Fed's Cut Not Justified, Creates Problems, Faber Says (Update4)
By Dominic G. Diongson and Catherine Yang
Aug. 20 (Bloomberg) -- The U.S. Federal Reserve's cut of the interest rate it charges banks was ``not justified'' and will create more problems, investor Marc Faber said.
In an effort to restore confidence in the wake of a credit crunch sparked by U.S. subprime mortgage losses, the Fed reduced the discount rate to 5.75 percent from 6.25 percent on Aug. 17. That was the first cut between scheduled meetings since 2001.
``I think it's an intervention into the marketplace that is not justified,'' said Faber, in an interview from Danang, Vietnam today. Injecting more money into the system will ``create an additional set of problems at a later date.''
Faber, founder and managing director of Hong Kong-based investment advisory company Marc Faber Ltd., correctly predicted the U.S. stock market crash in 1987. He also advised investors to buy gold in 2001, which has since more than doubled.
Global stock markets rallied as the Fed's move eased concern a rout in the U.S. mortgage market will spread and dry up access to capital. The global equities sell-off had erased more than $5.5 trillion of market value from a July 23 peak, according to data compiled by Bloomberg.
Asian stocks jumped the most in a year today, while U.S. shares posted their biggest gain in four years on Aug. 17 and Europe's Dow Jones Stoxx 600 Index was up 2.4 percent within 15 minutes of the Fed's announcement that it was taking action.
`Prepared to Act'
``The rate cut was pretty effective in curtailing panic in the markets which have no direct link to the subprime loan problem,'' said Masayuki Kubota, who helps oversee $2.1 billion in assets at Daiwa SB Investments Ltd. in Tokyo. ``Global growth won't be hampered by the subprime issue.''
The Fed left its benchmark fund rate target for overnight loans between banks unchanged at 5.25 percent.
In the statement, the Fed committee said it is ``prepared to act as needed to mitigate the adverse effects on the economy arising from disruptions in financial markets.'' Policy makers, who last held a scheduled meeting on Aug. 7, convene on Sept. 18.
Should the Standard and Poor's 500 Index drop below 1,400 the Fed is likely to reduce the overnight lending rate, Faber said. If the S&P rises above 1,500 it won't cut the rate, he said. The S&P 500 climbed 2.5 percent to 1,445.94 on Aug. 17. Still, it's down 6.9 percent from a record close set on July 19.
S&P 500 futures expiring in September rose 4.6 to 1,454.5 as of 11:42 a.m. in London.
No Dollar Collapse
``They're driven by asset markets, their policies, which is a mistake in the first place,'' said Faber, publisher of the monthly newsletter the Gloom, Boom & Doom Report. The housing problems arose in the first place ``because of easy monetary policies.''
Faber said that the dollar isn't likely to ``collapse'' as money flows to U.S. currency and yen assets.
``I believe that U.S assets, while they will not make a new high, they will outperform assets in emerging markets for a while,'' he said. ``There's a capital outflow from emerging markets into the U.S. and into the yen.''
To contact the reporter on this story: Dominic G. Diongson in Bangkok at ddiongson@bloomberg.net ; Catherine Yang in Hong Kong at cyyang@bloomberg.net
Last Updated: August 20, 2007 07:14 EDT
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Wednesday, August 22, 2007
Wednesday, August 15, 2007
Billionaires’ $12m railway row
Billionaires’ $12m railway row
14th August 2007, 6:00 WST
Billionaires Len Buckeridge and Andrew Forrest have fallen out in a multi-million-dollar dispute over the railway line destined to open up the Pilbara and break the iron ore stranglehold held by mining giants BHP Billiton and Rio Tinto. Mr Buckeridge’s BGC Contracting has issued a writ in the WA Supreme Court claiming $12.35 million from a subsidiary of Mr Forrest’s Fortescue Metals Group, which is racing against time to complete its 260km railway line to ship its first iron ore to Chinese buyers in May next year. That ambitious deadline represents a critical milestone for Fortescue’s $2.9 billion iron ore project, which ultimately aims to export 200 million tonnes of iron ore a year from a new port it is building at Port Hedland. Mr Buckeridge said yesterday that while cyclones had delayed progress on the railway line and contributed to cost blowouts, he could not be held responsible. “My name’s Len, not God, I didn’t cause the cyclones,” Mr Buckeridge said. BGC was the sole contractor carrying out the earthworks for the railway line until the two Perth billionaires personally struck a deal on May 30 which allowed Fortescue to bring in two extra contractors to help make up for the lost time caused by three cyclones. According to the statement of claim lodged by BGC with its writ, Fortescue agreed to pay a fee of at least $12.35 million to Mr Buckeridge’s company as part of a deed to terminate their original contract, with a further claim of $6.4 million to be settled via arbitration. However, the writ stated that in a letter dated July 11, Mr Forrest informed Mr Buckeridge “that the defendant would not be paying the fee to the plaintiff” without giving any reasons. It stated that when Mr Buckeridge -demanded Mr Forrest release the dispute fee from a trust account during a telephone call on August 2, the Fortescue chief refused. Mr Buckeridge’s lawyers filed the writ in the Supreme Court the next day. While Mr Forrest could not be reached for comment yesterday, Fortescue executive director Graeme Rowley said the legal action taken by Mr Buckeridge would not delay progress on the line, even though BGC continued to work on the project. Mr Rowley said the writ was the first dispute Fortescue had experienced in $2.9 billion worth of contracts issued to build the company’s rail, port and iron ore mine. “We push all our contractors for value, that’s always been our focus and we will continue to do that,” Mr Rowley said. “And if you’re going to keep pushing your contractors for value, then you’re not always going to see eye to eye with them.” He said Fortescue hoped to reach a negotiated settlement out-of-court with BGC.
MARK DRUMMOND CHIEF REPORTER
http://www.thewest.com.au/default.aspx?MenuID=77&ContentID=37293
14th August 2007, 6:00 WST
Billionaires Len Buckeridge and Andrew Forrest have fallen out in a multi-million-dollar dispute over the railway line destined to open up the Pilbara and break the iron ore stranglehold held by mining giants BHP Billiton and Rio Tinto. Mr Buckeridge’s BGC Contracting has issued a writ in the WA Supreme Court claiming $12.35 million from a subsidiary of Mr Forrest’s Fortescue Metals Group, which is racing against time to complete its 260km railway line to ship its first iron ore to Chinese buyers in May next year. That ambitious deadline represents a critical milestone for Fortescue’s $2.9 billion iron ore project, which ultimately aims to export 200 million tonnes of iron ore a year from a new port it is building at Port Hedland. Mr Buckeridge said yesterday that while cyclones had delayed progress on the railway line and contributed to cost blowouts, he could not be held responsible. “My name’s Len, not God, I didn’t cause the cyclones,” Mr Buckeridge said. BGC was the sole contractor carrying out the earthworks for the railway line until the two Perth billionaires personally struck a deal on May 30 which allowed Fortescue to bring in two extra contractors to help make up for the lost time caused by three cyclones. According to the statement of claim lodged by BGC with its writ, Fortescue agreed to pay a fee of at least $12.35 million to Mr Buckeridge’s company as part of a deed to terminate their original contract, with a further claim of $6.4 million to be settled via arbitration. However, the writ stated that in a letter dated July 11, Mr Forrest informed Mr Buckeridge “that the defendant would not be paying the fee to the plaintiff” without giving any reasons. It stated that when Mr Buckeridge -demanded Mr Forrest release the dispute fee from a trust account during a telephone call on August 2, the Fortescue chief refused. Mr Buckeridge’s lawyers filed the writ in the Supreme Court the next day. While Mr Forrest could not be reached for comment yesterday, Fortescue executive director Graeme Rowley said the legal action taken by Mr Buckeridge would not delay progress on the line, even though BGC continued to work on the project. Mr Rowley said the writ was the first dispute Fortescue had experienced in $2.9 billion worth of contracts issued to build the company’s rail, port and iron ore mine. “We push all our contractors for value, that’s always been our focus and we will continue to do that,” Mr Rowley said. “And if you’re going to keep pushing your contractors for value, then you’re not always going to see eye to eye with them.” He said Fortescue hoped to reach a negotiated settlement out-of-court with BGC.
MARK DRUMMOND CHIEF REPORTER
http://www.thewest.com.au/default.aspx?MenuID=77&ContentID=37293
Sunday, August 12, 2007
U.S. Stocks Recover From Rout; S&P 500 Gains, Led by Oil Shares
U.S. Stocks Recover From Rout; S&P 500 Gains, Led by Oil Shares
By Michael Patterson
Trader Michael Naples in the S&P 500 pit in Chicago Aug. 10 (Bloomberg) -- U.S. stocks recovered from a global sell-off, erasing most of the Dow Jones Industrial Average's 213- point drop, after the Federal Reserve added $38 billion to banks to stem a crisis of confidence in credit markets.
Viacom Inc., Nike Inc. and Gap Inc. led a late-session turnaround in consumer shares. Exxon Mobil Corp. and Chevron Corp. paced gains in energy companies that helped the Standard & Poor's 500 Index bounce back from a 1.6 percent decline to complete its first weekly advance in a month.
The S&P 500 and Dow initially tumbled, following markets in Europe and Asia lower on concern widening losses for banks and hedge funds may hurt economic growth and earnings. The Fed made its biggest injection to the financial system since the 2001 terrorist attacks, joining central banks in Europe, Japan, Australia and Canada in attempting to avert a credit crunch.
The S&P 500 rose 0.55 to 1453.64 after a 3 percent retreat yesterday. The Dow lost 31.14, or 0.2 percent, to 13,239.54. The Nasdaq Composite Index slipped 11.6, or 0.5 percent, to 2544.89.
``One thing that's on your side as an investor is that the two largest printing presses on earth for money, the central bank of Europe and the Fed here, are stepping into the system,'' said James Swanson, chief investment strategist at MFS Investment Management in Boston, which oversees $190 billion.
For the week, the S&P 500 climbed 1.4 percent and the Dow average gained 0.4 percent. The Nasdaq increased 1.3 percent.
Viacom, the owner of MTV and Paramount Pictures, added $1.87 to $38.92. Nike Inc., the world's largest athletic-shoe maker, advanced $1.88 to $55.78. Gap Inc., the biggest U.S. clothing retailer, rose $1.09 to $16.75.
Energy Rally
A gauge of energy shares in the S&P 500 increased 1.2 percent today. Exxon, the world's biggest oil company, added 91 cents to $84.51. Chevron, the No. 2 U.S. oil company, climbed $2.31 to $83.42.
Marathon Oil rose $2.62 to $51.86. Citi Investment Research raised its recommendation on the refiner to ``buy'' from ``hold,'' saying the company's oil and gas reserves may double. Analysts including Doug Leggate also upgraded shares of refiners Tesoro Corp. and Valero Energy Corp., saying the ``sell-off in refining stocks has brought risk-reward back into balance.''
Tesoro, down 14 percent since June, added $2.30 to $49.30. Valero, down 6.7 percent during the same period, gained $1.35 to $68.90.
Rate-Cut Speculation
The Fed said it provided the $38 billion in reserves and pledged further funds ``as necessary'' to ``facilitate the orderly functioning'' of markets. The European Central Bank loaned 61.05 billion euros ($83.6 billion). Central banks in Japan and Australia also added funds as money-market rates rose around the world.
Fed funds futures indicate traders are betting on a quarter percentage point rate cut at policy makers' next meeting on Sept. 18. JPMorgan Chase & Co., one of the 21 securities firms that trades directly with the Fed, said there's a ``genuine possibility'' the central bank will lower interest rates between meetings if financial markets worsen.
``The stress generated by a repricing of credit risk is testing the resiliency of the global financial system,'' JPMorgan Chief Economist Bruce Kasman wrote in a report today. The third- largest U.S. bank's shares added 8 cents to $44.25.
Fannie Mae climbed 53 cents to $66.46. The biggest U.S. mortgage-finance company requested permission to increase its investments in home loans and mortgage bonds by as much as $72 billion to help provide liquidity in the credit markets, Chief Executive Officer Daniel Mudd said.
After the close of U.S. exchanges, the Office of Federal Housing Enterprise Oversight issued a statement, rejecting the request. Fannie Mae fell $1.46 to $65 in extended trading.
UnitedHealth Gains
Shares of U.S. managed-health companies, led by UnitedHealth Group Inc., gained after an analyst said the stocks were ``undervalued.'' Carl McDonald, an analyst with CIBC World Markets in New York, said that industry shares hadn't traded at so low a multiple of projected earnings since 2004.
UnitedHealth gained $1.15 to $47.48. Aetna Inc. rose $1.74 to $48.69. Cigna Corp. climbed $2.29 to $47.40.
Stocks opened the day lower after Countrywide Financial Corp., the biggest U.S. mortgage lender, said mortgage-market disruptions may crimp profit and it may have difficulty obtaining financing from creditors. Countrywide's shares sank 80 cents to $27.86 after falling as much as $3.95.
Washington Mutual Inc. dropped 81 cents to $35.95. The biggest U.S. savings and loan said in its own filing that liquidity in the market for mortgages made to borrowers below the top credit grade had ``diminished significantly.''
``People are unsure how deep all this goes,'' said Kurt Brunner, who helps manage $1.5 billion at Swarthmore Group Inc. in Philadelphia. ``It's shoot first and ask questions later.''
Brokerages Decline
Goldman Sachs Group Inc., the world's largest securities firm, dropped $1.75 to $180.50. Merrill Lynch & Co., the third- biggest U.S. securities firm, retreated 56 cents to $74.12.
The U.S. Securities and Exchange Commission, concerned that Wall Street firms may have concealed the extent of the subprime- mortgage rout, will examine how the brokerages accounted for the securities as they plummeted, a person with direct knowledge of the inquiry said. Lori Richards, director of the SEC inspections office, didn't reply to a phone call and e-mail seeking comment.
A gauge of U.S. stock market volatility climbed to the highest since April 2003. The Chicago Board Options Exchange Volatility Index gained 6.9 percent to 28.30. Higher readings in the so-called VIX, derived from prices paid for S&P 500 options, indicate traders expect bigger share-price swings in the next 30 days.
Investors said the drop in some shares early in the day may have been exacerbated as hedge funds that borrowed money to fund investments were forced to raise cash to meet margin requirements or repay investors and lenders.
`Forced to Sell'
``We're going to find out that several hedge funds were forced to sell their highest-quality positions,'' said Dan Veru, who helps manage $3 billion at Palisade Capital Management in Fort Lee, New Jersey. ``These funds aren't selling for fundamental reasons, they're selling because they have to.''
James Simons, whose computer-driven $29 billion Renaissance Institutional Equities Fund has fallen 8.7 percent so far in August, said in a letter to investors that other hedge funds have been forced to sell positions, short-circuiting statistical models based on the relationships among securities.
Global Alpha
After the close of U.S. exchanges, people familiar with Goldman Sachs' $8 billion Global Alpha hedge fund said it has fallen 26 percent so far this year. Goldman's shares fell 50 cents to $180 in extended trading.
State Street Corp. declined $2.53 to $68.03. Punk Ziegel & Co. lowered its recommendation on the world's biggest institutional money manager to ``market perform'' from ``buy.'' Analyst Richard Bove said declines in stock, bond and ``alternative investment'' markets will slow earnings growth through 2009.
MGIC Investment Corp. tumbled $5.58, or 13 percent, to $36.21 for the largest drop in the S&P 500. JPMorgan recommended selling shares of the largest U.S. mortgage insurer amid uncertainty over prospects for its purchase of Radian Group Inc, the third-biggest mortgage insurer.
Ambac Financial Group Inc. declined $3.36 to $66.14. The world's second-largest bond insurer said its holdings of collateralized debt obligations, or securities backed by pools of debt, are about $71.1 billion. CDOs package pools of securities backed by collateral that can include mortgages. The value of subprime mortgage assets has slumped in the past two months after defaults on home loans rose to a 10-year high.
Economy Watch
In economic reports, prices of goods imported into the U.S. climbed more than forecast in July on higher oil costs. The 1.5 percent increase, the biggest since March, compares with a rise of 1 percent forecast by economists in a Bloomberg survey. Prices excluding petroleum gained 0.2 percent, the fifth straight advance.
Nvidia Corp. fell $2.14 to $43.99 after the world's second- largest producer of computer-graphics chips said third-quarter sales will increase between 5 percent and 7 percent, with an inventory shortage and limited manufacturing constraining growth. Investors were looking for a forecast of at least 10 percent sales growth, Caris & Co. analyst Nicholas Aberle said.
Wyeth lost $2.99 to $46.59 after U.S. regulators rejected the drugmaker's experimental antipsychotic bifeprunox for schizophrenia. The Food and Drug Administration needs a study showing the drug works before the agency will consider approving the pill, Wyeth said.
Some 2.5 billion shares changed hands on the New York Stock Exchange, 48 percent more than the three-month daily average.
The Russell 2000 Index, a benchmark for companies with a median market value of $639 million, gained 0.5 percent to 788.78. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, was little changed at 14,641.03.
Aetna Inc. (AET US)Ambac Financial Group Inc. (ABK US)Chevron Corp. (CVX US)Cigna Corp. (CI US)Countrywide Financial Corp. (CFC US)Exxon Mobil Corp. (XOM US)Fannie Mae (FNM US)Gap Inc. (GPS US)Goldman Sachs Group Inc. (GS US)Marathon Oil Corp. (MRO US)Merrill Lynch & Co. (MER US)MGIC Investment Corp. (MTG US)Nike Inc. (NKE US)Nvidia Corp. (NVDA US)State Street Corp. (STT US)Tesoro Corp. (TSO US)UnitedHealth Group Inc. (UNH US)Valero Energy Corp. (VLO US)Viacom Inc. (VIA/B US)Washington Mutual Inc. (WM US)Wyeth (WYE US)
To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net .
Last Updated: August 10, 2007 18:14 EDT
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By Michael Patterson
Trader Michael Naples in the S&P 500 pit in Chicago Aug. 10 (Bloomberg) -- U.S. stocks recovered from a global sell-off, erasing most of the Dow Jones Industrial Average's 213- point drop, after the Federal Reserve added $38 billion to banks to stem a crisis of confidence in credit markets.
Viacom Inc., Nike Inc. and Gap Inc. led a late-session turnaround in consumer shares. Exxon Mobil Corp. and Chevron Corp. paced gains in energy companies that helped the Standard & Poor's 500 Index bounce back from a 1.6 percent decline to complete its first weekly advance in a month.
The S&P 500 and Dow initially tumbled, following markets in Europe and Asia lower on concern widening losses for banks and hedge funds may hurt economic growth and earnings. The Fed made its biggest injection to the financial system since the 2001 terrorist attacks, joining central banks in Europe, Japan, Australia and Canada in attempting to avert a credit crunch.
The S&P 500 rose 0.55 to 1453.64 after a 3 percent retreat yesterday. The Dow lost 31.14, or 0.2 percent, to 13,239.54. The Nasdaq Composite Index slipped 11.6, or 0.5 percent, to 2544.89.
``One thing that's on your side as an investor is that the two largest printing presses on earth for money, the central bank of Europe and the Fed here, are stepping into the system,'' said James Swanson, chief investment strategist at MFS Investment Management in Boston, which oversees $190 billion.
For the week, the S&P 500 climbed 1.4 percent and the Dow average gained 0.4 percent. The Nasdaq increased 1.3 percent.
Viacom, the owner of MTV and Paramount Pictures, added $1.87 to $38.92. Nike Inc., the world's largest athletic-shoe maker, advanced $1.88 to $55.78. Gap Inc., the biggest U.S. clothing retailer, rose $1.09 to $16.75.
Energy Rally
A gauge of energy shares in the S&P 500 increased 1.2 percent today. Exxon, the world's biggest oil company, added 91 cents to $84.51. Chevron, the No. 2 U.S. oil company, climbed $2.31 to $83.42.
Marathon Oil rose $2.62 to $51.86. Citi Investment Research raised its recommendation on the refiner to ``buy'' from ``hold,'' saying the company's oil and gas reserves may double. Analysts including Doug Leggate also upgraded shares of refiners Tesoro Corp. and Valero Energy Corp., saying the ``sell-off in refining stocks has brought risk-reward back into balance.''
Tesoro, down 14 percent since June, added $2.30 to $49.30. Valero, down 6.7 percent during the same period, gained $1.35 to $68.90.
Rate-Cut Speculation
The Fed said it provided the $38 billion in reserves and pledged further funds ``as necessary'' to ``facilitate the orderly functioning'' of markets. The European Central Bank loaned 61.05 billion euros ($83.6 billion). Central banks in Japan and Australia also added funds as money-market rates rose around the world.
Fed funds futures indicate traders are betting on a quarter percentage point rate cut at policy makers' next meeting on Sept. 18. JPMorgan Chase & Co., one of the 21 securities firms that trades directly with the Fed, said there's a ``genuine possibility'' the central bank will lower interest rates between meetings if financial markets worsen.
``The stress generated by a repricing of credit risk is testing the resiliency of the global financial system,'' JPMorgan Chief Economist Bruce Kasman wrote in a report today. The third- largest U.S. bank's shares added 8 cents to $44.25.
Fannie Mae climbed 53 cents to $66.46. The biggest U.S. mortgage-finance company requested permission to increase its investments in home loans and mortgage bonds by as much as $72 billion to help provide liquidity in the credit markets, Chief Executive Officer Daniel Mudd said.
After the close of U.S. exchanges, the Office of Federal Housing Enterprise Oversight issued a statement, rejecting the request. Fannie Mae fell $1.46 to $65 in extended trading.
UnitedHealth Gains
Shares of U.S. managed-health companies, led by UnitedHealth Group Inc., gained after an analyst said the stocks were ``undervalued.'' Carl McDonald, an analyst with CIBC World Markets in New York, said that industry shares hadn't traded at so low a multiple of projected earnings since 2004.
UnitedHealth gained $1.15 to $47.48. Aetna Inc. rose $1.74 to $48.69. Cigna Corp. climbed $2.29 to $47.40.
Stocks opened the day lower after Countrywide Financial Corp., the biggest U.S. mortgage lender, said mortgage-market disruptions may crimp profit and it may have difficulty obtaining financing from creditors. Countrywide's shares sank 80 cents to $27.86 after falling as much as $3.95.
Washington Mutual Inc. dropped 81 cents to $35.95. The biggest U.S. savings and loan said in its own filing that liquidity in the market for mortgages made to borrowers below the top credit grade had ``diminished significantly.''
``People are unsure how deep all this goes,'' said Kurt Brunner, who helps manage $1.5 billion at Swarthmore Group Inc. in Philadelphia. ``It's shoot first and ask questions later.''
Brokerages Decline
Goldman Sachs Group Inc., the world's largest securities firm, dropped $1.75 to $180.50. Merrill Lynch & Co., the third- biggest U.S. securities firm, retreated 56 cents to $74.12.
The U.S. Securities and Exchange Commission, concerned that Wall Street firms may have concealed the extent of the subprime- mortgage rout, will examine how the brokerages accounted for the securities as they plummeted, a person with direct knowledge of the inquiry said. Lori Richards, director of the SEC inspections office, didn't reply to a phone call and e-mail seeking comment.
A gauge of U.S. stock market volatility climbed to the highest since April 2003. The Chicago Board Options Exchange Volatility Index gained 6.9 percent to 28.30. Higher readings in the so-called VIX, derived from prices paid for S&P 500 options, indicate traders expect bigger share-price swings in the next 30 days.
Investors said the drop in some shares early in the day may have been exacerbated as hedge funds that borrowed money to fund investments were forced to raise cash to meet margin requirements or repay investors and lenders.
`Forced to Sell'
``We're going to find out that several hedge funds were forced to sell their highest-quality positions,'' said Dan Veru, who helps manage $3 billion at Palisade Capital Management in Fort Lee, New Jersey. ``These funds aren't selling for fundamental reasons, they're selling because they have to.''
James Simons, whose computer-driven $29 billion Renaissance Institutional Equities Fund has fallen 8.7 percent so far in August, said in a letter to investors that other hedge funds have been forced to sell positions, short-circuiting statistical models based on the relationships among securities.
Global Alpha
After the close of U.S. exchanges, people familiar with Goldman Sachs' $8 billion Global Alpha hedge fund said it has fallen 26 percent so far this year. Goldman's shares fell 50 cents to $180 in extended trading.
State Street Corp. declined $2.53 to $68.03. Punk Ziegel & Co. lowered its recommendation on the world's biggest institutional money manager to ``market perform'' from ``buy.'' Analyst Richard Bove said declines in stock, bond and ``alternative investment'' markets will slow earnings growth through 2009.
MGIC Investment Corp. tumbled $5.58, or 13 percent, to $36.21 for the largest drop in the S&P 500. JPMorgan recommended selling shares of the largest U.S. mortgage insurer amid uncertainty over prospects for its purchase of Radian Group Inc, the third-biggest mortgage insurer.
Ambac Financial Group Inc. declined $3.36 to $66.14. The world's second-largest bond insurer said its holdings of collateralized debt obligations, or securities backed by pools of debt, are about $71.1 billion. CDOs package pools of securities backed by collateral that can include mortgages. The value of subprime mortgage assets has slumped in the past two months after defaults on home loans rose to a 10-year high.
Economy Watch
In economic reports, prices of goods imported into the U.S. climbed more than forecast in July on higher oil costs. The 1.5 percent increase, the biggest since March, compares with a rise of 1 percent forecast by economists in a Bloomberg survey. Prices excluding petroleum gained 0.2 percent, the fifth straight advance.
Nvidia Corp. fell $2.14 to $43.99 after the world's second- largest producer of computer-graphics chips said third-quarter sales will increase between 5 percent and 7 percent, with an inventory shortage and limited manufacturing constraining growth. Investors were looking for a forecast of at least 10 percent sales growth, Caris & Co. analyst Nicholas Aberle said.
Wyeth lost $2.99 to $46.59 after U.S. regulators rejected the drugmaker's experimental antipsychotic bifeprunox for schizophrenia. The Food and Drug Administration needs a study showing the drug works before the agency will consider approving the pill, Wyeth said.
Some 2.5 billion shares changed hands on the New York Stock Exchange, 48 percent more than the three-month daily average.
The Russell 2000 Index, a benchmark for companies with a median market value of $639 million, gained 0.5 percent to 788.78. The Dow Jones Wilshire 5000 Index, the broadest measure of U.S. shares, was little changed at 14,641.03.
Aetna Inc. (AET US)Ambac Financial Group Inc. (ABK US)Chevron Corp. (CVX US)Cigna Corp. (CI US)Countrywide Financial Corp. (CFC US)Exxon Mobil Corp. (XOM US)Fannie Mae (FNM US)Gap Inc. (GPS US)Goldman Sachs Group Inc. (GS US)Marathon Oil Corp. (MRO US)Merrill Lynch & Co. (MER US)MGIC Investment Corp. (MTG US)Nike Inc. (NKE US)Nvidia Corp. (NVDA US)State Street Corp. (STT US)Tesoro Corp. (TSO US)UnitedHealth Group Inc. (UNH US)Valero Energy Corp. (VLO US)Viacom Inc. (VIA/B US)Washington Mutual Inc. (WM US)Wyeth (WYE US)
To contact the reporter on this story: Michael Patterson in New York at mpatterson10@bloomberg.net .
Last Updated: August 10, 2007 18:14 EDT
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Thursday, August 9, 2007
Jim Rogers on Bloomberg on 3 Aug 2007
Jim Rogers on Bloomberg on 3 Aug 2007
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Dollar will fall faster if Fed cuts int rates: Jim Rogers
Dollar will fall faster if Fed cuts int rates: Jim Rogers
2007-08-06 15:23:47
Investment guru Jim Rogers believes that it would be "terrible" if the US Fed did cut interest rates. If the Fed were to cut rates, dollar could collapse faster, he added.
According to him, if the Fed starts cutting interest rates, the US dollar will totally collapse, which he believes is going to collapse over the next few years. The rate cut move, he said, will just accelerate the decline of the US dollar and then inflation in America will get worse and worse as it spirals up with the decline in dollar.
Excerpts from CNBC-TV18's exclusive interview with Jim Rogers:
Q: What do you think of the sub-prime issue?
A: It is a credit problem and is spreading to the emerging markets, takeovers and into private equity buyouts; it is not just in housing where this problem has developed.
Q: Lot of the people - lot of bulls - said it is still a financial market intervention; it is not going to spill out into the real economy. What is your view on that?
A: Tell that to people trying to get a mortgage and to them, who are trying to build new houses now. In most parts of the world right now, I would urge the people or the bulls who said that to go down to the local homebuilder and offer some mortgage to people who are buying houses. I do not think you would get many takers but if you do, then you should take it if you believe that everything is okay now.
Q: Now the Fed fund futures are proposing a cut by the end of the year. Some believe that Greenspan was willing to help the financial market, but they do not think Bernanke is going to help them out. What is your assessment that the Fed is going to do here?
A: I do not have a clue but it would be terrible if the Fed did cut interest rates. We have huge inflation in the world right now and if the Fed starts cutting interest rates you are going to see the US dollar totally collapse; it is going to collapse anyway over the next few years though it will just accelerate the decline of the US dollar and then inflation in America will get worse and worse as it spirals up with the decline in dollar. Anybody who thinks that the Fed should cut rate is going nuts; the Fed reserve was not instituted to bail out Wall Street, Lehman Brothers, Bear Stearns and a few people like that. The Fed reserve was established to keep a sound currency; let us hope they do it.
Q: There was a report out last week, which started comparing the credit slowdown, the credit knockdown we are seeing in the US, to the Japan’s financial crisis in 1990s. Would you make similar comparisons?
A: The US stock exchange is down 7%, which is hard to compare to Japan in early 1990-99 when the market were down 75%. Yes, if the US stock market goes down about 30-40%, then we can start worrying about other things but the markets down 7% from its all time high. It is madness to think that the Fed has to come galloping to the rescue.
The Fed is not designed to bail out Wall Street, I hope. Greenspan used to bail out Wall Street; let us hopes this guy doesn’t do it. He is not very smart but he may not do it.
http://www.moneycontrol.com/india/news/fii-view/dollar-will-fall-faster-if-fed-cuts-int-rates-jim-rogers/19/18/296528
http://www.moneycontrol.com/india/video/stockmarket/07/16/newsvideo/296528
2007-08-06 15:23:47
Investment guru Jim Rogers believes that it would be "terrible" if the US Fed did cut interest rates. If the Fed were to cut rates, dollar could collapse faster, he added.
According to him, if the Fed starts cutting interest rates, the US dollar will totally collapse, which he believes is going to collapse over the next few years. The rate cut move, he said, will just accelerate the decline of the US dollar and then inflation in America will get worse and worse as it spirals up with the decline in dollar.
Excerpts from CNBC-TV18's exclusive interview with Jim Rogers:
Q: What do you think of the sub-prime issue?
A: It is a credit problem and is spreading to the emerging markets, takeovers and into private equity buyouts; it is not just in housing where this problem has developed.
Q: Lot of the people - lot of bulls - said it is still a financial market intervention; it is not going to spill out into the real economy. What is your view on that?
A: Tell that to people trying to get a mortgage and to them, who are trying to build new houses now. In most parts of the world right now, I would urge the people or the bulls who said that to go down to the local homebuilder and offer some mortgage to people who are buying houses. I do not think you would get many takers but if you do, then you should take it if you believe that everything is okay now.
Q: Now the Fed fund futures are proposing a cut by the end of the year. Some believe that Greenspan was willing to help the financial market, but they do not think Bernanke is going to help them out. What is your assessment that the Fed is going to do here?
A: I do not have a clue but it would be terrible if the Fed did cut interest rates. We have huge inflation in the world right now and if the Fed starts cutting interest rates you are going to see the US dollar totally collapse; it is going to collapse anyway over the next few years though it will just accelerate the decline of the US dollar and then inflation in America will get worse and worse as it spirals up with the decline in dollar. Anybody who thinks that the Fed should cut rate is going nuts; the Fed reserve was not instituted to bail out Wall Street, Lehman Brothers, Bear Stearns and a few people like that. The Fed reserve was established to keep a sound currency; let us hope they do it.
Q: There was a report out last week, which started comparing the credit slowdown, the credit knockdown we are seeing in the US, to the Japan’s financial crisis in 1990s. Would you make similar comparisons?
A: The US stock exchange is down 7%, which is hard to compare to Japan in early 1990-99 when the market were down 75%. Yes, if the US stock market goes down about 30-40%, then we can start worrying about other things but the markets down 7% from its all time high. It is madness to think that the Fed has to come galloping to the rescue.
The Fed is not designed to bail out Wall Street, I hope. Greenspan used to bail out Wall Street; let us hopes this guy doesn’t do it. He is not very smart but he may not do it.
http://www.moneycontrol.com/india/news/fii-view/dollar-will-fall-faster-if-fed-cuts-int-rates-jim-rogers/19/18/296528
http://www.moneycontrol.com/india/video/stockmarket/07/16/newsvideo/296528
Monday, August 6, 2007
U.S. Housing Is Among `Biggest Bubbles,' Rogers Says
U.S. Housing Is Among `Biggest Bubbles,' Rogers Says (Update3)
By Chen Shiyin and Pimm Fox
For Sale signs on a corner in San Diego Aug. 3 (Bloomberg) -- The U.S. subprime-market rout that wiped out $2.1 trillion from global share values last week has ``got a long way to go,'' said Jim Rogers, who predicted the start of the commodities rally in 1999.
This week's rebound in equity markets hasn't persuaded Rogers, 64, to pull out of bets that U.S. investment banks and homebuilders are heading for further declines.
``This was one of the biggest bubbles we've ever had in credit,'' Rogers, chairman of New York-based Beeland Interests Inc., said in an interview from Hong Kong. ``I have been and am still short the investment bankers in America. I'm also short homebuilders.''
The Morgan Stanley Capital International World Index plunged 5.3 percent last week, its worst weekly drop in five years, on concern defaults among subprime mortgages may be spilling over to other credit markets and hurting earnings and takeovers. Further losses may be in store even after the index, which tracks $32.6 trillion of stocks, advanced 0.7 percent this week.
``Given the stage of the credit cycle that we're in now, we would have to expect more negative news popping up,'' Beat Lenherr, who oversees $7 billion as chief investment officer for Asia at LGT Bank in Liechtenstein AG, said late yesterday in an interview in Singapore. ``The market sentiment is a bit nervous to the degree that every bad news is answered with selling.''
No Big Disaster
Some investors say sustained consumer spending and jobs growth may help offset the impact of mortgage defaults.
A report due later today may show that payrolls rose 127,000 after a 132,000 gain in June, according to the median estimate of economists surveyed by Bloomberg. The jobless rate is forecast to hold at 4.5 percent for a fourth month, near a six-year low.
``Subprime will not derail the economy and we're not calling for a big disaster,'' said Hans Goetti, Singapore-based managing director at Citi Private Bank, which has assets of $100 billion in Asia. ``Consumer spending will not fall off the cliff as a result.''
The MSCI World Index today climbed 0.1 percent, its fourth gain this week, as investors speculated that better-than- forecast earnings will help offset the impact of mortgage losses.
Financial Stocks Down
A measure of financial companies such as Countrywide Financial Corp. has dropped 3.7 percent so far this year, the only group to decline within the MSCI World Index. Countrywide Financial, the biggest U.S. mortgage lender, said yesterday it has ``significant'' sources of short-term funding after the slump in demand for loans pushed some rivals toward bankruptcy.
Shares of Bear Stearns Cos. fell 13 percent last week after two of its hedge funds failed because of the subprime crisis. Merrill Lynch & Co. is down 3.6 percent this week, heading for its third weekly decline, while stock in Lehman Brothers Holdings Inc. is 5.9 percent lower.
The housing slump may extend into 2008 because of stricter mortgage standards and a glut of properties. IndyMac Bancorp Inc. yesterday said it is joining rival lenders in making ``very major changes'' to home-loan standards and charging higher rates because of a slump in mortgage securities.
U.S. homebuilders rose yesterday, pushing a Standard & Poor's index of 16 such companies to a 4.1 percent gain, the measure's biggest advance in six months. The index has dropped 35 percent this year after the worst housing slump in 16 years left eight homebuilders nursing quarterly losses of $1.97 billion.
Beazer Homes
Beazer Homes USA Inc.'s stock jumped 14 percent yesterday, the most ever, after hedge fund Citadel Investment Group LLC almost doubled its stake in the homebuilder. The company has lost almost three-quarters of its market value this year.
``This is the only time in world history when people were able to buy houses with no money down and in fact, in some cases, the builders gave them money for a down payment,'' Rogers said. ``So this bubble is the worst we've had in housing and it's going to be the worst before its over cleaning it out.''
China is a market that Rogers isn't selling even as the fallout from subprime drag on share prices worldwide, he said. He's sold his other emerging market holdings as stock gains outstripped the prospect for earnings, Rogers added.
``China's the next great country in the world and we must learn about investing in China, because that's where fantastic fortunes are going to be made in the next century,'' Rogers said. ``I would be looking at China very carefully.''
The CSI 300 Index last week jumped 8.4 percent. The index had gained 2.7 percent to a record as of 2 p.m. in Beijing, heading for its fourth weekly gain in a row. The benchmark has more than doubled this year and is the best performer among 89 stock indexes tracked by Bloomberg.
``I'm not of a mood to pronounce the end of the world just yet,'' said Hans Kunnen, who helps manage $117 billion at Colonial First State Global Asset Management in Sydney. ``You only have to go back three years to see how debt was being priced as if there was no risk at all. Well, there is risk, and it's simply being priced back in.''
To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net ; Pimm Fox in New York at pfox11@bloomberg.net
Last Updated: August 3, 2007 03:52 EDT
http://www.bloomberg.com/apps/news?pid=20601087&sid=a2Rnaf9tZJbA&refer=home#
mms://media2.bloomberg.com/cache/vXn2LAQlO0GI.asf
By Chen Shiyin and Pimm Fox
For Sale signs on a corner in San Diego Aug. 3 (Bloomberg) -- The U.S. subprime-market rout that wiped out $2.1 trillion from global share values last week has ``got a long way to go,'' said Jim Rogers, who predicted the start of the commodities rally in 1999.
This week's rebound in equity markets hasn't persuaded Rogers, 64, to pull out of bets that U.S. investment banks and homebuilders are heading for further declines.
``This was one of the biggest bubbles we've ever had in credit,'' Rogers, chairman of New York-based Beeland Interests Inc., said in an interview from Hong Kong. ``I have been and am still short the investment bankers in America. I'm also short homebuilders.''
The Morgan Stanley Capital International World Index plunged 5.3 percent last week, its worst weekly drop in five years, on concern defaults among subprime mortgages may be spilling over to other credit markets and hurting earnings and takeovers. Further losses may be in store even after the index, which tracks $32.6 trillion of stocks, advanced 0.7 percent this week.
``Given the stage of the credit cycle that we're in now, we would have to expect more negative news popping up,'' Beat Lenherr, who oversees $7 billion as chief investment officer for Asia at LGT Bank in Liechtenstein AG, said late yesterday in an interview in Singapore. ``The market sentiment is a bit nervous to the degree that every bad news is answered with selling.''
No Big Disaster
Some investors say sustained consumer spending and jobs growth may help offset the impact of mortgage defaults.
A report due later today may show that payrolls rose 127,000 after a 132,000 gain in June, according to the median estimate of economists surveyed by Bloomberg. The jobless rate is forecast to hold at 4.5 percent for a fourth month, near a six-year low.
``Subprime will not derail the economy and we're not calling for a big disaster,'' said Hans Goetti, Singapore-based managing director at Citi Private Bank, which has assets of $100 billion in Asia. ``Consumer spending will not fall off the cliff as a result.''
The MSCI World Index today climbed 0.1 percent, its fourth gain this week, as investors speculated that better-than- forecast earnings will help offset the impact of mortgage losses.
Financial Stocks Down
A measure of financial companies such as Countrywide Financial Corp. has dropped 3.7 percent so far this year, the only group to decline within the MSCI World Index. Countrywide Financial, the biggest U.S. mortgage lender, said yesterday it has ``significant'' sources of short-term funding after the slump in demand for loans pushed some rivals toward bankruptcy.
Shares of Bear Stearns Cos. fell 13 percent last week after two of its hedge funds failed because of the subprime crisis. Merrill Lynch & Co. is down 3.6 percent this week, heading for its third weekly decline, while stock in Lehman Brothers Holdings Inc. is 5.9 percent lower.
The housing slump may extend into 2008 because of stricter mortgage standards and a glut of properties. IndyMac Bancorp Inc. yesterday said it is joining rival lenders in making ``very major changes'' to home-loan standards and charging higher rates because of a slump in mortgage securities.
U.S. homebuilders rose yesterday, pushing a Standard & Poor's index of 16 such companies to a 4.1 percent gain, the measure's biggest advance in six months. The index has dropped 35 percent this year after the worst housing slump in 16 years left eight homebuilders nursing quarterly losses of $1.97 billion.
Beazer Homes
Beazer Homes USA Inc.'s stock jumped 14 percent yesterday, the most ever, after hedge fund Citadel Investment Group LLC almost doubled its stake in the homebuilder. The company has lost almost three-quarters of its market value this year.
``This is the only time in world history when people were able to buy houses with no money down and in fact, in some cases, the builders gave them money for a down payment,'' Rogers said. ``So this bubble is the worst we've had in housing and it's going to be the worst before its over cleaning it out.''
China is a market that Rogers isn't selling even as the fallout from subprime drag on share prices worldwide, he said. He's sold his other emerging market holdings as stock gains outstripped the prospect for earnings, Rogers added.
``China's the next great country in the world and we must learn about investing in China, because that's where fantastic fortunes are going to be made in the next century,'' Rogers said. ``I would be looking at China very carefully.''
The CSI 300 Index last week jumped 8.4 percent. The index had gained 2.7 percent to a record as of 2 p.m. in Beijing, heading for its fourth weekly gain in a row. The benchmark has more than doubled this year and is the best performer among 89 stock indexes tracked by Bloomberg.
``I'm not of a mood to pronounce the end of the world just yet,'' said Hans Kunnen, who helps manage $117 billion at Colonial First State Global Asset Management in Sydney. ``You only have to go back three years to see how debt was being priced as if there was no risk at all. Well, there is risk, and it's simply being priced back in.''
To contact the reporter on this story: Chen Shiyin in Singapore at schen37@bloomberg.net ; Pimm Fox in New York at pfox11@bloomberg.net
Last Updated: August 3, 2007 03:52 EDT
http://www.bloomberg.com/apps/news?pid=20601087&sid=a2Rnaf9tZJbA&refer=home#
mms://media2.bloomberg.com/cache/vXn2LAQlO0GI.asf
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