By Adria Cimino
Feb. 24 (Bloomberg) -- Stocks in Europe and Asia retreated, sending the MSCI World Index lower for the 11th straight day, as the deepening recession erodes earnings and forces companies to sell shares. U.S. index futures advanced.
TomTom NV, Europe’s largest maker of car-navigation devices, tumbled for a ninth day after reporting a fourth-quarter loss. Novartis AG, Switzerland’s second-biggest drugmaker, dropped 1.5 percent as Chief Executive Officer Daniel Vasella said pressure on drug prices will grow this year. Nomura Holdings Inc., Japan’s largest brokerage, slumped 9.3 percent on its plan to sell shares after four quarterly losses.
The MSCI World Index slid 0.7 percent to 752.22 at 9:43 a.m. in London. The gauge of 23 developed countries dropped 14 percent in the past 11 days as companies from Anglo American Plc to Cie. De Saint-Gobain SA indicated the recession is worsening, overshadowing the U.S. government’s pledge to give more capital to banks.
“This is turning out to be one of the worst bear markets in the past 100 years,” Bob Parker, who helps oversee $600 billion as vice chairman of Credit Suisse Asset Management, said in a Bloomberg Television interview in London. “The question we have to ask is: what are the catalysts for creating a base and what are the catalysts for an eventual rally.”
U.S. futures rebounded after the Standard & Poor’s 500 Index sank 3.5 percent yesterday to the lowest since 1997. Futures on the S&P 500 added 0.5 percent with the benchmark index for U.S. equities valued at the cheapest level relative to earnings since 1985.
Europe’s Dow Jones Stoxx 600 Index slid for a third day, losing 2 percent as Basilea Pharmaceutica AG tumbled. The MSCI Asia Pacific Index fell 1.6 percent to 75.03, poised for the lowest close since August 2003.
$1.1 Trillion
The MSCI World has retreated 53 percent since the start of last year as credit-related losses at financial firms worldwide climbed to $1.1 trillion and Europe, the U.S. and Japan fell into the first simultaneous recessions since World War II.
German business confidence declined in February to the lowest in at least 18 years on concern the government’s stimulus program and interest-rate cuts from the European Central Bank won’t be enough to revive the economy, data from the Ifo institute showed today.
Confidence among U.S. consumers probably dropped in February to the lowest level on record, signaling spending will slump further as unemployment climbs, economists said before a report today. Separate data may show the decline in home values accelerated in December.
TomTom Retreats
TomTom slid 8.7 percent to 2.98 euros after reporting a loss on a writedown of the value of its mapmaking unit Tele Atlas. The company’s room in its loan covenants is “not tremendously big,” Chief Executive Officer Harold Goddijn said in a telephone interview today.
Novartis slipped 1.5 percent to 47.22 Swiss francs. Basilea Pharmaceutica fell 36 percent to 70.95 francs, the biggest drop in the Stoxx 600. The Swiss developer of anti-infection drugs reported a full-year loss and said its Ceftobiprole drug used to treat skin infections is being delayed in Europe.
Georg Fischer AG sank 6.8 percent to 150 francs. Europe’s largest maker of iron castings for cars said full-year profit fell 72 percent to 69 million francs ($59 million) as demand from the automotive industry collapsed.
Profits have declined 82 percent for 174 companies in the Stoxx 600 that released results since Jan. 12, data compiled by Bloomberg show.
‘Weighing on Sentiment’
“There’s discouragement about the market,” Chicuong Dang, an analyst at KBL Richelieu Gestion in Paris, which oversees $5.1 billion in assets, said in a Bloomberg Television interview. “Bad earnings results are weighing on sentiment, which is clearly low.”
Nomura slumped 9.3 percent to 420 yen. The company will sell shares valued at as much as 291.2 billion yen ($3.1 billion) to replenish capital eroded by four-straight quarterly losses, according to filings to the Ministry of Finance yesterday.
Bayerische Motoren Werke AG retreated 4.6 percent to 19.22 euros. The world’s largest maker of luxury cars was cut to “underweight” from “overweight” at Morgan Stanley, which said sales may fall by one-third by 2010.
Norsk Hydro ASA dropped 4.2 percent to 21.9 kroner. The world’s fifth-largest aluminum producer was cut to “underweight” from “overweight” at JPMorgan, which said demand for the metal “remains weak and prices are under pressure.”
KBC Group NV slid 5.9 percent to 8.28 euros. Belgium’s biggest bank and insurer by market value was cut by Deutsche Bank AG to “sell” from “hold.”
Vestas Wind Systems A/S slipped 4.8 percent to 267.50 kroner. Shares of the largest wind-turbine maker were cut to “underweight” from “neutral” at JPMorgan, which cited “risks to near-term and long-term industry profitability.”
Tuesday, February 24, 2009
Yen Weakens to 12-Week Low Against Dollar as Refuge Role Wanes
By Ron Harui and Yasuhiko Seki
Feb. 24 (Bloomberg) -- The yen fell to a 12-week low against the dollar as the deterioration in Japan’s economy eroded the currency’s allure for investors fleeing the financial crisis in the U.S. and Europe.
Japan’s currency also approached the weakest level in a month versus the euro after Prime Minister Taro Aso’s approval rating slumped, according to a survey published today by Sankei newspaper, and economists forecast a report this week will show the trade deficit widened to the largest in 23 years. The dollar declined versus the euro on speculation a U.S. report today will show home prices fell at the fastest pace on record in December.
“We are going to see the yen continue to weaken regardless of what stocks do,” said Ian Stannard, a foreign-exchange strategist in London at BNP Paribas SA. “We have quite a lot of negative news coming from Japan.” The yen will trade between 97.5 and 98 per dollar “in the next few days,” Stannard said.
Japan’s currency weakened to 95.56 per dollar as of 9:10 a.m. in London from 94.61 yesterday in New York. It touched 95.44 today, the weakest level since Dec. 1. It depreciated to 121.88 per euro, from 120.10 yesterday, when it reached 121.93, the lowest since Jan. 19. The dollar traded at $1.2751 per euro from $1.2694 yesterday.
Asian currencies declined against the dollar, with the South Korean won approaching an 11-year low, after a slide in U.S. stocks spurred investors to cut holdings of emerging-market assets. The won lost 1.8 percent to 1,516.30, according to Seoul Money Brokerage Services Ltd. The Nikkei 225 Stock Average fell 1.5 percent today after the Standard & Poor’s 500 Index slipped yesterday to the lowest close since 1997.
Equity ‘Rout’
“The global rout in equities is expected to see a more supported dollar against Asian currencies,” Emmanuel Ng, an economist at Oversea-Chinese Banking Corp. in Singapore, wrote in a research note today.
The MSCI World Index fell 0.6 percent today, its 11th straight decline, as every major stock market in Europe dropped.
Japan’s trade deficit widened to 1.2 trillion yen in January, the Finance Ministry will say tomorrow, according to a Bloomberg News survey. Core consumer prices probably fell for the first time in more than a year in January, economists in a separate survey predict a government report will show Feb. 27.
The yen fell 6.3 percent against the dollar since trading at a 13-year high on Jan. 21 even as the S&P 500 lost almost 12 percent. Its decline today against the euro was the fifth in as many days, the longest stretch since September.
Losing ‘Status’
“The yen appears to be losing some of its safe-haven status,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Japan’s economic and political situation is poor.”
The correlation between the dollar-yen and the Nikkei 225 was minus 0.89 since Feb. 16 when a report showed Japan’s economy shrank at an annual 12.7 percent pace in the last quarter, the most since the 1974 oil shock. The relationship was positive 0.86 in the 12 months to Feb. 16. A reading of 1 would mean the two moved in lockstep.
“The correlation has broken down, because the drivers are now changing,” Stannard said. “Dollar-yen in particular will continue to move quite sharply higher.”
Demand for the yen as a haven also declined after U.S. financial regulators said yesterday they will begin examinations this week to determine if banks have enough capital. Citigroup Inc. and Bank of America Corp. jumped on the announcement even as the S&P 500 closed at the lowest level in 12 years.
Dollar Versus Euro
“The injection of additional capital into banks should gradually help stabilize the financial system in the U.S., which is saddled with a bad-debt problem,” said Masashi Hashimoto, a Tokyo-based foreign-exchange analyst at Bank of Tokyo Mitsubishi UFJ Ltd., an unit of Japan’s biggest banking group. “This will support the dollar” against the yen, he said.
The dollar declined against the euro and the pound amid concern reports may show the U.S. economic slump is deepening. The S&P/Case-Schiller index of house prices in 20 U.S. cities declined 18.3 percent in December from a year earlier, according to a Bloomberg News survey of economists, the most since year-on- year records began in 2001. The report is scheduled for release at 9 a.m. in Washington.
“U.S. economic data due this week may underscore the unabated decline of the housing market, which should bode ill for the dollar,” said Shinya Furue, an economist in Tokyo at Norinchukin Research Institute Ltd. “If the housing data are weak enough, the dollar may fall to between 90 yen and 92 yen.”
The dollar weakened to $1.4508 against the British pound, from $1.4487, and to 1.1607 Swiss francs, from 1.1686.
Business Confidence
The ICE’s Dollar Index, which tracks the greenback against six major trading partners including the euro and the yen, dropped 0.1 percent to 87.153. It reached 88.254 on Feb. 18, the highest level since Nov. 21.
Federal Reserve Chairman Ben S. Bernanke is scheduled to deliver his semi-annual monetary policy report before the Senate Banking Committee today and before the House Financial Services Committee tomorrow.
The euro stayed higher versus the dollar and the yen even after a German report showed business confidence declined in February, backing the case for the European Central Bank to lower interest rates. The Ifo Institute report said the business climate index, based on a survey of 7,000 executives, dropped to 82.6 this month, from 83 in January.
“Given mounting economic challenges in the eurozone and neighboring countries, the ECB is unlikely to be able to signal an end to the rate-cutting cycle,” said Yousuke Hosokawa, a senior foreign-exchange dealer at Chuo Mitsui Trust and Banking Co. in Tokyo. “This may potentially be a euro negative.”
Feb. 24 (Bloomberg) -- The yen fell to a 12-week low against the dollar as the deterioration in Japan’s economy eroded the currency’s allure for investors fleeing the financial crisis in the U.S. and Europe.
Japan’s currency also approached the weakest level in a month versus the euro after Prime Minister Taro Aso’s approval rating slumped, according to a survey published today by Sankei newspaper, and economists forecast a report this week will show the trade deficit widened to the largest in 23 years. The dollar declined versus the euro on speculation a U.S. report today will show home prices fell at the fastest pace on record in December.
“We are going to see the yen continue to weaken regardless of what stocks do,” said Ian Stannard, a foreign-exchange strategist in London at BNP Paribas SA. “We have quite a lot of negative news coming from Japan.” The yen will trade between 97.5 and 98 per dollar “in the next few days,” Stannard said.
Japan’s currency weakened to 95.56 per dollar as of 9:10 a.m. in London from 94.61 yesterday in New York. It touched 95.44 today, the weakest level since Dec. 1. It depreciated to 121.88 per euro, from 120.10 yesterday, when it reached 121.93, the lowest since Jan. 19. The dollar traded at $1.2751 per euro from $1.2694 yesterday.
Asian currencies declined against the dollar, with the South Korean won approaching an 11-year low, after a slide in U.S. stocks spurred investors to cut holdings of emerging-market assets. The won lost 1.8 percent to 1,516.30, according to Seoul Money Brokerage Services Ltd. The Nikkei 225 Stock Average fell 1.5 percent today after the Standard & Poor’s 500 Index slipped yesterday to the lowest close since 1997.
Equity ‘Rout’
“The global rout in equities is expected to see a more supported dollar against Asian currencies,” Emmanuel Ng, an economist at Oversea-Chinese Banking Corp. in Singapore, wrote in a research note today.
The MSCI World Index fell 0.6 percent today, its 11th straight decline, as every major stock market in Europe dropped.
Japan’s trade deficit widened to 1.2 trillion yen in January, the Finance Ministry will say tomorrow, according to a Bloomberg News survey. Core consumer prices probably fell for the first time in more than a year in January, economists in a separate survey predict a government report will show Feb. 27.
The yen fell 6.3 percent against the dollar since trading at a 13-year high on Jan. 21 even as the S&P 500 lost almost 12 percent. Its decline today against the euro was the fifth in as many days, the longest stretch since September.
Losing ‘Status’
“The yen appears to be losing some of its safe-haven status,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “Japan’s economic and political situation is poor.”
The correlation between the dollar-yen and the Nikkei 225 was minus 0.89 since Feb. 16 when a report showed Japan’s economy shrank at an annual 12.7 percent pace in the last quarter, the most since the 1974 oil shock. The relationship was positive 0.86 in the 12 months to Feb. 16. A reading of 1 would mean the two moved in lockstep.
“The correlation has broken down, because the drivers are now changing,” Stannard said. “Dollar-yen in particular will continue to move quite sharply higher.”
Demand for the yen as a haven also declined after U.S. financial regulators said yesterday they will begin examinations this week to determine if banks have enough capital. Citigroup Inc. and Bank of America Corp. jumped on the announcement even as the S&P 500 closed at the lowest level in 12 years.
Dollar Versus Euro
“The injection of additional capital into banks should gradually help stabilize the financial system in the U.S., which is saddled with a bad-debt problem,” said Masashi Hashimoto, a Tokyo-based foreign-exchange analyst at Bank of Tokyo Mitsubishi UFJ Ltd., an unit of Japan’s biggest banking group. “This will support the dollar” against the yen, he said.
The dollar declined against the euro and the pound amid concern reports may show the U.S. economic slump is deepening. The S&P/Case-Schiller index of house prices in 20 U.S. cities declined 18.3 percent in December from a year earlier, according to a Bloomberg News survey of economists, the most since year-on- year records began in 2001. The report is scheduled for release at 9 a.m. in Washington.
“U.S. economic data due this week may underscore the unabated decline of the housing market, which should bode ill for the dollar,” said Shinya Furue, an economist in Tokyo at Norinchukin Research Institute Ltd. “If the housing data are weak enough, the dollar may fall to between 90 yen and 92 yen.”
The dollar weakened to $1.4508 against the British pound, from $1.4487, and to 1.1607 Swiss francs, from 1.1686.
Business Confidence
The ICE’s Dollar Index, which tracks the greenback against six major trading partners including the euro and the yen, dropped 0.1 percent to 87.153. It reached 88.254 on Feb. 18, the highest level since Nov. 21.
Federal Reserve Chairman Ben S. Bernanke is scheduled to deliver his semi-annual monetary policy report before the Senate Banking Committee today and before the House Financial Services Committee tomorrow.
The euro stayed higher versus the dollar and the yen even after a German report showed business confidence declined in February, backing the case for the European Central Bank to lower interest rates. The Ifo Institute report said the business climate index, based on a survey of 7,000 executives, dropped to 82.6 this month, from 83 in January.
“Given mounting economic challenges in the eurozone and neighboring countries, the ECB is unlikely to be able to signal an end to the rate-cutting cycle,” said Yousuke Hosokawa, a senior foreign-exchange dealer at Chuo Mitsui Trust and Banking Co. in Tokyo. “This may potentially be a euro negative.”
Sunday, February 15, 2009
Yen Gains as G-7 Avoids Talk of Currencies Amid ‘Severe’ Slump
By Candice Zachariahs
Feb. 16 (Bloomberg) -- The yen strengthened after finance ministers from the Group of Seven industrialized nations avoided mention of their own currencies, reducing speculation they might back efforts by Japan to weaken its currency.
The dollar rose against the euro and the pound as the G-7 pledged to tackle a “severe” slump that will persist for most of 2009. The pound added to last year’s 27 percent slide versus the greenback after Chancellor of the Exchequer Alistair Darling said the U.K. government targets inflation, not exchange rates.
“It was notable that the G-7 described the current situation as a ‘severe’ downturn,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “The gloomy outlook for the global economy combined with limited references to the currencies or to intervention all indicate risk-sensitive currencies will be heavy.”
The yen climbed to 91.74 yen as of 6:52 a.m. in Tokyo from 91.93 in New York late on Feb. 13. It advanced to 117.27 per euro from 118.37 in New York and traded at 59.78 yen per Australian dollar.
The U.S. dollar rose to $1.2783 per euro and to $1.4210 per pound. Britain’s currency slid 0.4 percent versus the euro to 89.95 pence.
The G-7 repeated its traditional message that “excess volatility” and “disorderly movements” in exchange rates must be avoided. It oversees about two-thirds of the world economy and is composed of the U.S., Japan, Germany, U.K., Italy, Canada and France.
Japanese GDP
Gains in the yen may be limited before a government report today expected to show Japan’s economy contracted an annualized 11.6 percent in the fourth quarter, according to the median estimate of 26 economists surveyed by Bloomberg News.
“At least on the day, domestic data could replace risk aversion as the dominant yen driver, especially if the GDP reading surprises to the downside,” wrote Matthew Strauss, a senior currency strategist in Toronto at RBC Capital Markets Inc., a unit of Canada’s biggest bank by assets.
Japanese exporters have seen the yen value of overseas sales decline as the local currency rose 21 percent against the dollar over the past six months. The yen has been the best performer among the 16 most-traded currencies in that time.
“I want people to think about the significance that the G- 7 statement included the language that each nation will cooperate as appropriate against excessive movements in the currency market,” Japanese Finance Minister Shoichi Nakagawa said after the meeting.
Central banks and governments intervene in foreign-exchange markets by buying or selling their own currency to strengthen or weaken it.
Feb. 16 (Bloomberg) -- The yen strengthened after finance ministers from the Group of Seven industrialized nations avoided mention of their own currencies, reducing speculation they might back efforts by Japan to weaken its currency.
The dollar rose against the euro and the pound as the G-7 pledged to tackle a “severe” slump that will persist for most of 2009. The pound added to last year’s 27 percent slide versus the greenback after Chancellor of the Exchequer Alistair Darling said the U.K. government targets inflation, not exchange rates.
“It was notable that the G-7 described the current situation as a ‘severe’ downturn,” said Danica Hampton, a currency strategist at Bank of New Zealand Ltd. in Wellington. “The gloomy outlook for the global economy combined with limited references to the currencies or to intervention all indicate risk-sensitive currencies will be heavy.”
The yen climbed to 91.74 yen as of 6:52 a.m. in Tokyo from 91.93 in New York late on Feb. 13. It advanced to 117.27 per euro from 118.37 in New York and traded at 59.78 yen per Australian dollar.
The U.S. dollar rose to $1.2783 per euro and to $1.4210 per pound. Britain’s currency slid 0.4 percent versus the euro to 89.95 pence.
The G-7 repeated its traditional message that “excess volatility” and “disorderly movements” in exchange rates must be avoided. It oversees about two-thirds of the world economy and is composed of the U.S., Japan, Germany, U.K., Italy, Canada and France.
Japanese GDP
Gains in the yen may be limited before a government report today expected to show Japan’s economy contracted an annualized 11.6 percent in the fourth quarter, according to the median estimate of 26 economists surveyed by Bloomberg News.
“At least on the day, domestic data could replace risk aversion as the dominant yen driver, especially if the GDP reading surprises to the downside,” wrote Matthew Strauss, a senior currency strategist in Toronto at RBC Capital Markets Inc., a unit of Canada’s biggest bank by assets.
Japanese exporters have seen the yen value of overseas sales decline as the local currency rose 21 percent against the dollar over the past six months. The yen has been the best performer among the 16 most-traded currencies in that time.
“I want people to think about the significance that the G- 7 statement included the language that each nation will cooperate as appropriate against excessive movements in the currency market,” Japanese Finance Minister Shoichi Nakagawa said after the meeting.
Central banks and governments intervene in foreign-exchange markets by buying or selling their own currency to strengthen or weaken it.
Monday, February 9, 2009
Cheapest Stocks Since 1990 Reduce U.S. Short Selling (Update3)
By Lynn Thomasson
Feb. 9 (Bloomberg) -- The biggest bears in U.S. stocks are losing their conviction after the steepest decline in the Standard & Poor’s 500 Index since the Great Depression.
The number of shares borrowed and sold short on the New York Stock Exchange fell 28 percent last month from the peak in July. Companies in the S&P 500 trade at the lowest multiples of earnings in 18 years. President Barack Obama is working with Congress on a spending and tax-cut plan of about $800 billion to revive the economy, and regulators are imposing stiffer oversight on speculators.
While Seabreeze Partners Management Inc.’s Douglas Kass and David Tice at Federated Investors Inc. say there’s still money to be made betting that food and computer makers will fall, even Marc Faber, who publishes the “Gloom, Boom & Doom Report,” abandoned his so-called short positions. Bill Fleckenstein, who warned of the housing bubble in 2005, closed his 13-year-old bear market fund and bought shares of Microsoft Corp.
“It’d be easier for me to find five stocks I think are going to go up than five stocks I think are going to go down,” said Fleckenstein, who is based in Seattle. “Being short right now just feels like the wrong strategy.”
Most U.S. stocks fell today, snapping a two-day gain, as concern President Barack Obama’s stimulus package won’t be enough to pull the nation out of a recession outweighed a rally in financial and industrial shares.
28% Gain Last Year
Short sellers, who borrow stock and sell it on hopes of capturing a profit by replacing the shares after prices fall, had the most success among hedge funds last year, gaining 28 percent on average, according to Chicago-based Hedge Fund Research Inc. The S&P 500’s 38 percent decline last year was the biggest drop since 1937. Only 24 shares in the index rose.
Short interest, the number of shares sold short, totaled 13.4 billion on Jan. 15, down from 18.6 billion in July, based on data compiled by New York-based NYSE Euronext.
U.S. stocks trade at an average 15.23 times earnings after falling as low as 15.20 in November, the cheapest since 1990, based on an analysis by Robert Shiller, the Yale University professor whose 2000 book “Irrational Exuberance” predicted the market’s collapse. His analysis uses a decade of earnings to smooth out short-term fluctuations.
“I would be very cautious about being short this market right now,” said Dan Veru, who manages about $2.4 billion and can bet on gains and declines in equities as chief investment officer of Palisade Capital Management LLC in Fort Lee, New Jersey. “It’s very dicey.”
Kraft, Colgate
Kass still expects to profit from betting cash-strapped consumers will switch to generic products and drive down shares of Northfield, Illinois-based Kraft Foods Inc., New York-based Colgate-Palmolive Co. and Kellogg Co. in Battle Creek, Michigan.
Kraft, the maker of Kool-Aid drink mixes and Jell-O desserts, fell 9.2 percent Feb. 4, the steepest drop since 2003, after saying earnings will be less than its earlier forecast. The median company in the S&P 500 index of food producers, tobacco growers and grocery stores trades for an average 13.1 times earnings, the highest level among 10 industries in the gauge.
So-called consumer staples companies, which posted the smallest drop in the S&P 500 last year, are down 5.8 percent in 2009, underperforming the benchmark index by 1.9 percentage points. Colgate dropped 4.2 percent this year, while Kellogg, the biggest cereal maker, slid 0.6 percent.
‘More Creative’
“You’ve got to be a little more creative,” said Kass, who oversaw $200 million as of October for Palm Beach, Florida-based hedge-fund firm Seabreeze. “These are companies that face long- term challenges to their business model. Investors are going to see that.”
Tice, the Dallas-based strategist for the $1.1 billion Federated Prudent Bear Fund, anticipates a 50 percent drop in the S&P 500 this year and says technology stocks and retailers will retreat. The fund, which increased 27 percent in 2008, beat 96 percent of its peers in the past five years, according to data compiled by Bloomberg.
Intel Corp., the world’s largest chipmaker, may report a first-quarter loss, Chief Executive Officer Paul Otellini wrote in an internal memo last month. That would end a 21-year run of profits for the Santa Clara, California, company. Technology stocks are the third most costly in the S&P 500, with the median company trading at 12.4 times profit.
‘Coming Down’
“There are a lot of people feeling as if technology earnings are going to be OK,” Tice said in a Feb. 5 Bloomberg Television interview. “We think they’re going to be coming down a lot.”
Profits for S&P 500 companies fell 39 percent in the fourth- quarter, the steepest decline since Bloomberg began tracking the data in 1998. The recession, forecast to last for another five months, will drag earnings down an average 30 percent this quarter and 25 percent the next, according to estimates from analysts and economists surveyed by Bloomberg.
The S&P 500 began recovering an average five months before recessions ended in 1975, 1982, and 1991, data compiled by Bloomberg show.
Declines that erased almost $29 trillion from global equity markets last year convinced Fleckenstein to close his short fund in December after falling valuations made it “too dangerous” to bet on more losses. He said the fund had a “great” year in 2008 and declined to comment further on its performance. Fleckenstein plans to start a fund this year that both buys and bets against stocks.
Technology Bubble
Fleckenstein bought shares of Redmond, Washington-based Microsoft, which traded at 9 times earnings last month, the cheapest since at least 1987. At the height of the technology bubble in March 2000, the world’s largest software maker traded at 69.8 times profit.
Faber, who is purchasing Asian stocks with some of the $300 million he oversees, told Bloomberg Radio Feb. 6 that he bought back the shares he shorted because investors speculating on an economic rebound may push the S&P 500 up 19 percent by May to 1,037. The index closed at 868.6 on Feb. 6 and rose 5.2 percent for the week.
“Short selling is down because prices are down and because some regulation came in that made it very difficult,” Faber said. “You could make a case that in the U.S. that some equities have come down a lot and are inexpensive. Resource-related shares have totally imploded.”
Short Squeeze
Metals and chemicals stocks in the S&P 500 dropped 47 percent in 2008, the second-worst performance behind financial companies, which plunged 57 percent. Both annual returns were the worst since Bloomberg began tracking the data in 1990.
Should the S&P 500 rally, losses for investors who wager on declines could be magnified by a short squeeze, a rally caused by investors closing out bearish bets. The U.S. stock benchmark gained 15 percent since reaching an 11-year low Nov. 20 on the prospect that record low interest rates and Obama’s spending plan will jumpstart economic growth.
Short sellers face more scrutiny from governments in the U.K., Japan and Australia after the FTSE 100 Index, Topix and S&P/ASX 200 suffered their worst year on record with losses exceeding 31 percent.
Regulators are requiring speculators disclose more information about their bets, enabling rival funds to exploit them for their own profit. Britain’s financial regulator plans to require investors list short positions on more than 3,000 shares traded on U.K. exchanges, it said Feb. 6.
‘No Rational Basis’
The U.S. government banned investors from shorting financial companies in September after executives complained bearish traders were spreading rumors to drive down prices. The rule, which affected more than 900 companies, expired Oct. 8.
Morgan Stanley Chief Executive Officer John Mack told employees in a September memo that management was acting to stop “irresponsible action in the market,” and said there was “no rational basis” for the depth of the share-price declines. The New York-based bank tumbled 44 percent that month, the most since Bloomberg started compiling the data in 1993.
“It’s a little more difficult now,” said Tice. “There are still lots of possibilities, but we have to be a little more judicious.”
Feb. 9 (Bloomberg) -- The biggest bears in U.S. stocks are losing their conviction after the steepest decline in the Standard & Poor’s 500 Index since the Great Depression.
The number of shares borrowed and sold short on the New York Stock Exchange fell 28 percent last month from the peak in July. Companies in the S&P 500 trade at the lowest multiples of earnings in 18 years. President Barack Obama is working with Congress on a spending and tax-cut plan of about $800 billion to revive the economy, and regulators are imposing stiffer oversight on speculators.
While Seabreeze Partners Management Inc.’s Douglas Kass and David Tice at Federated Investors Inc. say there’s still money to be made betting that food and computer makers will fall, even Marc Faber, who publishes the “Gloom, Boom & Doom Report,” abandoned his so-called short positions. Bill Fleckenstein, who warned of the housing bubble in 2005, closed his 13-year-old bear market fund and bought shares of Microsoft Corp.
“It’d be easier for me to find five stocks I think are going to go up than five stocks I think are going to go down,” said Fleckenstein, who is based in Seattle. “Being short right now just feels like the wrong strategy.”
Most U.S. stocks fell today, snapping a two-day gain, as concern President Barack Obama’s stimulus package won’t be enough to pull the nation out of a recession outweighed a rally in financial and industrial shares.
28% Gain Last Year
Short sellers, who borrow stock and sell it on hopes of capturing a profit by replacing the shares after prices fall, had the most success among hedge funds last year, gaining 28 percent on average, according to Chicago-based Hedge Fund Research Inc. The S&P 500’s 38 percent decline last year was the biggest drop since 1937. Only 24 shares in the index rose.
Short interest, the number of shares sold short, totaled 13.4 billion on Jan. 15, down from 18.6 billion in July, based on data compiled by New York-based NYSE Euronext.
U.S. stocks trade at an average 15.23 times earnings after falling as low as 15.20 in November, the cheapest since 1990, based on an analysis by Robert Shiller, the Yale University professor whose 2000 book “Irrational Exuberance” predicted the market’s collapse. His analysis uses a decade of earnings to smooth out short-term fluctuations.
“I would be very cautious about being short this market right now,” said Dan Veru, who manages about $2.4 billion and can bet on gains and declines in equities as chief investment officer of Palisade Capital Management LLC in Fort Lee, New Jersey. “It’s very dicey.”
Kraft, Colgate
Kass still expects to profit from betting cash-strapped consumers will switch to generic products and drive down shares of Northfield, Illinois-based Kraft Foods Inc., New York-based Colgate-Palmolive Co. and Kellogg Co. in Battle Creek, Michigan.
Kraft, the maker of Kool-Aid drink mixes and Jell-O desserts, fell 9.2 percent Feb. 4, the steepest drop since 2003, after saying earnings will be less than its earlier forecast. The median company in the S&P 500 index of food producers, tobacco growers and grocery stores trades for an average 13.1 times earnings, the highest level among 10 industries in the gauge.
So-called consumer staples companies, which posted the smallest drop in the S&P 500 last year, are down 5.8 percent in 2009, underperforming the benchmark index by 1.9 percentage points. Colgate dropped 4.2 percent this year, while Kellogg, the biggest cereal maker, slid 0.6 percent.
‘More Creative’
“You’ve got to be a little more creative,” said Kass, who oversaw $200 million as of October for Palm Beach, Florida-based hedge-fund firm Seabreeze. “These are companies that face long- term challenges to their business model. Investors are going to see that.”
Tice, the Dallas-based strategist for the $1.1 billion Federated Prudent Bear Fund, anticipates a 50 percent drop in the S&P 500 this year and says technology stocks and retailers will retreat. The fund, which increased 27 percent in 2008, beat 96 percent of its peers in the past five years, according to data compiled by Bloomberg.
Intel Corp., the world’s largest chipmaker, may report a first-quarter loss, Chief Executive Officer Paul Otellini wrote in an internal memo last month. That would end a 21-year run of profits for the Santa Clara, California, company. Technology stocks are the third most costly in the S&P 500, with the median company trading at 12.4 times profit.
‘Coming Down’
“There are a lot of people feeling as if technology earnings are going to be OK,” Tice said in a Feb. 5 Bloomberg Television interview. “We think they’re going to be coming down a lot.”
Profits for S&P 500 companies fell 39 percent in the fourth- quarter, the steepest decline since Bloomberg began tracking the data in 1998. The recession, forecast to last for another five months, will drag earnings down an average 30 percent this quarter and 25 percent the next, according to estimates from analysts and economists surveyed by Bloomberg.
The S&P 500 began recovering an average five months before recessions ended in 1975, 1982, and 1991, data compiled by Bloomberg show.
Declines that erased almost $29 trillion from global equity markets last year convinced Fleckenstein to close his short fund in December after falling valuations made it “too dangerous” to bet on more losses. He said the fund had a “great” year in 2008 and declined to comment further on its performance. Fleckenstein plans to start a fund this year that both buys and bets against stocks.
Technology Bubble
Fleckenstein bought shares of Redmond, Washington-based Microsoft, which traded at 9 times earnings last month, the cheapest since at least 1987. At the height of the technology bubble in March 2000, the world’s largest software maker traded at 69.8 times profit.
Faber, who is purchasing Asian stocks with some of the $300 million he oversees, told Bloomberg Radio Feb. 6 that he bought back the shares he shorted because investors speculating on an economic rebound may push the S&P 500 up 19 percent by May to 1,037. The index closed at 868.6 on Feb. 6 and rose 5.2 percent for the week.
“Short selling is down because prices are down and because some regulation came in that made it very difficult,” Faber said. “You could make a case that in the U.S. that some equities have come down a lot and are inexpensive. Resource-related shares have totally imploded.”
Short Squeeze
Metals and chemicals stocks in the S&P 500 dropped 47 percent in 2008, the second-worst performance behind financial companies, which plunged 57 percent. Both annual returns were the worst since Bloomberg began tracking the data in 1990.
Should the S&P 500 rally, losses for investors who wager on declines could be magnified by a short squeeze, a rally caused by investors closing out bearish bets. The U.S. stock benchmark gained 15 percent since reaching an 11-year low Nov. 20 on the prospect that record low interest rates and Obama’s spending plan will jumpstart economic growth.
Short sellers face more scrutiny from governments in the U.K., Japan and Australia after the FTSE 100 Index, Topix and S&P/ASX 200 suffered their worst year on record with losses exceeding 31 percent.
Regulators are requiring speculators disclose more information about their bets, enabling rival funds to exploit them for their own profit. Britain’s financial regulator plans to require investors list short positions on more than 3,000 shares traded on U.K. exchanges, it said Feb. 6.
‘No Rational Basis’
The U.S. government banned investors from shorting financial companies in September after executives complained bearish traders were spreading rumors to drive down prices. The rule, which affected more than 900 companies, expired Oct. 8.
Morgan Stanley Chief Executive Officer John Mack told employees in a September memo that management was acting to stop “irresponsible action in the market,” and said there was “no rational basis” for the depth of the share-price declines. The New York-based bank tumbled 44 percent that month, the most since Bloomberg started compiling the data in 1993.
“It’s a little more difficult now,” said Tice. “There are still lots of possibilities, but we have to be a little more judicious.”
Wednesday, February 4, 2009
N.Z. Dollar Gains After Jobless Data; Australian Dollar Rises
By Candice Zachariahs
Feb. 5 (Bloomberg) -- The New Zealand dollar rose for a third day after the government reported jobless data that was better than some economists were expecting. The Australian currency also advanced.
Australia’s dollar approached a one-week high after a measure of shipping costs for commodities capped its longest stretch of gains since September 2007, signaling demand for raw materials may be recovering. New Zealand’s unemployment rate increased to 4.6 percent, Statistics New Zealand said today. Three economists surveyed by Bloomberg News before the release predicted it would climb as high as 4.7 percent.
“The New Zealand dollar popped because the number wasn’t as bad as people thought it might be,” said Imre Speizer, a market strategist in Wellington at Westpac Banking Corp., Australia’s biggest bank by market value. “Our view is that the central bank will cut 50 basis points at their March meeting” to help spur growth in the economy.
New Zealand’s dollar advanced to 51.12 U.S. cents as of 3:48 p.m. in Wellington, from 50.68 cents before the data was released and 50.69 late in Asia yesterday. It climbed to 45.66 yen from 45.12. The currency may rise as high as 51.50 cents today, Speizer said.
Australia’s dollar gained 0.3 percent to 64.28 U.S. cents and rose 0.7 percent to 57.41 yen.
Australia’s currency rallied as the Baltic Dry Index gained for an 11th day to 1148 points yesterday, signaling there may be higher demand for raw materials the nation exports. The index fell as low as 663 points on Dec. 5, the least since 1986.
Commodities
Commodities are important to the so-called Aussie dollar as raw materials account for 60 percent of the nation’s exports. Sales of commodities including lumber make up 70 percent of New Zealand’s overseas shipments.
The New Zealand dollar has been the worst performer of the 16 major currencies in the past three months, according to Bloomberg data. It has lost 23 percent versus the yen and 15 percent against the greenback as Standard and Poor’s revised the outlook on the nation’s foreign-currency credit rating to negative from stable last month, citing concern the current- account deficit and overseas debt will curb growth. Australia’s dollar has fallen 7 percent versus the greenback and 14 percent versus the yen in the same period.
New Zealand’s currency may weaken to an all-time low of 38.98 cents in coming months as a global slowdown reduces demand for the nation’s riskier assets, RBC Capital Markets, a unit of Royal Bank of Canada, forecast in a report on Feb. 2.
Rate Cuts
Reserve Bank of New Zealand Governor Alan Bollard has cut the official cash rate by 4.75 percentage points since July to 3.5 percent, the lowest ever, and said there is room for further reductions to steer the economy out of a recession. Traders are betting borrowing costs will fall to 2.7 percent in the next 12 months, according to a Credit Suisse Group AG index based on swaps trading.
Higher interest rates in Australia and New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attract investors to the South Pacific nations’ assets. Australia’s central bank cut rates by 1 percentage point to 3.25 percent on Feb. 3.
New Zealand’s AAA foreign-currency credit rating is safe for now, according to an analyst at Moody’s Investors Service. The nation has large external liabilities mainly on bank borrowings, said Stephen Hess, a credit analyst at Moody’s, according to a Reuters report.
BHP Billiton
The Australian dollar also advanced as BHP Billiton Ltd., the world’s third-largest producer of iron ore, said yesterday that stockpiles of the raw material used to make steel have been trimmed in China and customers are returning to the market.
“The Baltic Dry Index had a good day and reports of Chinese stock piles decreasing also supported the Aussie,” said Tony Allen, head of currency trading at ANZ National Bank Ltd. in Wellington. It’s likely to trade between 63.60 and 65.40 U.S. cents today, he said.
Gains in the Australian dollar will be limited until the Senate passes the government’s A$42 billion stimulus package announced Feb. 3, John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in a research note. The package is likely to be debated and voted on in the upper house Senate next week, Greens Senator Bob Brown said in an interview.
The currency will face so-called resistance at 65.30 to 65.50 U.S. cents, Kyriakopoulos said.
Australian government bonds fell for a third day, pushing the yield on the 10-year note up two basis points, or 0.02 percentage point, to 4.33 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.171, or A$1.71 per A$1,000 face amount, to 107.453.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 3.39 percent from 3.36 yesterday.
Feb. 5 (Bloomberg) -- The New Zealand dollar rose for a third day after the government reported jobless data that was better than some economists were expecting. The Australian currency also advanced.
Australia’s dollar approached a one-week high after a measure of shipping costs for commodities capped its longest stretch of gains since September 2007, signaling demand for raw materials may be recovering. New Zealand’s unemployment rate increased to 4.6 percent, Statistics New Zealand said today. Three economists surveyed by Bloomberg News before the release predicted it would climb as high as 4.7 percent.
“The New Zealand dollar popped because the number wasn’t as bad as people thought it might be,” said Imre Speizer, a market strategist in Wellington at Westpac Banking Corp., Australia’s biggest bank by market value. “Our view is that the central bank will cut 50 basis points at their March meeting” to help spur growth in the economy.
New Zealand’s dollar advanced to 51.12 U.S. cents as of 3:48 p.m. in Wellington, from 50.68 cents before the data was released and 50.69 late in Asia yesterday. It climbed to 45.66 yen from 45.12. The currency may rise as high as 51.50 cents today, Speizer said.
Australia’s dollar gained 0.3 percent to 64.28 U.S. cents and rose 0.7 percent to 57.41 yen.
Australia’s currency rallied as the Baltic Dry Index gained for an 11th day to 1148 points yesterday, signaling there may be higher demand for raw materials the nation exports. The index fell as low as 663 points on Dec. 5, the least since 1986.
Commodities
Commodities are important to the so-called Aussie dollar as raw materials account for 60 percent of the nation’s exports. Sales of commodities including lumber make up 70 percent of New Zealand’s overseas shipments.
The New Zealand dollar has been the worst performer of the 16 major currencies in the past three months, according to Bloomberg data. It has lost 23 percent versus the yen and 15 percent against the greenback as Standard and Poor’s revised the outlook on the nation’s foreign-currency credit rating to negative from stable last month, citing concern the current- account deficit and overseas debt will curb growth. Australia’s dollar has fallen 7 percent versus the greenback and 14 percent versus the yen in the same period.
New Zealand’s currency may weaken to an all-time low of 38.98 cents in coming months as a global slowdown reduces demand for the nation’s riskier assets, RBC Capital Markets, a unit of Royal Bank of Canada, forecast in a report on Feb. 2.
Rate Cuts
Reserve Bank of New Zealand Governor Alan Bollard has cut the official cash rate by 4.75 percentage points since July to 3.5 percent, the lowest ever, and said there is room for further reductions to steer the economy out of a recession. Traders are betting borrowing costs will fall to 2.7 percent in the next 12 months, according to a Credit Suisse Group AG index based on swaps trading.
Higher interest rates in Australia and New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attract investors to the South Pacific nations’ assets. Australia’s central bank cut rates by 1 percentage point to 3.25 percent on Feb. 3.
New Zealand’s AAA foreign-currency credit rating is safe for now, according to an analyst at Moody’s Investors Service. The nation has large external liabilities mainly on bank borrowings, said Stephen Hess, a credit analyst at Moody’s, according to a Reuters report.
BHP Billiton
The Australian dollar also advanced as BHP Billiton Ltd., the world’s third-largest producer of iron ore, said yesterday that stockpiles of the raw material used to make steel have been trimmed in China and customers are returning to the market.
“The Baltic Dry Index had a good day and reports of Chinese stock piles decreasing also supported the Aussie,” said Tony Allen, head of currency trading at ANZ National Bank Ltd. in Wellington. It’s likely to trade between 63.60 and 65.40 U.S. cents today, he said.
Gains in the Australian dollar will be limited until the Senate passes the government’s A$42 billion stimulus package announced Feb. 3, John Kyriakopoulos, Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in a research note. The package is likely to be debated and voted on in the upper house Senate next week, Greens Senator Bob Brown said in an interview.
The currency will face so-called resistance at 65.30 to 65.50 U.S. cents, Kyriakopoulos said.
Australian government bonds fell for a third day, pushing the yield on the 10-year note up two basis points, or 0.02 percentage point, to 4.33 percent, according to data compiled by Bloomberg. The price of the 5.25 percent security due March 2019 fell 0.171, or A$1.71 per A$1,000 face amount, to 107.453.
New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, rose to 3.39 percent from 3.36 yesterday.
Sunday, February 1, 2009
Stiglitz Criticizes Bad Bank Plan as Swapping ‘Cash for Trash’
By Simon Kennedy
Jan. 31 (Bloomberg) -- Nobel laureate Joseph Stiglitz said any decision by President Barack Obama to establish a so-called bad bank to rid financial companies of toxic assets risks swelling the national debt.
Obama’s administration is moving closer to buying the illiquid assets currently clogging bank’s balance sheets and preventing them from boosting lending, people familiar with the matter said this week.
That amounts to swapping taxpayers’ “cash for trash,” Stiglitz said in a panel discussion at the World Economic Forum in Davos, Switzerland today. “You shouldn’t chase good money after bad. We’re talking about a national debt that’s very hard to manage.”
Stiglitz, a professor at Columbia University in New York and a former adviser to President Bill Clinton, says the plan would leave taxpayers picking up the bill for years of excess lending by banks. It would also deprive the government of money that would have been better spent shoring up Social Security, he said.
Obama said today he’s readying a plan to unlock credit markets and lower mortgage rates without giving details. The initiative would have the government buy some tainted securities and insure the banks against losses on the rest.
“Soon my Treasury secretary, Timothy Geithner, will announce a new strategy for reviving our financial system that gets credit flowing to businesses and families,” Obama said in his weekly radio address.
Criticism
Stiglitz drew criticism from panel participant Angel Gurria, head of the Organization for Economic Cooperation and Development, who says a bad bank is necessary for lending to resume.
“I agree about the moral, ethical fallout, but you’ve got to face the music and someone has to take the loss,” said Gurria, a former Mexican finance minister. “It’s the only way to jumpstart the economy.”
Bank losses worldwide from toxic U.S.-originated assets may double to $2.2 trillion, the International Monetary Fund said in a report released Jan. 28.
John Monks, general secretary of the European Trade Union Confederation, told the same audience that governments were getting “close to straining the patience of the public and voters” by repeatedly extending lifelines to banks.
Philippines President Gloria Arroyo urged Obama to make a quick decision on his plan.
“We want Americans to do something,” she said at the session, which was called “Rebooting the Global Economy.” “We can discuss what to do but the worst thing is to do nothing.”
Jan. 31 (Bloomberg) -- Nobel laureate Joseph Stiglitz said any decision by President Barack Obama to establish a so-called bad bank to rid financial companies of toxic assets risks swelling the national debt.
Obama’s administration is moving closer to buying the illiquid assets currently clogging bank’s balance sheets and preventing them from boosting lending, people familiar with the matter said this week.
That amounts to swapping taxpayers’ “cash for trash,” Stiglitz said in a panel discussion at the World Economic Forum in Davos, Switzerland today. “You shouldn’t chase good money after bad. We’re talking about a national debt that’s very hard to manage.”
Stiglitz, a professor at Columbia University in New York and a former adviser to President Bill Clinton, says the plan would leave taxpayers picking up the bill for years of excess lending by banks. It would also deprive the government of money that would have been better spent shoring up Social Security, he said.
Obama said today he’s readying a plan to unlock credit markets and lower mortgage rates without giving details. The initiative would have the government buy some tainted securities and insure the banks against losses on the rest.
“Soon my Treasury secretary, Timothy Geithner, will announce a new strategy for reviving our financial system that gets credit flowing to businesses and families,” Obama said in his weekly radio address.
Criticism
Stiglitz drew criticism from panel participant Angel Gurria, head of the Organization for Economic Cooperation and Development, who says a bad bank is necessary for lending to resume.
“I agree about the moral, ethical fallout, but you’ve got to face the music and someone has to take the loss,” said Gurria, a former Mexican finance minister. “It’s the only way to jumpstart the economy.”
Bank losses worldwide from toxic U.S.-originated assets may double to $2.2 trillion, the International Monetary Fund said in a report released Jan. 28.
John Monks, general secretary of the European Trade Union Confederation, told the same audience that governments were getting “close to straining the patience of the public and voters” by repeatedly extending lifelines to banks.
Philippines President Gloria Arroyo urged Obama to make a quick decision on his plan.
“We want Americans to do something,” she said at the session, which was called “Rebooting the Global Economy.” “We can discuss what to do but the worst thing is to do nothing.”
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