Thursday, May 31, 2007

China and India in ‘race to the moon’

By Jo Johnson in New Delhi and Mure Dickie in Beijing (Financial Times)

China and India are both planning to launch moon shots within a year in the latest sign of the two Asian powerhouses’ intensifying rivalry and growing technological prowess.

Although both countries deny they are engaged in a 21st century re-run of the 1960s race to the moon between the cold war superpowers, their haste to launch suggests more than casual interest in the other’s progress.

China said this month that it expected to launch its first unmanned lunar orbiter, the Chang’e-1 (named after China’s mythological “lady in the moon”) before the end of this year, while India this week announced that it could send up a similar space probe as early as April 2008.

The two lunar programmes should be scientifically complementary, with Chinese scientists stressing Chang’e’s goal of improving understanding of the geochemistry of the moon’s surface and India focusing on three-dimensional mapping.

Chinese lunar programme scientist Ouyang Ziyuan told the Financial Times in 2005 that he was excited about the possibility that the moon might be a rich source of helium-3, a potential fuel for nuclear fusion reactors that is scarce on earth.

S. Krishnamurthy, a spokesman for the Indian Space Research Organisation, said on Wednesday that the spin-offs for India’s nuclear programme from potential lunar sources of helium-3 could be “considerable”.

Non-governmental groups have put the Indian space agency on the defensive about the programme, arguing it is hard for a country that is home to a quarter of the world’s poor to justify costly space missions.

Manmohan Singh, India’s prime minister, has defended it, saying the country must deal with the fundamental problems of development and at the same time aspire to operate on the frontiers of science.

“In the increasingly globalised world we live in, a base of scientific and technical knowledge has emerged as a critical determinant of the wealth and status of nations and it is that which drives us to programmes of this type,” he said last year.

Mr Krishnamurthy said the Chandrayaan-1 probe, which will map the moon’s surface for chemicals using a spectrometer and terrain-mapping cameras during a two-year mission, would cost Rs3.9bn ($96.3m), a 10th of ISRO’s annual budget.

Under Beijing’s three-stage plan, the Chang’e orbiter will be followed by a lunar landing and then by a mission to bring back rock and soil samples. India is building a two-legged robot for a possible follow-up mission to the moon’s surface in 2011.

However, the Chang’e programme will have to compete for resources with the high-profile manned space programme and Beijing’s push to develop its military space assets.

Madhavan Nair, chairman of ISRO, said this week that his organisation would submit a report to the Indian government in a year’s time on whether a manned space mission, likely to cost about Rs100bn ($2.4bn), would be needed.

Nasa will provide two scientific instruments for Chandrayaan-1, illustrating the Bush administration’s drive to build a strategic partnership with India, the centrepiece of which is a deal on nuclear co-operation.

Chandrayaan-1, equipped with a US-made water-detecting radar and a moon mineralogy mapper, will be propelled into space by a satellite launcher from the Satish Dhawan Space Centre at Sriharikota, 100km north of Chennai.

Yahoo!'s Top Tech Exec Retires (Forbes)

Staci D. Kramer

Another major departure at Yahoo! and another gap. CTO Farzad Nazem is parting ways with the company effective immediately, according to an SEC filing this afternoon. The filing includes a copy of Nazem’s separation agreement, which spells out that his involvement in the company actually ends today even though his termination date is June 8.

Nazem joined the company in 1996 and became CTO in 1998. As part of the Yahoo! reorganization that led to the departure of COO Dan Rosensweig, Nazem was appointed to head technology, one of the three core units. Sue Decker, then CFO, was put in charge of the advertiser & publisher group while the job at the top of the third group, audience, has yet to be filled. Nazem recently reorganized the technology group; we posted his memo explaining the moves.

Just last week, Nazem exercised options for 84,500 shares of stock at $24.75 and then sold them for $29.75 to $29.79 that day. Some of his remaining options will vest fully June 8 but the right to exercise his options following departure relies on his compliance, including an agreement not to engage in "certain competitive activities" for three years--i.e., no work in any way with Google (nasdaq: GOOG - news - people ) or Microsoft (nasdaq: MSFT - news - people )--and his agreement not to solicit any Yahoo! employees or contractors. (If he's with a company acquired by Google or Microsoft or is consulting in an area that didn't exist at Yahoo! as of June, 8, different story.) He'll get the remainder of his 2007 base pay in lieu of other severance.

--He also agrees not to disparage Yahoo! for five years, and Yahoo! agrees that top execs, including his successor and the directors, will not disparage him.

Update: Nazem says he’s retiring. From his post on Yahoo!'s blog, Yodel Anecdotal: "After spending the last 26 years in this fast-paced technology industry, I've finally decided it's time to slow down. I'll be retiring in early June. ... As I began contemplating retirement, there were a few milestones that I (along with the executive leadership team) wanted to accomplish prior to my departure. We wanted to realign the company and, subsequently, the Technology Group, successfully launch our new search monetization system (a.k.a. Panama) and build a solid technology leadership team to help take this company to the next level. It was very important to me to drive all the way to my last day here at Yahoo! without distractions of an announcement like this. So we chose to make the announcement and my end date as close as possible."

--Jerry Yang will be the "interim executive sponsor of the Technology Group" until a permanent replacement is identified.

S&P 500 Record Close (San Francisco Cronicle)

Kathleen Pender

After more than seven years, the Standard & Poor's 500 index finally pushed through to a new high Wednesday. The stock benchmark, which treaded water most of the day, surged in the last few hours of trading after the Federal Reserve released minutes of its latest rate-setting committee meeting. The minutes raised hopes that the Fed's next interestrate move will be a cut. For the day, the S&P 500 rose 12.12 points, or 0.8 percent, to close at 1530.23, topping its record close of 1527.46 on March 24, 2000. For long-suffering investors, the news was good, but largely symbolic. Unless you invested in the S&P 500 and spent all of your dividends, your results -- as they say in the weight-loss ads -- may differ.

Other indexes hit new highs months or years ago and some are still shadows of their former selves. It all depends on what's in the index and how it's weighted. The S&P 500 tracks 500 large U.S. companies. The index is capitalization-weighted, which means companies with the biggest market values have the greatest influence. Large-cap stocks, which tore up the charts in the late 1990s, have lagged small- and mid-cap stocks during the recovery.

The Dow Jones industrial average tracks 30 of the biggest big-cap stocks, yet it surpassed its 2000 high in October. That's mainly because it's weighted by each company's share price. "If the Dow were market-weighted, it would be nowhere near its high," says S&P index analyst Howard Silverblatt. The Russell 2000, which tracks small-cap stocks, surpassed its 2000 high in 2004 and has been on a tear ever since. The Dow Jones Wilshire 5000, which includes almost every U.S. stock and is also cap-weighted, eclipsed its previous record on Feb. 20 this year.

"Congrats S&P, but we hit a new high (on Wednesday), too. It was the 13th this year," quipped Kim Shepard, a spokeswoman for Wilshire Associates.

On the other hand, the Nasdaq composite index, weighed down by its heavy concentration in tech stocks, is roughly half where it was in March 2000. The nominal returns from these indexes ignore dividends, an important source of returns for larger companies. Including dividends, the S&P 500 actually hit a high last October. If you had invested $10,000 in the Vanguard 500 Index fund on March 24, 2000, and reinvested your dividends and capital gains distributions, you would have roughly $11,200 today, says Dan Wiener, who publishes an independent newsletter for Vanguard investors.

Small caps doing better

If you had invested $10,000 on the same date in the Vanguard Small-Cap Index fund, you would have $16,890. If you had put your 10 grand in the Vanguard Mid-Cap Index fund, you'd be sitting on $20,975. And if you'd had the foresight or good fortune to choose the Vanguard Small-Cap Value Index fund, you would have an astonishing $26,425, Wiener says. Although the S&P 500 is back where it was roughly seven years ago, things today are very different than they were then. In the late 1990s, the market was driven largely by the idea that technology and the Internet would create productivity improvements that would justify permanently higher stock valuations. Most stock price gains were concentrated in the tech and telecommunication sectors.

Although tech and telecom have transformed the economy, those expectations turned out to be a tad rosy. Since March 2000, technology and telecommunications are the only S&P 500 sectors that are still underwater, down 61 percent and 44 percent, respectively. Sectors that were neglected in the late 1990s have done the best since 2000. Energy is up 146 percent, followed by materials (such as copper, aluminum and steel), which are up 82 percent.

Many key factors

What is driving the market today? A combination of things. Although the economy has slowed from its torrid pace, it seems to be growing fast enough to avoid a recession, but not fast enough to ignite inflation. Many foreign economies are growing faster than the United States. That's helping U.S. companies, which are becoming increasingly global. The weak dollar is also making U.S. exports more competitive overseas and leading to currency gains when companies repatriate their overseas profits.

Although corporate earnings growth has fallen from double to single digits, it is still strong by historical standards. Despite the increase in stock prices, earnings growth has been sufficient to prevent stocks from becoming significantly overvalued. The price-earnings ratio for the S&P 500 is about 18 today, compared with 30-plus in March 2000.

One of the biggest factors moving the market of late is simple economics. While the demand for stocks remains strong, the supply of shares is shrinking. Companies are buying back their shares in record numbers and companies are being taken over in private-equity deals that remove their shares from the public markets. "S&P 500 companies have repurchased 7.7 percent of their own shares since the end of 2004 and we have 13 companies in the S&P 500 that have private buyout deals pending," Silverblatt says.

Risks still prevalent

As always, there are plenty of risks facing the market. A collapse in the China stock market could send shock waves worldwide (as it did, briefly, in February). U.S. consumers, burdened with debt and unable to extract more equity from their homes, could go on a savings binge. But many analysts say the pros today outweigh the cons. "People make the mistake of looking at price and saying it's high, but you have to say relative to what," says Stewart Pillette, president of Pillette Investment Management. "There may be hiccups from time to time. But as far as our work is concerned, there is no excessive exuberance," he says.

U.S. Economy Expanded at a 0.6% Annual Rate in First Quarter (Bloomberg)

By Shobhana Chandra

May 31 (Bloomberg) -- The U.S. economy grew last quarter at a 0.6 percent annual rate, the weakest in more than four years, as housing slumped, the trade deficit widened and businesses reduced inventories.

The gain in gross domestic product is the weakest since the last three months of 2002 and compares with a 1.3 percent pace initially estimated last month, according to revised figures from the Commerce Department today in Washington. Last quarter may prove to be the low point for the economy as recent reports showed business spending improved and leaner stockpiles prompted factories to boost production, economists said. Such an outcome would bear out forecasts by Federal Reserve policy makers, who this month reiterated that growth will pickup for the rest of this year and into next.

``We're looking for a gradual firming in growth,'' Michael Feroli, an economist at JPMorgan Chase & Co. in New York, said before the report. ``The inventory situation is a lot more favorable, and the drag from housing will be reduced.'' Today's report is the second of three estimates released by the government for the quarter. The figures will be revised again next month. Economists forecast a 0.8 percent gain for GDP last quarter, according to the median of 78 estimates in a Bloomberg News survey. Forecasts ranged from 0.1 percent to 1.8 percent. The world's largest economy grew at a 2.5 percent annual pace in the fourth quarter.

The Fed's preferred inflation measure, which is tied to consumer spending and strips out food and energy costs, rose at a 2.2 percent annual rate, the same as previously estimated.

Comfort Zone

Fed Chairman Ben S. Bernanke is among policy makers that have said a 1 percent to 2 percent range is preferable. In minutes of the central bank's May 9 meeting released yesterday, Fed officials continued to view inflation as the biggest risk to the economy. Today's revisions reflected a bigger trade deficit and fewer inventories than the government estimated last month. The trade deficit widened to an annual pace of $611.8 billion, subtracting 1 percentage point from GDP, twice as much as previously estimated. Companies reduced stockpiles at a $4.5 billion rate last quarter compared with initial estimates of a $14.8 billion gain at an annual rate. The figures subtracted another percentage point from growth. A jump in consumer spending last quarter was one of the few things that kept the expansion alive. The increase in spending, which accounts for about 70 percent of the economy, was revised up to an annual rate of 4.4 percent, the biggest gain in a year, from an initial estimate of 3.8 percent.

Recipe For Growth

``Stronger growth in domestic final demand combined with a bigger inventory correction is a recipe for faster growth in the second quarter,'' Brian Bethune, an economist at Global Insight Inc. in Lexington, Massachusetts, said before the report. Spending gains may slow as record gasoline prices and falling home values pinch consumers, economists said.

A rebound in business investment is contributing to a more optimistic outlook for the second quarter even as consumer spending moderates, economists said. Orders for durable goods recorded a third straight gain last month, the longest streak in almost two years. ``Second-quarter economic activity is firming up after the soggy debut for the year,'' Lynn Reaser, chief economist of the Investment Strategies Group at Bank of America in Boston, said before the report. ``The industrial sector is again on the mend.'' Housing was less of a drag last quarter than previously projected, subtracting 0.9 percentage point from growth, compared with the initial estimate of 1 percentage point. Home construction fell at an annual rate of 15.4 percent last quarter, after contracting by 19.8 percent in the previous three months.

Builders Pessimistic

``The homebuilding environment remains difficult,'' Richard Dugas, chief executive officer of Pulte Homes Inc., said in a statement this week. Pulte, the third-largest U.S. homebuilder, plans to fire 16 percent of its staff after it reported a first- quarter loss. Rising foreclosures and mortgage defaults by borrowers with poor or limited credit history are adding to concerns the housing recovery may take longer, economists said. In minutes of their May 9 meeting, Fed officials acknowledged they underestimated the length of the housing recession. Still, they said the risks from the fallout of the subprime lending crisis and the previous slump in business investment ``were judged to have diminished slightly.'' Growth will accelerate to an annual pace of 2.2 percent this quarter, based on the median estimate of economists surveyed earlier this month by Bloomberg News.

Growth Forecasts

Some have boosted their forecasts since then. Economists at Morgan Stanley project the economy will expand at a 3.1 percent pace, up from their previous estimate of 2.4 percent. UBS Securities LLC boosted their growth estimate to 2.3 percent from 1.8 percent. Today's GDP report included a first look at corporate profits for the quarter. Earnings adjusted for the value of inventories and depreciation of capital expenditures, known as profits from current production, rose 1.2 percent to an annual rate of $1.67 trillion. For all of last year, profits were up 21 percent. The government also issued updated income figures for the previous two quarters. Personal income was revised up by $31 billion for the fourth quarter of 2006, boosting the gain over the previous quarter to an annual rate of 5.9 percent from 4.7 percent. The increase suggests either payrolls have been undercounted or employees were paid more than previously estimated, economists said.

Wachovia to Buy A.G. Edwards for $6.8B (Reuters)

NEW YORK — Wachovia Corp. (WB), the fourth-largest U.S. bank, Thursday said it will buy A.G. Edwards Inc. for $6.8 billion in cash and stock, creating the second-largest U.S. retail brokerage.

Charlotte, North Carolina-based Wachovia expects to fold A.G. Edwards into its Wachovia Securities brokerage, pushing deeper into metropolitan areas. The combined brokerage would have about 14,784 brokers, ranking behind Merrill Lynch & Co. ; and $1.15 trillion of client assets, ranking third behind Merrill and Citigroup Inc., Wachovia said. It would employ more than 31,000 people, and command a 14 percent market share.

"Long-term growth opportunities of the brokerage industry are extremely compelling to Wachovia," Wachovia Chief Executive Ken Thompson said in a statement. "This combination ... will further enhance our scale and relevance."

A.G. Edwards shareholders will receive 0.9844 of a Wachovia share and $35.80 in cash for each of their shares. The terms value A.G. Edwards at $89.50 per share, a 16 percent premium over their Wednesday closing price. A.G. Edwards shares had already risen 22 percent this year. The transaction comes nearly eight months after Wachovia completed the $24.2 billion purchase of U.S. savings and loan Golden West Financial Corp.

"(We) see significant cost savings as well as opportunities for Wachovia to overlay its broader product set," wrote Lehman Brothers Inc. analyst Jason Goldberg. "The purchase also reduces its mortgage contribution (to overall results)." Wachovia has 8,166 brokers and $773 billion of client assets. A.G. Edwards, founded in 1887, has 6,618 brokers and $374 billion of client assets. The combined brokerage would keep its name and be based in St. Louis, home of A.G. Edwards. Prudential Financial Inc. has a 38 percent stake in Wachovia Securities, and said it supports the merger.

Wachovia Securities Chief Executive Daniel Ludeman will retain his title, while A.G. Edwards Chairman and Chief Executive Robert Bagby will be chairman. Bagby, reached at his St. Louis office, said he could not comment. Wachovia expects $395 million of cost savings, or 10 percent of combined expenses, and to incur $860 million of merger charges over 18 months. It expects the transaction to boost earnings per share excluding items in the first year, and generate a 24 percent internal rate of return. The transaction is expected to close in the fourth quarter, pending shareholder and regulatory approvals. Credit Suisse, Wachovia Securities and the law firm Simpson Thacher & Bartlett LLP represented Wachovia on the transaction, while Goldman Sachs & Co. and the law firm Wachtell, Lipton, Rosen & Katz represented A.G. Edwards. Wachovia shares closed Wednesday at $54.55 on the New York Stock Exchange.

US weekly jobless claims fall 4,000 to 310,000 vs 315,000 expected

WASHINGTON (Thomson Financial) - The number of people filing new claims for unemployment insurance fell by 4,000 last week, continuing a series of reports missing expectations.

The Labor Department said US first-time claims fell to a seasonally adjusted 310,000 in the week ending May 26. Analysts were forecasting 315,000 new claims.

The four-week moving average of first-time claims was up 1,000 to 304,500. Four-week averaging smoothes out fluctuations in the volatile weekly figures.

Continuing claims for the May 19 week were down 52,000 to 2.47 mln, in line with the expected 2.50 mln. The 4-week average for continuing claims was 2.50 mln, its lowest level since February.

Ahead of the Bell: Motorola Edges Up (AP)

NEW YORK — Wall Street responded positively to Motorola's plans to cut another 4,000 jobs, but most analysts see the company's future depending on new products.

The Schaumburg, Ill.-based Motorola late Wednesday announced the job cuts as part of its two-year restructuring program aimed at improving disappointing results stemming from the one-hot Razr phone's loss of popularity. The world's No. 2 cell phone maker posted its first quarterly loss since 2004 this spring in the face of declining prices and increased competition from other companies' models.

The new cuts come on top of the previously announced elimination of 3,500 jobs, and are expected to result in an additional $600 million savings in 2008. Analysts approved of the payroll trimming, and some adjusted their earnings estimates to reflect it, but most said the real proof of a turnaround for Motorola will be new products that capture consumers' attention.

"While the cost control measures initiated by Motorola are steps in the right direction, the company's long-term competitiveness and profitability continues to depend on its ability to roll-out innovative mobile devices," said Brian Modoff of Deutsche Bank. "While the company's recently announced new phones are solid products, they are not game changers and the company may continue to lose share in 2007," wrote Modoff, who kept a "Hold" rating on the stock, but increased his price target to $17 from $15.

Banc of America Securities analyst Tim Long, who has a "Buy" rating and $22 price target on Motorola, likewise said, "We are encouraged by the cost reduction efforts, but look for traction with new handsets to drive higher earnings per share and cash flow." Ehud A. Gelblum of JPMorgan agreed, "Certainly the most attractive way for Motorola to reach its previous benchmark would be through new desirable models sold at higher average sale prices."

The announcement "does not meaningfully improve our expectations for better product," Gelblum said, adding, "we certainly believe Motorola is poised to leverage sales if and when new hit models reach the market." Gelblum has an "Overweight," or "Buy" rating on the shares. In premarket electronic trading, Motorola shares added 9 cents, to $18.37, from their close Wednesday at $18.28.