Monthly Archives: April 2011

Buffett May Face Questions due to Praising Sokol Before Audit Report

Berkshire Hathaway Inc. Chief Executive Officer Warren Buffett. Photographer: Prashanth Vishwanathan/Bloomberg

As reported by Bloomberg’s Andrew Frye, Warren Buffett has asked for tough questions at the annual meetings of his Berkshire Hathaway Inc. (BRK/A) He may get his wish after praising the outgoing executive who was later faulted by a board committee for misleading the company about stock trades.

Buffett uses his meeting and annual Omaha, Nebraska, press conference to promote Berkshire’s growth, pitch the company as an acquirer to potential takeover targets and tout his emphasis on ethics. The 80-year-old chief executive officer started having journalists screen shareholder inquiries in 2009 and encouraged them to pick the most challenging ones to replace inquires from prior years about baseball and religion.

The departure of David Sokol, 54, in March, after he invested in a firm he pitched as a buyout candidate, raised questions about Buffett’s oversight and succession planning. Sokol, once considered a possible replacement for Buffett as CEO, violated Berkshire’s ethics, the audit committee said April 26, weeks after Buffett praised his “extraordinary” contributions in announcing his resignation.

Buffett is going to get questions about his own behavior” at tomorrow’s meeting said Lyman Johnson, professor of corporate law at Washington and Lee University School of Law. “I do think that Buffett erred in his initial announcement.”

Buffett oversees the heads of Berkshire’s more than 70 subsidiaries with the help of Vice Chairman Charles Munger, 87, and a staff of about 20 at the company’s headquarters. Berkshire employs more than 250,000 people across industries spanning insurance, energy and consumer goods, and Buffett entrusts operational authority to the CEOs of the individual units.

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Treasury Aims Derivatives Rule Exemption for Foreign-Exchange Swaps and Forwards

The U.S. Treasury Department, Washington DC

As reported by The Wall Street Journal’s Victoria McGrane and Andrew Ackerman, the Treasury Department proposed excluding certain foreign-exchange instruments from new rules governing derivatives, a decision hailed by business organizations but criticized by some advocacy groups as creating a regulatory loophole.

Treasury officials said Friday that the instruments, known as foreign-exchange swaps and forwards, shouldn’t fall under the same rules as other derivatives. Doing so, they said, could expose the market to greater risk and instability.

The Treasury’s proposal to exempt the products “goes far in ensuring these markets will remain vital tools for business,” Tim Ryan, president and CEO of the Securities Industry and Financial Markets Association.

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April Is a Good Month for Stocks

High-Frequency Trading Leaders Forum 2011, "How Speed Traders Leverage Cutting-Edge Strategies in the Post-Flash Crash World"

High-Frequency Trading Leaders Forum 2011, "How Speed Traders Leverage Cutting-Edge Strategies in the Post-Flash Crash World"

As reported by The Wall Street Journal’s Jonathan Cheng and Kristina, stocks had their best month of the year in April, as strong corporate earnings and the promise of continued low interest rates persuaded investors to make risky bets on small-company shares and volatile commodities.

After struggling for two months on concerns about economic growth, the earthquake in Japan and rising inflation, the market embraced surging corporate profits and rising consumer demand to push the Dow Jones Industrial Average up 490.81 points in April, nearly 4%, to 12810.54, its highest close since May 2008. The Dow is now less than 10% from its record close, set in October 2007.

Particularly encouraging for market bulls: Two indexes closely watched as barometers of the economy climbed to new highs.

The biggest winners of the month were precious metals, with gold soaring to a record high of $1,556 per troy ounce. Silver rocketed 28% higher and is now just 0.2% off a record high that dates to January 1980. Industrial metals such as aluminum and agricultural commodities, including coffee and corn, have also surged.

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Gold-Buying Central Bankers May Lead to Record High

From Bloomberg

AS reported by Bloomberg’s Pham-Duy Nguyen, Gold:

 Central banks that were net sellers of gold a decade ago are buying the precious metal to reduce their reliance on the dollar as a reserve currency, signaling demand that may extend a record rally in prices.

As developing countries accelerate purchases, gold may reach $2,000 an ounce this year, compared with a record of $1,538.80 yesterday in New York, said Robert McEwen, the chief executive officer of producer U.S. Gold Corp. Euro Pacific Capital’s Michael Pento, who correctly predicted gold’s highs for the past two years, forecast a 2011 high of $1,600.

Prices reached a record 14 times this month on demand from investors seeking an alternative to the dollar after the currency slumped to the lowest since 2009, U.S. debt widened, and the Federal Reserve signaled April 27 that borrowing costs will remain near zero percent for an extended period. The economy in China, the biggest foreign holder of U.S. Treasuries, grew 9.7 percent in the first quarter.

China is out to have more gold than America, and Russia is aspiring to the same,” McEwen said yesterday in an interview in New York. “When you have debt, you don’t have a lot of flexibility. China wants to show its currency has more backing than the U.S.”

In 2010, central banks became net buyers for the first time in two decades, adding 87 metric tons in official-sector purchases by countries including Bolivia, Sri Lanka and Mauritius, according to World Gold Council data. China, with more than $3 trillion in foreign-currency reserves, plans to set up new funds to invest in precious metals, Century Weekly reported this week. Russia purchased 8 tons of gold in the first quarter.

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$ Moves to New Three-Year Lows .

Prepared by Joel Kruger

As reported by Wall Street Journal’s Javier David, Currency:

NEW YORK—Investors wasted no time in sending the dollar to new three-year lows after the Federal Reserve gave them little reason to support it.

Weak U.S. growth and unemployment data quickened the dollar’s fall. Initial employment claims jumped back above the 400,000 level in the latest week. Meanwhile, gross domestic product data showed that economic growth slowed sharply in the first quarter, led by surging food and energy costs that sent a key gauge of inflation, the personal consumption expenditures (PCE) price index, soaring to its highest level in nearly three years.

Late Thursday, the euro was at $1.4821 from $1.4794 late Wednesday. The dollar traded at ¥81.54 from ¥82.04, while the euro was at ¥120.85 from ¥121.37. The U.K. pound bought $1.6640 from $1.6636. The dollar fetched 0.8733 Swiss franc from 0.8738 franc, plunging to a new record low.

The ICE Dollar Index, which tracks the U.S. dollar against a trade-weighted basket of currencies, was at 73.12 from 73.519, its lowest level since July 2008.

The Australian dollar, helped by rising interest-rate expectations and surging oil, rose to a new 29-year high at $1.0920 from $1.0872 late Wednesday.

The Federal Open Market Committee’s decision Wednesday to maintain its bias toward cheap credit loomed larger than ever for the beleaguered U.S. currency. At a time when traders are nervous about global inflation and rewarding the currencies of countries that raise interest rates, the dollar has lacked any yield advantage.

In a much-anticipated news conference, Fed Chairman Ben Bernanke tracked the FOMC statement and did little to deter dollar bears, who have profited from anti-dollar bets for months and appear willing to continue the rout.

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U.S. Consumer Confidence Drops on Higher Petro Prices, According to Bloomberg Index

Golden Networking

As reported by Bloomberg’s  Alex Kowalski : Consumer Confidence

Consumer confidence in the U.S. fell last week for the first time in a month as rising gasoline prices caused households to worry about their finances.

The Bloomberg Consumer Comfort Index decreased to minus 45.1 in the period ended April 24, the lowest level since the end of March, from minus 42.6 the prior week. Measures of personal finances and buying climate dropped.

Another report today showed consumer spending climbed more than forecast in the first quarter, indicating that more jobs and rising incomes are helping Americans cope with the jump in fuel costs. To spur the economy, Federal Reserve Chairman Ben S. Bernanke signaled yesterday policy makers will maintain record monetary stimulus after ending large-scale bond purchases in June.

“Job growth boosts overall income growth, and that’s certainly a key part supporting consumption,” said Ryan Wang, an economist at HSBC Securities USA Inc. in New York. “The risk, though, is that higher gasoline prices squeeze disposable income.”

The personal finances gauge dropped to minus 9.2 last week, the lowest since Feb. 13, from minus 0.3, the report showed. Forty-five percent of those polled held positive views on their financial situation, down from 50 percent the previous week.

The buying-climate index decreased to minus 51.8 from minus 49.2. Those people saying it was a good time to buy needed items fell a point to 24 percent.

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U.S. GDP’s Growth Cools in First Three months to 1.8% Annual Rate

GDP Growth  Rate

By bloomberg

As reported by Bloomberg’s Timothy R. Homan: Economy

The U.S. economy slowed more than forecast in the first quarter as government spending declined by the most since 1983 and household purchases cooled.

Gross domestic product rose at a 1.8 percent annual rate from January through March after a 3.1 percent pace in the final three months of 2010, the Commerce Department said today in Washington. Economists projected 2 percent growth, according to the median estimate in a Bloomberg News survey. Another report showed rising gasoline prices depressed consumer confidence last week.

To spur the economy, Federal Reserve Chairman Ben S. Bernanke said yesterday the central bank would maintain record monetary stimulus after ending large-scale bond purchases in June. Job growth and income gains suggest consumers will keep spending in the face of higher fuel costs.

“We’ve sputtered a bit here,” said Sam Bullard, a senior economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who accurately forecast first-quarter growth. “Consumers are going to continue to spend. Growth should pick up toward the 3 percent level” later this year, he said.

Stocks rose, sending the Standard & Poor’s 500 Index to the highest levels since 2008, as better-than-estimated corporate earnings tempered concern over slowing growth. The S&P 500 climbed 0.4 percent to 1,360.48 at 4 p.m. in New York.

Consumer confidence in the U.S. fell last week for the first time in a month. The Bloomberg Consumer Comfort Index decreased to minus 45.1 in the period ended April 24, the lowest level since the end of March, from minus 42.6. Measures of personal finances and buying climate dropped.

Jobless Claims

New applications for jobless benefits unexpectedly rose last week to the highest level in three months, a report from the Labor Department showed. Unemployment insurance claims jumped by 25,000 to 429,000. The government anticipates a drop in unadjusted claims during the week leading up to the Easter holiday, something that didn’t happen this year, a Labor Department spokesman said.

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Best Job Market for USA Graduate Students Since 2008

Photographer: Emmanuel Dunand/AFP/Getty Images

As reported by Bloomberg’s Oliver Staley, Douglas MacMillan and Cecile Vannucci: Job Market

Hamza Afzal had such a hard time finding an electrical-engineering internship in the recession that he delayed his graduation, took pre-med classes and applied to law school. This year, he got two job offers in his field.

“I definitely saw a shift in the job market,” said Afzal, a 24-year-old senior at San Jose State University, who will start May 30 at chipmaker Linear Technology Corp. (LLTC) in nearby Milpitas, California. “There was a lot of pressure off my shoulders.”

The class of 2011 is enjoying the best job market for new graduates since the 2008 financial crisis, according to the National Association of Colleges and Employers. The turnaround is being driven by gains in finance, energy and technology, said Edwin Koc, who heads research at the association. Companies are filling a backlog of jobs after two years of stagnant hiring and looking to younger workers to fill vacancies, he said. This year, 1.61 million students are expected to graduate, he said.

Job creation is booming in Silicon Valley, where postings have doubled from two years ago at technology career website Dice Holdings Inc.

“It’s quite a stunning comeback,” said Lance Choy, director of the career development center at Stanford University near Palo Alto, California. “Over the past couple of years there’s been a lot of anxiety. It’s been a bleak time for students. We’ve come back from quite a dip.”

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Federal Reserve Signals Intent to Complete QE2


From The Economic Collapse

As reported by Scott Lanman and Joshua Zumbrun :

Federal Reserve Chairman Ben S. Bernanke said the end of the Fed’s $600 billion bond-buying program in June probably won’t have a “significant” effect on financial markets or the economy, and the central bank will likely continue reinvesting maturing debt after June.

“We are going to complete the program at the end of the second quarter,” he said at his first press conference following a policy meeting. “The end of the program is unlikely to have a significant effect on financial markets or the economy.”

Bernanke spoke after the central bank today reiterated its view that surging commodity prices are likely to have a transitory effect on inflation and agreed to finish its program of large-scale asset purchases on schedule. In his press conference, Bernanke said the central bank is likely to continue reinvesting its securities holdings, including mortgage-backed securities, as they mature even after June.

“We are going to continue to reinvest maturing securities, both Treasuries and MBS, so the amount of securities that we hold will remain” approximately constant, he said. “The amount of monetary policy easing should remain constant going forward from June.”

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Look inside into Bernanke: a Guide to Fed Chairman’s First Press

FED Rate Move


As reported by The Wall Street Journal’s Michael .S. Derby: when Federal Reserve Chairman Ben Bernanke makes his debut press conference Wednesday, his every word will be parsed for signs of where he hopes to take U.S. monetary policy.

Specifically, many people want to know when the central bank will begin raising interest rates, and when it will begin off-loading some assets, including Treasurys and its multitrillion-dollar cache of mortgages.

As Mr. Bernanke touches on topics familiar to Fed-watchers, he will use seemingly ordinary words or phrases that are freighted with important economic messages in the world of the Fed. A few examples:

“Inflation expectations.”

If Mr. Bernanke frets about longer-run inflation expectations rising in the face of surging commodity prices, it could signal a hawkish turn for monetary policy and increase the odds that the Fed will boost interest rates earlier than is now expected.

Commodity prices”

These raw input and basic material prices are surging and are at the root of the current inflation anxiety. Mr. Bernanke has indicated that rising commodity prices are transitory and won’t feed into underlying, or “core,” inflation, a measure that excludes volatile food and energy prices. If, however, Mr. Bernanke says he sees surging commodity prices as a more enduring problem, it increases the odds of tighter monetary policy (interest-rate increases, among other things).

Meanwhile, the Fed’s continuing $600 billion Treasury bond-buying program, known as QE2, is likely to generate its own set of issues:

“The dollar”

A question about the dollar could give Mr. Bernanke an opportunity to hit back at critics who argue current Fed policy has debased the dollar and driven money overseas in search of high-yielding instruments of the sort found in such emerging economies as Brazil, as well as commodities such as oil and gold. Mr. Bernanke has argued that other central banks need to get their own policies straight and stop blaming the Fed for their own economic problems.

Tuesday’s strong-dollar utterance by U.S. Treasury Secretary Timothy Geithner has given the Fed chairman some cover: If he’s quizzed about the dollar’s recent weakness, he can remind his audience that dollar policy is the purview of the Treasury and perhaps cite Mr. Geithner’s remarks.

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