Tuesday, July 31, 2007

FBI Searches Sen. Stevens' Alaska Home


By DAN JOLING

ANCHORAGE, Alaska (AP) - Federal agents with cameras searched the home of U.S. Sen. Ted Stevens amid questions about an oil company official's involvement in a 2000 renovation project that doubled the home's size, law enforcement officials said.

Stevens, 83, is under a federal investigation for his connections to Bill Allen, founder of VECO Corp., an Alaska-based oil field services and engineering company that has reaped tens of millions of dollars in federal contracts.

Allen was convicted earlier this year of bribing state lawmakers. He also oversaw the renovation of Stevens' home in the ski resort community of Girdwood, contractors involved in the work say.

Agents from the FBI and Internal Revenue Service started their search at the senator's home Monday afternoon, said Dave Heller, FBI assistant special agent. He said he could not comment on the nature of the investigation.

About 15 agents took photos and video, climbing onto the roof at one point. They later carried out a garbage bag full of unidentifiable materials and loaded it into a van. The curtains were drawn during most of the search.

A law enforcement official familiar with the case confirmed the raid on Stevens' home was focused on records related to the ongoing VECO investigation. The official was not authorized to discuss the matter publicly and spoke only on condition of anonymity.

An e-mail statement issued by Stevens through his Washington, D.C., spokesman said federal agents had alerted his attorneys that they wanted to search his home.

Stevens said the interests of justice would be best served if he commented after the investigation.

"I continue to believe this investigation should proceed to its conclusion without any appearance that I have attempted to influence its outcome," Stevens said. "The legal process should be allowed to proceed so that all the facts can be established and the truth determined."

(AP) A federal agent takes photos at the home of U.S. Sen. Ted Stevens, R-Alaska's home Monday, July 30,...
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Located 40 miles south of Anchorage, Girdwood is nestled in a valley next to Mount Alyeska and has evolved from a gold mining town into Alaska's only year-round resort community.

The Justice Department's probe into Allen's relationships has led to charges against state lawmakers and contractors. Last year, FBI raids on the offices of several Alaska lawmakers included Stevens' son, former Alaska Senate President Ben Stevens.

Neither the U.S. senator nor his son has been charged.

Stevens has served since 1968 and is Alaska's most powerful elected official, responsible for bringing billions in federal dollars to a state that lacks infrastructure, from road money to basic sewer and water systems in remote villages. Anchorage's international airport is named for Stevens, and he has faced only token opposition in recent elections.

Alaska's only U.S. representative, Don Young, also is under federal investigation as part of an on-going corruption probe, a federal law enforcement official told The Associated Press last week, commenting only on condition of anonymity. Part of the Young investigation involves his campaign finance practices, the law enforcement official said.

Consumer Confidence Hits 6-Year High

By ANNE D'INNOCENZIO (AP Business Writer)

NEW YORK (AP) - Consumer confidence hit a six-year high in July, a widely watched gauge of sentiment showed on Tuesday, as Americans shrugged off falling home prices to focus on a healthy jobs market, instead.

The New York-based Conference Board said that its Consumer Confidence Index, rebounded to 112.6, its highest level since August 2001 when it recorded a 114.0 reading. That compared to a revised 105.3 in June. The July 24 cutoff for the preliminary survey of 5,000 U.S. households was before last week's stock market tumble, however.

"An improvement in business conditions and the job market has lifted consumers' spirits in July," said Lynn Franco, director of The Conference Board Consumer Research Center. "Looking ahead, consumers are more upbeat about short-term economic prospects, mainly the result of a decline in the number of pessimists, not an increase in the number of optimists. This rebound in confidence suggests economic activity may gather a little momentum in the coming months."

The Present Situation index, which measures how shoppers feel now about economic conditions, increased to 139.2 from 129.9 in June. That was the highest level since August 2001's 144.5 reading. The Expectations Index, which measures shoppers' outlook for the next six months, rose to 94.8 from 88.8.

Economists closely monitor confidence since consumer spending accounts for two-thirds of all U.S. economic activity.

The report on consumer confidence was encouraging and may help alleviate investor concerns about consumer spending amid a softening housing market that shows no sign of improvement. There have been also worries that high gasoline prices will continue to eat into consumers' ability to spend for other things. While prices at the pump have declined recently, they are still higher than a year ago and are expected to tick up after the Labor Day weekend.

"It is encouraging in light of high energy prices, volatility of the stock market and the weak housing market that consumers didn't flinch," said Mark Vitner, senior economist with Wachovia Securities in Charlotte, N.C. "My general sense is that the economy is finding its footing."

On Tuesday, Standard & Poor's reported that its home prices index fell for a fifth consecutive month in May, marking the gauge's steepest drop in about 16 years.

Last week, the Commerce Department said that sales of single-family homes fell 6.6 percent in June, the fifth decline in the last six months and the largest drop since January. The National Association of Realtors reported last week that sales of existing homes fell by 3.8 percent in June to the slowest level in nearly five years.

Concern about the housing market and jitters about the lending environment led to a stock market tumble late last week, though the market clawed back some territory this week as investors focused on the good news such as strong earnings reports. The Standard & Poor's 500 index gained 2.63, or 0.18 percent, at 1,476.54 in trading Tuesday.

The Commerce Department allayed some inflation fears Tuesday when it reported that year-over-year core personal consumption expenditures increased 1.9 percent. That rate is within the Federal Reserve's comfort zone.

Investors seemed to ignore Tuesday's report from the Commerce Department that personal spending rose 0.1 percent, its slowest pace in nine months.

A healthy outlook for jobs has been helping consumers. The Labor Department is expected to show an increase in 135,000 jobs in July when it reports monthly figures on Friday. The unemployment rate is projected to be steady at 4.5 percent.

In the Conference Board report, consumers were more upbeat about the job market than the prior month. Those saying that jobs are "hard to get" declined to 18.4 percent from 20.5 percent. Those claiming jobs are "plentiful" improved to 30.5 percent from 27.6 percent in June.

The six-month outlook for the labor market continued to be mixed. Consumers expecting more jobs in the months ahead was unchanged at 14.1 percent, while those anticipating fewer jobs decreased to 15.1 percent from 17.0 percent. The proportion of consumers expecting their incomes to increase in the months ahead declined to 18.8 percent from 19.4 percent in June.

Treasurys Gain on Inflation Data


By LESLIE WINES

Treasury prices came off earlier lows Tuesday, keeping yields in a tight range, after the Commerce Department reported benign increases in core consumer inflation and employment costs in June.

The 10-year note was off 2/32, or 63 cents per $1,000 invested, at 97-18/32, while its yield stood at 4.816%. The 30-year long bond was 1/32 lower at 96-26/32 with a yield of 4.957%. The two-year note fell 3/32 at 99-31/32 with a yield of 4.642%. Prices and yields move in opposite directions.

Although the day's economic reports were supportive of Treasurys, a rebound in the stock market put the government-bond market under mild pressure.

Treasury prices opened lower, but losses lightened after the Commerce Department said core consumer inflation increased 0.1% for the fourth consecutive month in June, pushing the yearly gain in core inflation down to the lowest level in three years. Overall inflation also increased 0.1% in June.

Separately, the Labor Department said U.S. employment costs increased 0.9% in the second quarter, in line with expectations.

Both numbers suggest inflation pressures are moderating, a positive development for inflation-sensitive fixed-income assets. In addition, soft inflation trends might eventually help open the door for the Federal Reserve to cut interest rates.

"As recently as February, [core consumer inflation] was up 2.5% year over year, so the speed of the decline has been impressive," said Ian Shepherdson, chief U.S. economist at High Frequency Economics. "Still, the Fed is yet to be convinced it is sustainable."

"With productivity growth slowing -- though not collapsing -- the unit labor cost picture is not quite so good, but there is nothing here to suggest inflationary pressure is building," Mr. Shepherdson said.

In addition, the Chicago purchasing managers reported that business activity in the Chicago region worsened in July. Signs of economic weakness support the fixed-income market.

The group's index dropped to 53.4% in July from 60.2% in June. The number was below economists' expectations. Readings of more than 50% indicate that more companies were expanding than contracting.

In another report pointing to possible economic softness, the Commerce Department said spending on U.S. construction projects fell 0.3% in June to an annual rate of $1.18 trillion, the Commerce Department said Tuesday. The result marked the first drop in construction outlays since January. Separately, the Conference Board reported that consumer confidence reached its most boisterous level since Sept. 11, 2001.

MGIC, Radian Shares Fall on C-BASS Stake (AP)


NEW YORK - Shares of private-mortgage insurer MGIC Investment Corp. and credit risk manager Radian Group Inc. fell in Tuesday a day after the companies said their investments in subprime mortgage investor Credit-Based Asset Servicing and Securitization LLC could be worthless.

Shares of MGIC fell $4.05, or 8.9 percent, to $41.39 in midday trading. Shares reached a 52-week low of $40.53 earlier in the session. Shares had ranged between $43.46 and $70.10 during the past 12 months.

Shares of Radian fell $4.18, or 10.4 percent, to $36.02. Radian hit a 52-week low of $35.64 earlier. Shares had traded between $38.98 and $67.35 during the past year.

C-BASS is jointly owned by MGIC, Radian and the management of C-BASS. Radian is in the process of acquiring MGIC, and the deal is expected to close near the end of the third quarter.

Rising delinquencies and defaults among subprime mortgages - loans given to customers with poor credit histories - pushed banks to make margin calls on credit lines held by C-BASS.

Neither MGIC nor Radian have revealed how much of an impairment they will take related to the investments, but it could be up to 100 percent, less any tax benefit. As of June 30, MGIC had invested approximately $516 million in C-BASS, including a $50 million unsecured credit line. Radian has invested approximately $518 million in C-BASS, including a $50 million unsecured credit line.

Based on its investment in C-BASS, Keene, Brunette & Woods Inc. analyst Geoffrey Dun downgraded MGIC's stock to "Market Perform" from "Outperform" and cut his price target on the shares to $45.

"Given the market conditions, we believe that an assumption of a complete write-off is correct at this point in time," Dun wrote in a research note. In a separate note, Dun said he also expects Radian to take a complete write-off of it's investment in C-BASS. He downgraded Radian to "Market Perform" from "Outperform."

Bear Sterns analyst David Hochstim said he estimates that an impairment charge for a total loss of C-BASS would generate a third-quarter loss of $3.30 per share for MGIC. He had previously estimated that C-BASS would contribute about 20 cents per share to quarterly earnings. He lowered his MGIC rating to "Peer Perform" from "Outperform."

Strong international growth drives GM into profit (Financial Times)


By Bernard Simon in Toronto

Published: July 31 2007 13:11 | Last updated: July 31 2007 13:11

Strong growth in Europe, Asia and Latin America helped General Motors overcome a small loss in its North American operations to post a sizeable second-quarter profit.

The Detroit-based carmaker, which is at risk of losing its crown as the world’s biggest vehicle manufacturer to Toyota, on Tuesday reported net income of $891m, or $1.58 a share, compared with a $3.4bn loss, or $5.98 a share, a year earlier.

The latest figure includes $520m in one-time charges, or 92 cents a share, stemming mainly from contributions to the restructuring of Delphi, the bankrupt parts supplier spun off by GM in 1999, and from charges for the restructuring of GM’s own North American operations, resulting in buyouts and retirement packages for tens of thousands of workers.

Analysts polled by Thomson Financial had projected earnings per share of $1.13.

Rick Wagoner, chief executive, expressed optimism for continued growth in key emerging markets in the second half of 2007, but cautioned that the outlook for the US economy and vehicle market “remains challenging”.

The net loss from continuing operations in North America narrowed to $39m from $3.95bn a year earlier, due mainly to a more profitable vehicle mix and lower structural costs.

“It’s true that our North America team has made huge improvements”, Mr Wagoner said. “But our current earnings clearly demonstrate we’ve got more to do.”

He singled out healthcare costs as a key competitive disadvantage. These costs are a vital issue in talks on new labour contracts between the Detroit carmakers and the United Auto Workers union, which formally began last week. The current contracts expire on September 14.

GM Europe posted its best quarterly performance in 11 years, recovering to a net profit of $217m from a $39m loss in the second quarter of 2006. The improvement was ascribed to favourable pricing and “solid” cost performance.

Earnings in the Asia-Pacific region totalled $227m, compared with $376m a year earlier. More than half of last year’s profit came from the sale of GM’s stake in Isuzu, the Japanese vehicle maker.

The rise in operating profits was driven mainly by China and by GM Daewoo, the carmaker’s South Korean affiliate. Asia-Pacific sales grew by 8 per cent, with GM China setting record volumes in the second quarter.

Earnings in Latin America, Africa and the Middle East reached $213m, the highest in a decade. Sales in Venezuela reached a new record.

GM said that its liquidity position remained strong, with operating cash flow of $1.1bn in the second quarter. Cash reserves rose to $27.2bn on June 30 from $24.7bn three months earlier.

The carmaker is due to receive another $5.6bn in the current quarter from the recently-announced sale of Allison Transmission, a maker of truck transmissions.

J&J Will Cut 4 Percent of Jobs to Save $1.6 Billion


By Lisa Rapaport

July 31 (Bloomberg) -- Johnson & Johnson, the world's largest health-care company, unexpectedly cut about 4 percent of its workforce to save as much as $1.6 billion next year.

The job reductions will result in charges of as much as $750 million in the second half this year, New Brunswick, New Jersey- based J&J said in a statement today. Johnson & Johnson employs 120,500 people worldwide, the company said.

Chief Executive Officer William Weldon's cost savings will help the company weather lost revenue when two of its top-selling drugs, the migraine pill Topamax, with $2 billion in sales last year, and the schizophrenia treatment Risperdal, with $4.2 billion in 2006 revenue, face competition starting in 2008 from cheaper generic copies.

J&J ``has never really given a plan before'' on how it will respond to the patent expirations, Sara Michelmore, an analyst with Cowen & Co. in New York, said in a telephone interview today. ``They have two of their biggest drugs coming off patent in the pharmaceutical division at the same time that they need to invest heavily in research.''

``They also had a major setback recently in developing their next-generation stent,'' Michelmore said. J&J in May stopped selling the Costar II heart stent outside the U.S. and suspended plans to market it inside the country after the device failed to beat a competitor in a trial.

Other Drugmakers

Many drugmakers are cutting costs as the result of generic competition to older medicines that are losing patent protection. Last year Merck & Co. began eliminating 7,000 jobs and closing plants, and in January, Pfizer Inc., the world's largest drugmaker, said it would eliminate 10,000 jobs.

On July 26, London-based AstraZeneca Plc said it would decrease its workforce by 11 percent and Bristol-Myers Squibb Co. said it would announce job cuts by the end of the year.

J&J reaffirmed its earnings forecast of $4.02 to $4.07 a year excluding some items, and said it will maintain its investments in research and development. The company may introduce as many as 10 medicines by 2011.

The company on July 17 lowered its revenue growth forecast for 2007, citing reduced prospects for U.S. sales of Cypher stents and the anemia drug Procrit, both linked to heart attacks in studies. J&J projected 2007 revenue growth of 11.5 to 12 percent, down from 11.5 to 12.5 percent.

Most of the savings will occur in the pharmaceuticals division, ``which faces significant patent expirations over the next few years'' and in the Cordis division, which makes drug- coated heart stents, the company said in its statement. The company plans to eliminate 3 percent to 4 percent of jobs.

Cypher Stent

Sales of the Cypher drug-coated stent, a tiny mesh tube used to prop open arteries after surgery, fell 41 percent to $210 million in the U.S. in the second quarter, the company said on July 17. Sales outside the U.S. dropped 30 percent to $240 million. The Cordis unit makes Cypher stents.

Procrit revenue fell 6 percent to $758 million, spurred by a 15 percent drop in U.S. sales, the company said. Outside the U.S., revenue for the drug grew 9 percent to $309 million. Procrit use slowed after studies showed it may raise the risk of heart attacks, strokes and deaths when given at high doses.

Company spokesman William Price declined in an e-mailed statement to comment on the number of jobs to be cut in the U.S. or outside the U.S. He also declined to comment on how many jobs would be eliminated from specific divisions in the company.

Earlier this month, the company said it will start a $10 billion share buyback to bolster the stock price until new products reach the market.

J&J said in June it planned to introduce medicines over then next four years, including remedies for schizophrenia, cancer, AIDS, blood clots, diabetes and tuberculosis.

Foreclosures soar in Arizona: Financing deals now haunt borrowers, but 'correction' no surprise to experts


Andrew Johnson from The Arizona Republic

The fallout from the country's real-estate slump continues to reverberate in Arizona and across the nation as more homeowners and lenders turn to foreclosure to solve their financial woes.

New data released Monday show that foreclosure-related filings in Arizona jumped during the first half of 2007, compared with the same period a year ago, meaning that an increasing number of residents have been unable to keep up with mortgage payments.

The news, while not unexpected, is the latest indication that the housing market has not yet stabilized.

Last week, Wall Street had its worst week in five years, in part because investors feared that mortgages awarded to borrowers with poor credit would lead to a widespread economic slowdown. The Dow dropped more than 580 points over the course of just a few days.

Experts say it will likely take time before things get better.

"By any calculation, things are going to look bad compared to 2004 and 2005," local economist Elliott Pollack said. "There will be a transition period over the next couple of years as those people who took loans that maybe they shouldn't have taken have to deal with the issue."

Numbers released Monday by Irvine, Calif.-based RealtyTrac show that foreclosure-related filings in Arizona increased by 128 percent in the first half of 2007, over the same period a year ago.

In Maricopa County, for example, there were 19,394 properties in some stage of foreclosure in the first half of the year, up from 7,671 during the year-ago period, the company said.

Nationally, the increase in filings was 55 percent, with other Sun Belt states like California and Florida seeing the biggest jumps.

1 of every 92 households

In total, RealtyTrac has estimated that one of every 92 households in Arizona is in some stage of foreclosure, meaning the situation is likely affecting both speculators and average homeowners.

Data from Glendale-based Information Market are different but reflect the same upward trend.

That firm shows that 2,952 homes were foreclosed on in Maricopa County from January through June, up from 208 during the first half of 2006.

The two firms' numbers are different because RealtyTrac's calculation includes properties in various stages of foreclosures, including those in which the borrower has defaulted but is working to get the loan out of delinquency and those in which the property has been repossessed.

In some instances, that means the same property is counted twice.

By comparison, the data from Information Market reflect only those properties that were actually foreclosed upon.

Regardless of which figure are used, industry analysts say the calculations signal the same growing problem: Foreclosures are on the rise.

"They are at an all-time high, but it's also following a period of very high sales back in 2005," said Tom Ruff, a principal with Information Market. "I just look at it as a market correction, myself."

What it means

Many experts say the increase in foreclosures was not unexpected. During the heyday of the 2004 and 2005 housing boom, people who normally wouldn't have purchased a home were able to do so, thanks to extraordinarily low interest rates and specialty financing deals like adjustable rate and subprime mortgages.

Now, those factors have come back to haunt borrowers. Many are facing higher payments or balloon payments as part of their financing terms, and have been unable to refinance or sell because of the slumping market. The result? Poor credit scores for overextended homeowners and depressed property values in neighborhoods with large pockets of foreclosed homes.

While most experts agree the rising number of foreclosures signals a return to normalcy both locally and nationally, it still can have a very negative impact on neighborhoods.

"If you go into a neighborhood and there's a lot of foreclosed properties, they're empty, you don't know who's going to buy them, they're probably not being maintained at the moment," said Jay Butler, director of realty studies at Arizona State University's Morrison School of Management and Agribusiness.

Verizon profit helped by cellphone subscriptions


By Crayton Harrison Bloomberg News

DALLAS: Verizon Communications, the second-largest U.S. phone company, said profit rose in the second-quarter as the number of cellphone subscribers jumped.

The company said its Verizon Wireless unit, co-owned by Vodafone Group, will pay $757 million to buy Rural Cellular of the United States to lift its subscriber rolls in suburban parts of 15 states after trailing AT&T in new customers last quarter.

Verizon Communications had 62 million wireless subscribers at the end of the second quarter, compared with 54.8 million a year earlier. The deal gives Verizon Wireless 716,000 more clients.

The acquisition will help the company add business in "areas where previously we had little or no presence," the Verizon Wireless chief executive, Lowell McAdam, said Monday.

Verizon has relied on the wireless unit for profit growth as home-phone customers switch to cellphones or voice plans from cable companies. The unit added 1.3 million clients in the second quarter, compared with 1.5 million for AT&T, which began selling the Apple iPhone in June.

"What you're seeing to some degree is a head-to-head battle between Verizon and AT&T," said Bruce Allen, president of Bruce G. Allen Investments in Denver. "They continue to try and maintain customer count, and if they can't maintain it, they're going to look at buying that."

The wireless unit will pay $45 a share for Rural, based in Minnesota, compared with the $31.81 closing stock price Friday. The company has networks in rural and suburban parts of U.S. states like North Dakota, Wisconsin and Alabama. The price offered by Verizon is 41 percent more than Rural's closing stock price on Friday. Verizon shares dropped.

Net income rose 4.5 percent to $1.68 billion, or 58 cents a share, from $1.61 billion, or 55 cents, a year earlier. Sales climbed 6.3 percent to $23.3 billion.

Excluding some items, profit was 58 cents a share, Verizon said.

This is at least the third purchase this year of a U.S. mobile phone service that caters to rural and suburban areas. AT&T, the largest U.S. phone company, last month agreed to buy Dobson Communications for $2.8 billion. In May, Goldman Sachs Group and TPG announced plans to purchase Alltel for $27.5 billion.

Including the assumption of debt, the price for Rural Cellular is $2.67 billion, Verizon Wireless said. The company expects to complete the purchase in the first half of 2008.

Verizon Communications had 26.3 million home phone lines at the end of June, a 10.3 percent drop from a year ago. The phone-line unit's operating profit margin, a measure of the company's efficiency, fell to 9 percent from 9.1 percent in the previous quarter, less than the 9.6 percent forecast of William Power, an analyst at Robert W. Baird & Co. in Dallas.

"Their sales and marketing expense was up" to help lift revenue, said Power, who rates the shares "neutral" and does not own any. "Their view is that the scale advantages of higher revenue will benefit margins over time. The question mark is whether those sales and marketing expenses will stay higher."

Verizon added 203,000 Internet users and 167,000 television subscribers to its new fiber-optic network, topping the estimates of the UBS analyst John Hodulik, who expected 200,000 Internet and 160,000 TV customers.

Monday, July 30, 2007

Sun Microsystems turns a profit


San Francisco - Long-struggling server maker Sun Microsystems may have turned the corner, posting quarterly profits of 329 million dollars or 9 cents a share Monday, compared with a year- earlier net loss of 301 million dollars, or 9 cents a share.

Revenue at the world's third-largest seller of servers rose to 3.84 billion dollars from 3.83 billion dollars.

The robust earnings marked the third consecutive quarter of profit for the company, which had endured a lengthy downturn and five consecutive quarters of losses.

For the full fiscal year, the company reported revenue of 13.87 billion dollars, an increase of 6.2 per cent over fiscal year 2006.

The healthy results reflected the result of a sweeping programme to cut costs at the company, including the firing of 3,700 workers a year ago. Sun said it cut its overall operating expenses by almost 500 million dollars in its fourth quarter, to 1.49 billion dollars.

'With a solid strategy and consistent execution, we delivered on our commitment to achieve at least 4 per cent operating margin in the fourth quarter,' chief executive Jonathan I Schwartz said. 'This milestone marks significant progress toward our longer-term growth plan of at least 10 per cent operating margin for the full fiscal year 2009.' (Deutsche Presse-Agentur)

Verizon Profit Rises; Broadband Growth Shows 35% Decline

Investor's Business Daily delivered by Newstex) --

Verizon Communications' second-quarter results met forecasts, but its shares dipped as broadband subscriber growth disappointed and it announced a deal to buy small wireless firm Rural Cellular. (NASDAQ:RCCC)

Verizon Wireless, jointly owned with U.K.-based Vodafone VOD, agreed to acquire Rural Cellular RCCC for $757 million in cash. That's a 40% premium to Rural Cellular's closing stock price Friday. Verizon (NYSE:VZ) also will assume $1.9 billion in debt.

While wireless consolidation is expected, a sudden dip in broadband subscriber growth among phone companies has surprised Wall Street. Verizon VZ added 288,000 high-speed Internet customers in the three months ended June 30, down 35% from a year earlier.

AT&T's T broadband customer additions fell 15% in the second quarter to 400,000. Comcast CMCSA, the nation's No. 1 cable TV firm, added 330,000 broadband customers -- below analyst estimates but about the same as a year earlier. AT&T (NYSE:SBT) (NYSE:T) and Comcast cited end-of-school-year disconnects as one reason for their broadband results.

With about half of U.S. homes now getting broadband, some observers say growth will be tougher to come by for phone and cable firms. Other analysts caution that one quarter doesn't make a trend.

"Is broadband hitting a wall? It's probably too early to tell on the basis of one quarter," said Bruce Leichtman, president of Leichtman Research Group. "Phone companies may not be pushing quite as hard, with (lower-priced) introductory promotions as they've been."

Global Broadband Slowdown

UBS Research on Monday said while "broadband in the U.S. is seeing more aggressive deceleration" many other countries are in the same boat. It calls slowing broadband a "global phenomenon."

Broadband growth has been crucial for phone companies because it has helped offset the loss of residential phone lines to wireless and cable competition.

Verizon shares fell 1.2% Monday, closing at 41.51.

Verizon sells two broadband products. It added 203,000 customers in the second quarter for its superfast, fiber-optic Internet service, up 18% from 177,000 the previous quarter.

But Verizon added only 85,000 subscribers for slower digital subscriber line Internet service. That DSL number is down from 329,000 a year earlier.

Why the sharp drop? Analysts say some of Verizon's existing DSL customers have been upgrading to its fiber-based service, called FiOS.

Usually those customers buy a package of video, phone and Internet services, says Christopher King, an analyst at Stifel Nicolaus. Last quarter, Verizon added 167,000 TV customers via FiOS, up from 141,000 in the first quarter.

"DSL adds were a little weak, but there are far better economics associated with FiOS than DSL," King said. "They're pricing DSL at $15 to $20 these days."

Verizon's FiOS package of phone, Internet access and TV service costs $95 to $100. It has 515,000 FiOS TV customers and 1.07 million FiOS Internet customers.

The FiOS project is costly. Verizon says it will spend $18 billion on its FiOS network through 2010.

Verizon is aiming for 4 million TV customers and 7 million data customers via FiOS by the end of 2010.

Focus On FiOS

Aside from revenue growth, Verizon's goal is cutting down on customer losses. Verizon had 26.34 million consumer lines as of June 30, down 10.3% from a year earlier. But the loss rate slowed in the second quarter, Dennis Strigl, Verizon's president, said Monday in a conference call with analysts.

"We continue to be focused on improving our line loss," Strigl said. "It comes from the FiOS rollout and (product) bundles."

Verizon said its per-share profit rose 5% to 58 cents from 55 cents.

Boosted by wireless, Verizon's revenue rose 6.3% to $23.3 billion from $21.9 billion a year ago. Wireline revenue fell 1.1% to $12.6 billion,

On average, analysts polled by Thomson Financial expected a profit of 58 cents on sales of $23 billion.

Verizon Wireless added 1.3 million wireless customers in the quarter, less than AT&T's 1.5 million.

Verizon lost about 300,000 wholesale subscribers because Amp'd Mobile, which leased airtime on Verizon's network, shut down.

Verizon will pay $45 per share for Rural Cellular. Its stock closed Friday at 31.81. Rural Cellular has 716,000 customers in 15 states.

Verizon is keeping pace with rival AT&T, which on July 1 said it would buy small wireless firm Dobson Communications (NASDAQ:DCEL) DCEL for $2.8billion in cash. AT&T paid $13 per share for Dobson, a 17% premium. Dobson has 1.7 million customers.

European stocks head up in volatile trade

LONDON, July 30 (Reuters) - European shares reversed losses by early afternoon trade to rise in volatile trade on Monday, tracking an increase in U.S. stock index futures. By 1310 GMT, the FTSEurofirst 300 index of leading European shares was 0.2 percent higher at 1,523.4, recovering from a session low of 1,511.1 but below the day's high of 1,526.8. U.S. stock index futures indicated a strong market open after a sell-off in global equities the past week. In Europe, miners including Antofafasta and BHP Billiton figured among gainers while chemicals bid target ICI rallied 7 percent. Banks were however still the leading negative weight on the FTSEurofirst, as the iTraxx Crossover index, the most widely used indicator of European credit confidence, surged to record levels.

Friday, July 27, 2007

Here's to Healthcare

Jim Cramer (from The Street)

We need a little broader market. We don't have the financials, or else Bank of America (BAC) wouldn't be under $50 and Citigroup (C) sitting at $51.

We don't have the packaged goods companies, or Hershey (HSY) wouldn't be at $50 and Coke (KO) stuck in $52 purgatory. These drug stocks, I mean isn't Pfizer (PFE) just paint peeling? Ever since Glaxo (GSK) got its butt kicked there's been nothing here. Biotech's been a total drag.

Homebuilding, and anything remotely related, has been terrible. Retail's miserable. All of the stuff that needs a Fed ease simply hasn't gotten it.

That is why I was encouraged today by the second-half-of-the-day move up in the Hologics (HOLX) and the UnitedHealths (UNH) and the Cloroxes (CLX) and the Colgates (CP). I'll even take the 50 cents that Kellogg (K) gave us.

You can't make it on oil and machinery and infrastructure plus Apple (AAPL), Research In Motion (RIMM) and Google (GOOG). It's not bad, don't get me wrong. But we want these stocks to lead, and eventually something to follow.

Watch the UNH cohort. That's where I am betting you see some good action. Of course, we need a number that's not too strong or soft tomorrow on payrolls to make it happen. But I bet it's the next place to go.

More from Jim Cramer

Market May Force Fed to Shift From Prices to Growth


By Rich Miller (Bloomberg)

July 27 (Bloomberg) -- The week's turmoil in financial markets casts doubt on the Federal Reserve's forecast of a gradual U.S. economic recovery in the second half, raising the odds it will need to shift its focus to spurring growth from fighting inflation.

The turbulence, as stocks suffered their worst drop in five months while corporate borrowing costs soared, threatens a triple whammy for the economy. It robs investors of spending power, makes business investment more expensive and may prolong the housing recession.

``The risks have shifted to the downside,'' said Louis Crandall, chief economist at Jersey City, New Jersey-based Wrightson ICAP LLC, a unit of ICAP Plc, the world's largest broker for banks and other financial institutions.

Traders are betting that the fallout will force Fed Chairman Ben S. Bernanke and his colleagues to cut rates by the end of the year. Federal fund futures prices on the Chicago Board of Trade suggest traders see a 100 percent chance the Fed will trim its target rate a quarter-point to 5 percent at its December meeting, up from 44 percent odds two days ago.

The shift in market sentiment comes just as new evidence arrives showing the economy regained strength in the second quarter. The question now is whether that can be sustained.

Lowered Forecasts

Nariman Behravesh, chief economist at Global Insight Inc. in Lexington, Massachusetts, said he'll probably lower his forecast for second-half growth. He also sees the Fed shifting rhetoric away from fighting inflation as growth slows.

The government reported today that the economy grew at a 3.4 percent annual pace in the second quarter after expanding 0.6 percent in January to March.

The consensus forecast, inside and outside the Fed, calls for growth to keep up for the rest of the year at a pace of 2.5 percent to 3 percent.

``We have a healthy economy in the U.S., transitioning from an unsustainable level of growth to one that is much more sustainable,'' Treasury Secretary Henry Paulson said in an interview yesterday.

As recently as May, traders were certain of a rate cut by the end of 2007, only to be dissuaded by continued growth in employment and comments by Fed officials that recession isn't likely. Some economists said traders may again be getting ahead of themselves.

``The Fed should be pretty happy with these numbers,'' said David Wyss, chief economist at Standard & Poor's in New York, referring to the second quarter figures for gross domestic product. ``I don't think the Fed does anything this year.''

The trouble-free second half that economists forecast rests on moderate consumer-spending growth, stronger business investment and a diminishing drag from the housing market. Market turbulence poses a risk to all three.

Consumers Suffering

Consumers are already suffering from rising gasoline prices and sagging home values. The average price of regular gasoline shot up to $3 a gallon last quarter, from $2.34 in the previous three months, according to the American Automobile Association.

Home values in 20 U.S. metropolitan areas fell by the most in at least six years, making it harder for homeowners to borrow against their equity to fund purchases.

Auto dealers are bracing for the fallout. Sales last month were the lowest for June since 1997, says Autodata Corp. of Woodcliff Lake, New Jersey.

``There's real stress in this economy beyond just housing,'' Michael Jackson, chief executive officer of Fort Lauderdale, Florida-based AutoNation Inc., the largest U.S. auto retailer, said in an interview yesterday.

Stock Market's Drag

Economists had been counting on rising stock prices to help offset the hit to household wealth from the depressed housing market. That bet is off if stocks continue to decline.

``The stock market may bounce right back, but if it doesn't, you won't have stock prices offsetting the drag from housing,'' said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York.

Companies are also feeling a pinch as borrowing costs rise. The extra yield investors demand to own investment-grade corporate bonds instead of U.S. Treasuries jumped July 25 by the most for a single day in five years, according to index data from Merrill Lynch & Co.

More than 40 companies have reworked or abandoned bond offerings in the past three weeks as investors, stung by losses from subprime mortgages, balked at absorbing more risky debt.

The tougher borrowing environment threatens to curb capital spending at a time when companies are already showing signs of turning more cautious on investment.

Non-defense capital goods orders excluding aircraft, a proxy for future business investment, fell 0.7 percent in June, after decreasing 1.5 percent in May.

Home Sales

Housing looks even worse. Sales of new homes declined 6.6 percent in June while building permits fell to their lowest level in a decade. The slump has left seven homebuilders nursing losses of $1.80 billion.

Angelo Mozilo, chief executive officer for Calabasas, California-based Countrywide Financial Corp., the biggest U.S. mortgage lender, said July 24 he expects ``difficult housing and mortgage market conditions to persist'' through year's end.

As financial turbulence spreads, Treasury securities benefit as investors seek the safety of risk-free debt. Treasury yields yesterday fell the most since 2004.

That should help lower mortgage rates. The benefits to housing though will be limited, Crandall said, because lenders are tightening standards so much that some prospective home buyers can't get credit.

``Housing has a long way to go, the consumer is slowing and capital spending is only growing at a moderate pace,'' said Ethan Harris, chief U.S. economist at Lehman Brothers Holdings Inc. in New York. ``The idea that we're going to get a pickup in the second half is wishful thinking.''

GDP Grew 3.4% in Second Quarter As Core Inflation Readings Eased

By JEFF BATER (Wall Street Journal)

WASHINGTON -- The U.S. economy resurged in the second quarter from its wintertime fizzle as the drag from the housing sector lessened, businesses built inventories, and exports grew.

Gross domestic product rose at a 3.4% annual rate April through June, the Commerce Department reported Friday.

The first estimate for second-quarter GDP showed the economy rebounded from its paltry, downwardly revised 0.6% advance during January through March. Previously, Commerce estimated first-quarter growth at 0.7%.

Inflation gauges were mixed. The government's price index for personal consumption surged 4.3% April through June, after rising 3.5% in the first quarter. But the PCE price gauge excluding food and energy rose just 1.4% April through June, after climbing 2.4% in the first quarter.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 3.9% April through June, after increasing 3.8% in the first quarter. The chain-weighted GDP price index advanced 2.7% April through June, after increasing 4.2% in the first quarter.

The 3.4% pickup in growth exceeded of Wall Street expectations for GDP, which is a measure of all goods and services produced in the economy. The median estimate of 25 economists surveyed by Dow Jones Newswires was a 3.3% increase.

GDP accelerated April through June at its fastest since 4.8% in first-quarter 2006 even though consumer spending slowed sharply. The biggest component of GDP, consumer spending rose 1.3% in the second quarter. It had increased 3.7% during the first quarter. Consumer spending accounts for the lion's share of economic activity -- about 70%. It made a contribution of 0.89 percentage point to GDP in the second quarter.

Second-quarter services spending rose by 2.2%, after increasing 3.1% in the first quarter. Consumer purchases of durable goods rose 1.6% in April through June, after increasing 8.8% in the first quarter. Durable goods are expensive items designed to last at least three years, such as televisions and refrigerators. Second-quarter nondurables spending fell by 0.8%, after increasing 3.0% in the first quarter.

Residential fixed investment, the GDP component that includes spending on housing, dropped, but the decrease of 9.3% was much smaller than previous quarters. First-quarter spending fell by 16%. Fourth-quarter spending dropped 17%. Third-quarter 2006 spending plunged 20%.

The second-quarter decline in housing took a bite of 0.49 percentage point out of GDP, compared to a bite of 0.93 in the first quarter.

Businesses increased inventories by $3.6 billion in the second quarter, after drawing down supply by $100 million in the first quarter and $17.4 billion in the fourth quarter.

The buildup of inventories added 0.15 percentage point to second-quarter GDP. In the first quarter, inventories had robbed GDP of 0.65 percentage point.

Real final sales of domestic product, which is GDP less the change in private inventories, climbed 3.2%, above a 1.3% increase in the first quarter.

International trade added to GDP in the second quarter. U.S. exports climbed by 6.4%, and imports decreased 2.6%. In the first quarter, exports had gone up 1.1% and imports rose 3.9%. Trade added 1.18 percentage points to GDP, after reducing GDP by 0.51 percentage point in the first quarter.

Businesses increased second-quarter spending by 8.1%, after rising 2.1% in the first quarter. Investment in structures surged 22.1%. Equipment and software rose 2.3%.

Federal government spending rose 6.7%. First-quarter spending decreased 6.3%. State and local government outlays increased 2.9%.

U.S. Stocks Rebound After Economy Grows More Than Forecast (Bloomberg)


By Lynn Thomasson

July 27 (Bloomberg) -- U.S. stocks rebounded from the biggest declines since February and bank shares climbed from a 10-month low after a government report showed the economy grew at the fastest pace in more than a year last quarter.

Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co., the largest U.S. banks, advanced. Chevron Corp., the second-biggest U.S. oil company, gained after it said earnings rose as profit margins improved on gasoline and other fuels. Ford Motor Co. advanced on an upgrade by Merrill Lynch & Co. after the second-biggest U.S. automaker reported its first profit in eight quarters.

Stocks gained after the Commerce Department said the U.S. economy grew at a 3.4 percent annual pace in the second quarter, propelled by rising exports, commercial construction and government spending. Signs of strength in the economy helped stocks bounce back from a plunge caused by concern that takeovers will slow as money to pay for them grows scarcer.

The Standard & Poor's 500 Index climbed 2.64, or 0.2 percent, to 1485.3 at 10:17 a.m. in New York. The Dow Jones Industrial Average added 20.89, or 0.2 percent, to 13,494.46. The Nasdaq Composite Index climbed 5.06, or 0.2 percent, to 2604.4.

Chevron rose 32 cents to $87.78 after it said earnings rose 24 percent to $5.38 billion, or $2.52 a share, from $4.35 billion, or $1.97, a year earlier.

Ford added 18 cents to $8.27. The shares were upgraded to ``neutral'' from ``sell'' by analysts at Merrill Lynch & Co. after the company reported its first profit in eight quarters. The analysts said savings from restructuring in North America are progressing faster than they expected.

EU Charges Intel over for competition abuse


Times Online and Agencies in Brussels

The European Union has this morning formally charged Intel with monopoly abuse over a long-running campaign to block rival computer chipmaker Advanced Micro Devices (AMD) from getting access to customers.

In a statement confirming the charges, EU regulators alleged that Intel gave "substantial rebates" to computer makers for buying most of their computer processing units (CPUs) from the US manufacturer.

The regulators also accused Intel of paying computer manufacturers to delay or cancel products that used AMD chips as well as selling certain products below cost price to corner markets.

"These three types of conduct are aimed at excluding AMD, Intel's main rival, from the market," the European Commission said.

"The three types of conduct reinforce each other and are part of a single overall anticompetitive strategy."

Intel, the world's biggest chipmaker, has ten weeks to reply to the preliminary charges and can seek an oral hearing to defend itself, after which regulators may make a decision that would force the company to change its ways under threat of fines.

The EU has been investigating Intel's business behaviour since 2001, looking into complaints from AMD and computer manufacturers that it used its power as a market leader to shut out rivals.

The case has had a chequered history. EU regulators had to shut down one line of inquiry when Taiwan's Via Technologies withdrew its complaint in 2002.

AMD filed another complaint in 2004. A year later, EU regulators raided Intel offices in Britain, German, Spain and Italy.

Last year the EU widened its investigation to include AMD's allegations that Intel had pressured Europe's largest consumer electronics retailer Media Markt not to offer computers that carried AMD chips.

Microprocessors from Intel dominate the global market in desktop computers that run Microsoft's Windows operating system, accounting for 90 per cent in revenue terms.

Separately, the EU said yesterday that is has launched legal proceedings against Suez and Electricite de France, the French energy companies, on suspicion of employing anti-competitive tactics in the French and Belgian electricity markets.

The commission did not provide details of its investigation but said the companies' arrangements might have created "higher prices and lower quality of service for all electricity consumers" in the two countries.

The commission said it is still investigating whether the power companies EU competition laws before deciding whether or not to press charges.

Thursday, July 26, 2007

Oil Rises in New York as U.S. Crude Supplies Drop in Cushing

By Eduard Gismatullin


July 26 (Bloomberg) -- Crude oil rose in New York and traded at a premium to London's Brent benchmark for the first time since February after supplies dropped in the U.S. Midwest.

Crude stockpiles in Cushing, Oklahoma, where New York's West Texas Intermediate benchmark, or WTI, crude is priced, fell by 1.4 million barrels last week, the lowest since February, according to Department of Energy data. U.S. refineries increased runs to 91.7 percent of capacity for the same week, the highest this year.

``The most interesting thing is the fact that WTI for September has got to a premium over Brent,'' said Christopher Bellew, a broker with Bache Financial Ltd. in London. ``A lot of that is normalization of crude stock in Cushing.''

Crude oil for September delivery gained as much as $1.36, or 1.8 percent, to $77.24 in after-hours electronic trading on the New York Mercantile Exchange, a new 11-month high. It was at $76.68 at 1:02 p.m. in London after trading as high as 25 cents over Brent, the blend used to price about two-thirds of the world's oil, around 10 a.m. in London.

Brent crude for September rose as much as 84 cents, or 1.1 percent, to $77.16 a barrel on the ICE Futures exchange. It was at $76.79 in London, regaining its premium to WTI.

U.S. oil stockpiles declined by 1.1 million barrels in the week to July 20, the Energy Department said yesterday. Below- average gasoline stockpiles unexpectedly increased by 793,000 barrels, aided by a resurgence in imports, which rose to a record 1.7 million barrels a day last week.

``We expect the petrol demand to remain high also in August,'' said Thina Saltvedt, an analyst at Nordea Bank AB in Oslo. ``Even though refinery capacity has increased in the last couple of weeks, the U.S. is heavily dependent on imports.''

End of Premium

Brent briefly lost its premium to WTI because of cutbacks in refinery output and changes in the crude making up Brent.

ConocoPhillips has reduced runs at its 227,000-barrel-a-day Wilhelmshaven refinery in Germany after high oil prices made refining uneconomic, the company's chief executive officer, Jim Mulva, said yesterday. In June, he predicted the WTI discount to Brent would close in August.

Hellenic Petroleum SA, Greece's biggest oil company, cut operations at its refinery because the cost of crude exceeded the profit from refined products, Merrill Lynch & Co. said yesterday. Preem Petroleum AB, a Swedish oil refiner, cut production this month at its refinery in Gothenburg to 75 percent of capacity.

A ``short fire'' at Exxon Mobil Corp.'s refinery in Fawley on the southern coast of England had ``minimal'' effect on production, the company said. The refinery supplies 14 percent of the U.K.'s petroleum products.

``There have been difficulties to keep the refinery fleet up and running at a high capacity level, and we will not be surprised if we see another refinery outage soon,'' Saltvedt at Nordea said. ``The shutdown of the U.K. refinery will increase the competition between domestic, U.K. demand and exports.''

Shifts in Brent

The share of Buzzard crude in the North Sea Forties blend rose 3 percent last week to the highest level since the field began production in January. The percentage of Buzzard, a so-called medium-sour crude, increased to 27 percent in the week ended July 22, according BP Plc, the operator of the Forties Pipeline System.

Forties is one of the four North Sea oil grades that determine the price of dated Brent. Changes in the crudes that make up the blend can affect its quality and consequently its price.

Statoil ASA expects to restart the Heidrun North Sea oil field this week after corrosion in a pipeline forced its closure on July 20, the company spokeswoman Mari Dotterud said. Crude from the Heidrun field loads at the Mongstad terminal in Norway. The Heidrun field produces 120,000 barrels of crude a day.

Nigerian Supply

Royal Dutch Shell Plc said today it has no firm date for when it can return to full production in Nigeria. About 195,000 barrels of oil equivalent a day of its production remained shut down at the end of the second quarter.

Nigeria, Africa's biggest oil producer, has lost a quarter of its daily output because of unrest in the Niger River delta. The nation plans to ship 19 cargoes of the benchmark crude oil grades Qua Iboe and Bonny Light in September, four fewer than are scheduled for August.

Shell's venture in Nigeria has restarted a limited amount of production at pumping stations feeding its Nembe Creek pipeline and the Forcados export terminal, Eurwen Thomas, a company spokeswoman, said July 24. The South Bank flow station, linked to Forcados, started pumping in April, she said.

Thomas declined to say how much oil South Bank, which has a 36,000-barrel-a-day capacity, was producing. The Nembe Creek pipeline, shut down in May because of a leak, hasn't reached its 77,000-barrel-a-day capacity, she said.

Iranian Defiance

In the Middle East, Iranian President Mahmoud Ahmadinejad said yesterday the Islamic Republic won't yield to demands to halt its uranium-enrichment program, the official Islamic Republic News Agency reported. The U.S. and its allies should accept Iran's right to pursue nuclear research, he said.

The United Nations has imposed sanctions on Iran in an effort to end its nuclear research. The U.S. and Europe say Iran could use enriched uranium to make a nuclear bomb. Some analysts and traders are concerned they might attack Iran, disrupting oil exports from the world's fourth largest producer.

In U.S. dollars, West Texas Intermediate, the New York-traded crude benchmark, has risen 4 percent in the past 12 months. It has dropped 4 percent in euros, 6 percent in British pounds and risen 7 percent in yen.

China tipped to be main driver the global economy this year

Gabriel Rozenberg, Times Online (UK)

China will become the biggest driver of global economic activity this year for the first time, the International Monetary Fund said yesterday as it raised its already bullish forecasts for growth.

China is the world’s fourth-largest economy, but accounts for only 5 per cent of the global economy on market-exchange rate terms.

However, it is projected to grow by a blistering 11.2 per cent this year, far above the predicted 2 per cent expansion of the US economy. It will make the largest contribution to the world’s growth rate of any country, the IMF said.

The forecast was set out in an update to the IMF’s World Economic Outlook first published in April. The IMF raised its forecast for international growth in both 2007 and 2008 to 5.2 per cent, from 4.9 per cent, and said that more than half of growth was now coming from emerging markets.

China would provide a quarter of the annual growth rate of the world economy, while China, Russia and India together will account for more than half of world growth this year, the report said. Next year China’s growth rate was forecast to fall back, but only to a still very strong 10.5 per cent.

By contrast, US growth was revised down slightly, from an earlier forecast of 2.2 per cent, although the IMF said it expected growth in the world’s largest economy to pick up next year to 2.8 per cent.

The report also tipped Britain’s GDP to expand by 2.9 per cent before slowing to 2.7 per cent next year. Growth in the eurozone was predicted to be 2.6 per cent this year and 2.5 per cent in 2008.

Charles Collyns, deputy director of the IMF’s research department, said: “This year for the very first time, with its very strong growth expected, and with the growth slowdown in the United States, China will be contributing the largest part to the increase in the global growth measured at market exchange rates as well as purchasing parity terms.”

He added: “China seems to be going from strength to strength at this point. It’s hitting on all cylinders.”

The world body gave warning that faster growth meant that supply constraints were developing, heightening the risk of inflation, although price rises remained contained for now.

Central banks were now more likely to tighten monetary policy than in the April outlook.

Mr Collyns said: “There are concerns that inflation pressures may be picking up, and central banks will need to respond quickly and in a for-ward-looking way to these pressures.”

The report outlined a largely benign scenario for the US sub-prime mortgage market, arguing that while defaults and foreclosures had led to increased uncertainty, the risks appeared to be contained and should not pose a wider risk to the world economy.

Jaime Caruana, the IMF’s director of monetary and capital market development, said that the process of adjusting to the higher than expected level of defaults had not yet run its course.

The report said that lending discipline had weakened in the corporate credit market. Credit risk “has begun to translate into higher market risk” for sub-prime mortgages and highly leveraged loans, it said.

However, the report said that markets were avoiding panic by discriminating between loans according to the strength of their underlying fundamentals.

“In sum, risks have increased and credit markets could remain volatile in the period ahead with a further repricing of some credit products,” the IMF said in its financial market update. “However, so far, our assessment is that this risk is likely to remain largely contained.”

Mr Caruana said financial markets are “almost around average volatility”.

11.2% - Economic growth forecast for China this year

In Poker Match Against a Machine, Humans Are Better Bluffers


By JOHN MARKOFF (New York Times)

VANCOUVER, British Columbia, July 25 — For anyone stuck on a casino stool, playing hours of video poker, rest assured: humans can still beat a computer. But computers may soon dominate on the felt-top table, as they have on the chessboard.

In a match of wits between man and machine this week, a software program running on an ordinary laptop computer fought a close match, but lost to two well-known professional human poker players.

The contest, which was billed as the “First Man-Machine Poker Championship” and which offered prize money totaling $50,000, pitted two professionals, Phil Laak and Ali Eslami, against a program written by a team of artificial intelligence researchers from the University of Alberta. They gave it a name that probably no gambler would ever choose as a nickname, Polaris.

Poker is thought to be a more difficult challenge for software designers than games like chess and checkers. Computer scientists have to develop different strategies and algorithms to deal with the uncertainties introduced by the hidden cards held by each player as well as difficult-to-quantify risk-taking behaviors such as bluffing.

In the past, research has focused on chess and checkers. In 1997 Deep Blue, a supercomputer-based chess playing software system developed by I.B.M. researchers, beat Gary Kasparov, the world chess champion. The University of Alberta researchers won the world checkers championship in 1994, and earlier this month they reported that they had developed a program that cannot lose, and at best can be tied at checkers.

However, Jonathan Schaeffer, chairman of the University of Alberta computer science department and the researcher who initiated the poker playing research effort 16 years ago, said that the advances that are being made in the development of poker-playing software are likely to be more applicable in the real world than chess research.

“I contend that poker is harder than chess for computers, and the research results that come out of the work on poker will be much more generally applicable than what came out of the chess research,” he said.

Research interest has shifted to games like poker in recent years, in part because chess is no longer of keen interest and in part because rapid progress is being made in developing new algorithms with broad practical applications in areas such as negotiation and commerce, said Tuomas Sandholm, a Carnegie Mellon University computer scientist.

The version of poker used in the match Monday and Tuesday at the annual meeting of the Association for the Advancement Artificial Intelligence was a popular game called Texas Hold ’Em heads-up limit poker, a two-player game in which some cards are hidden and others are playable by both sides. Each hand is played in four rounds during which each side can bet or fold. After four rounds of 500 hands each, lasting about four hours, the player with the most money is declared the winner.

Unlike chess competitions, which are marked by extreme concentration and long moments of silence, the tournament in a hotel here was festive, with each human competitor offering a running commentary on Polaris’s style of play to an audience of several hundred people.

Mr. Laak, who is nicknamed the Unabomber because of his trademark hooded sweatshirt and sunglasses, would frequently gesticulate wildly at the laptop computer screen and repeatedly referred to the computer’s play as “sick” — his way of describing an unexpected or extraordinary action on the part of the machine. His supporters included Jennifer Tilly, an actress who is also a well-known professional poker player.

The contest had to be formatted to accommodate the computer. To counter the luck of the draw, a dominating factor in poker, the human players were put in separate rooms. The hand dealt to the human in one room was identical to the hand dealt to the computer in the other room.

The format also eliminated one of the crucial aspects of traditional poker called the tell, subtle clues such as facial ticks that may permit other players to make accurate guesses about the hidden cards held by their opponent.

Mr. Eslami and Mr. Laak are both well-known figures in the world of poker and are mathematically skilled and familiar with the techniques used by their opponents. Although Mr. Eslami and Mr. Laak are not the best human players in the world, the scientists argued that their knowledge of computing made them more effective opponents than other top-ranked poker players.

The human team reached a draw in the first round even though their total winnings were slightly less than that of the computer. The match rules specified that small differences were not considered significant because of statistical variation. On Monday night, the second round went heavily to Polaris, leaving the human players visibly demoralized.

“Polaris was beating me like a drum,” Mr. Eslami said after the round.

However, during the third round on Tuesday afternoon, the human team rebounded, when the Polaris team’s shift in strategy backfired. They used a version of the program that was supposed to add a level of adaptability and “learning.”

Unlike computer chess programs, which require immense amounts of computing power to determine every possible future move, the Polaris poker software is largely precomputed, running for weeks before the match to build a series of agents called “bots” that have differing personalities or styles of play, ranging from aggressive to passive.

The Alberta team modeled 10 different bots before the competition and then chose to run a single program in the first two rounds. In the third round, the researchers used a more sophisticated ensemble of programs in which a “coach” program monitored the performance of three bots and then moved them in and out of the lineup like football players.

Mr. Laak and Mr. Eslami won the final round handily, but not before Polaris won a $240 pot with a royal flush than beat Mr. Eslami’s three-of-a-kind. The two men said that Polaris had challenged them far more than their human opponents.

Apple Inc. sets record for 3rd-quarter profit


BEIJING, July 26 (Xinhuanet) -- Sparked by demand for Macintosh computers and iPod media players, Apple Inc.'s third-quarter profit set a record by surging upward more than 73 percent.

"We're thrilled to report the highest June quarter revenue and profit in Apple's history, along with the highest quarterly Mac sales ever," said Steve Jobs, Apple's chief executive. "IPhone is off to a great start -- we hope to sell our one-millionth iPhone by the end of its first full quarter of sales -- and our new product pipeline is very strong."

The company also said Wednesday it sold 270,000 iPhones in the first two days on the market, though the multimedia handset had little impact on the quarter's results because the company plans to account for its sales as subscription revenue over two years.

Apple shares jumped more than 8 percent in extended-session trading Wednesday even as the company issued a conservative outlook that fell short of Wall Street's expectations.

For the quarter ended June 30, Apple's profit rose to 818 million U.S. dollars, or 92 U.S. cents per share, up from 472 million dollars, or 54 cents a share in the year-ago quarter.

Sales grew to 5.41 billion dollars from 4.37 billion dollars last year.

Apple's established products were the money makers. The company said it shipped a record 1.76 million Macs, up 33 percent from the year-ago period, accounting for 2.5 billion dollars, or more than 60 percent of the quarter's revenues. Unit sales of iPods increased by 21 percent from last year to 9.8 million and generated 1.57 billion dollars in revenue.

Festive mood at Chrysler fades fast

BY TOM WALSH (FREE PRESS)

Chrysler and Cerberus Capital Management won't be formally joined until at least next week, but it's already clear that their union won't begin with a relaxing honeymoon.

Can it be only two months since Cerberus Chairman John Snow and Chrysler Chief Executive Officer Tom LaSorda gave us their best Louis Armstrong impressions, warbling about what a wonderful world it will be for Chrysler under the nurturing wing of private ownership?

But look what's happening now:

• Wall Street balked Wednesday at buying a $12-billion debt offering Chrysler was trying to peddle to raise cash, even after delaying the offering a week as Chrysler's banks tried to find takers for the debt.

• Chrysler has banned more than 450 of its dealers from attending factory auctions of used cars because those dealers were falling way short of new-car sales targets set by the company, according to Automotive News.

• And Chrysler has acknowledged sending letters to dozens of poor-performing dealers, threatening to force them out of business. Leo Jerome, a Chrysler Jeep dealer in Lansing, told the Free Press on Wednesday that he has been given six months to improve sales or face losing his franchise.

None of these problems are expected to impede or delay the closing of the deal for Cerberus, the New York private-equity firm, to buy 80.1% of Chrysler from DaimlerChrysler AG, Chrysler officials insist.

But they illustrate how rocky the road ahead remains for the Auburn Hills automaker, no matter how strong the commitment or how deep the pockets of its new owner.

Financial markets have been jittery in recent weeks for a number of reasons, including heavy default rates on subprime mortgage loans, which back some junk bonds and risky corporate loans.

Chrysler's debt is viewed as riskier than that issued to finance most private-equity deals because the company is burning cash in a weak but hotly competitive market for new car and truck sales.

Chrysler lost $680 million in 2006 and nearly $2 billion in the first quarter of this year. The more nervous investors are about a company, the higher interest rates they charge for the debt, and underwriters have reportedly increased the rates for Chrysler's loans by more than 0.5% in recent weeks.

Meanwhile, Chrysler is playing hardball with some of its dealers, just months after LaSorda worked hard to defuse an angry uprising in the wake of last year's huge inventory buildup. Dealers were choking on a glut of cars and trucks factories kept churning out despite weak sales.

"I certainly was not feeling loved by the old regime," said Carl Galeana, owner of Van Dyke Dodge in Warren and Chrysler-Jeep stores in South Carolina and Florida, referring to former Chrysler sales chief Joe Eberhardt, who was forced out after the inventory fiasco.

Galeana said he is meeting his sales targets, so he personally is not being threatened with closure or banned from used-car auctions.

But Jerome, who got a threatening letter for missing his sales targets, said he sells about 50 new Chrysler vehicles a month in a town populated by thousands of current and former General Motors Corp. workers. He said he is angry and worried about the future of Chrysler.

"My question," Jerome said, "is what is Cerberus going to do differently than its predecessors? Knock off a few dealers? ... I don't think that's the problem. In my opinion, they've got other issues to address."

A Chrysler spokesperson said that thinning the dealer ranks, particularly in older, slow-growth markets east of the Mississippi River, was part of the company's turnaround strategy spelled out in February, months before the sale to Cerberus. But Jerome and some industry analysts see the hand of the new owner-in-waiting behind the effort to step up pressure on the weak dealers.

Snow, a former Treasury secretary, has been Cerberus' public face in the Chrysler deal, although Stephen Feinberg is the founder and chief executive officer. Snow consistently has sung a song about Cerberus being a patient long-term investor in Chrysler, with faith in its turnaround plan and management team.

But that doesn't mean hooey to guys such as Jerome, out there trying to move the metal in a very difficult market.

"What does he know," Jerome, asked, speaking of Snow, "about selling cars in Lansing, Mich.?"

Wednesday, July 25, 2007

Boeing lifts 787 R&D spending


By Kevin Done in London (Financial Times)

Boeing is being forced to increase its research and development spending by several hundred million dollars to overcome problems in its 787 Dreamliner development programme and meet its target for first delivery in May next year.

The world’s leading aerospace and defence group said on Wednesday it was continuing to “address and manage pressures with respect to supplier performance, schedule and weight”.

It said the risks inherent in aircraft development programmes “remained” but it still expected to meet its “contractual obligations” for the first delivery to Japan’s All Nippon Airways next May.

The first aircraft rolled off the assembly line earlier this month, and Boeing said on Wednesday that the first flight was now scheduled by the end of September, a few weeks later than forecast.

The group has had to despatch its own engineers to support some key suppliers and has taken back in house some work due to be outsourced.

The assembly effort is also being hampered by a shortage of fasteners as suppliers struggle to raise capacity to keep up with rising deliveries of new aircraft worldwide.

Boeing said its research and development spending would increase this year to $3.7bn from the $3.2bn-$3.4bn previously forecast as a result of the increased spending needed to keep the 787 programme on track. Spending was still expected to fall to between $2.8bn and $3bn next year but this too could rise owing to “certain development programme challenges”.

The 787 still looks set to become the most successful jet launch in the history of the aviation industry and has already booked 683 firm orders from 47 customers.

The US group is focused on meeting the 787 target for first entry into commercial service next summer, given the embarrassing and costly delays of more than two years suffered by Airbus, its European rival, in making the early deliveries of its A380 superjumbo. By contrast with the losses at Airbus and the resulting steep decline in earnings at EADS, the parent company, Boeing on Wednesday reported a further increase in profits for its second quarter and raised its guidance for the full year.

Boeing’s shares rose 3 per cent in early afternoon trading to a record $107.35.

Rising aircraft deliveries and improving productivity are more than compensating for the increased R&D spending for the 787. Boeing net profits in the first six months rose to $1.93bn from $532m a year ago, when the group was hit by heavy $1.07bn second quarter one-off charges.

Jim McNerney, Boeing chairman and chief executive, said demand for new aircraft remained very strong worldwide. The group was considering increases in production rates beyond those already planned. Boeing new aircraft orders could exceed 1,000 for the third year in succession.

Boeing announced a 34 per cent increase in operating earnings for its commercial aircraft operations in the second quarter from $719m to $960m and a 17 per cent rise for the first six months to $1.67bn. The commercial aircraft operating margin in the second quarter rose from 10.1 to 11 per cent.

The rising profitability of the commercial aircraft operations is being driven by higher deliveries, which rose by 13 per cent in the first six months from 195 to 220 and by improved productivity.

The group repeated its previous guidance for commercial aircraft deliveries to rise from 398 last year to between 440 and 445 this year and to between 515 and 520 next year with a further increase in 2009.

As a result of the rising commercial aircraft earnings the group raised its guidance for 2007 with group earnings per share forecast in a range of $4.80 to $4.95 up previous guidance of $4.55 to $4.75. Operating cashflow in 2007 is forecast to be greater than $6bn up from the previous guidance of more than $4bn.

Ahead of the Bell: Apple

NEW YORK - AP

Shares of Apple Inc. inched up in premarket trading Wednesday, mildly rebounding from a selloff fueled by concerns of light iPhone sales.

Some analysts hoped Apple would sell as many as 500,000 iPhones after the gadget's launch late last month. The iPhone's exclusive carrier, AT&T Inc., disclosed in its second-quarter earnings report Tuesday it activated 146,000 subscriptions for the device, which offers Internet access, an MP3 player and a cell phone in a handheld wireless device.

Shortly after that disclosure, shares of Apple, which also makes iPods and Macintosh computers, fell nearly 5 percent to close at $134.89 Tuesday.

The Cupertino, Calif.-based company's stock crawled up $2.96, or 2.2 percent, to $137.85 in premarket trading Wednesday. The shares in premarket trading were still down 4.7 percent since AT&T's report.

RBC Capital Markets analyst Mike Abramsky wrote in a research report the number AT&T reported is only slightly light of expectations. When Apple reports its quarterly results after the closing bell rings Wednesday, Abramsky said, it is still possible iPhone sales could meet expectations.

The 146,000 number may be deceiving for a number of reasons, the analyst said. As many as half of all iPhone buyers had problems activating their subscriptions with AT&T, he said. Also, some people may have bought iPhones for gifts, so they probably will not be activated until the gift is given.

Monday, July 23, 2007

Democrats Lead By $100 Million In Money Race


By MARY JACOBY and BRODY MULLINS

WASHINGTON -- With more than a year to go before the 2008 elections, Democratic candidates have raised $100 million more in campaign contributions than Republicans, putting them on track to win the money race for the White House and Congress for the first time since the government began detailed accounting of campaign fund raising three decades ago.

Democrats have taken the lead by exploiting widespread disapproval of President Bush and the Iraq war to develop a more robust online network of new, small donors, as well as to gain traction with deep-pocketed business contributors.

If their fund-raising advantage continues -- so far, Democrats have been pulling in about 58% of overall donations to federal-office seekers -- they will have more resources for pricey advertising, organization building and voter outreach next November to buttress their edge in the polls. Moreover, Democrats' focus on small donors leaves them room to raise more cash over the next year, since many contributors have yet to hit the legal limit of $2,300 per candidate per election, and could potentially keep giving.

One Democratic presidential candidate, Illinois Sen. Barack Obama, says he has a quarter-million contributors, more than the top three Republican candidates combined -- though Mr. Obama's numbers may be inflated by the fact that his campaign counts as "donors" people who buy T-shirts or other campaign merchandise, something other campaigns don't generally do. Only half of Mr. Obama's donors have hit the giving limit for the primaries; about a quarter have given him less than $200, according to the Center for Responsive Politics, a nonpartisan group that analyzes campaign contributions.

By contrast, about two-thirds of those contributing to the campaign of former New York Mayor Rudy Giuliani have already hit their maximum; just 8% have given less than $200.

Of course, it is still early in the campaign, and big business could well ramp up funding to Republicans, who have been its longtime allies. Moreover, a financial victory doesn't always guarantee electoral victory: Republicans lost control of the House and Senate last year despite outraising Democrats $1.2 billion to $1.1 billion.

In fact, candidate and party fund raising is only part of the political balance sheet. Lightly regulated independent groups with wealthy backers can also shape political contests. During the 2004 campaign, advertising by a group called Swift Boat Veterans for Truth damaged Democrat candidate John Kerry's reputation as a war hero.

Balance Their Appeal

Another open question is how long and how well Democrats can balance their appeal to small donors -- often lower- and middle-income households and liberal activists -- with efforts to reach out to more-affluent and conservative business leaders. An early test may be the growing calls in the party to raise taxes on hedge funds and private-equity firms, an industry that has grown increasingly politically active, and has tended to favor Democrats in contributions.

But for now, the political environment strongly favors Democrats. President Bush's low popularity is energizing the Democratic base and damping morale among Republican voters and donors. That could create a situation in which a growing perception of the Democrats' chances for success next year encourages special interests to give them more money, in hopes of winning influence with those expected to be in power.

"Money flow shifts with agenda control," says Michael Malbin, the executive director of the Campaign Finance Institute, a nonprofit group that tracks political contributions.

So far in the 2008 campaign, Democratic candidates for the White House and Congress, along with the Democratic National Committee and other party committees, have raised a total of $388.8 million, compared with $287.3 million for Republicans, according to reports filed with the Federal Election Commission. The figures include reports filed Friday by the House and Senate party committees for fund raising through June 30.

Should that gap persist through the end of next year, it would be the first time in the 30-year history of the FEC that Democrats outraised Republicans overall in federal elections, says FEC spokesman Bob Biersack.

The disparity is particularly sharp in the presidential race, where the eight Democratic presidential candidates raised $179.3 million through June 30, compared with $118 million for the nine declared Republican candidates. That figure doesn't include former Tennessee Sen. Fred Thompson, who is expected to enter the race around Labor Day, and hasn't yet filed any fund-raising reports.

The Republican money leader, former Massachusetts Gov. Mitt Romney, lags far behind the top two Democrats, New York Sen. Hillary Rodham Clinton and Mr. Obama. Mr. Romney has raised $44 million, including nearly $9 million of his own money, to their $63 million and $59 million, respectively.

The Democratic lead is especially striking because Republicans have long been viewed as closer to affluent donors and corporate sources of campaign cash -- and because 2002 campaign-finance reforms were originally expected to hurt Democrats more than Republicans. Those reforms banned unlimited "soft money" contributions to the parties for political advertising, which sometimes added up to several million dollars. Democrats were relatively more dependent on soft money, which they got mainly from unions and a handful of wealthy liberals, including Hollywood moguls.

Since then, Democrats -- led by Terry McAuliffe, then chairman of the DNC -- have invested heavily in building databases and Internet fund-raising tools to reach out to smaller donors. Mr. McAuliffe has proudly touted his "Demzilla" database, which includes detailed profiles of more than 150 million potential voters and donors and was credited with helping Mr. Kerry come close to matching President Bush in fund raising during the last presidential election.

Internet Activists

Democrats have also benefited because of their comparative strength with Internet activists. While Republican voters tend to gravitate toward traditional media like talk radio, Democratic voters with strong opinions are more likely to go online to read blogs. That, in turn, has led to an explosion in online giving to Democrats, who are building lists of thousands of small-dollar donors for a fraction of the cost of traditional direct mail.

Many Democrats give by clicking links to candidates on the Web site ActBlue, a clearinghouse for small donors. ActBlue has raised $5.6 million for Democratic House, Senate and presidential candidates, according to PoliticalMoneyLine, a Web site that tracks donations. It was the single biggest source of contributions to the party's presidential candidates during the first six months of the year, according to the Center for Responsive Politics. In a report last week, the center said ActBlue donors gave more in aggregate than the total from employees of heavy corporate contributors like Goldman Sachs Group Inc.

Among presidential candidates, Sen. Obama is the online star, raising $17 million, or 29%, of his donations this year over the Web. His campaign has a list of 258,000 donors, about half of whom are eligible to give him more money if they choose. But since many of those his campaign counts as donors were just buyers of campaign paraphernalia, it is difficult to assess the depth of either their commitment or their pockets. The campaign wouldn't say how many people on its list of donors gave money, and how many just purchased something.

Combined, the three leading Democratic presidential candidates -- Mr. Obama, Mrs. Clinton and former North Carolina Sen. John Edwards -- have raised more than $28 million online through June 30.

The top three Republican candidates -- Mr. Giuliani, Mr. Romney, and Arizona Sen. John McCain -- raised $9.4 million online, though that figure doesn't include money Mr. Romney says he raised through a proprietary Web-based software program that lets supporters solicit friends and family for donations.

The Democrats' more-aggressive push for online donations has filtered down to congressional races as well. The Democratic Senatorial Campaign Committee, for example, hired a "director of online communications" in 2005. It wasn't until a few months ago that the National Republican Senatorial Committee hired its first "ePress Secretary" to deal exclusively with conservative online media.

In a memo sent to Republican campaigns earlier this year advising them how to engage bloggers, the NRSC said: "In comparison to the left, the center-right has an underutilized online fundraising apparatus." An NRSC spokeswoman confirmed the authenticity of the memo, which is posted on Politico, a political Web site.

Party committees in the House and Senate won't disclose how much they have raised online.

In addition to online fund raising, Democrats are also gaining among large donors, often with business and regulatory interests that make it important for them to be on the winning side.

Blackstone Group, Carlyle Group and other members of the Private Equity Council trade group gave 69% of their $3.4 million in campaign donations to Democrats last year, up from 51% of $2.7 million in 2000, data from the Center for Responsive Politics show. Separate data for large hedge funds show a similar pattern of giving.

Other sectors are following suit. The securities industry flipped its allegiance to Democrats in 2006, giving more to Democrats than Republicans for the first time in a decade, the Center for Responsive Politics said.

Switching Sides

Some wealthy Republicans also are switching sides, including business executives who want access to the levers of power, or who simply don't mind crossing party lines to support candidates they like. Many say they are disturbed by the steep growth in government spending under President Bush, as well as the perceived erosion of America's standing in the world.

New York venture capitalist and former American Express Co. Chief Executive James D. Robinson III, a lifelong Republican, says he is backing Mrs. Clinton. "She's been very involved in business development and sensitive to our issues," Mr. Robinson says.

Other Republicans supporting the New York Democrat for president include Terrence A. Duffy, executive chairman of CME Group, the Chicago-based commodities market; John Mack, Morgan Stanley Chairman and Chief Executive Officer; and Jeffrey Volk, who heads Citigroup Inc.'s global agency and trust business.

UAW says auto strike "remains a possibility"


DETROIT (Reuters) - The head of the United Auto Workers union on Monday said that a strike against the struggling U.S. auto industry remains a possibility should workers be unable to agree on terms with the three Detroit-based automakers in contract talks starting this week. "A strike remains a possibility," UAW President Ron Gettelfinger said in response to a question from a reporter. Gettelfinger and General Motors Corp. Chief Executive Rick Wagoner shook hands at GM's negotiating headquarters in a staged event Monday morning to mark the formal start of talks which have actually been underway on an informal basis with Detroit's traditional Big Three for weeks.

The UAW's current four-year contract expires September 14. The formally union kicks off talks with Ford Motor Co on Monday afternoon. It began formal talks with Chrysler Group, which is now owned by DaimlerChrysler AG but is being acquired by Cerberus Capital Management, on Friday.

(Reporting by Kevin Krolicki)

Merged XM-Sirius Would Offer 'A La Carte' Pricing

By Corey Boles (Wall Street Journal)

WASHINGTON -- A merged Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc. would offer so-called a la carte pricing options, with packages starting as low as $6.99 a month, the companies said Monday. In a statement, the rivals fleshed out the details of what choices subscribers would have if the federal government allows them to complete their tie-up. Listeners could choose from a package of 50 radio channels for $6.99 a month, compared to the current standard rate of $12.95 a month. They also could opt for a 100-channel package that includes selecting channels from the other service's range for $14.99 a month. A so-called "Family-Friendly" tier, which would enable listeners to block out channels they found offensive, would be offered as well. The companies say this option would cost $1 less a month than the standard $12.95 monthly charge. The companies are trying to win regulators' approval for their merger, announced in February. In order for the deal to proceed, both the Department of Justice's antitrust division and the Federal Communications Commission must approve it. Monday's pledges clearly are aimed at the FCC, whose chairman, Kevin Martin has long been a proponent of both a la carte programming and cleaning up the airwaves. They likely would do little to impact Justice Department lawyers, whose analysis of the deal will be from a purely competition point of view.