the world at that time,” said Bathgate. “My strong view is the government is trying to create inflation and devalue the currency.”
Selling Bonds
Bathgate said he sold conventional U.K. government-bond investments at the end of 2008 and only holds index-linked securities because of concern inflation may accelerate.
The firm also has reduced holdings in corporate bonds because of the potential “knock-on impact” from a decline in government securities.
The yield on the benchmark 10-year gilt dropped 24 basis points to 4.03 percent last week. The yield on Greek 10-year bonds fell 6 points to 6.39 percent. German bunds, the region’s benchmark debt, declined 18 points to 3.10 percent.
Turcan Connell, whose clients typically have at least 5 million pounds to invest, was founded in 1998 and oversees about 1 billion pounds in total. Bathgate is responsible for allocating money to different funds, and half is currently in stocks portfolios with 30 percent in hedge funds and other so- called alternative investments.
To contact the reporter on this story: Rodney Jefferson in Edinburgh at r.jefferson@bloomberg.net
Astellas Makes Hostile $3.5 Billion Offer for OSI (Update2)
Astellas Pharma Inc., Japan’s second-largest drugmaker, will begin a $3.5 billion hostile takeover offer for OSI Pharmaceuticals Inc. to expand in treatments for cancer.
The bid values Melville, New York-based OSI at $52 a share in cash, 40 percent above the closing price of $37.02 on Feb. 26, Astellas said in a statement. The offer isn’t subject to financing conditions, the Tokyo-based company said.
The hostile bid is the second in a year by Astellas. The company offered $1.1 billion for CV Therapeutics Inc. on Feb. 27, 2009. The Japanese drugmaker walked away after CV, of Palo Alto, California, agreed to be acquired by Gilead Sciences Inc. for $1.4 billion.
“This offer follows our attempts over the past 13 months to engage OSI in meaningful discussions,” Astellas Chief Executive Officer Masafumi Nogimori said in the statement. “We firmly believe in the compelling strategic rationale behind the combination.” OSI responded that the offer “very significantly undervalues” the company, Astellas said.
OSI surged $16.96, or 46 percent, to $53.98 at 7 a.m. in New York in trading before the Nasdaq Stock Market opened. Astellas, which made the announcement after the Japanese stock market closed, was unchanged at 3,345 yen in Tokyo trading.
U.S. regulators are considering an application from OSI and its partner, Roche Holding AG, to expand use of their Tarceva cancer drug even after it failed to win the backing of an advisory panel, the companies said in January. OSI shares slumped in May after the Tarceva didn’t work as well as expected in lung cancer study.
Roche agreed in 2008 to cut the price of Tarceva for the U.K.’s National Health Service, gaining the recommendation of a government agency that advises on the cost-effectiveness of medicines.
Citigroup Inc. is Astellas’s financial adviser, while Morrison & Foerster LLP is providing legal counsel.
Kathy Galante, a spokeswoman for OSI, didn’t immediately return a request for comment before business hours.
To contact the reporter on this story: Phil Serafino in Paris at pserafino@bloomberg.net.
The bid values Melville, New York-based OSI at $52 a share in cash, 40 percent above the closing price of $37.02 on Feb. 26, Astellas said in a statement. The offer isn’t subject to financing conditions, the Tokyo-based company said.
The hostile bid is the second in a year by Astellas. The company offered $1.1 billion for CV Therapeutics Inc. on Feb. 27, 2009. The Japanese drugmaker walked away after CV, of Palo Alto, California, agreed to be acquired by Gilead Sciences Inc. for $1.4 billion.
“This offer follows our attempts over the past 13 months to engage OSI in meaningful discussions,” Astellas Chief Executive Officer Masafumi Nogimori said in the statement. “We firmly believe in the compelling strategic rationale behind the combination.” OSI responded that the offer “very significantly undervalues” the company, Astellas said.
OSI surged $16.96, or 46 percent, to $53.98 at 7 a.m. in New York in trading before the Nasdaq Stock Market opened. Astellas, which made the announcement after the Japanese stock market closed, was unchanged at 3,345 yen in Tokyo trading.
U.S. regulators are considering an application from OSI and its partner, Roche Holding AG, to expand use of their Tarceva cancer drug even after it failed to win the backing of an advisory panel, the companies said in January. OSI shares slumped in May after the Tarceva didn’t work as well as expected in lung cancer study.
Roche agreed in 2008 to cut the price of Tarceva for the U.K.’s National Health Service, gaining the recommendation of a government agency that advises on the cost-effectiveness of medicines.
Citigroup Inc. is Astellas’s financial adviser, while Morrison & Foerster LLP is providing legal counsel.
Kathy Galante, a spokeswoman for OSI, didn’t immediately return a request for comment before business hours.
To contact the reporter on this story: Phil Serafino in Paris at pserafino@bloomberg.net.
Rehn Urges Greece to Take New Steps to Cut Budget Gap (Update1)
European Union Monetary Affairs Commissioner Olli Rehn urged Greece to quickly outline new ways to cut the region’s largest budget deficit as governments craft a possible rescue package for the cash-strapped nation.
“I want to encourage the Greek authorities to consider and announce additional measures in the coming days,” Rehn told reporters in Athens today after meeting Greek Finance Minister George Papaconstantinou. “Given that risks related to macroeconomic and market developments are materializing, additional consolidation measures are necessary.”
European leaders are pushing Greece to redouble efforts to regain control of its budget so they can justify to taxpayers any aid they may have to provide in the event Prime Minister George Papandreou’s government can’t finance its debt. Concern about Greece’s finances pushed the risk premium to buy its bonds over comparable German debt to an 11-year high in January.
“It’s clear they’ve been working on a contingency plan because they don’t want a disaster,” Erik Nielsen, chief European economist at Goldman Sachs Group Inc. in London, told Bloomberg Television today. “There’s no appetite for default.”
German lawmakers say euro-area officials are devising a plan to grant Greece about 25 billion euros ($34 billion) in aid should the need arise, possibly by using state-owned lenders such as the KfW Group to buy its bonds. Greece needs to raise funds to cover more than 20 billion euros of bonds and notes maturing in April and May.
Bonds Gain
The prospect of aid to Greece led to a decline today in the cost of insuring against a Greek default as credit-default swaps linked to Greek government bonds tumbled 28.5 basis points to 335.5 today, the lowest since Jan. 27, according to CMA DataVision prices. The difference in the yield between 10-year Greek bonds and benchmark German bunds also narrowed today to 311 basis points, the lowest since Feb. 15., as investors became more optimistic about the southern European nation.
“We have a number of options before us, including public and public-private ones,” French Finance Minister Christine Lagarde told reporters near Paris today. “All of this is on the condition that Greece meets its commitments.”
Deadline Approaching
Rehn is in the Greek capital after European officials pored over the government’s books to verify it’s doing enough to meet its pledge to knock 4 percentage points off its budget deficit this year from last year’s 12.7 percent of gross domestic product. The country has until March 16 to satisfy fellow EU governments that its deficit-reduction plan is on track and faces being pressed to increase consumer taxes and lower capital spending if it can’t show sufficient progress.
Papaconstantinou said today that it’s Greece’s “national duty” to tackle the budget shortfall and the government will “do anything including new measures” to meet the goals, which include reducing the gap below the EU’s 3 percent limit in 2012.
German Chancellor Angela Merkel and Luxembourg Prime Minister Jean-Claude Juncker both signaled yesterday that Greece must take more steps to cut its budget gap and can’t rely on taxpayers elsewhere to help until it does.
“Greece has to do its homework,” said Merkel, who will meet Papandreou in Berlin on March 5.
Juncker, who speaks for euro-area finance ministers, told Handelsblatt newspaper today that European governments are prepared to use “instruments of torture” to punish investors betting against Greece so long as the country sticks to stringent deficit cuts.
Unspecified Action
EU leaders ordered the country on Feb. 11 to cut its budget deficit, while promising “determined” yet unspecified action to help if needed. European Central Bank Executive Board member Juergen Stark also attended Rehn’s talks today, although he declined to comment to reporters.
Adding to the political pressure, Greece’s fiscal strategy may soon be tested by investors as it readies a sale of as much as 5 billion euros of 10-year notes. Fund managers who may take part in the issue say Greece must offer the biggest premium over benchmark German debt since 1998, paying a coupon of about 7 percent.
To contact the reporters on this story: Jonathan Stearns in Athens at jstearns2@bloomberg.netNatalie Weeks in Athens at nweeks2@bloomberg.net
“I want to encourage the Greek authorities to consider and announce additional measures in the coming days,” Rehn told reporters in Athens today after meeting Greek Finance Minister George Papaconstantinou. “Given that risks related to macroeconomic and market developments are materializing, additional consolidation measures are necessary.”
European leaders are pushing Greece to redouble efforts to regain control of its budget so they can justify to taxpayers any aid they may have to provide in the event Prime Minister George Papandreou’s government can’t finance its debt. Concern about Greece’s finances pushed the risk premium to buy its bonds over comparable German debt to an 11-year high in January.
“It’s clear they’ve been working on a contingency plan because they don’t want a disaster,” Erik Nielsen, chief European economist at Goldman Sachs Group Inc. in London, told Bloomberg Television today. “There’s no appetite for default.”
German lawmakers say euro-area officials are devising a plan to grant Greece about 25 billion euros ($34 billion) in aid should the need arise, possibly by using state-owned lenders such as the KfW Group to buy its bonds. Greece needs to raise funds to cover more than 20 billion euros of bonds and notes maturing in April and May.
Bonds Gain
The prospect of aid to Greece led to a decline today in the cost of insuring against a Greek default as credit-default swaps linked to Greek government bonds tumbled 28.5 basis points to 335.5 today, the lowest since Jan. 27, according to CMA DataVision prices. The difference in the yield between 10-year Greek bonds and benchmark German bunds also narrowed today to 311 basis points, the lowest since Feb. 15., as investors became more optimistic about the southern European nation.
“We have a number of options before us, including public and public-private ones,” French Finance Minister Christine Lagarde told reporters near Paris today. “All of this is on the condition that Greece meets its commitments.”
Deadline Approaching
Rehn is in the Greek capital after European officials pored over the government’s books to verify it’s doing enough to meet its pledge to knock 4 percentage points off its budget deficit this year from last year’s 12.7 percent of gross domestic product. The country has until March 16 to satisfy fellow EU governments that its deficit-reduction plan is on track and faces being pressed to increase consumer taxes and lower capital spending if it can’t show sufficient progress.
Papaconstantinou said today that it’s Greece’s “national duty” to tackle the budget shortfall and the government will “do anything including new measures” to meet the goals, which include reducing the gap below the EU’s 3 percent limit in 2012.
German Chancellor Angela Merkel and Luxembourg Prime Minister Jean-Claude Juncker both signaled yesterday that Greece must take more steps to cut its budget gap and can’t rely on taxpayers elsewhere to help until it does.
“Greece has to do its homework,” said Merkel, who will meet Papandreou in Berlin on March 5.
Juncker, who speaks for euro-area finance ministers, told Handelsblatt newspaper today that European governments are prepared to use “instruments of torture” to punish investors betting against Greece so long as the country sticks to stringent deficit cuts.
Unspecified Action
EU leaders ordered the country on Feb. 11 to cut its budget deficit, while promising “determined” yet unspecified action to help if needed. European Central Bank Executive Board member Juergen Stark also attended Rehn’s talks today, although he declined to comment to reporters.
Adding to the political pressure, Greece’s fiscal strategy may soon be tested by investors as it readies a sale of as much as 5 billion euros of 10-year notes. Fund managers who may take part in the issue say Greece must offer the biggest premium over benchmark German debt since 1998, paying a coupon of about 7 percent.
To contact the reporters on this story: Jonathan Stearns in Athens at jstearns2@bloomberg.netNatalie Weeks in Athens at nweeks2@bloomberg.net
Futures Trading Shows Rate-Increase Bets Fading: Canada Credit
Yields on derivatives that gauge Canadian interest-rate expectations are falling as traders bet Bank of Canada Governor Mark Carney will be less aggressive in raising borrowing costs than earlier thought.
The bankers’ acceptances futures contract due Sept. 13 slumped four basis points to yield 0.84 percent, down from 0.97 percent at the end of last week. The contracts have settled at an average of 17 basis points above the central bank’s overnight rate since Bloomberg started tracking the gap in 1992.
Declining expectations for interest-rate increases suggest Canada’s short-term bonds may close the gap in yields with their U.S. counterparts, said Eric Lascelles, chief economics and rates strategist at Toronto-Dominion Bank in Toronto.
“It’s been very tempting for many investors to conclude that rate hikes must surely be in the immediate offing,” Lascelles said. “The market ultimately may be disappointed in terms of when the central bank actually hikes.”
Canada’s central bank will make its next interest rate decision on March 2, in an announcement slated for 9 a.m. New York time. Carney has pledged to keep the bank’s rate at a record low 0.25 percent through June unless the inflation outlook shifts.
Elsewhere in credit markets, the extra yield investors demand to own Canada company bonds instead of government debt ended yesterday at 120 basis points, compared with 123 basis points at the end of January, according to the Bank of America Merrill Lynch Canadian Corporate Index.
The debt has returned 2.19 percent so far this year, including reinvested interest, compared with 1.37 percent in the same period last year, according to the index.
Two-Year Notes
Investors boosted expectations for interest-rate increases earlier this month after reports of faster-than-expected growth in November and higher consumer prices in January, on the belief that Canada’s inflation-targeting central bank will have to accelerate its monetary-tightening plan, said Lascelles.
The yield on Canada’s benchmark two-year bond was 47 basis points above that of U.S. two-year bonds as of 9:21 a.m. New York time, indicating investors expect the Bank of Canada to raise rates earlier and faster than the Federal Reserve. A more appropriate spread is 35 to 40 basis points, Lascelles said.
By contrast, the yield advantage favors Canada’s 10-year and 30-year bonds by 23 basis points and 57 basis points, respectively, over the equivalent U.S. securities.
Canada’s consumer prices rose 1.9 percent last month, the fastest pace in more than a year, bringing inflation close to the Bank of Canada’s 2 percent target. Core inflation, which the bank uses to gauge future inflation trends, rose to 2 percent from 1.5 percent in December.
Rate Speculation
Interest rate markets are pricing in a 72 percent chance of a 25-basis-point increase at the bank’s July 20 decision, according to Bank of Nova Scotia estimates. The implied probability of a 25 basis-point increase at the Sept. 8 announcement is 100 percent, with a 56 percent chance of an additional 25 basis-points, which would bring the central bank rate to 0.75 percent, according to Bank of Nova Scotia.
By contrast, Lascelles said the central bank will raise the benchmark lending rate in the fourth quarter, which may be earlier than the Fed and explains why the Canadian bond yield is higher.
Economists surveyed by Bloomberg News expect the central bank to raise rates for the first time in the third quarter and bring it to 2.25 percent by the second quarter of next year, according to the median of six responses.
“Two-year bonds have a tendency to overshoot a bit,” said Sebastien Lavoie, an economist at Laurentian Bank Securities in Montreal who predicts the central bank will move in the third quarter. “With the Canadian dollar that’s not far from parity and U.S. demand that’s weaker, the next neutral zone for the benchmark rate will be lower than it was in the past. If markets don’t understand that, the two-year could overshoot more than in previous tightening cycles.”
To contact the reporters on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net; Chris Fournier in Montreal at cfournier3@bloomberg.net.
The bankers’ acceptances futures contract due Sept. 13 slumped four basis points to yield 0.84 percent, down from 0.97 percent at the end of last week. The contracts have settled at an average of 17 basis points above the central bank’s overnight rate since Bloomberg started tracking the gap in 1992.
Declining expectations for interest-rate increases suggest Canada’s short-term bonds may close the gap in yields with their U.S. counterparts, said Eric Lascelles, chief economics and rates strategist at Toronto-Dominion Bank in Toronto.
“It’s been very tempting for many investors to conclude that rate hikes must surely be in the immediate offing,” Lascelles said. “The market ultimately may be disappointed in terms of when the central bank actually hikes.”
Canada’s central bank will make its next interest rate decision on March 2, in an announcement slated for 9 a.m. New York time. Carney has pledged to keep the bank’s rate at a record low 0.25 percent through June unless the inflation outlook shifts.
Elsewhere in credit markets, the extra yield investors demand to own Canada company bonds instead of government debt ended yesterday at 120 basis points, compared with 123 basis points at the end of January, according to the Bank of America Merrill Lynch Canadian Corporate Index.
The debt has returned 2.19 percent so far this year, including reinvested interest, compared with 1.37 percent in the same period last year, according to the index.
Two-Year Notes
Investors boosted expectations for interest-rate increases earlier this month after reports of faster-than-expected growth in November and higher consumer prices in January, on the belief that Canada’s inflation-targeting central bank will have to accelerate its monetary-tightening plan, said Lascelles.
The yield on Canada’s benchmark two-year bond was 47 basis points above that of U.S. two-year bonds as of 9:21 a.m. New York time, indicating investors expect the Bank of Canada to raise rates earlier and faster than the Federal Reserve. A more appropriate spread is 35 to 40 basis points, Lascelles said.
By contrast, the yield advantage favors Canada’s 10-year and 30-year bonds by 23 basis points and 57 basis points, respectively, over the equivalent U.S. securities.
Canada’s consumer prices rose 1.9 percent last month, the fastest pace in more than a year, bringing inflation close to the Bank of Canada’s 2 percent target. Core inflation, which the bank uses to gauge future inflation trends, rose to 2 percent from 1.5 percent in December.
Rate Speculation
Interest rate markets are pricing in a 72 percent chance of a 25-basis-point increase at the bank’s July 20 decision, according to Bank of Nova Scotia estimates. The implied probability of a 25 basis-point increase at the Sept. 8 announcement is 100 percent, with a 56 percent chance of an additional 25 basis-points, which would bring the central bank rate to 0.75 percent, according to Bank of Nova Scotia.
By contrast, Lascelles said the central bank will raise the benchmark lending rate in the fourth quarter, which may be earlier than the Fed and explains why the Canadian bond yield is higher.
Economists surveyed by Bloomberg News expect the central bank to raise rates for the first time in the third quarter and bring it to 2.25 percent by the second quarter of next year, according to the median of six responses.
“Two-year bonds have a tendency to overshoot a bit,” said Sebastien Lavoie, an economist at Laurentian Bank Securities in Montreal who predicts the central bank will move in the third quarter. “With the Canadian dollar that’s not far from parity and U.S. demand that’s weaker, the next neutral zone for the benchmark rate will be lower than it was in the past. If markets don’t understand that, the two-year could overshoot more than in previous tightening cycles.”
To contact the reporters on this story: Alexandre Deslongchamps in Ottawa at adeslongcham@bloomberg.net; Chris Fournier in Montreal at cfournier3@bloomberg.net.
Coca-Cola Is Said to Weigh $15 Billion Purchase of Bottler Unit
Coca-Cola Co., the world’s biggest soda maker, is in talks to buy the North American operations of bottler Coca-Cola Enterprises Inc. for almost $15 billion including debt, according to two people with knowledge of the discussions.
The sides may reach an agreement within days or the talks may fall apart, said the people, who declined to be identified because the negotiations are private. In the transaction under discussion, Coca-Cola would sell bottling operations in Scandinavia and Germany to Coca-Cola Enterprises, its largest bottler, the people said.
A purchase would follow PepsiCo Inc.’s move to bring its bottling operations in-house as both companies try to reduce expenses and turn around the U.S. market, where soft-drink volume sales have declined since 2005. Coca-Cola Chief Executive Officer Muhtar Kent has introduced new packaging and pricing for Coke in North America to draw customers in addition to cutting supply-chain costs.
“We expect that Coca-Cola Enterprises will not grow revenue significantly,” Sachin Shah, a special situations and merger arbitrage strategist at Capstone Global Markets LLC in New York, said yesterday in a telephone interview. Buying the bottler “extracts synergies and cost savings,” he said.
Dana Bolden, a Coca-Cola spokesman, and John Downs, a spokesman for Coca-Cola Enterprises, declined to comment.
The Wall Street Journal reported the talks earlier.
As of yesterday’s close, Coca-Cola Enterprises, based in Atlanta, had a market value of $9.4 billion. The stock soared 27 percent to $24.35 in extended trading.
Coca-Cola, also based in Atlanta, rose 33 cents to $55.16 in New York Stock Exchange composite trading yesterday. The stock rose 26 percent last year, while PepsiCo advanced 11 percent.
Beverage Concentrate
Coca-Cola and PepsiCo sell beverage concentrate and syrup to licensed bottlers, which add water and other ingredients, put the mixture in bottles and cans, and sell it. In 1999, PepsiCo followed Coca-Cola’s lead by spinning off its capital-intensive bottling operations to create Pepsi Bottling Group Inc. Coca- Cola currently owns about 34 percent of Coca-Cola Enterprises.
PepsiCo, the second-largest soft-drink maker, agreed in August to take control of its two biggest bottlers for about $7.8 billion, allowing the soda maker to garner about $300 million in cost savings and revenue.
PepsiCo’s takeovers of its bottlers, Pepsi Bottling Group and PepsiAmericas Inc., will give it control of about 80 percent of its North American beverage market. The acquisitions are expected to be completed by the end of the first quarter, PepsiCo, based in Purchase, New York, said in a regulatory filing Jan. 11.
Volume Growth
North American volume at Coca-Cola Enterprises declined 5 percent last year, while net pricing per case increased 6.5 percent, the company said in a Feb. 10 earnings report.
Coca-Cola Enterprises is committed to a return to volume growth in North America, Chief Executive Officer John F. Brock said in a Feb. 17 presentation at the Consumer Analyst Group of New York conference in Boca Raton, Florida. Results improved in the fourth quarter of last year compared with the third quarter, he said.
“Overall, we must continue to manage our North American business in a way that does deliver improving results and provides the resources we need to invest in the business,” he said at the time.
To contact the reporter on this story: Zachary R. Mider in New York at mider1@bloomberg.net; Duane D. Stanford in Atlanta at dstanford2@bloomberg.net
The sides may reach an agreement within days or the talks may fall apart, said the people, who declined to be identified because the negotiations are private. In the transaction under discussion, Coca-Cola would sell bottling operations in Scandinavia and Germany to Coca-Cola Enterprises, its largest bottler, the people said.
A purchase would follow PepsiCo Inc.’s move to bring its bottling operations in-house as both companies try to reduce expenses and turn around the U.S. market, where soft-drink volume sales have declined since 2005. Coca-Cola Chief Executive Officer Muhtar Kent has introduced new packaging and pricing for Coke in North America to draw customers in addition to cutting supply-chain costs.
“We expect that Coca-Cola Enterprises will not grow revenue significantly,” Sachin Shah, a special situations and merger arbitrage strategist at Capstone Global Markets LLC in New York, said yesterday in a telephone interview. Buying the bottler “extracts synergies and cost savings,” he said.
Dana Bolden, a Coca-Cola spokesman, and John Downs, a spokesman for Coca-Cola Enterprises, declined to comment.
The Wall Street Journal reported the talks earlier.
As of yesterday’s close, Coca-Cola Enterprises, based in Atlanta, had a market value of $9.4 billion. The stock soared 27 percent to $24.35 in extended trading.
Coca-Cola, also based in Atlanta, rose 33 cents to $55.16 in New York Stock Exchange composite trading yesterday. The stock rose 26 percent last year, while PepsiCo advanced 11 percent.
Beverage Concentrate
Coca-Cola and PepsiCo sell beverage concentrate and syrup to licensed bottlers, which add water and other ingredients, put the mixture in bottles and cans, and sell it. In 1999, PepsiCo followed Coca-Cola’s lead by spinning off its capital-intensive bottling operations to create Pepsi Bottling Group Inc. Coca- Cola currently owns about 34 percent of Coca-Cola Enterprises.
PepsiCo, the second-largest soft-drink maker, agreed in August to take control of its two biggest bottlers for about $7.8 billion, allowing the soda maker to garner about $300 million in cost savings and revenue.
PepsiCo’s takeovers of its bottlers, Pepsi Bottling Group and PepsiAmericas Inc., will give it control of about 80 percent of its North American beverage market. The acquisitions are expected to be completed by the end of the first quarter, PepsiCo, based in Purchase, New York, said in a regulatory filing Jan. 11.
Volume Growth
North American volume at Coca-Cola Enterprises declined 5 percent last year, while net pricing per case increased 6.5 percent, the company said in a Feb. 10 earnings report.
Coca-Cola Enterprises is committed to a return to volume growth in North America, Chief Executive Officer John F. Brock said in a Feb. 17 presentation at the Consumer Analyst Group of New York conference in Boca Raton, Florida. Results improved in the fourth quarter of last year compared with the third quarter, he said.
“Overall, we must continue to manage our North American business in a way that does deliver improving results and provides the resources we need to invest in the business,” he said at the time.
To contact the reporter on this story: Zachary R. Mider in New York at mider1@bloomberg.net; Duane D. Stanford in Atlanta at dstanford2@bloomberg.net
Pound, Euro Slump on Deficit Concern; Copper Soars After Quake
The pound and the euro tumbled on speculation European nations will struggle to rein in record budget deficits. Copper rose the most in 11 months after the earthquake in Chile, the world’s biggest producer.
The British currency dropped as much as 3 percent against the dollar, slumping below $1.50 for the first time since May 8, while the euro sank 0.8 percent. Copper gained as much as 6.2 percent, the most since April. Europe’s Dow Jones Stoxx 600 Index fluctuated between gains and losses, while futures on the Standard & Poor’s 500 Index rose 0.3 percent. Greek bonds rallied, sending the yield on the two-year note down 25 basis points to 5.83 percent.
The U.K. currency slid after a YouGov Plc poll indicated an election due by June 10 would leave neither Gordon Brown’s ruling Labour party nor the opposition Conservatives with a majority of seats in Parliament, hampering efforts to cut the record deficit. European Union officials may demand deeper budget cuts from Greece in meetings today. Mines in Chile, which exports 36 percent of the world’s copper ores and concentrate, were closed by the magnitude-8.8 earthquake Feb. 27.
“Sterling is really suffering and leading the way,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. “And in the eurozone, problems are going to continue and the euro is going to continue to suffer as a result.”
Currency Moves
The pound dropped 2.3 percent to $1.4889 after sliding to $1.4784, the lowest level since May 1. The U.K. currency fell against all 16 of its most-traded counterparts, weakening 1.6 percent to 90.918 pence per euro.
The yen weakened against higher-yielding currencies including South Africa’s rand and the Australian dollar. The Japanese currency depreciated 0.4 percent to 120.81 per euro, and fell 0.4 percent to 89.26 versus the dollar.
U.K. gilts, U.S. Treasuries and German bonds declined. The yield on the 10-year gilt rose 8 basis points to 4.11 percent, and the similar maturity German bund yield climbed 3 basis points to 3.13 percent. The 10-year Treasury yield advanced 1 basis point to 3.62 percent.
Copper rose as high as $3.487 a pound in New York trading, erasing this year’s decline. Lead, zinc and tin also rose in London.
Greek Securities Rally
Greek bonds and stocks rallied as European Union governments crafted a possible rescue package. The yield on the two-year Greek note slid as much as 69 basis points, the biggest decline since Feb. 10. The cost of insuring Greek bonds against default fell, with credit-default swaps tied to the nation’s debt dropping 28.5 basis points to 335.5, according to CMA DataVision.
The ASE Index of equities rose for a second day, advancing as much as 3.1 percent.
The MSCI World Index of 23 developed nations’ stocks fell 0.2 percent. Prudential Plc fell 13 percent after agreeing to buy one of American International Group Inc.’s Asian life- insurance units for $35.5 billion. BHP Billiton Ltd. and Rio Tinto Group both advanced as commodities climbed. Vivendi SA surged as much as 4.2 percent after the owner of the world’s largest video-game company reported earnings that beat estimates.
The gain in U.S. futures suggested the S&P 500 may extend the 0.1 percent gain on Feb. 26. Billionaire Warren Buffett, writing in a Feb. 27 letter to investors, said the U.S. residential real estate slump will end by about 2011.
U.S. Economy
The Institute for Supply Management’s manufacturing index probably declined to 58 last month from a January reading of 58.4, according to the median forecast of economists in a Bloomberg News survey. A figure higher than 50 signals expansion. Personal spending probably rose 0.4 percent in January, double the December gain, while incomes may have increased 0.4 percent for a second month, economists said.
The MSCI Emerging Markets Index headed for its biggest two- day advance since Jan. 5 as gains by commodity producers lifted Russia’s Micex Index 0.6 percent.
Turkey’s ISE National 100 Index jumped 2 percent and the lira strengthened for the first time in three days on speculation tension between the military and the government is easing after the release of eight officers questioned in an investigation into allegations of a 2003 coup plot against Prime Minister Recep Tayyip Erdogan’s government.
To contact the reporter for this story: Stuart Wallace in London at swallace6@bloomberg.net
The British currency dropped as much as 3 percent against the dollar, slumping below $1.50 for the first time since May 8, while the euro sank 0.8 percent. Copper gained as much as 6.2 percent, the most since April. Europe’s Dow Jones Stoxx 600 Index fluctuated between gains and losses, while futures on the Standard & Poor’s 500 Index rose 0.3 percent. Greek bonds rallied, sending the yield on the two-year note down 25 basis points to 5.83 percent.
The U.K. currency slid after a YouGov Plc poll indicated an election due by June 10 would leave neither Gordon Brown’s ruling Labour party nor the opposition Conservatives with a majority of seats in Parliament, hampering efforts to cut the record deficit. European Union officials may demand deeper budget cuts from Greece in meetings today. Mines in Chile, which exports 36 percent of the world’s copper ores and concentrate, were closed by the magnitude-8.8 earthquake Feb. 27.
“Sterling is really suffering and leading the way,” said Ian Stannard, a senior currency strategist at BNP Paribas SA in London. “And in the eurozone, problems are going to continue and the euro is going to continue to suffer as a result.”
Currency Moves
The pound dropped 2.3 percent to $1.4889 after sliding to $1.4784, the lowest level since May 1. The U.K. currency fell against all 16 of its most-traded counterparts, weakening 1.6 percent to 90.918 pence per euro.
The yen weakened against higher-yielding currencies including South Africa’s rand and the Australian dollar. The Japanese currency depreciated 0.4 percent to 120.81 per euro, and fell 0.4 percent to 89.26 versus the dollar.
U.K. gilts, U.S. Treasuries and German bonds declined. The yield on the 10-year gilt rose 8 basis points to 4.11 percent, and the similar maturity German bund yield climbed 3 basis points to 3.13 percent. The 10-year Treasury yield advanced 1 basis point to 3.62 percent.
Copper rose as high as $3.487 a pound in New York trading, erasing this year’s decline. Lead, zinc and tin also rose in London.
Greek Securities Rally
Greek bonds and stocks rallied as European Union governments crafted a possible rescue package. The yield on the two-year Greek note slid as much as 69 basis points, the biggest decline since Feb. 10. The cost of insuring Greek bonds against default fell, with credit-default swaps tied to the nation’s debt dropping 28.5 basis points to 335.5, according to CMA DataVision.
The ASE Index of equities rose for a second day, advancing as much as 3.1 percent.
The MSCI World Index of 23 developed nations’ stocks fell 0.2 percent. Prudential Plc fell 13 percent after agreeing to buy one of American International Group Inc.’s Asian life- insurance units for $35.5 billion. BHP Billiton Ltd. and Rio Tinto Group both advanced as commodities climbed. Vivendi SA surged as much as 4.2 percent after the owner of the world’s largest video-game company reported earnings that beat estimates.
The gain in U.S. futures suggested the S&P 500 may extend the 0.1 percent gain on Feb. 26. Billionaire Warren Buffett, writing in a Feb. 27 letter to investors, said the U.S. residential real estate slump will end by about 2011.
U.S. Economy
The Institute for Supply Management’s manufacturing index probably declined to 58 last month from a January reading of 58.4, according to the median forecast of economists in a Bloomberg News survey. A figure higher than 50 signals expansion. Personal spending probably rose 0.4 percent in January, double the December gain, while incomes may have increased 0.4 percent for a second month, economists said.
The MSCI Emerging Markets Index headed for its biggest two- day advance since Jan. 5 as gains by commodity producers lifted Russia’s Micex Index 0.6 percent.
Turkey’s ISE National 100 Index jumped 2 percent and the lira strengthened for the first time in three days on speculation tension between the military and the government is easing after the release of eight officers questioned in an investigation into allegations of a 2003 coup plot against Prime Minister Recep Tayyip Erdogan’s government.
To contact the reporter for this story: Stuart Wallace in London at swallace6@bloomberg.net
Soros Signals Gold Bubble as Goldman Predicts Record (Update2)
George Soros is helping drive up gold prices by doubling his bet in a market even he considers a “bubble” as Goldman Sachs Group Inc., Barclays Capital and HSBC Holdings Plc predict more gains before it bursts.
Soros Fund Management LLC, which manages about $25 billion, increased its investment in SPDR Gold Trust, the world’s largest exchange-traded fund for the metal, by 152 percent in the fourth quarter, a Feb. 16 Securities and Exchange Commission filing shows. While prices have fallen 9.2 percent since reaching a record on Dec. 3, 15 of 22 analysts in a Bloomberg survey say gold will reach a new high, with the median forecast predicting a 17 percent advance to as much as $1,300 an ounce this year.
“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment,” Soros said at the World Economic Forum’s annual meeting in Davos, Switzerland, in January. “The ultimate asset bubble is gold,” he said.
In a Jan. 28 Bloomberg Television interview, the 79-year- old billionaire recalled that former Federal Reserve Chairman Alan Greenspan warned of “irrational exuberance” in financial markets three years before the technology bubble burst in 2000. The Standard & Poor’s 500 Index rose 89 percent in the period. Buying at the start of a bubble is “rational,” Soros said.
Gold’s fourfold rally since the end of 2000 has also attracted money managers John Paulson, Paul Tudor Jones and David Einhorn. Paulson’s Credit Opportunities Fund soared almost sixfold in 2007 by betting that subprime mortgages would plummet. Einhorn said in October that his Greenlight Capital Inc. bought gold to bet against the dollar.
‘Just an Asset’
Tudor Investment Corp., based in Greenwich, Connecticut, increased its stake in Newmont Mining Corp., the largest U.S. gold producer, almost fourfold in the final quarter of 2009. Gold is “just an asset that, like everything else in life, has its time and place. And now is that time,” Paul Tudor Jones said in an October letter to clients.
Funds of the four-biggest ETF firms hold 1,583 metric tons of the metal, according to data compiled by Bloomberg. Only the central banks or governments of the U.S., Germany, Italy and France and the International Monetary Fund hold more.
Investment demand, including in bars and coins, doubled to 1,820 tons last year as investors sought a refuge from the global recession, according to GFMS Ltd. That exceeded jewelry demand for the first time in three decades, the London-based research firm said Jan. 13. Prices reached the record $1,226.56 a decade after the metal fell to a 20-year low of $251.95 amid sales by central banks. Gold was at $1,113.70 today in London.
Dollar Rally
The price fell as the economic recovery sparked a dollar rally that has pushed the U.S. Dollar Index, a gauge against six counterparts, up 4.1 percent this year. Gold ended last week at $1,117.60, up 18 percent in the past 12 months and 21 percent since the start of the third quarter, when Soros accumulated 2.44 million shares of the SPDR Gold Trust.
“Perhaps Soros thinks gold is going to bubble but the bubble is going to last for a while and he wants to profit from it,” said Jeffrey Nichols, managing director of American Precious Metals Advisors and an adviser to central banks and mining companies. “We could have a bubble but gold can reach $2,000 or $3,000 before it’s over.”
Soros’ New York-based firm became the fourth-biggest investor in the SPDR Gold Trust by the end of 2009, 17 years after he made $1 billion breaking the Bank of England’s defense of the pound. The SPDR fund holds 1,107 tons, more than either Switzerland or China.
Paulson, Einhorn
Paulson & Co. is the ETF’s biggest investor, with 31.5 million shares, regulatory filings show. With each representing almost a 10th of an ounce of gold, the hedge fund firm’s stake is the equivalent of about 96 tons, exceeding the holdings of Australia and Kuwait.
New York-based Paulson is also the biggest investor in Johannesburg-based AngloGold Ashanti Ltd., Africa’s top producer. The Market Vectors Gold Miners ETF is Einhorn’s seventh-largest holding, according to a Feb. 16 filing.
Goldman predicts gold will reach $1,235 in three months and $1,380 in 12 months. Barclays Capital says the metal will average $1,235 in the fourth quarter. HSBC says it may peak at $1,300 this year.
“I absolutely believe it’s heading into a bubble, but that’s why you buy it,” said Charles Morris, who manages $2.5 billion at HSBC Global Asset Management’s Absolute Return Fund in London. “A bubble is good,” he said, forecasting the metal may rise to $5,000 in five years to explain why 11 percent of his fund is in gold.
World Economic Growth
The metal dropped from the record high as recovering economies pushed up the dollar. The Washington-based IMF increased its forecast for world economic growth in 2010 to 3.9 percent in January, from 3.1 percent in October.
Gold may drop 28 percent to $800 this year if the U.S. raises interest rates, said New York-based Tom Winmill, who manages $120 million at the Midas Fund. Gold generally only earns interest for banks that lend it, so its lure over cash diminishes as borrowing costs increase.
Fed Chairman Ben S. Bernanke said Feb. 24 that the U.S. economy is in a “nascent” recovery that still requires low borrowing costs. U.S. policy makers likely will start raising the target rate for overnight loans between banks from the record low range of zero to 0.25 percent in the third quarter, according to the median estimate of 72 economists.
‘Very Expensive’
“Gold looks very expensive right now,” said Brian Nick, an investment strategist at Barclays Wealth in New York, which manages $221 billion. “Yes, rates are low but are they low enough to produce runaway inflation? Actual inflation numbers haven’t pointed to a worrying trend” that would prompt Fed action to cool an overheating economy, he said.
U.S. consumer prices will rise 2.15 percent this year, compared with last year’s 0.35 percent decline, according to the median of 60 estimates.
Stock-option traders are boosting bearish bets against gold-mining companies’ shares, paying the most in more than a year for options to protect them from declines. Bearish options on the Market Vectors Gold Miners ETF, which tracks 31 producers, were 12 percent more expensive than bullish ones last week, the highest premium since December 2008, according to data compiled by Bloomberg.
Hedge funds and speculators are paring bets that gold will keep rising. There were 200,622 more outstanding futures contracts that profit on the metal gaining than wagers that pay when prices fall as of Feb. 23, down from 262,331 in November, U.S. Commodity Futures Trading Commission data show.
More Bullish
Traders remain more bullish than in past years, with speculative long bets on gold on the New York Mercantile Exchange outnumbering short wagers by more than 7-to-1, compared with less than 5-to-1 in the three years before the September 2008 collapse of Lehman Brothers Holdings Inc. spurred demand for gold’s perceived safety.
Central banks likely will expand their reserves for a second straight year, said CPM Group, a New York commodities researcher. The last time they added to stockpiles, in 1988, gold fell 15 percent and then took 15 years to recoup its losses, suggesting they may not be the best indicator of investment timing. Central banks hold about 18 percent of all gold ever mined.
Through the end of last year, gold was up about 29 percent since its 1980 peak. In that same period, Treasuries rose about 1,090 percent. The S&P 500 earned more than 2,300 percent with dividends reinvested over the three decades. Even cash in the average U.S. checking account outdid gold, gaining 92 percent.
Premature Bubble
The combined holdings of the biggest ETF providers -- State Street Corp., ETF Securities Ltd., Zuercher Kantonalbank and Barclays Capital -- rose more than 16 times from 95 tons five years ago.
It may be premature to declare a bubble by the standards of other commodities. Copper rose 188 percent in the year to May 2006 before falling 38 percent in nine months. Crude oil doubled in about 11 months before peaking in July 2008 and slumped 77 percent in the next five. Gold hasn’t had a 12-month gain of more than 55 percent since October 1980. Adjusted for inflation, it’s still worth about half of its 20th century peak of $850 on Jan. 21, 1980.
Touradji Capital Management LP founder Paul Touradji said in a March 2008 letter to his hedge fund clients that the commodity market was a “buying orgy” of inflated prices. Oil, which had gained 80 percent in the previous 12 months, went up 35 percent more in the next four months. Touradji’s largest equity holding at the end of the fourth quarter was a stake in Toronto-based Barrick Gold Corp., the world’s biggest producer of the metal.
“Gold makes sense as an investment,” said Jeffrey Christian, the managing director of CPM Group. “Just because the price of gold is going up for the 10th year doesn’t mean it’s a bubble.”
To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
Soros Fund Management LLC, which manages about $25 billion, increased its investment in SPDR Gold Trust, the world’s largest exchange-traded fund for the metal, by 152 percent in the fourth quarter, a Feb. 16 Securities and Exchange Commission filing shows. While prices have fallen 9.2 percent since reaching a record on Dec. 3, 15 of 22 analysts in a Bloomberg survey say gold will reach a new high, with the median forecast predicting a 17 percent advance to as much as $1,300 an ounce this year.
“When interest rates are low we have conditions for asset bubbles to develop, and they are developing at the moment,” Soros said at the World Economic Forum’s annual meeting in Davos, Switzerland, in January. “The ultimate asset bubble is gold,” he said.
In a Jan. 28 Bloomberg Television interview, the 79-year- old billionaire recalled that former Federal Reserve Chairman Alan Greenspan warned of “irrational exuberance” in financial markets three years before the technology bubble burst in 2000. The Standard & Poor’s 500 Index rose 89 percent in the period. Buying at the start of a bubble is “rational,” Soros said.
Gold’s fourfold rally since the end of 2000 has also attracted money managers John Paulson, Paul Tudor Jones and David Einhorn. Paulson’s Credit Opportunities Fund soared almost sixfold in 2007 by betting that subprime mortgages would plummet. Einhorn said in October that his Greenlight Capital Inc. bought gold to bet against the dollar.
‘Just an Asset’
Tudor Investment Corp., based in Greenwich, Connecticut, increased its stake in Newmont Mining Corp., the largest U.S. gold producer, almost fourfold in the final quarter of 2009. Gold is “just an asset that, like everything else in life, has its time and place. And now is that time,” Paul Tudor Jones said in an October letter to clients.
Funds of the four-biggest ETF firms hold 1,583 metric tons of the metal, according to data compiled by Bloomberg. Only the central banks or governments of the U.S., Germany, Italy and France and the International Monetary Fund hold more.
Investment demand, including in bars and coins, doubled to 1,820 tons last year as investors sought a refuge from the global recession, according to GFMS Ltd. That exceeded jewelry demand for the first time in three decades, the London-based research firm said Jan. 13. Prices reached the record $1,226.56 a decade after the metal fell to a 20-year low of $251.95 amid sales by central banks. Gold was at $1,113.70 today in London.
Dollar Rally
The price fell as the economic recovery sparked a dollar rally that has pushed the U.S. Dollar Index, a gauge against six counterparts, up 4.1 percent this year. Gold ended last week at $1,117.60, up 18 percent in the past 12 months and 21 percent since the start of the third quarter, when Soros accumulated 2.44 million shares of the SPDR Gold Trust.
“Perhaps Soros thinks gold is going to bubble but the bubble is going to last for a while and he wants to profit from it,” said Jeffrey Nichols, managing director of American Precious Metals Advisors and an adviser to central banks and mining companies. “We could have a bubble but gold can reach $2,000 or $3,000 before it’s over.”
Soros’ New York-based firm became the fourth-biggest investor in the SPDR Gold Trust by the end of 2009, 17 years after he made $1 billion breaking the Bank of England’s defense of the pound. The SPDR fund holds 1,107 tons, more than either Switzerland or China.
Paulson, Einhorn
Paulson & Co. is the ETF’s biggest investor, with 31.5 million shares, regulatory filings show. With each representing almost a 10th of an ounce of gold, the hedge fund firm’s stake is the equivalent of about 96 tons, exceeding the holdings of Australia and Kuwait.
New York-based Paulson is also the biggest investor in Johannesburg-based AngloGold Ashanti Ltd., Africa’s top producer. The Market Vectors Gold Miners ETF is Einhorn’s seventh-largest holding, according to a Feb. 16 filing.
Goldman predicts gold will reach $1,235 in three months and $1,380 in 12 months. Barclays Capital says the metal will average $1,235 in the fourth quarter. HSBC says it may peak at $1,300 this year.
“I absolutely believe it’s heading into a bubble, but that’s why you buy it,” said Charles Morris, who manages $2.5 billion at HSBC Global Asset Management’s Absolute Return Fund in London. “A bubble is good,” he said, forecasting the metal may rise to $5,000 in five years to explain why 11 percent of his fund is in gold.
World Economic Growth
The metal dropped from the record high as recovering economies pushed up the dollar. The Washington-based IMF increased its forecast for world economic growth in 2010 to 3.9 percent in January, from 3.1 percent in October.
Gold may drop 28 percent to $800 this year if the U.S. raises interest rates, said New York-based Tom Winmill, who manages $120 million at the Midas Fund. Gold generally only earns interest for banks that lend it, so its lure over cash diminishes as borrowing costs increase.
Fed Chairman Ben S. Bernanke said Feb. 24 that the U.S. economy is in a “nascent” recovery that still requires low borrowing costs. U.S. policy makers likely will start raising the target rate for overnight loans between banks from the record low range of zero to 0.25 percent in the third quarter, according to the median estimate of 72 economists.
‘Very Expensive’
“Gold looks very expensive right now,” said Brian Nick, an investment strategist at Barclays Wealth in New York, which manages $221 billion. “Yes, rates are low but are they low enough to produce runaway inflation? Actual inflation numbers haven’t pointed to a worrying trend” that would prompt Fed action to cool an overheating economy, he said.
U.S. consumer prices will rise 2.15 percent this year, compared with last year’s 0.35 percent decline, according to the median of 60 estimates.
Stock-option traders are boosting bearish bets against gold-mining companies’ shares, paying the most in more than a year for options to protect them from declines. Bearish options on the Market Vectors Gold Miners ETF, which tracks 31 producers, were 12 percent more expensive than bullish ones last week, the highest premium since December 2008, according to data compiled by Bloomberg.
Hedge funds and speculators are paring bets that gold will keep rising. There were 200,622 more outstanding futures contracts that profit on the metal gaining than wagers that pay when prices fall as of Feb. 23, down from 262,331 in November, U.S. Commodity Futures Trading Commission data show.
More Bullish
Traders remain more bullish than in past years, with speculative long bets on gold on the New York Mercantile Exchange outnumbering short wagers by more than 7-to-1, compared with less than 5-to-1 in the three years before the September 2008 collapse of Lehman Brothers Holdings Inc. spurred demand for gold’s perceived safety.
Central banks likely will expand their reserves for a second straight year, said CPM Group, a New York commodities researcher. The last time they added to stockpiles, in 1988, gold fell 15 percent and then took 15 years to recoup its losses, suggesting they may not be the best indicator of investment timing. Central banks hold about 18 percent of all gold ever mined.
Through the end of last year, gold was up about 29 percent since its 1980 peak. In that same period, Treasuries rose about 1,090 percent. The S&P 500 earned more than 2,300 percent with dividends reinvested over the three decades. Even cash in the average U.S. checking account outdid gold, gaining 92 percent.
Premature Bubble
The combined holdings of the biggest ETF providers -- State Street Corp., ETF Securities Ltd., Zuercher Kantonalbank and Barclays Capital -- rose more than 16 times from 95 tons five years ago.
It may be premature to declare a bubble by the standards of other commodities. Copper rose 188 percent in the year to May 2006 before falling 38 percent in nine months. Crude oil doubled in about 11 months before peaking in July 2008 and slumped 77 percent in the next five. Gold hasn’t had a 12-month gain of more than 55 percent since October 1980. Adjusted for inflation, it’s still worth about half of its 20th century peak of $850 on Jan. 21, 1980.
Touradji Capital Management LP founder Paul Touradji said in a March 2008 letter to his hedge fund clients that the commodity market was a “buying orgy” of inflated prices. Oil, which had gained 80 percent in the previous 12 months, went up 35 percent more in the next four months. Touradji’s largest equity holding at the end of the fourth quarter was a stake in Toronto-based Barrick Gold Corp., the world’s biggest producer of the metal.
“Gold makes sense as an investment,” said Jeffrey Christian, the managing director of CPM Group. “Just because the price of gold is going up for the 10th year doesn’t mean it’s a bubble.”
To contact the reporters on this story: Nicholas Larkin in London at nlarkin1@bloomberg.net; Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net.
Sotheby’s Reports Profit of $73.6 Million After Cost Cuts
Sotheby’s reported its highest quarterly profit in 18 months today as sales improved and the New York-based auctioneer cut staff.
Net income was $73.6 million, or $1.09 a share, compared with a loss of $9.3 million, 14 cents a share a year ago. Four analysts surveyed by Bloomberg predicted average earnings of 67 cents a share. It was the highest profit since the second quarter of 2008, when Sotheby’s earned $95.3 million.
A “strong improvement in auction commission margins and our vigilant focus on costs” helped the results, Chief Executive Officer William Ruprecht said in a release.
Revenue increased by 31 percent to $218.3 million. Expenses declined 28 percent in the quarter, to $119.4 million. Three months earlier, Sotheby’s said the weak economy continued to hamper most collecting categories.
For the year, Sotheby’s lost $6.5 million, compared with a profit of $26.5 million in 2008 and $213 million in 2007.
The auctioneer cut staff last year and reduced pension contributions and required unpaid furloughs for certain employees.
Sotheby’s shares more than doubled in 2009, closing on Friday at $24.30, up 73 cents, in New York Stock Exchange trading. Their all-time high close was $57.64.
To contact the reporter on this story: Philip Boroff in New York at pboroff@bloomberg.net.
Net income was $73.6 million, or $1.09 a share, compared with a loss of $9.3 million, 14 cents a share a year ago. Four analysts surveyed by Bloomberg predicted average earnings of 67 cents a share. It was the highest profit since the second quarter of 2008, when Sotheby’s earned $95.3 million.
A “strong improvement in auction commission margins and our vigilant focus on costs” helped the results, Chief Executive Officer William Ruprecht said in a release.
Revenue increased by 31 percent to $218.3 million. Expenses declined 28 percent in the quarter, to $119.4 million. Three months earlier, Sotheby’s said the weak economy continued to hamper most collecting categories.
For the year, Sotheby’s lost $6.5 million, compared with a profit of $26.5 million in 2008 and $213 million in 2007.
The auctioneer cut staff last year and reduced pension contributions and required unpaid furloughs for certain employees.
Sotheby’s shares more than doubled in 2009, closing on Friday at $24.30, up 73 cents, in New York Stock Exchange trading. Their all-time high close was $57.64.
To contact the reporter on this story: Philip Boroff in New York at pboroff@bloomberg.net.
Greece Now, U.K. Next as Scots Ready for Pound Plunge (Update2)
While the eyes of the world focus on Greece’s debt crisis, investors in Edinburgh are busy preparing for the U.K. to be next.
Turcan Connell, which caters to rich families, expects the pound to lose between 20 percent and 30 percent against the dollar once investors turn their sights on Britain as the government sells a record amount of debt. Sterling slid to a 10- month low versus the U.S. currency today.
“Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,” Haig Bathgate, head of strategy at Turcan Connell, said at the company’s offices in the Scottish capital. “The U.K. is in a similar predicament. It could be hit very hard.”
Money managers in Edinburgh, where investment decisions have been made on behalf of insurers, pensioners and the wealthy for two centuries, are maneuvering to protect assets from the U.K. economy as it limps out of its worst recession on record.
Bruce Stout, whose Murray International Trust Plc in Edinburgh has doubled over the past five years, said the chance of a plummeting pound are “better than even” and his biggest holdings are in Asia and Latin America. He called sterling a “very vulnerable currency.”
U.K. fund managers at Aegon Asset Management and Scottish Widows Investment Partnership, together responsible for more than 30 billion pounds ($45 billion), said in January they are buying companies that do the bulk of their business abroad.
‘Very Dire’
“When there’s a fiscal crisis, the markets tend to punish that country very quickly,” said Bathgate, who is responsible for 560 million pounds. “I don’t think Britain is in nearly as bad a position as Greece. We’ve got a good taxation system, however the position of the economy is very dire.”
The U.K.’s budget deficit is roughly the same as Greece’s, both exceeding 12 percent of economic output. Moody’s Investors Service and Standard & Poor’s said last week they may cut Greece’s credit rating as the five-month-old government struggles to curb spending and control its debt.
Concern that Greece won’t be able to cut its deficit helped send the euro 5.6 percent lower against the dollar this year. The euro today strengthened to a three-month high against the pound, trading above 90 pence.
British Prime Minister Gordon Brown’s government in December increased its planned gilt sales for the financial year ending this month to a record 225.1 billion pounds from the 220 billion pounds announced in April. Moody’s Investors Service said in December the U.K. may “test the Aaa boundaries.”
Hung Parliament
Brown must call an election by June and some polls signal that no party will emerge with a clear majority.
The pound fell below $1.50 today for the first time since May last year, taking this year’s decline to 8 percent. A YouGov Plc poll published yesterday showed Brown’s Labour Party only two percentage points behind the opposition Conservatives, the narrowest margin for more than two years.
A so-called hung parliament or signs retail sales and economic growth aren’t recovering as expected might be the catalysts for the pound to accelerate declines, Bathgate said. The Office for National Statistics last week revised up the rate of economic growth for the fourth quarter to 0.3 percent from a previous estimate of 0.1 percent.
“There could be a number of triggers,” he said. “If there’s indecision about how you deal with a problem, that’s when things start to fall apart. We could be in the position where the spotlight turns to the U.K.”
UBS Report
The pound may fall below parity with the euro and drop to the lowest level against the dollar since the mid-1980s should the U.K. cut spending too quickly, Mansoor Mohi-Uddin, chief currency strategist at UBS AG, said in a Feb. 24 report.
Sterling slid to a nine-month nadir against the dollar last week, trading at $1.52. Zurich-based UBS, the world’s second- biggest currency trader, predicted it could fall “quickly back” to $1.05 or below.
The pound may come under further pressure with the Bank of England resuming its quantitative-easing program, a process of injecting new money into the economy, within the next three to four months, Bathgate said. Policy maker Adam Posen said Feb. 24 the central bank may expand the 200 billion-pound asset-purchase plan should the economic recovery prove weaker than expected.
“If it comes back then we’re likely to be the only people doing that in the world at that time,” said Bathgate. “My strong view is the government is trying to create inflation and devalue the currency.”
Selling Bonds
Bathgate said he sold conventional U.K. government-bond investments at the end of 2008 and only holds index-linked securities because of concern inflation may accelerate.
The firm also has reduced holdings in corporate bonds because of the potential “knock-on impact” from a decline in government securities.
The yield on the benchmark 10-year gilt dropped 24 basis points to 4.03 percent last week. The yield on Greek 10-year bonds fell 6 points to 6.39 percent. German bunds, the region’s benchmark debt, declined 18 points to 3.10 percent.
Turcan Connell, whose clients typically have at least 5 million pounds to invest, was founded in 1998 and oversees about 1 billion pounds in total. Bathgate is responsible for allocating money to different funds, and half is currently in stocks portfolios with 30 percent in hedge funds and other so- called alternative investments.
To contact the reporter on this story: Rodney Jefferson in Edinburgh at r.jefferson@bloomberg.net
Turcan Connell, which caters to rich families, expects the pound to lose between 20 percent and 30 percent against the dollar once investors turn their sights on Britain as the government sells a record amount of debt. Sterling slid to a 10- month low versus the U.S. currency today.
“Alarm bells were ringing in Greece for a long time and when it happened, it happened very quickly,” Haig Bathgate, head of strategy at Turcan Connell, said at the company’s offices in the Scottish capital. “The U.K. is in a similar predicament. It could be hit very hard.”
Money managers in Edinburgh, where investment decisions have been made on behalf of insurers, pensioners and the wealthy for two centuries, are maneuvering to protect assets from the U.K. economy as it limps out of its worst recession on record.
Bruce Stout, whose Murray International Trust Plc in Edinburgh has doubled over the past five years, said the chance of a plummeting pound are “better than even” and his biggest holdings are in Asia and Latin America. He called sterling a “very vulnerable currency.”
U.K. fund managers at Aegon Asset Management and Scottish Widows Investment Partnership, together responsible for more than 30 billion pounds ($45 billion), said in January they are buying companies that do the bulk of their business abroad.
‘Very Dire’
“When there’s a fiscal crisis, the markets tend to punish that country very quickly,” said Bathgate, who is responsible for 560 million pounds. “I don’t think Britain is in nearly as bad a position as Greece. We’ve got a good taxation system, however the position of the economy is very dire.”
The U.K.’s budget deficit is roughly the same as Greece’s, both exceeding 12 percent of economic output. Moody’s Investors Service and Standard & Poor’s said last week they may cut Greece’s credit rating as the five-month-old government struggles to curb spending and control its debt.
Concern that Greece won’t be able to cut its deficit helped send the euro 5.6 percent lower against the dollar this year. The euro today strengthened to a three-month high against the pound, trading above 90 pence.
British Prime Minister Gordon Brown’s government in December increased its planned gilt sales for the financial year ending this month to a record 225.1 billion pounds from the 220 billion pounds announced in April. Moody’s Investors Service said in December the U.K. may “test the Aaa boundaries.”
Hung Parliament
Brown must call an election by June and some polls signal that no party will emerge with a clear majority.
The pound fell below $1.50 today for the first time since May last year, taking this year’s decline to 8 percent. A YouGov Plc poll published yesterday showed Brown’s Labour Party only two percentage points behind the opposition Conservatives, the narrowest margin for more than two years.
A so-called hung parliament or signs retail sales and economic growth aren’t recovering as expected might be the catalysts for the pound to accelerate declines, Bathgate said. The Office for National Statistics last week revised up the rate of economic growth for the fourth quarter to 0.3 percent from a previous estimate of 0.1 percent.
“There could be a number of triggers,” he said. “If there’s indecision about how you deal with a problem, that’s when things start to fall apart. We could be in the position where the spotlight turns to the U.K.”
UBS Report
The pound may fall below parity with the euro and drop to the lowest level against the dollar since the mid-1980s should the U.K. cut spending too quickly, Mansoor Mohi-Uddin, chief currency strategist at UBS AG, said in a Feb. 24 report.
Sterling slid to a nine-month nadir against the dollar last week, trading at $1.52. Zurich-based UBS, the world’s second- biggest currency trader, predicted it could fall “quickly back” to $1.05 or below.
The pound may come under further pressure with the Bank of England resuming its quantitative-easing program, a process of injecting new money into the economy, within the next three to four months, Bathgate said. Policy maker Adam Posen said Feb. 24 the central bank may expand the 200 billion-pound asset-purchase plan should the economic recovery prove weaker than expected.
“If it comes back then we’re likely to be the only people doing that in the world at that time,” said Bathgate. “My strong view is the government is trying to create inflation and devalue the currency.”
Selling Bonds
Bathgate said he sold conventional U.K. government-bond investments at the end of 2008 and only holds index-linked securities because of concern inflation may accelerate.
The firm also has reduced holdings in corporate bonds because of the potential “knock-on impact” from a decline in government securities.
The yield on the benchmark 10-year gilt dropped 24 basis points to 4.03 percent last week. The yield on Greek 10-year bonds fell 6 points to 6.39 percent. German bunds, the region’s benchmark debt, declined 18 points to 3.10 percent.
Turcan Connell, whose clients typically have at least 5 million pounds to invest, was founded in 1998 and oversees about 1 billion pounds in total. Bathgate is responsible for allocating money to different funds, and half is currently in stocks portfolios with 30 percent in hedge funds and other so- called alternative investments.
To contact the reporter on this story: Rodney Jefferson in Edinburgh at r.jefferson@bloomberg.net
Chile $11.3 Billion of Savings to Shore Up Peso (Update2)
Chile’s $11.3 billion savings fund will stabilize the peso after today’s “knee-jerk” decline following the earthquake that disrupted copper output and severed highways and bridges, according to Goldman Sachs Group Inc. and Bulltick Securities Corp.
The government will likely tap the overseas fund, stockpiled with copper revenue, to finance reconstruction projects, bringing in dollars that will help offset a slump in exports, said Alberto Ramos, a Goldman economist. The peso fell 1 percent today, extending its drop this year to 4.3 percent after posting its biggest rally since at least 1982 last year as the government spent $9.3 billion of the savings to shore up growth amid the global recession.
“This is a well-managed economy and they have enough policy flexibility to get out of it,” Ramos said in a telephone interview from New York over the weekend. “I don’t think this currency is unanchored. We may see a bit of sell-off in the short term, but nothing is permanent.”
Chile, whose debt is the highest rated in Latin America, is “by far” the country best suited in the region to fund the spending needed after a disaster such as the 8.8 magnitude earthquake that killed at least 700 people on Feb. 27, said Alberto Bernal, head of emerging-markets research at Bulltick in Miami. The government will disburse the money for reconstruction at a “rapid pace,” helping sustain growth and fuel a peso rally, he said.
‘Great Shape’
“They are in a great shape in terms of the fiscal position,” Bernal said in a telephone interview on Feb. 28. “The savings will allow the government to go ahead and do what needs to be done. I won’t change my positive view on Chile’s economy for 2010.”
Bernal said he’s maintaining his 5 percent growth forecast and his prediction that the peso will advance to 500 by year-end from 530 today. His peso call is stronger than the median 515- per-dollar forecast in a Bloomberg survey of 10 analysts, the third-biggest rally predicted for major Latin American currencies.
The peso’s 1 percent drop today from 524.55 on Feb. 26 is its biggest in three weeks. Trading is slower than normal as some traders are likely arriving late while others struggle to post pricing amid power outages, said Ricardo Gomez, head of fixed-income sales and trading at brokerage Larrain Vial SA.
Copper Savings
President-elect Sebastian Pinera, who is slated to be sworn in March 11, told reporters in Santiago on Feb. 27 that he’d reassign spending to prioritize reconstruction. Government spending may “significantly” boost the economy after a short- term slump, JPMorgan Chase & Co. strategist Brian Chase wrote in a research note today.
Andres Velasco, the finance minister under outgoing President Michelle Bachelet, declined to comment in a telephone interview yesterday on how the government planned to finance the projects.
“There’s a provision for special expenditure,” Velasco said. “There’s no absolute limit” on spending, he said.
Velasco spearheaded the government’s move to salt away copper revenue in overseas savings funds as the price of the metal soared to record highs in the past five years.
Chile’s fiscal stimulus program last year, which tapped some of those savings, pushed the budget deficit to the equivalent of 4.5 percent of gross domestic product, snapping five straight years of surpluses. The government had forecast a deficit this year equal to 1.1 percent of gross domestic product before the earthquake.
Safer Than U.K. Debt
The central bank will likely delay raising the benchmark lending rate from a record low of 0.5 percent to support growth, Goldman’s Ramos said.
The South American country, which is the world’s largest copper producer, is rated A1 by Moody’s Investors Service and A+ by Standard & Poor’s, both the fifth-highest investment-grade rating. The annual cost of insuring the nation’s debt from default for five years is 75.3 basis points, or $75,300 to protect $10 million of securities, according to CMA DataVision.
That’s 10 basis points, or 0.1 percentage point, below U.K. credit-default swaps and three basis points above Japan. Credit swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent.
Policies ‘Rewarded’
The earthquake, which was centered 200 miles (317 kilometers) southwest of Santiago, killed more than 700 people, cut off the nation’s main highway, knocked out power lines and damaged 1.5 million homes. The total economic cost may be as much as $30 billion, equal to about 15 percent of Chile’s GDP, according to estimates by disaster-scenario modeler Eqecat Inc.
“My fear is that this hasn’t happened in a long time and it might take them by surprise some,” Flavia Cattan-Naslausky, a strategist at RBS in Stamford, Connecticut, said in a telephone interview yesterday. “This will test be a test for the new government.”
Today’s “nervous knee-jerk reaction” in the peso will have no bearing on Chile’s “fundamentals in the mid-to-long term,” she said.
The peso surged 1.4 percent last week against the dollar, more than all currencies tracked by Bloomberg except for the Japanese yen. The rally pared a slide this year that was sparked in part by speculation that regulators’ new currency hedging rules for pension funds will prompt them to sell the peso. The peso’s 26 percent surge against the dollar last year was the third biggest in emerging markets after Brazil’s real and South Africa’s rand.
Ramos said that it’s “too soon” to know whether he’ll adjust his mid-year forecast of 510 per dollar, a contrast to Bulltick’s Bernal, who re-affirmed his 500-per-dollar year-end call a day after the quake.
Years of cautious fiscal policy will “be rewarded in this time of tragedy,” Bernal said. “They are going to be ok.”
To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.netSebastian Boyd in Santiago at sboyd9@bloomberg.net
The government will likely tap the overseas fund, stockpiled with copper revenue, to finance reconstruction projects, bringing in dollars that will help offset a slump in exports, said Alberto Ramos, a Goldman economist. The peso fell 1 percent today, extending its drop this year to 4.3 percent after posting its biggest rally since at least 1982 last year as the government spent $9.3 billion of the savings to shore up growth amid the global recession.
“This is a well-managed economy and they have enough policy flexibility to get out of it,” Ramos said in a telephone interview from New York over the weekend. “I don’t think this currency is unanchored. We may see a bit of sell-off in the short term, but nothing is permanent.”
Chile, whose debt is the highest rated in Latin America, is “by far” the country best suited in the region to fund the spending needed after a disaster such as the 8.8 magnitude earthquake that killed at least 700 people on Feb. 27, said Alberto Bernal, head of emerging-markets research at Bulltick in Miami. The government will disburse the money for reconstruction at a “rapid pace,” helping sustain growth and fuel a peso rally, he said.
‘Great Shape’
“They are in a great shape in terms of the fiscal position,” Bernal said in a telephone interview on Feb. 28. “The savings will allow the government to go ahead and do what needs to be done. I won’t change my positive view on Chile’s economy for 2010.”
Bernal said he’s maintaining his 5 percent growth forecast and his prediction that the peso will advance to 500 by year-end from 530 today. His peso call is stronger than the median 515- per-dollar forecast in a Bloomberg survey of 10 analysts, the third-biggest rally predicted for major Latin American currencies.
The peso’s 1 percent drop today from 524.55 on Feb. 26 is its biggest in three weeks. Trading is slower than normal as some traders are likely arriving late while others struggle to post pricing amid power outages, said Ricardo Gomez, head of fixed-income sales and trading at brokerage Larrain Vial SA.
Copper Savings
President-elect Sebastian Pinera, who is slated to be sworn in March 11, told reporters in Santiago on Feb. 27 that he’d reassign spending to prioritize reconstruction. Government spending may “significantly” boost the economy after a short- term slump, JPMorgan Chase & Co. strategist Brian Chase wrote in a research note today.
Andres Velasco, the finance minister under outgoing President Michelle Bachelet, declined to comment in a telephone interview yesterday on how the government planned to finance the projects.
“There’s a provision for special expenditure,” Velasco said. “There’s no absolute limit” on spending, he said.
Velasco spearheaded the government’s move to salt away copper revenue in overseas savings funds as the price of the metal soared to record highs in the past five years.
Chile’s fiscal stimulus program last year, which tapped some of those savings, pushed the budget deficit to the equivalent of 4.5 percent of gross domestic product, snapping five straight years of surpluses. The government had forecast a deficit this year equal to 1.1 percent of gross domestic product before the earthquake.
Safer Than U.K. Debt
The central bank will likely delay raising the benchmark lending rate from a record low of 0.5 percent to support growth, Goldman’s Ramos said.
The South American country, which is the world’s largest copper producer, is rated A1 by Moody’s Investors Service and A+ by Standard & Poor’s, both the fifth-highest investment-grade rating. The annual cost of insuring the nation’s debt from default for five years is 75.3 basis points, or $75,300 to protect $10 million of securities, according to CMA DataVision.
That’s 10 basis points, or 0.1 percentage point, below U.K. credit-default swaps and three basis points above Japan. Credit swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent.
Policies ‘Rewarded’
The earthquake, which was centered 200 miles (317 kilometers) southwest of Santiago, killed more than 700 people, cut off the nation’s main highway, knocked out power lines and damaged 1.5 million homes. The total economic cost may be as much as $30 billion, equal to about 15 percent of Chile’s GDP, according to estimates by disaster-scenario modeler Eqecat Inc.
“My fear is that this hasn’t happened in a long time and it might take them by surprise some,” Flavia Cattan-Naslausky, a strategist at RBS in Stamford, Connecticut, said in a telephone interview yesterday. “This will test be a test for the new government.”
Today’s “nervous knee-jerk reaction” in the peso will have no bearing on Chile’s “fundamentals in the mid-to-long term,” she said.
The peso surged 1.4 percent last week against the dollar, more than all currencies tracked by Bloomberg except for the Japanese yen. The rally pared a slide this year that was sparked in part by speculation that regulators’ new currency hedging rules for pension funds will prompt them to sell the peso. The peso’s 26 percent surge against the dollar last year was the third biggest in emerging markets after Brazil’s real and South Africa’s rand.
Ramos said that it’s “too soon” to know whether he’ll adjust his mid-year forecast of 510 per dollar, a contrast to Bulltick’s Bernal, who re-affirmed his 500-per-dollar year-end call a day after the quake.
Years of cautious fiscal policy will “be rewarded in this time of tragedy,” Bernal said. “They are going to be ok.”
To contact the reporter on this story: Ye Xie in New York at yxie6@bloomberg.netSebastian Boyd in Santiago at sboyd9@bloomberg.net
Astellas Makes Hostile $3.5 Billion Offer for OSI (Update2)
Astellas Pharma Inc., Japan’s second-largest drugmaker, will begin a $3.5 billion hostile takeover offer for OSI Pharmaceuticals Inc. to expand in treatments for cancer.
The bid values Melville, New York-based OSI at $52 a share in cash, 40 percent above the closing price of $37.02 on Feb. 26, Astellas said in a statement. The offer isn’t subject to financing conditions, the Tokyo-based company said.
The hostile bid is the second in a year by Astellas. The company offered $1.1 billion for CV Therapeutics Inc. on Feb. 27, 2009. The Japanese drugmaker walked away after CV, of Palo Alto, California, agreed to be acquired by Gilead Sciences Inc. for $1.4 billion.
“This offer follows our attempts over the past 13 months to engage OSI in meaningful discussions,” Astellas Chief Executive Officer Masafumi Nogimori said in the statement. “We firmly believe in the compelling strategic rationale behind the combination.” OSI responded that the offer “very significantly undervalues” the company, Astellas said.
OSI surged $16.96, or 46 percent, to $53.98 at 7 a.m. in New York in trading before the Nasdaq Stock Market opened. Astellas, which made the announcement after the Japanese stock market closed, was unchanged at 3,345 yen in Tokyo trading.
U.S. regulators are considering an application from OSI and its partner, Roche Holding AG, to expand use of their Tarceva cancer drug even after it failed to win the backing of an advisory panel, the companies said in January. OSI shares slumped in May after the Tarceva didn’t work as well as expected in lung cancer study.
Roche agreed in 2008 to cut the price of Tarceva for the U.K.’s National Health Service, gaining the recommendation of a government agency that advises on the cost-effectiveness of medicines.
Citigroup Inc. is Astellas’s financial adviser, while Morrison & Foerster LLP is providing legal counsel.
Kathy Galante, a spokeswoman for OSI, didn’t immediately return a request for comment before business hours.
To contact the reporter on this story: Phil Serafino in Paris at pserafino@bloomberg.net.
The bid values Melville, New York-based OSI at $52 a share in cash, 40 percent above the closing price of $37.02 on Feb. 26, Astellas said in a statement. The offer isn’t subject to financing conditions, the Tokyo-based company said.
The hostile bid is the second in a year by Astellas. The company offered $1.1 billion for CV Therapeutics Inc. on Feb. 27, 2009. The Japanese drugmaker walked away after CV, of Palo Alto, California, agreed to be acquired by Gilead Sciences Inc. for $1.4 billion.
“This offer follows our attempts over the past 13 months to engage OSI in meaningful discussions,” Astellas Chief Executive Officer Masafumi Nogimori said in the statement. “We firmly believe in the compelling strategic rationale behind the combination.” OSI responded that the offer “very significantly undervalues” the company, Astellas said.
OSI surged $16.96, or 46 percent, to $53.98 at 7 a.m. in New York in trading before the Nasdaq Stock Market opened. Astellas, which made the announcement after the Japanese stock market closed, was unchanged at 3,345 yen in Tokyo trading.
U.S. regulators are considering an application from OSI and its partner, Roche Holding AG, to expand use of their Tarceva cancer drug even after it failed to win the backing of an advisory panel, the companies said in January. OSI shares slumped in May after the Tarceva didn’t work as well as expected in lung cancer study.
Roche agreed in 2008 to cut the price of Tarceva for the U.K.’s National Health Service, gaining the recommendation of a government agency that advises on the cost-effectiveness of medicines.
Citigroup Inc. is Astellas’s financial adviser, while Morrison & Foerster LLP is providing legal counsel.
Kathy Galante, a spokeswoman for OSI, didn’t immediately return a request for comment before business hours.
To contact the reporter on this story: Phil Serafino in Paris at pserafino@bloomberg.net.
Rehn Urges Greece to Take New Steps to Cut Budget Gap (Update1)
European Union Monetary Affairs Commissioner Olli Rehn urged Greece to quickly outline new ways to cut the region’s largest budget deficit as governments craft a possible rescue package for the cash-strapped nation.
“I want to encourage the Greek authorities to consider and announce additional measures in the coming days,” Rehn told reporters in Athens today after meeting Greek Finance Minister George Papaconstantinou. “Given that risks related to macroeconomic and market developments are materializing, additional consolidation measures are necessary.”
European leaders are pushing Greece to redouble efforts to regain control of its budget so they can justify to taxpayers any aid they may have to provide in the event Prime Minister George Papandreou’s government can’t finance its debt. Concern about Greece’s finances pushed the risk premium to buy its bonds over comparable German debt to an 11-year high in January.
“It’s clear they’ve been working on a contingency plan because they don’t want a disaster,” Erik Nielsen, chief European economist at Goldman Sachs Group Inc. in London, told Bloomberg Television today. “There’s no appetite for default.”
German lawmakers say euro-area officials are devising a plan to grant Greece about 25 billion euros ($34 billion) in aid should the need arise, possibly by using state-owned lenders such as the KfW Group to buy its bonds. Greece needs to raise funds to cover more than 20 billion euros of bonds and notes maturing in April and May.
Bonds Gain
The prospect of aid to Greece led to a decline today in the cost of insuring against a Greek default as credit-default swaps linked to Greek government bonds tumbled 28.5 basis points to 335.5 today, the lowest since Jan. 27, according to CMA DataVision prices. The difference in the yield between 10-year Greek bonds and benchmark German bunds also narrowed today to 311 basis points, the lowest since Feb. 15., as investors became more optimistic about the southern European nation.
“We have a number of options before us, including public and public-private ones,” French Finance Minister Christine Lagarde told reporters near Paris today. “All of this is on the condition that Greece meets its commitments.”
Deadline Approaching
Rehn is in the Greek capital after European officials pored over the government’s books to verify it’s doing enough to meet its pledge to knock 4 percentage points off its budget deficit this year from last year’s 12.7 percent of gross domestic product. The country has until March 16 to satisfy fellow EU governments that its deficit-reduction plan is on track and faces being pressed to increase consumer taxes and lower capital spending if it can’t show sufficient progress.
Papaconstantinou said today that it’s Greece’s “national duty” to tackle the budget shortfall and the government will “do anything including new measures” to meet the goals, which include reducing the gap below the EU’s 3 percent limit in 2012.
German Chancellor Angela Merkel and Luxembourg Prime Minister Jean-Claude Juncker both signaled yesterday that Greece must take more steps to cut its budget gap and can’t rely on taxpayers elsewhere to help until it does.
“Greece has to do its homework,” said Merkel, who will meet Papandreou in Berlin on March 5.
Juncker, who speaks for euro-area finance ministers, told Handelsblatt newspaper today that European governments are prepared to use “instruments of torture” to punish investors betting against Greece so long as the country sticks to stringent deficit cuts.
Unspecified Action
EU leaders ordered the country on Feb. 11 to cut its budget deficit, while promising “determined” yet unspecified action to help if needed. European Central Bank Executive Board member Juergen Stark also attended Rehn’s talks today, although he declined to comment to reporters.
Adding to the political pressure, Greece’s fiscal strategy may soon be tested by investors as it readies a sale of as much as 5 billion euros of 10-year notes. Fund managers who may take part in the issue say Greece must offer the biggest premium over benchmark German debt since 1998, paying a coupon of about 7 percent.
To contact the reporters on this story: Jonathan Stearns in Athens at jstearns2@bloomberg.netNatalie Weeks in Athens at nweeks2@bloomberg.net
“I want to encourage the Greek authorities to consider and announce additional measures in the coming days,” Rehn told reporters in Athens today after meeting Greek Finance Minister George Papaconstantinou. “Given that risks related to macroeconomic and market developments are materializing, additional consolidation measures are necessary.”
European leaders are pushing Greece to redouble efforts to regain control of its budget so they can justify to taxpayers any aid they may have to provide in the event Prime Minister George Papandreou’s government can’t finance its debt. Concern about Greece’s finances pushed the risk premium to buy its bonds over comparable German debt to an 11-year high in January.
“It’s clear they’ve been working on a contingency plan because they don’t want a disaster,” Erik Nielsen, chief European economist at Goldman Sachs Group Inc. in London, told Bloomberg Television today. “There’s no appetite for default.”
German lawmakers say euro-area officials are devising a plan to grant Greece about 25 billion euros ($34 billion) in aid should the need arise, possibly by using state-owned lenders such as the KfW Group to buy its bonds. Greece needs to raise funds to cover more than 20 billion euros of bonds and notes maturing in April and May.
Bonds Gain
The prospect of aid to Greece led to a decline today in the cost of insuring against a Greek default as credit-default swaps linked to Greek government bonds tumbled 28.5 basis points to 335.5 today, the lowest since Jan. 27, according to CMA DataVision prices. The difference in the yield between 10-year Greek bonds and benchmark German bunds also narrowed today to 311 basis points, the lowest since Feb. 15., as investors became more optimistic about the southern European nation.
“We have a number of options before us, including public and public-private ones,” French Finance Minister Christine Lagarde told reporters near Paris today. “All of this is on the condition that Greece meets its commitments.”
Deadline Approaching
Rehn is in the Greek capital after European officials pored over the government’s books to verify it’s doing enough to meet its pledge to knock 4 percentage points off its budget deficit this year from last year’s 12.7 percent of gross domestic product. The country has until March 16 to satisfy fellow EU governments that its deficit-reduction plan is on track and faces being pressed to increase consumer taxes and lower capital spending if it can’t show sufficient progress.
Papaconstantinou said today that it’s Greece’s “national duty” to tackle the budget shortfall and the government will “do anything including new measures” to meet the goals, which include reducing the gap below the EU’s 3 percent limit in 2012.
German Chancellor Angela Merkel and Luxembourg Prime Minister Jean-Claude Juncker both signaled yesterday that Greece must take more steps to cut its budget gap and can’t rely on taxpayers elsewhere to help until it does.
“Greece has to do its homework,” said Merkel, who will meet Papandreou in Berlin on March 5.
Juncker, who speaks for euro-area finance ministers, told Handelsblatt newspaper today that European governments are prepared to use “instruments of torture” to punish investors betting against Greece so long as the country sticks to stringent deficit cuts.
Unspecified Action
EU leaders ordered the country on Feb. 11 to cut its budget deficit, while promising “determined” yet unspecified action to help if needed. European Central Bank Executive Board member Juergen Stark also attended Rehn’s talks today, although he declined to comment to reporters.
Adding to the political pressure, Greece’s fiscal strategy may soon be tested by investors as it readies a sale of as much as 5 billion euros of 10-year notes. Fund managers who may take part in the issue say Greece must offer the biggest premium over benchmark German debt since 1998, paying a coupon of about 7 percent.
To contact the reporters on this story: Jonathan Stearns in Athens at jstearns2@bloomberg.netNatalie Weeks in Athens at nweeks2@bloomberg.net
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