Central banks will be net buyers of gold this year as they diversify away from the U.S. dollar, global commodities investment fund BlackRock said on Monday in comments that helped drive bullion to fresh record highs.
BlackRock is one of the world’s largest fund managers, boasting a total $1.4 trillion under management across all asset classes. It is manager and adviser to the U.S. Federal Reserve and its views can influence the direction of global markets.
Evy Hambro, who runs two of the world’s largest commodities funds, BlackRock World Mining Fund and Gold & General Fund, gave an upbeat outlook for gold during a media briefing in Australia.
His forecast for net central-bank purchases of gold this year would, if met, mark the first year in two decades when the world’s central banks bought more gold than they sold. They have been net sellers of gold each year since 1988.
“The most recent break-out in the gold price in U.S. dollars has caused most gold prices to start trending higher at the same time,” Hambro said, adding that investors were now looking for gold to rise in other commodities as well as U.S. dollars.
“When you start to see the price rising in a range of different currencies, it is a clear sign of a very strong market to come,” he added.
Spot gold stood at $1,123.70 as of 0216 GMT after touching $1,126.30 per ounce, a record, compared with the notional New York close of $1,118.50, helped higher by Hambro’s bullish outlook, according to financial broking group IG Markets.
The previous record was $1,122.85 marked on November 12.
Bullion was also gaining on renewed appeal as a hedge against the U.S. dollar’s weakness and inflation risks.
In other currencies, gold has not reached new highs since early 2009. In Australian and Canadian dollars and the South African rand, it peaked in February.
But Hambro said investors were now “looking for price rises across all currencies” as central banks build up their gold holdings and global supplies tapered off.
“Gold’s role is gathering a lot more attention in terms of risk diversification,” he said.
Hambro also said that the high level of gold production in China, which has replaced South Africa as the world’s biggest producer, was not sustainable, pressuring world supply.
China’s gold production rose 13.49 percent in the first half of 2009 from a year earlier to 146.505 metric tons, according to the Ministry of Industry and Information Technology.
Hambro also said U.S. demand for commodities was starting to show signs of recovery. This, along with stronger Asian demand, set the stage for a prolonged bull market, he added.
British Airways’ pension fund deficit could yet scupper its planned merger with Spain’s Iberia, as the UK airline still has to agree the size of the multi-billion pound shortfall with the fund’s trustees.
Iberia, which on Friday posted a bigger than expected nine-month operating loss, agreed with BA on Thursday to create a group with a combined market value of $7 billion as they continue to battle the worst industry downturn in decades.
But BA’s pension deficit was one of the main stumbling blocks in the 16-month merger talks and was a key negotiating point for Iberia, which is reserving the right to back out of the deal if the funding hole turns out to be bigger than the 3 billion pounds ($5 billion) which analysts have forecast.
BA pension trustees undertook a triennial review of the pension scheme earlier this year but the results have yet to be announced, with BA saying it expects to agree a figure with the trustees in the next two to three months.
“The market will be looking at the discount rate used by BA’s trustees to calculate its pension liabilities. You’d expect them to use a favorable one to help push the deal through though, especially since the deficit is bigger than its market value right now” a London-based analyst said.
“There’s still a risk that the deal will fall through. It’s all hanging on BA’s negotiating weight with the trustees over its pension,” a Madrid-based equities sales trader said.
By 1200 GMT Iberia’s shares were 2.4 percent lower at 2.16 euros, after Thursday’s 12 percent gain, while BA was 1.4 percent higher at 217.8 pence.
Some analysts said they were surprised that the terms of a deal had even been announced before the pension issue has been resolved faxless payday loan.
Analysts believe BA could insure all or part of its liabilities through a buy-out deal with a specialized insurer or hedge specific risks such as the longevity of pensioners through a swap deal or pledge contingent assets such as its real estate.
The new company will combine British Airways’ strong position in Europe-to-North America traffic with Iberia’s Latin American business, and will potentially be reinforced by a planned alliance with AMR Corp’s American Airlines.
So far the deal looks set to give BA shareholders 55 percent of the new company, effectively giving it control, but the balance of power remains in question and could shift in Iberia’s favor depending on the outcome of BA’s talks with trustees over its pension deficit.
The BA-Iberia format mirrors the ground-breaking 2004 merger of Air France and KLM, which airline industry executives describe as a back-office merger designed mainly to slash costs.
Under this model, the airlines would maintain their own fleets and networks, which operate under the banner of national traffic rights, but would be owned by a common holding company.
“This is a five-year plan to get through the crisis and generate cash, and then BA will firmly take the driving seat,” said Enrique Quemanda, Chief Executive of boutique investment firm ONEtoONE.
The pair, who have targeted annual synergies of about 400 million euros by the end of the fifth year, will combine BA’s strong position in north Atlantic traffic with Iberia’s Latin American business, which will potentially be reinforced by a planned alliance with American Airlines.
Private equity firm TPG could partner with American Airlines on a minority investment in Japan Airlines to prevent its defection to a rival airline group, the chief financial officer of American parent AMR Corp said.
The emergence of TPG as a potential investor comes as the loss-making Japan Airlines seeks its fourth state bailout since 2001, saddled with $15 billion in debt, a massive pension deficit and dozens of unprofitable routes.
The Japanese government pledged on Tuesday to enlist a state bank to offer bridge loans to prevent the airline from running short of cash and said it may introduce legislation to cut a pension shortfall that hit $3.7 billion in March.
Even as it struggles to avoid bankruptcy, JAL is being wooed separately by American Airlines and Delta Air Lines, which are keen to gain access to JAL’s network in Asia and a stronger foothold in Japan. JAL is Asia’s largest carrier by revenues.
AMR’s Thomas Horton said TPG, which helped fund Continental Airlines emergence from bankruptcy in 1993 and backed a failed takeover attempt for Australia’s Qantas Airways in 2007, has agreed to potentially invest in JAL as part of any deal with American Airlines.
“As appropriate and if it were welcomed by Japan Airlines and the government of Japan, TPG could also be part of a comprehensive recovery plan,” Horton told reporters in Tokyo.
“They have been active in the airline space over the years payday cash loan.”
A spokesman for TPG in Tokyo declined to comment.
American partners JAL in the Oneworld alliance, which pools frequent flyer miles and feeds passengers between members, and is keen to block it from joining Delta in the rival SkyTeam group.
American has argued that JAL and Delta would have difficulty clearing regulatory hurdles if they sought antitrust immunity for closer business ties because the alliance would give SkyTeam control of 60 percent of air traffic between Japan and the U.S.
American, which has hired Rothschild ROT.UL as an adviser on the deal, also estimates that defecting to SkyTeam could drain JAL of about $500 million in revenues during a transition period of 18-24 months.
A Delta spokeswoman in Tokyo declined to comment.
SIDE SHOW
In addition to a capital investment, American has been talking with JAL on forming a joint venture to cooperate more closely on scheduling, pricing and marketing. American estimates this could bring another $100 million in annual revenue to JAL.
Such close cooperation requires an “open skies” agreement between Japan and the United States. The two governments are in negotiations and are aiming for a deal this year.
Industrial conglomerate Tyco International Ltd said it expects its revenue to continue to slide until late in its 2010 fiscal year, sending its shares down 3 percent on Tuesday.
The maker of security and fire-control systems expects demand to remain soft through the first half of its current fiscal year — which began in late September — and set revenue and profit targets that allowed for the possibility of declines.
“We have assumed that the current environment continues well into the year… with some modest — and I emphasize modest — pickup in the second half of the year,” Chief Executive Ed Breen told investors on a conference call.
The company looks for sales to fall at a low-double-digit percentage rate through the first half of the fiscal year, with the rate of decline slowing in the third quarter and growth perhaps returning by the fourth quarter, Breen said. Recent cost-cutting measures could help boost Tyco’s bottom-line performance when revenue starts to pick up, he added.
Analysts noted the company tends to be cautious in its forecasts — pointing out that news came on a day that Tyco reported fourth fiscal quarter results that topped Wall Street’s expectations.
“Their outlook is conservative,” said Buckingham Research analyst Edward Wheeler. “They have been exceeding their expectations as they’ve gone along so I think it’s all in line with the history of conservative guidance that they’ve had for the last year.”
Tyco shares have risen some 64 percent so far this year, sharply outpacing the 7 percent rise of the Dow Jones U Payday Loan for Bad Credit.S. diversified industrials index .DJUSID.
SETS 2010 OUTLOOK
Tyco expects first-quarter profit from continuing operations of 48 cents to 50 cents per share on a drop in organic revenue of 11 percent to 13 percent. Analysts, on average, had looked for profit of 56 cents per share excluding one-time items, according to Thomson Reuters I/B/E/S.
For the year, the company expects a profit of $2.30 to $2.50 per share, excluding one-time charges, on $17 billion in revenue. Wall Street had looked for profit of $2.45 per share on revenue of $17.14 billion.
Tyco shares fell 98 cents to $34.41 in early trading on the New York Stock Exchange, reversing pre-market gains.
Tyco this year moved its incorporation to Switzerland from Bermuda, a move that cost it its spot in the Standard & Poor’s 500 index .SPX.
The company also reported a fiscal fourth-quarter profit that exceeded analysts’ forecasts, boosted by lower costs.
Net income fell 53 percent to $205 million, or 43 cents per share, in the quarter, ended on September 25, from $434 million, or 91 cents per share, a year earlier.
Earnings from continuing operations, excluding special items, came to 61 cents per share, beating analysts’ average forecast of 54 cents.
The U.S. jobless rate unexpectedly jumped to 10.2 percent last month, a 26-1/2-year high, adding to pressure on the Obama administration to do more to tackle unemployment even as signs of recovery mount.
The Labor Department said on Friday that employers cut 190,000 jobs in October, more than the 175,000 markets had expected but fewer than the 219,000 jobs lost in September.
Job losses for August and September were revised to show 91,000 fewer jobs were lost than previously reported, taking some of the sting out of the report.
While the revisions hinted at some improvement, economists had expected the jobless rate to rise to 9.9 percent from September’s 9.8 percent. A wider gauge of labor-market slack that includes unemployed Americans who have given up looking for work hit a record 17.5 percent.
Speaking at the White House, President Barack Obama said the administration was considering infrastructure investments and business tax cuts to aid the economy’s recovery.
“I can promise you that I won’t let up until the Americans who want to find work can find work and all Americans can earn enough to raise their families and keep their businesses open,” he said. For a graphic of the jobless rate over time, please see: here
Stocks on Wall Street ended higher after initially falling as investors looked past the jump in the jobless rate and focused instead on the moderation in payroll losses. .N
U.S. Treasury debt prices rose as traders saw the data as supporting a prolonged period of low interest rates.
“Unfortunately, the problem is becoming deeper and more protracted,” Mohamed El-Erian, chief executive of bond giant Pacific Investment Management Co (PIMCO) told Reuters.
“It’s not just the increase in the headline number,” he said. “It’s also about the longer-term nature of unemployment, the increase in underemployment and the prospect for only a very gradual recovery,” he said.
While Obama sees job creation as his top priority, the scope for further steps to boost the economy is limited by record budget deficits.
Rising unemployment could pose problems for the Democrats who control Congress as they head into elections in November 2010. This week, Republicans wrested control of two state governorships away from Democrats in races where the weak economy figured prominently.
“President Obama promised jobs during his campaign for president and the elections in Virginia and New Jersey on Tuesday were a clear referendum on his failure to deliver on this promise,” Republican National Committee Chairman Michael Steele said in a statement reacting to the jobs report.
ECONOMY GROWING, LABOR MARKET LAGS
The U.S. economy grew at a 3.5 percent annual rate in the third quarter, likely ending the most painful recession in 70 years, but the jobs data suggested employers are wary of the prospects for a strong, sustained recovery.
Gold slipped on Thursday, retreating from a record high it hit last session as disappointment over the metal’s failure to breach $1,100 an ounce prompted investors to cash in some gains.
Gold’s strength despite a relatively firm dollar this week suggests that bullion could be driven by other factors, such as renewed interest among central banks and inflation worries.
“The gold market has de-coupled itself from the dollar for the time being,” said George Nickas, commodities broker at FC Stone.
On Tuesday, gold rallied $30 in the face of a broadly higher dollar, largely driven by improved sentiment after India’s purchase of 200 tons of bullion from the International Monetary Fund.
Yet, analysts warned of possible short-term pullbacks in overbought market conditions.
“The market has run out of steam as we end the week. This market has to do some backing and filling to justify at these levels,” Nickas said.
Spot gold was at $1,088.95 an ounce at 2:08 p.m. EST (1908 GMT), against $1,092.35 late in New York on Wednesday, when the precious metal hit a record high of $1,097.25 an ounce.
U.S. December gold settled up $2 at $1,089.30 an ounce on the COMEX division of the New York Mercantile Exchange payday loans for bad credit.
Further gains were capped after the metal failed to decisively break above $1,100 an ounce.
“The fact that we didn’t manage to go through $1,100 might lead some investors to reconsider their positioning in the sector,” said Commerzbank analyst Eugen Weinberg.
“Should the dollar become stronger over the coming days I would expect to see more profit taking,” he added. “I think… we will see a prolonged correction, because the trend of the last few weeks is becoming a bit too pronounced.”
Friday’s U.S. October non-farm payrolls data could give a clear direction to the dollar and set the tone for the gold market.
CENBANKS EYED
Speculation continued over the prospect of further central bank gold acquisitions, after India’s purchase of 200 tons of bullion from the International Monetary Fund on Monday. The report helped push gold to record highs.
Sri Lanka’s central bank said it had been buying gold for the last five or six months as it diversifies its reserves amid volatile markets.
U.S. Bancorp is probably the biggest bank you’ve never heard of. But there are two reasons why you might want to start paying attention to it.
It is about to get bigger and it’s also a favorite investment of some guy in Omaha whose name you probably do know: Warren Buffett.
On Friday, U.S. Bancorp agreed to buy the nine banks that were part of FBOP, a privately held multibank holding company that failed and was seized by the FDIC.
As a result of the deal, U.S. Bancorp will add $18.4 billion in FBOP’s assets and 150 branches spread throughout California, Illinois, Texas and Arizona. This acquisition is U.S. Bancorp’s fourth purchase of a failed bank or savings and loan since last November. Including FBOP, U.S. Bancorp has added nearly $35 billion in assets and about $27.7 billion in consumer deposits.
Still, U.S. Bancorp (USB, Fortune 500) doesn’t get nearly the attention that other big banks receive, despite the fact that it has $265 billion in assets and is the sixth-largest commercial bank in the country.
While its bigger rivals JPMorgan Chase (JPM, Fortune 500), Citigroup (C, Fortune 500), Bank of America (BAC, Fortune 500) and Wells Fargo (WFC, Fortune 500) were all singled out to receive $25 billion in "rescue" money as part of the first installment of TARP funds last fall, U.S. Bancorp had to wait and apply for TARP just like other smaller banks.
It received $6.6 billion in bailout funds last year but it also was one of the first big banks to return taxpayer money.
In June, U.S. Bancorp was one of 10 banks that took part in regulators’ stress tests earlier this year that was given a relatively clean bill of health.
That might be one reason why Warren Buffett is such a big fan of U.S. Bancorp. As of June 30, Buffett’s Berkshire Hathaway (BRKA, Fortune 500) owned 69 million shares in the bank, a 3.6% stake. That makes Berkshire the fourth-largest owner in U.S. Bancorp. What’s more, U.S. Bancorp is Berkshire’s tenth-biggest holding.
The bank has held up remarkably well during the credit crisis and recession. It has posted a profit in each of the past five quarters.
And the stock, like that of other Berkshire bank holdings such as Wells Fargo and Buffalo’s M&T Bank (MTB), has responded to the relatively strong results. The stock has more than doubled since the market hit its low point of the year in early March, outperforming the big gains at many of its regional bank rivals.
Investors appeared to like the news of the FBOP (not to be confused with the annoying Hanson song MMMBop from a decade ago) acquisition as well. The stock was up about 2% in midday trading Monday.
So if Warren Buffett thinks so highly of U.S. Bancorp, does it make sense for your portfolio. It might. The stock does trade at a higher valuation on both a price-to-earnings and price-to-book value basis than many other large regional banks.
But Frank Barkocy, director of research with Mendon Capital Advisors, an investment firm that focuses mainly on financial stocks and owns shares of U.S. Bancorp, said the stock is worth it.
"The stock does sell at a premium to the banking group and that might frighten some investors away but we think it’s one of the better managed financial institutions out there," Barkocy said. "You get what you pay for. U.S. Bancorp is a consistent quality performer."
Barkocy added that the purchase for FBOP will give U.S. Bancorp a small, but important, foothold in Texas. It is taking over three branches in the Lone Star State as a result of the deal.
That obviously isn’t a whole lot right now but it could allow U.S. Bancorp to expand more in Texas, which is a key banking market that has not been hit as hard as the rest of the country during the wave of bank failures over the past two years.
Of course, the bank is not perfect. It’s a bank after all. U.S. Bancorp reported last month that its non-performing loans and net charge-offs tied to bad loans rose in the third quarter.
But the pace of loans going sour is starting to slow. That’s a good sign. And U.S. Bancorp’s credit quality has been much higher throughout the credit crisis than most of its peers.
As of the end of September, non-performing assets made up 2.4% of total loans. By way of comparison, the non-performing asset to loan ratio for Bank of America was 3.7% in the third quarter.
"Part of the dilemma with banks is there a degree of the numbers being a black box. But U.S. Bancorp didn’t wind up with as much junk in their portfolio. That intrigued us," said Don Yacktman, manager of the Yacktman fund and Yacktman Focused fund. U.S. Bancorp is a holding in both funds.
Add all that up and it shows that not all banks mucked it up royally during the housing boom and resulting bust. Some banks have somehow managed to continue growing without taking on ridiculous levels of risk.
So it looks like there’s a good chance U.S. Bancorp will continue to impress Buffett and the rest of its shareholders.
Talkback: Do you think it makes sense to follow the investing advice of Warren Buffett? Share your comments below.
When it comes to figuring out what has caused the country’s record accumulation of debt, just about every politician in Washington has a theory.
The theories usually boil down to this: The other guy did it. The other party’s White House. A previous Congress. You get the picture.
In reality, growing the deficit has been very much a bipartisan effort. Members of Congress from both parties and presidents past and present have all contributed to the problem.
And it is a problem. By 2019 the total debt accrued over the past several decades is on track to approach an unhealthy 82% of gross domestic product. That’s one reason why those who own U.S. debt and credit ratings agencies will be looking for lawmakers to put together a plausible deficit-reduction plan in the next few years. (Clock is ticking on debt ceiling.)
But if Congress and the president are going to stick to it, they better curb the budget trickery. Here are 5 common tricks that undermine fiscal responsibility.
Great idea! Let’s ignore it.
The trick: Bypass rule to rein in spending and then overturn it
In 1997, Congress passed a provision that aimed to limit overall Medicare spending. When spending exceeds a certain target, an automatic reduction in physicians’ reimbursement fees kicks in — unless lawmakers act to block the reduction.
And they do, almost every time a cut to doctors is in the offing.
They usually don’t bother to cut spending or raise revenue elsewhere to make up for it. And when they do, they aren’t exactly realistic about it.
Four years ago, they decided to pay for rescinding a cut by promising to cut rates even more steeply in the future, said Donald Marron, an acting director of the Congressional Budget Office during the last Bush Administration.
Well, welcome to the future. Those steeper rate cuts aren’t flying either. Lawmakers now want to pass a permanent "fix" so that physician payment rates don’t drop. The estimated cost of doing so: $247 billion over 10 years.
The proposal was voted down last week in part because there were no provisions in the bill to pay for the cost. But don’t expect that to be the end of it.
How about a quickie?
The trick: Enact a one-year "fix" that really fixes nothing
Few lawmakers want to see physician rates cut. They need physicians’ support for health reform and there is concern that more physicians would refuse to treat Medicare patients if their rates are cut further.
So lawmakers may just pass another one-year fix to prevent near-term cuts, just like they’ve done in years past.
The one-year "fix" for perennial issues makes the cost of what Congress is doing look less expensive because well, it’s only for one year, right?
The classic example is how Congress deals with the pernicious Alternative Minimum Tax. Without congressional action, an increasing number of middle class families will have to pay the tax, originally created to extract tax payments from the wealthy.
So every year Congress enacts a "patch" to protect those middle-class families. Those one-year patches have recently cost in the neighborhood of $70 billion. A permanent patch, which President Obama has called for, would cost at least $448 billion over 10 years, according to the Congressional Budget Office.
Let’s play make-believe
The trick: Count on future taxes everyone knows will never be collected
The AMT patches are not paid for through reduced spending or increased revenue elsewhere bad credit payday loans.
The argument is that the AMT was never supposed to hit so many people and generate so much revenue. So why pay for the loss of revenue that was never supposed to be collected in the first place?
It’s a good theory. The problem is that Congress, in deciding which policies to pursue, uses budget and deficit projections that assume the AMT will raise lots and lots of revenue.
As a result that phantom AMT revenue makes the deficit look better than it is.
While the estimated cost of permanently patching the AMT is $448 billion, the real price goes up by hundreds of billions if it’s done in conjunction with extending the 2001 and 2003 tax cuts. And odds are high they will be extended.
This is just temporary. Honest.
The trick: Call a tax cut or spending hike temporary
Like the one-year fix, implementing a "temporary" tax cut or spending increase often disguises the true cost, since there will be pressure to make the measure permanent — or to "temporarily" renew it every year.
"There’s a ton of effort to get things into law because once there, they’re hard to get rid of," said Marron, who is now a visiting professor at the Georgetown Public Policy Institute.
The 2001 and 2003 Bush tax cuts are a good example.
No one really expected the cuts to expire, even though they’re slated to do so by 2011. In fact, President Obama has called for them to be made permanent for the majority of Americans. The cost: $2.3 trillion in forgone revenue over the next 10 years.
We’ll pay for everything … except some things
The trick: Promise to pay for some tax cuts and not others
In a speech this week, Christina Romer, head of Obama’s Council of Economic Advisers, pointed to research that found nearly half of the long-run fiscal shortfalls is due to the policies that cut taxes and increased spending under the Bush administration.
"Obviously, we can’t go back eight years and make more responsible choices," she said.
Well, yes, the past is past.
But what about future choices? Obama has promised to pay for any new tax cuts or spending increases he proposes. Yet he is not calling on Congress to pay for his $2.3 trillion proposal to extend the Bush tax cuts.
By not doing so, he joins a not-so-select club of politicians, according to Diane Rogers, chief economist at the deficit watchdog group Concord Coalition.
"[T]he clever idea to hide the permanent costs of spending or tax cuts by making them temporary, and then later extending them while refusing to pay for the costs of extending them … is something government policymakers have been practicing in a bipartisan manner for awhile," Rogers wrote in her blog EconomistMom.com.
Do you have a job because of the $787 billion stimulus package? We want to hear from people whose jobs have been created or saved by the American Recovery and Reinvestment Act. Please e-mail your stories to CNNMoney.com and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.
Powered by WordPress -- XHTML 1.0