Business News: Emerging-Market Funds Reach Beyond Consumers

Business News: Emerging-Market Funds Reach Beyond Consumers

Emerging-Market Funds Reach Beyond Consumers

Posted: 19 Dec 2010 04:53 PM PST

Stock Picks of Top Emerging Markets Funds

Posted: 17 Dec 2010 04:39 PM PST

Dorfman: Top 2010 Stocks Bad Bets for 2011

Posted: 19 Dec 2010 06:17 PM PST

add to Business Exchange

By John Dorfman

Dec. 20 (Bloomberg) -- As 2010 draws to a close, all of the biggest gainers in the Standard & Poor’s 500 Index and most of the biggest losers look like bad bets for next year.

As of Dec. 14, the index’s best performer for 2010 was Cummins Inc., a Columbus, Indiana, manufacturer of engines and power generators. The stock is up about 136 percent so far this year.

I have owned Cummins for clients on and off over the years. I think the management team under Chief Executive Officer Theodore Solso is sensible and takes the long view. Analysts estimate the company will post diluted earnings per share of $5 this year, a record.

I do not own Cummins currently, however. There is a vast difference between a good company and a good stock. At about $108, I think Cummins is fully priced. It now trades at five times book value (corporate net worth) and 23 times earnings.

Here is a rundown on some other leaders and laggards in the S&P 500 this year:

Akamai Technologies Inc., located in Cambridge, Massachusetts, helps to deliver content and monitor traffic on the Internet. This is a stock in which fortunes have been made, and lost.

From a high of more than $327 a share in 1999, Akamai fell to less than $1 a share in 2002. Since then it has regained traction and risen to about $50. The good-company, bad-stock syndrome applies here. I consider the shares overpriced at 51 times earnings and almost nine times revenue.

In the Clouds

Then there’s Salesforce.com Inc., which is as popular with investors as Akamai was 11 years ago. A leader in cloud computing for businesses, Salesforce saw its revenue grow to $1.1 billion last year from $51 million in fiscal 2003.

Shares in the San Francisco-based company have advanced about 86 percent so far this year.

Computing that involves storing files and programs on a host’s servers is here to stay. It allows salespeople in different cities to share notes and observations easily. Yet I can give you three good reasons not to invest in Salesforce.

First, at 245 times the past four quarters’ earnings, it has huge expectations built into the stock price. Second, analysts expect its fully diluted earnings per share to fall more than 20 percent this fiscal year, ending January 2011, before growth resumes in the next two years. Third, Microsoft is taking explicit aim at its market.

Betting on China

Wynn Resorts Ltd. likewise seems overvalued. The operator of luxury casinos in Las Vegas, its headquarters city, and Macao, China, is priced as a hot growth stock at 83 times earnings. Yet its best earnings result, $5.63 a share, came in 2006. This year analysts expect it to earn about $1.14.

Priceline.com Inc., based in Norwalk, Connecticut, is up about 85 percent. I think it offers a useful online shopping service, and its ads starring actor William Shatner are funny. But pay 12 times book value and 42 times earnings? No way.

One might expect to find better bargains among the S&P 500’s laggards. This year’s crop of underachievers doesn’t excite me much, but I do think there is rebound potential in H&R Block Inc. and Apollo Group Inc.

The biggest loser in the index is Dean Foods Co., down about 55 percent so far this year. The Dallas-based food and beverage company is cheap at eight times earnings, but its debt- to-equity ratio of 271 percent is too high.

Yes, I know dairy products, Dean’s specialty, are supposed to be a steady business that can easily support a heavy debt load. But experience suggests that debt never matters -- until it does.

Rebound Potential

H&R Block, the largest U.S. tax preparer, is down about 43 percent this year. The Kansas City, Missouri, company has problems -- mopping up after a messy foray into mortgage lending, and more competition from sellers of tax-preparation software -- but I think it has comeback potential. At eight times earnings, I believe H&R Block is a good candidate both for a quick January bounce and a good year in 2011.

Apollo Group is down about 36 percent. I wrote about this company and its competitors last month. In my judgment Apollo is more capable than most for-profit education companies of meeting proposed federal standards. Shares in the Phoenix-based company go for seven times earnings.

Debt Heavy

SuperValu Inc., a grocery and pharmaceutical-distribution company based in Eden Prairie, Minnesota, is trading for only five times earnings. That’s tempting, but I worry about the company’s debt, which is almost five times equity. The stock is down about 31 percent.

Finally, PulteGroup Inc., a home builder in Bloomfield Hills, Michigan, is down about 30 percent. I think it will take a while for homebuilders to make money again because of overbuilding from 2000 to 2006 and because of the large number of foreclosed homes now coming onto the market. With debt at 187 percent of equity, and with the company’s earnings still negative, I would wait.

This column has mostly focused on stocks I would avoid. Next week I’ll look at the other side of the coin -- my 10 favorite stocks for 2011.

Disclosure note: I have no long or short positions, personally or for clients, in the stocks discussed in this week’s column.

(John Dorfman, chairman of Thunderstorm Capital in Boston, is a columnist for Bloomberg News. The opinions expressed are his own. His firm or clients may own or trade securities discussed in this column.)

--Editors: Steven Gittelson, Laurence Arnold.

Click on “Send Comment” in the sidebar display to send a Letter to the editor.

To contact the writer of this column: John Dorfman at jdorfman@thunderstormcapital.com

To contact the editor responsible for this column: James Greiff at jgreiff@bloomberg.net

The Jobs Number's Messy Reality

Posted: 16 Dec 2010 02:00 PM PST

Where the Jobs Are...and Will Be

Posted: 15 Dec 2010 01:26 PM PST

Special Report: The Year in Review

Posted: 20 Dec 2010 05:15 AM PST

Facebook Ramps Up Big E-Commerce Drive

Posted: 19 Dec 2010 09:01 PM PST

Soros' Bubble at $1,375 as Miners Push Each Button to Tears

Posted: 20 Dec 2010 05:15 AM PST

European Stocks Climb, Erasing Losses From Lehman Bankruptcy

Posted: 20 Dec 2010 04:56 AM PST

add to Business Exchange

By Julie Cruz

Dec. 20 (Bloomberg) -- European stocks rose, erasing losses that followed Lehman Brothers Holdings Inc.’s 2008 bankruptcy, amid speculation that the economy will be strong enough to withstand the region’s sovereign-debt crisis. U.S. index futures gained while Asian shares declined.

Volkswagen AG, Europe’s biggest automaker, rose 2.8 percent after saying it expects sales in China to grow as much as 15 percent next year. Abertis Infraestructuras SA added 2 percent as the Sunday Times said CVC Capital Partners Ltd. may bid for the Spanish highway operator. Retailers retreated as snow disrupted holiday shopping.

The Stoxx Europe 600 Index climbed 1 percent to 279.08 at 12:53 p.m. in London, the highest level since Sept. 12, 2008, the last trading day before Lehman’s collapse. The gauge has advanced 6.6 percent this month as U.S. reports showed claims for unemployment benefits unexpectedly fell, builders began work on more homes and manufacturing in the New York region rebounded more than forecast.

“The start of 2011 might be quite good as we still have a lot of liquidity driving the market,” said Michael Koehler, head of strategy at Landesbank Baden-Wuerttemberg in Mainz. “The latest economic data that we got, especially from the U.S., was overall really good and we will definitely not see a double dip. Though, the sovereign debt crisis issue is still not solved.”

Financial Crisis

The Stoxx 600 plunged 44 percent through March 2009 as the collapse of Lehman Brothers fueled the worst financial crisis since the Great Depression, causing banks worldwide to book writedowns and losses of more than $1.8 trillion.

Standard & Poor’s 500 Index futures rose 0.4 percent today. The MSCI Asia Pacific Index slipped 0.2 percent as a South Korean artillery drill boosted tension in the peninsula.

France risks losing its top AAA grade as Europe’s debt crisis prompts a wave of downgrades that threatens to engulf the region’s highest-rated borrowers, with Belgium also facing a possible cut, analysts and investors said.

“Every sovereign may get penalized in the year ahead,” said Toby Nangle, who helps oversee $46 billion as director of asset allocation at Baring Asset Management in London. “It would a big deal if France was to have its AAA rating stripped. I don’t think the likelihood of a downgrade is reflected in the market.”

VW, Peugeot

Volkswagen preferred shares gained 2.8 percent to 125.15 euros as the carmaker said it expects group sales in China to grow 10 to 15 percent next year.

“The total market next year looks pretty healthy for us,” said Soh Weiming, the automaker’s executive president for China, in an interview at the Guangzhou Auto Show.

Separately, Audi AG, Volkswagen’s luxury-car brand, will probably beat its target for A1 deliveries next year and may further increase production to meet demand for the subcompact, the unit’s sales chief said.

PSA Peugeot Citroen advanced 1.7 percent to 30.27 euros. The French automaker expects to sell 200,000 vehicles in China in 2011 and 150,000 this year, Timothy Zimmerman, director- general of Dongfeng Peugeot, said in an interview at the show.

Abertis Infraestructuras gained 2 percent to 13.72 euros as the Sunday Times reported that CVC Capital Partners, which bought a minority stake in Abertis earlier this year, is preparing a 12 billion-euro ($15.8 billion) bid for the company.

888, Mobistar

888 Holdings Plc rallied 19 percent to 58.25 pence, the biggest gain in more than three years, after the online gambling company said it’s in the early stages of discussions with Ladbrokes Plc about a possible takeover offer.

Mobistar SA advanced 3.4 percent to 47.23 euros after Belgium’s second-biggest mobile-phone company was upgraded to “buy” at Deutsche Bank AG.

Rhodia SA climbed 5.5 percent to 23.99 euros, the highest price in almost three years. The specialty chemical company is confident it will be able to defend its profit margins in 2011 as raw-material prices, while at a high level, remain about stable, Investir reported, citing an interview with Chief Executive Officer Jean-Pierre Clamadieu.

Morgan Stanley upgraded the stock to “overweight” from “equal weight.”

Retail stocks had the only drop out of 19 industry groups in the Stoxx 600 as the snow disrupted holiday shopping. Inditex SA, the world’s largest clothing retailer, declined 1.7 percent to 57.18 euros. Dixons Retail Plc, the U.K.’s biggest consumer- electronics retailer, retreated 4.6 percent to 23.22 pence.

Metro Slides

Metro AG, Germany’s largest retailer, lost 1.6 percent to 54.93 euros. Haniel & Cie. GmbH is considering reducing its stake in the company, Wirtschaftswoche reported, citing unidentified people close to the company.

Haniel aims to establish a “more balanced portfolio” by investing in small companies, spokesman Dietmar Bochert said today. He declined to comment on whether the company plans to reduce its Metro stake. Ruediger Stahlschmidt, a spokesman for Metro, declined to comment.

Gartmore Group Plc plunged 9.4 percent to 94.95 pence after the U.K. fund manager that put itself up for sale in November said it’s discussing a takeover proposal with Henderson Group Plc on the basis of a “slight discount” to its Dec. 16 closing share price of 98.75 pence. Henderson Group, which aims to expand its consumer business and emerging-market operations, rose 2.8 percent to 134.1 pence.

Ingenico SA sank 7.9 percent to 25.42 euros as the world’s largest maker of card payment terminals said that a bidder for the company has not been in a position to submit a binding offer that is acceptable to its board.

Allied Irish Banks Plc slumped 9.1 percent to 40.9 euro cents as the Sunday Business Post said Ireland’s government may use new powers to take full control of the lender as early as this week. A spokesman for Ireland’s Finance Ministry declined to comment on the report. Ronan Sheridan, a spokesman for the bank, also declined to comment.

--With assistance from Paul Dobson and Keith Jenkins in London. Editors: Andrew Rummer, David Merritt.

To contact the reporter on this story: Julie Cruz in Frankfurt at jcruz6@bloomberg.net.

To contact the editor responsible for this story: David Merritt at dmerritt1@bloomberg.net.

Sara Lee Talks With JBS on Sale Are Said to Hit Snag

Posted: 20 Dec 2010 04:43 AM PST

add to Business Exchange

By Jeffrey McCracken and Matthew Boyle

(Adds early trading in fifth paragraph.)

Dec. 20 (Bloomberg) -- Sara Lee Corp.’s talks to sell itself to Brazilian meat processor JBS SA have hit a snag over price, according to two people with direct knowledge of the situation.

Sara Lee, the maker of Jimmy Dean foods and Ball Park hotdogs, recently rejected a takeover offer from JBS, deeming the price too low, said the people, who declined to be identified because the talks are private. The bid was less than Sara Lee’s intraday high of $17.62 on Dec. 17, when the Wall Street Journal reported the companies were in talks, the people said. The stock closed at $17.26 that day, valuing Sara Lee at $11 billion.

The board of Sara Lee, which is considering other options for the Downers Grove, Illinois-based company, hasn’t given JBS a specific price at which it would sell, the people said. JBS, the world’s largest meat-processing company, has been in talks with Sara Lee about a deal for several months and many key details have been worked out, the people said.

Spokesmen for Sara Lee and JBS declined to comment.

Sara Lee slipped 36 cents, or 2.1 percent, to $16.90 in early trading before the opening of the New York Stock Exchange. The shares climbed 5.3 percent Dec. 17 and had advanced 42 percent this year before today.

Sara Lee, whose sales surpassed $10 billion last year, has decided to sell other divisions, such as the North American bakery unit, to concentrate on its faster-growing coffee and meats businesses. The company has been led by interim Chief Executive Officer Marcel Smits since Brenda Barnes resigned four months ago to focus on her health.

“At this point, we see Sara Lee at a crossroads,” Alexia Howard, an analyst at Sanford C. Bernstein, said in a Dec. 14 note to clients. The sale of the bakery unit and other businesses “could pave the way for a broader breakup scenario or takeover over the coming year.”

Possible Breakup

No deal is imminent and it is unclear if a sale will be completed, said the people. JBS is being advised by JPMorgan Chase & Co. in the transaction. Bank of America Corp. is advising Sara Lee.

Sara Lee’s board is also analyzing whether it should spin off either its remaining meats or coffee divisions, a decision that would be driven by the tax implications of these transactions, said the people familiar with the matter. The board has moved slowly on naming a new CEO as it assesses its options, the people said. Sara Lee also attracted interest from buyout firms including Apollo Global Management LLC and KKR & Co. earlier this year, people with knowledge of the matter said in October. Those approaches were rejected, the people said.

A sale to JBS would likely result in a higher price than a purchase by private-equity firms, so Sara Lee is giving JBS time to see if it can raise the financing and is willing to risk its credit rating, according to the people. JBS’s market value is just below Sara Lee’s at about $10.5 billion.

JBS Debt

JBS is trying to avoid taking on so much debt that it will slide further below investment grade, the people said. JBS has made about more than a dozen acquisitions since 2007, expanding into the U.S., Australia and Europe.

Under Barnes, who took charge in 2005, Sara Lee divested divisions such as apparel that accounted for roughly half of its overall sales. With the sale of the bakery unit to Mexico’s Grupo Bimbo for $959 million, Sara Lee now generates more than half of its sales and profits outside the U.S., according to Howard, the Bernstein analyst.

“We increasingly view Sara Lee as a company whose current portfolio and geographic focus is inefficient from a tax perspective, so something has to give,” Howard said.

If Smits, 49, is chosen as CEO, a breakup or privatization is more likely, Howard said in her note. The other internal candidate for the job is C.J. Fraleigh, who runs North American retail and foodservice operations.

JBS Expansion

JBS, led by CEO Joesley Mendonca Batista, has been expanding through takeovers after acquiring meat processor Swift & Co. in 2007 and two Smithfield Foods Inc. units in 2008. It also bought a majority stake in poultry producer Pilgrim’s Pride Corp. in 2009 to diversify from beef.

Batista has said the company will continue to grow as it seeks more acquisitions in the U.S. and Brazil, the world’s biggest beef producers, as well as other countries. “We’ve only just started,” Batista told reporters in Sao Paulo last year. The company generated $20 billion in revenue in 2009.

--With assistance from Helder Marinho in Sao Paulo. Editors: Jennifer Sondag, Robin Ajello.

To contact the reporters on this story: Jeffrey McCracken in New York at jmccracken3@bloomberg.net; Matthew Boyle in New York at Mboyle20@bloomberg.net

To contact the editors responsible for this story: Robin Ajello at rajello@bloomberg.net; Jennifer Sondag at jsondag@bloomberg.net.

Hyundai Group Bid to Buy Control of Builder Collapses

Posted: 20 Dec 2010 04:41 AM PST

add to Business Exchange

By Kyunghee Park and Seonjin Cha

(Updates with shareholders’ comments on Hyundai Merchant stake in 10th paragraph.)

Dec. 20 (Bloomberg) -- Hyundai Group’s bid to buy control of South Korea’s largest builder collapsed because of concerns about funding plans for the acquisition.

Shareholders selling 35 percent of Hyundai Engineering & Construction Co. voted to end talks with Hyundai Group, previously named as preferred bidder, they said in an e-mailed statement today in Seoul. Hyundai Group offered about 5.5 trillion won ($4.8 billion) for the stake, more than double the market value, two people familiar with the matter said Nov. 16.

“This deal got off on the wrong foot from the start,” said Byun Sung Jin, an analyst at Mirae Asset Securities Co. in Seoul. “Hyundai Group just wasn’t able to persuade people that it was paying an amount it could afford.”

The shareholders may now begin talks with billionaire Chung Mong Koo, whose Hyundai Motor Group lost out in the initial auction to Hyundai Group, headed by his brother’s widow. The battle, which extended a decade-long family feud, may allow Chung to take over what was his father’s flagship company and also let him snatch control of Hyundai Group’s biggest unit.

Hyundai Motor Talks?

The builder’s shareholders will inform Hyundai Group of their decision today, they said. They will decide whether to start talks with Hyundai Motor Group at a later date, said Korea Exchange Bank, one of the shareholders.

“The decision to end talks goes against the sale terms,” Hyundai Group said in an e-mailed statement. “We will seek a fair decision through legal channels.”

Hyundai Motor Group hopes the shareholders will proceed in a manner that follows the bidding regulations, said Lee Hwa Won, a spokesman. He declined to comment further.

Hyundai Group Chairwoman Hyun Jeong Eun’s grip on the group’s biggest unit Hyundai Merchant Marine Co., which also owns controlling stakes in seven of Hyundai Group’s 11 other units, could be endangered if Chung gains control of Hyundai Engineering.

The builder owns 8.3 percent of the shipping line and combined with the 25.5 percent stake held by shipbuilder Hyundai Heavy Industries Co., controlled by Chung Mong Koo’s brother Chung Mong Joon, and the 5 percent owned by KCC Corp., founded by an uncle of Chung Mong Koo who tried to block Hyun’s succession, the total would almost match the 40 percent owned by Hyun and Hyundai Group. Another 5 percent is held by the Seoul- based shipping line and its employees.

The Hyundai Engineering shareholders offered to act as intermediaries between Hyundai Group and Hyundai Motor Group over the fate of the construction company’s stake in Hyundai Merchant if they begin talks with the automaker, Korea Exchange Bank said.

Shares Fall

Hyundai Merchant, South Korea’s second-largest shipping line, dropped 4.6 percent to 39,750 won at the close of trading in Seoul. Hyundai Engineering climbed 0.4 percent to 70,100 won. Hyundai Motor Co., South Korea’s biggest automaker, gained 1.4 percent to 180,500 won. The announcement on the end of the talks came after the market close.

Hyundai Group plans to raise about 2 trillion won selling shares in a French unit of Hyundai Merchant, it said today separately. The company has had interest from seven potential investors, it said. Hyundai Merchant also said today it would sell 10.2 million new shares in itself for 32,000 won apiece, 19 percent less than today’s closing price. There’s no change to these sale plans, Hyundai Group said.

French Loan

The Hyundai Engineering shareholders broke off talks with Hyundai Group after asking three times for more details about a 1.2 trillion won loan from Paris-based Natixis SA. Hyundai Group provided documents without handing over a copy of the agreement, it said on Dec. 17. The documents were “insufficient,” Korea Exchange Bank said the same day.

Hyundai Motor Group, parent of Hyundai Motor Co. and Kia Motor Corp., offered about 400 billion won less than Hyundai Group for the Hyundai Engineering stake, the people familiar said on Nov. 16.

The automaking group split off from the main Hyundai Group in 2000, after Chung Mong Koo was snubbed as heir by his father in favor of Hyun’s husband. A year later, creditors seized control of Hyundai Engineering as the builder struggled with debts. These creditors are now selling their stakes.

--With assistance from Sookyung Seo in Seoul. Editors: Neil Denslow, David Risser

To contact the reporters on this story: Kyunghee Park in Singapore at kpark3@bloomberg.net; Seonjin Cha in Seoul at scha2@bloomberg.net

To contact the editor responsible for this story: Neil Denslow at ndenslow@bloomberg.net

Pemex Pipeline Blast Blamed on Gang Kills 27 in ‘Rivers of Fire’

Posted: 20 Dec 2010 04:36 AM PST

add to Business Exchange

By Jens Erik Gould

(Updates to add Calderon visit in seventh paragraph.)

Dec. 20 (Bloomberg) -- Mexican authorities blamed an explosion in an oil pipeline that killed 27 people on a criminal gang that was trying to steal fuel.

Yesterday’s blast at the 30-inch Nuevo Teapa pipeline operated by state-owned company Petroleos Mexicanos in San Martin Texmelucan, Puebla state, also injured 52 people, the company, known as Pemex, said in a statement on its website. The explosion damaged 115 houses, Pemex said.

The attempt to steal fuel from Pemex, which is often a victim of theft, is part of the broader wave of criminal activity afflicting Mexico, said David Shields, a Mexico City- based independent energy analyst and publisher of Energia magazine. The company said last year it had 5 million barrels worth 9.3 billion pesos ($750 million) stolen in 2008.

“It’s not an isolated incident,” Shields said in a telephone interview. “It’s part of the constant problem we’re living every day.”

The Attorney General’s office said in March 2009 that people arrested in connection with fuel theft against Pemex may have been working with drug cartels.

The office of Mexico’s Attorney General began an investigation of the blast on orders of Mexico President Felipe Calderon, Interior Minister Jose Francisco Blake Mora said in comments broadcast on Milenio TV.

Calderon offered condolences to victims of the explosion yesterday, traveling to the scene and visiting a hospital where the injured are being treated.

Refinery Supply

The pipeline runs from the port of Dos Bocas in Tabasco state to the Tula refinery in Hidalgo state. The refinery has as many as four days of supply to maintain production of as much as 280,000 barrels a day, said Fabricio Guerra, a Pemex official in Tula.

Output from the Tula refinery, Mexico’s largest, was 269,397 barrels a day in October, according to data from Mexico’s Energy Ministry website.

The refinery can use another pipeline if Nuevo Teapa is down for more than four days, said Guerra, who didn’t have an estimate of how long pipeline repairs would take. The Tula refinery is “still operating normally,” he said.

Guerra said he didn’t know how many barrels a day the Nuevo Teapa pipeline transported.

The incident is unlikely to affect Pemex’s national production or its debt, Shields said.

Crude Prices

Crude for January delivery rose as much as 48 cents, or 0.6 percent, to $88.50 a barrel in electronic trading on the New York Mercantile Exchange. The contract, which expires today, was at $88.33 at 8:37 a.m. Singapore time. Futures, which rallied 78 percent in 2009, have gained 11 percent this year.

Pemex dollar-denominated 10-year bonds rose today for the first time in six days to 100.875 cents on the dollar. The yield on the bond due 2021 fell 7 basis points, or 0.07 percentage points, to 5.39 percent.

Pemex, the second-largest supplier of oil to the U.S., exported 1.225 million barrels of crude a day in 2009. About 85 percent, or 1.086 million barrels, was sold to the U.S. last year, according to Pemex statistics. Canada is the largest supplier of crude to the U.S.

Net Importer

Mexico is a net importer of refined petroleum products. In 2009, Mexico imported 519,000 barrels a day of refined petroleum products, while exporting 244,000 barrels daily. Gasoline represented about 60 percent of its product imports.

Pemex is building its first refinery in three decades in the state of Hidalgo, next to the current Tula refinery, to keep up with rising gasoline demand as more Mexicans buy cars.

Demand for the fuel in Mexico, which imports about 40 percent of domestic consumption, may gain 5 percent a year through 2012, according to the Energy Ministry.

The explosion, which occurred yesterday at 5:50 a.m. local time, caused crude to flow into a nearby river and a giant cloud of smoke to erupt into the sky, the Milenio television network reported.

Valentin Meneses, Puebla state’s interior secretary, said in an interview on the Milenio TV network that 32 of the houses were completely destroyed.

“All of this is the consequence of a criminal gang,” Meneses said. “They lost control because of the great force of the fuel that came out. Many streets started to flood with fuel. There was a spark and there were rivers of fire.”

Mexican Attorney General Arturo Chavez said last week that 30,196 people have been killed in drug-related violence nationwide since Calderon took office four years ago and began deploying troops in a battle against cartels.

This year’s toll of 12,456 drug-related deaths is the highest since Calderon took office, showing that violence is increasing instead of waning

Pemex said in an e-mailed statement that the fire was controlled by the company’s emergency workers and local authorities. The military has also been deployed, Pemex said.

--With assistance from Carlos Manuel Rodriguez in Mexico City. Editors: Sylvia Wier, Mike Millard

To contact the reporter on this story: Jens Erik Gould at jgould9@bloomberg.net

To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

European Travel Disrupted as Snow Delays Flights

Posted: 20 Dec 2010 04:29 AM PST

add to Business Exchange

By Chris Spillane

(Updates with Eurostar in second paragraph.)

Dec. 20 (Bloomberg) -- Air travel across Europe was disrupted for a third day as travel operators urged passengers to stay home with more snowfall and ice forecast for England, France and Germany.

Flights from London’s Heathrow, City and Gatwick airports, Paris’s Roissy-Charles de Gaulle and Orly, and Frankfurt and Geneva were canceled or delayed. Eurostar Group Ltd.’s said that trains between London, Paris and Brussels were operating with speed restrictions and there are queues at its stations due to a backlog from the weekend. There were also delays at Oslo Airport, according to its website.

“We will be running a severely limited schedule today,” British Airways Plc spokesman Euan Fordyce said by phone today. “We are still urging people not to come to the airport unless they have a confirmed booking.”

Snow and freezing fog have disrupted air travel across Europe for the past three days with as much as 20 centimeters (8 inches) of snow falling in parts of the U.K. Airlines including Cathay Pacific Airways Ltd., Qantas Airways Ltd. and Virgin Atlantic Airways Ltd. have been forced to cancel flights in the past 24 hours, leaving thousands of travelers stranded.

British Airways Chief Executive Officer Willie Walsh told Sky News he was “hopeful” of getting flights in and out of Heathrow today, even if snowfalls may cause disruptions.

Heathrow

British Airways canceled 83 flights from its Heathrow base, to destinations including Geneva, Prague and Berlin, according to its website. Heathrow airport is operating at 40 percent of full capacity and has only one runway in use, spokesman Nigel Milton said in a telephone interview today.

“Passengers need to check with airlines because we are running such a reduced service,” Milton said. “There will be a number of cancelations and the knock on effect of yesterday’s closure will be felt for a few more days yet.”

Gatwick canceled 30 flights so far today and was expecting freezing fog to mid-morning with snow flurries in the afternoon, spokesman Sean McKay said by phone today.

Deutsche Lufthansa AG said it expected a reduction in flights within Germany and Europe, with much disruption at its Frankfurt hub, according to a statement on its website. Lufthansa extended a plan that pares the number of flights within Germany and Europe to today, Bettina Rittberger, a spokeswoman, said by phone.

Charles de Gaulle

Flights at Paris’s Roissy-Charles de Gaulle airport are reduced by 30 percent until 6:00 p.m. while flights at the Paris-Orly airport are also expected be cut by about 30 percent over the day because of snowfall in the region, the nation’s civil aviation authority said in an e-mailed statement.

Cardiff Airport is closed until at least 4:00 p.m. because of the “adverse weather conditions”, it said on its website.

Some flights from Zurich to Heathrow, Paris and Frankfurt were delayed or canceled this morning and others are set to be scrapped over the course of the day, according to Zurich Airport’s website.

More cancellations are likely at Geneva airport, where 20 flights were scrapped earlier today, Bertrand Staempfli, a spokesman for Geneva airport, said by telephone today. A total of about 50 were canceled yesterday.

“We don’t have any problem with the weather, but we’ve had to cancel flights to the U.K. and also to Paris and to Frankfurt because some of their platforms are closed,” Staempfli said. “We hope to have a new connection to Paris in the beginning of the afternoon, but it’s still difficult with London and Frankfurt.”

“Sleeping on the Floor”

Geneva airport offers sleeping accommodations to people who can’t find or afford a hotel. On Saturday night, 67 people slept at the airport, which has about 100 beds, Staempfli said.

Sean O’Brien, an American student, has been waiting at Heathrow since yesterday evening for his flight home to Portland, Oregon, to see his family for the Christmas holiday.

“There’s loads of people sleeping on the floor,” O’Brien, 26, said in a telephone interview from terminal four. “Everything is so ridiculous that people are just laughing at it now.”

Cathay Pacific Airways canceled two Hong Kong-London flights today, the airline said in an e-mail. The company expects to operate two other services on the route and all four of its flights from London. Air New Zealand Ltd. said London flights today may terminate at the midpoints of Hong Kong and Los Angeles if weather conditions didn’t improve.

Qantas Airways

Qantas Airways has 3,000 passengers affected by the shutdown, after it canceled flights from London and turned back other flights headed to the U.K., Simon Rushton, a spokesman for the Sydney-based carrier, said by phone today.

About 1,000 passengers are stranded in London and the rest across Asian hubs, he said.

Amsterdam’s Schiphol Airport said today on its website that it was open and some flights had been canceled. Air France-KLM Group’s Dutch KLM unit canceled more than 60 departing and arriving flights at the airport yesterday.

Eurostar, which links London to Paris and Brussels, halted sales of new train tickets up to and including Dec. 24 and is operating a limited timetable, the company said on its website.

Eurostar trains and crew are “out of position” because of the weather and services will probably run with speed restrictions and delays, according to a statement on the Eurostar’s website. The train operator expects to run reduced services for “a number of days,” the company added.

“We recommend that if you do not need to travel you cancel or postpone your journey,” the company said in the statement.

Deutsche Bahn

Deutsche Bahn AG said in an e-mail it expects weather disruptions and an increase in passengers after bottlenecks in the German railway system yesterday.

First Capital Connect trains have delays of up to 40 minutes on some trains into central London, according to National Rail Enquiries’ website. London Midland services on all routes are subject to delay and cancellation, while Southern trains is operating a normal service today, according to the company website.

Transport for London said on its website that there were severe delays on the Metropolitan subway line because of the adverse weather.

Snow also delayed Chancellor of the Exchequer George Osborne’s flight to London from New York, prompting him to postpone a meeting with the heads of the U.K.’s four largest banks, the Treasury said. Osborne and Business Secretary Vince Cable had been due to urge restraint in bonus payouts at the meeting later today with executives from Royal Bank of Scotland Group Plc, Lloyds Banking Group Plc, Barclays Plc and HSBC Holdings Plc.

--With assistance from Nicholas Comfort in Frankfurt, Jennifer Freedman in Geneva, Martijn van der Starre in Amsterdam, Francois De Beaupuy, Fabio Benedetti-Valentini and Phil Serafino in Paris, Karin Matussek in Berlin, Tim Barwell, Grant Smith, Blanche Gatt, Steve Rothwell and Anchalee Worrachate in London,

Robert Fenner in Melbourne, Tracy Withers in Wellington and Robert Hutton in London. Editors: James Kraus, Guy Collins

To contact the reporters on this story: Chris Spillane in London at cspillane3@bloomberg.net; Blanche Gatt in London at bgatt@bloomberg.net

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net

European Stocks Erase Lehman Losses; Copper, Gold, Sugar Advance

Posted: 20 Dec 2010 04:23 AM PST

add to Business Exchange

By Justin Carrigan

Dec. 20 (Bloomberg) -- European stocks rose, erasing losses since Lehman Brothers Holdings Inc.’s collapse, on speculation the economy can withstand the region’s sovereign-debt crisis. U.S. index futures gained while copper, gold and sugar advanced.

The Stoxx Europe 600 Index climbed 0.9 percent to its highest since September 2008 at 7:10 a.m. in New York, while futures on the Standard & Poor’s 500 Index were up 0.3 percent. The euro weakened against all but two of its 16 biggest peers, falling as much as 0.6 percent to a record low against the franc. The German bund yield dropped two basis points to 3.01 percent. South Korea’s Kospi Index lost 0.3 percent, paring an earlier 1.5 percent decline, after the country conducted a live- firing drill without drawing retaliation from its northern neighbor. Copper added 1 percent, gold gained 0.5 percent and raw sugar jumped to a 28-year high.

The Stoxx 600 has rallied 6.5 percent this month, taking its advance this year to 9.9 percent, as reports showed the global recovery is intact even as Ireland got a European Union bailout to shore up its banking system. Data scheduled for release this week may show U.S. gross domestic product grew 2.8 percent in the third quarter, up from a previous estimate of 2.5 percent, according to a survey of analysts.

“The start of 2011 might be quite good as we still have a lot of liquidity driving the market,” said Michael Koehler, head of strategy at Landesbank Baden-Wuerttemberg in Mainz, Germany. “The latest economic data that we got, especially from the U.S., was overall really good and we will definitely not see a double dip. Though the sovereign debt crisis issue is still not solved.”

Highest Since Lehman

The Stoxx 600 advanced to its highest level since September 2008. Volkswagen AG, Europe’s biggest carmaker, rallied 2.2 percent after saying it expects sales in China to grow 10 to 15 percent next year. Abertis Infraestructuras SA gained 1.9 percent following a Sunday Times report that CVC Capital Partners Ltd. may bid for the Spanish highway operator. Banco Popolare SC climbed 6.6 percent, the first gain in eight days, after Goldman Sachs Group Inc. lifted its recommendation on the lender to “neutral” from “sell.” Bank of Ireland tumbled 7.5 percent, the biggest drop on the Stoxx 600.

Airline stocks retreated as snow in Europe disrupted air travel for a third day. British Airways Plc sank 1 percent, while Deutsche Lufthansa AG lost 0.8 percent. U.K. natural gas for same-day delivery rose 8 percent, the largest advance in more than two weeks, to 69.5 pence a therm after National Grid Plc forecast record demand today.

French Bond

The gain in U.S. futures indicated the S&P 500 may extend three weeks of gains. The benchmark gauge closed last week at its highest level since September 2008.

The euro slid 0.5 percent against the yen, weakening to the lowest level in almost two weeks, and dropped 0.2 percent versus the dollar. The New Zealand dollar strengthened against all 16 of its most-actively traded counterparts, advancing 0.8 percent versus the U.S. currency. The franc appreciated 0.2 percent compared with the dollar.

The yield on the French 10-year bond declined two basis points to 3.38 percent. The similar-maturity U.S. Treasury yield fell two basis points to 3.32 percent before the Federal Reserve buys as much as $17 billion of securities maturing between 2014 and 2020 as part of its so-called quantitative-easing program.

Copper climbed $90 to $9,160 a metric ton, near the all- time high of $9,267.50 reached on Dec. 14. Raw sugar rose as much as 3.1 percent to 33.5 cents a pound, the highest price since January 1981. Gold rose $6.62 to $1,382.07 an ounce. Crude for January delivery gained 0.3 percent to $88.25 a barrel on the New York Mercantile Exchange.

Emerging Markets

The MSCI Emerging Markets Index retreated 0.3 percent. China’s Shanghai Composite Index sank 1.4 percent, the biggest decline in almost three weeks, on speculation the government will raise interest rates to curb inflation. Investors are too optimistic given the prospects for tighter monetary policy, Hao Hong, a Beijing-based equity strategist at China International Capital Corp., wrote in a report today. The forint weakened 0.2 percent against the euro before the Hungarian central bank’s interest-rate decision scheduled for 2 p.m. Budapest time.

The cost of insuring South Korean debt jumped the most in almost three weeks, according to CMA prices for credit-default swaps. Contracts insuring $10 million of debt for five years rose $7,000 to $100,000 a year.

--With assistance from David Merritt, Michael Patterson, Daniel Tilles, Claudia Carpenter, Michael Shanahan and Stephen Voss in London. Editors: Justin Carrigan, Mark Gilbert.

To contact the reporter for this story: Justin Carrigan in London at jcarrigan@bloomberg.net

To contact the editor responsible for this story: Justin Carrigan at jcarrigan@bloomberg.net

Yields Flatten QE2 Critics With Curve Showing Fed End

Posted: 20 Dec 2010 04:15 AM PST

add to Business Exchange

By Susanne Walker

(Updates Treasury yields in the 11th paragraph.)

Dec. 20 (Bloomberg) -- Government bonds are falling the most in a year as the gap between yields on longer-term Treasuries show that the Federal Reserve’s second round of quantitative easing may be its last.

The difference between 10- and 30-year yields shrank to 1.05 percentage points, or 105 basis points, on Dec. 15 from a record 1.60 points on Nov. 10, the fastest contraction since the 1980s, according to data compiled by Bloomberg. The shift in the so-called yield curve is taking place as Bank of America Merrill Lynch index data show U.S. bonds due in 10 years or more lost 4.64 percent this month, trimming 2010’s gain to 8.37 percent.

Flattening usually foreshadows the end of Fed interest-rate cuts aimed at stimulating growth. U.S. reports this month showed rising retail sales, higher consumer confidence and a jump in industrial production after the central bank expanded its balance sheet to an unprecedented $2.39 trillion, pumping money into the financial system. It’s adding $600 billion more purchasing Treasuries through so-called quantitative easing to keep the economy from deflating.

“A peak in the yield spread between 10s and 30s signals the end of an easing cycle,” said Steven Wieting, managing director of economic and market analysis at Citigroup Inc. “It’s part of a recovery and improved growth expectations. If the outlook is for a stronger recovery, then QE would be limited and they may not expand beyond it.”

Weaken the Dollar

While Chinese Premier Wen Jiabao and John Boehner, a Republican from Ohio and the next speaker of the House of Representatives, said Fed Chairman Ben S. Bernanke’s policy would weaken the greenback and add to instability, market measures are signaling a strengthening economy with contained inflation.

The Standard & Poor’s 500 Index has climbed 5.37 percent this month, reaching a two-year high. Yields on speculative- grade corporate bonds fell last week to within 5.4 percentage points of Treasuries, the slimmest margin since November 2007. The U.S. Dollar Index has appreciated 2.9 percent since Nov. 12, the day the Fed began buying Treasuries.

Economists at New York-based JPMorgan Chase & Co. raised their growth forecast this month for the first half of 2011 to 3.8 percent from 2.8 percent.

Bill Gross, who oversees the $250 billion Total Return Fund, the world’s biggest bond fund, at Pacific Investment Management Co. in Newport Beach, California, said in October that asset purchases by the Fed probably mean the end of the 30- year rally in bonds. The firm said in a filing with the U.S. Securities and Exchange Commission in Washington last week that the fund may invest in equity-linked securities for the first time since 2003.

Rising Yields

“We expect there can be additional growth in the economy,” said David Glocke, who manages about $171 billion as head of taxable money-market investments at Vanguard Group Inc. in Valley Forge, Pennsylvania. “That’s contributing to the flattening bias.”

Yields on 10-year notes rose one basis point last week to 3.33 percent. The price of the benchmark 2.625 percent note due November 2020 fell 2/32, or 63 cents per $1,000 face amount, to 94 2/32, BGCantor Market Data show. Yields on 30-year bonds increased by the same amount, to 4.44 percent, as the 4.25 percent security due in November 2040 declined 1/8 to 96 27/32.

Ten-year notes yielded 3.31 percent and 30-year yields were 4.42 percent today at 7 a.m. in New York.

Monthly Loss

Treasuries of all maturities have lost an average of 2.02 percent in December, according to Bank of America Merrill Lynch indexes. The last time U.S. government debt fell more than this month was in December 2009, when they tumbled 2.64 percent as reports showed a slowdown in job losses and the Fed said economic conditions had improved “modestly.”

The Fed said last month it will focus about 86 percent of its purchases in notes due in 2.5 years to 10 years, making the so-called long bond the security that most closely reflects market sentiment in the yield curve, which plots Treasuries rates from the shortest to the longest maturities.

Last week, the extra yield investors demand to hold 10-year notes over 2-year debt reached the widest since February after President Barack Obama extended tax cuts that are expected to spur growth and increase deficits. The gap increased for a third week, rising to 272 basis points on Dec. 17 from 268 basis points on Dec. 10, according to Bloomberg data. The spread touched 289 basis points on Dec. 15, the widest since Feb. 23.

The difference between 10- and 30-year yields is still more than double the average of about 29 basis points over the past three decades.

Fed History

In 1992, the spread peaked at 109 basis points in October, a month after Alan Greenspan’s Fed cut the target rate for overnight loans between banks to 3 percent. By the time the central bank began raising borrowing costs in February 1994, the curve had narrowed to about 46 basis points.

Then in 1998 the gap reached about 58 basis points one month before the Fed reduced rates in November for the third time that year. When the central bank started boosting its target in June 1999, it was about 12 basis points. The difference was 97 basis points in March 2004, three months before the Fed tightened monetary policy for the first time since 2000. The curve had completely flattened by the time the Fed stopped in June 2006.

While a flatter yield curve signals shrinking concerns about inflation, the rout in Treasuries may show increasing realization that the improving U.S. economy is raising prices.

Inflation Measures

The Labor Department said Dec. 14 that wholesale costs rose 0.8 percent in November, the most in eight months, led by increases in gasoline, heating oil and fruit. A day later it said consumer prices excluding food and fuel jumped 0.8 percent from a year earlier, matching the biggest increase since September 2004.

“Bernanke has to be confident that for now we are avoiding deflation,” John Brynjolfsson, who oversees about $362 million of assets as chief investment officer at Aliso Viejo, California-based hedge fund Armored Wolf LLC, said in a Dec. 15 interview on Bloomberg Television.

Quantitative easing will last through June as part of a plan to “promote a stronger pace of economic recovery” and keep prices stable “over time,” the Federal Open Market Committee said in a statement Dec. 14.

Consumption Rises

The Commerce Department will say this week the core personal consumption expenditures index, which strips out food and energy costs, rose 0.9 percent in November from a year earlier, according to the median estimate of 23 economists surveyed by Bloomberg. The Fed has said it would prefer that measure of inflation to increase at a 1.6 percent to 2 percent rate.

The difference between yields on 10-year notes and Treasury Inflation Protected Securities widened to 2.36 percentage points on Dec. 16, up from 1.47 percent in August and the most since May 4. The so-called break-even rate is the annual rate of inflation that traders expect over the life of the bonds.

Employers added 39,000 jobs in November, after 172,000 the prior month, Labor Department figures showed even as the jobless rate rose to 9.8 percent, the highest since April.

“The important thing is increased economic growth, decreased risk aversion, that’s all good for the economy,” Jeremy Siegel, a professor of finance at the University of Pennsylvania’s Wharton School, said in a Bloomberg Television interview on Dec. 14. “Interest rates from a historical standpoint are still very low.”

--Editors: Dave Liedtka, Robert Burgess, Dennis Fitzgerald

To contact the reporter on this story: Susanne Walker in New York at swalker33@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net