Tuesday, May 20, 2008

Financial Teasers 20 May 08

Top Stories

U.S. cuts use of imported oil for first time since '70s

The U.S. has seen its dependency on imported oil dip for the first time since 1977. Imports comprised 57.9% of oil consumption in the first three months of the year, down from 58.2% last year. Americans are using less because of high prices and because more ethanol is in use, said Guy Caruso, head of the U.S. Energy Information Administration. Financial Times (19 May.)

Microsoft targets Yahoo's search advertising operation

In its renewed romance of Yahoo, Microsoft has proposed several ideas for a pairing, including a revenue-sharing partnership and Yahoo selling its search advertising operation. Yahoo is under pressure to negotiate some kind of partnership or deal after resisting Microsoft's earlier buyout offer. Yahoo's future might depend on reaching a decision to sell or outsource some of its advertising business, Stifel Nicolaus analyst George Askew said. Microsoft has made it clear that it plans to build its search advertising business one way or another. San Jose Mercury News (Calif.) (19 May.)

Buffett keeps eyes on Europe for takeover targets

Investor Warren Buffett said he's concentrating on Europe, not emerging markets, for companies that his Berkshire Hathaway might be interested in buying. "You want to fish in a pond where the fish are, and Europe is a much better pond," he said. Buffett is on a four-city European tour designed to form relationships that might identify purchase targets for his investment and holding company. Bloomberg (19 May.)

Study: Quantitative fund managers must reassess models

These are tough days for quantitative fund managers. A study by the CFA Institute released last week found that a reliance on similar market factors has made it hard for many quant managers to generate returns. "If your model uses only public information, then everyone else has the same insights," said Michael O'Brien, head of European distribution at Barclays Global Investors. "Quant managers have traditionally taken their insights from the world of academia, but in the future they will have to rely less on this." The study found a need for managers to "update models continuously." FinancialWeek (20 May.)

Big consumer predicts platinum price will keep rising

One of the world's biggest users of platinum foresees a further 15% price increase in the next six months. Metals and chemicals group Johnson Matthey said global platinum output fell 4.1% in 2007, creating a shortage. That is likely to worsen this year as South African mines suffer disruptions because of the country's severe electricity disruptions. Financial Times (19 May.)

Alternative energy projects large and abundant

Forbes.com has identified the biggest and boldest projects that the world has seen so far. They include a geothermal project tapping into the volcanic heat below Indonesia; solar arrays in Australia and California's Mojave Desert; and wind farms in the Texas panhandle and off the coasts of England and Norway. Financial Post (Canada) (16 May.)

Japan expects to come out victorious in credit crisis

While other developed countries cope with the troubling ripples of the credit crisis, domestic and overseas markets should drive a recovery in Japan by the end of this year. Most Japanese financial institutions avoided exposure to subprime loans and dodged the worst of the fallout. Japan will also benefit as the falling dollar forces exporters to diversify their markets away from the U.S. China became Japan's largest export partner last year, and sales to Russia and oil-producing countries in the Middle East are strong. Telegraph (London) (20 May.)

Market Activity

Lack of news lowers Asian markets

Asian stock markets sank Tuesday as investors turned cautious in the absence of market-moving news. Hong Kong led the declines, with the Hang Seng Index down 1.8% after China Mobile reported lower-than-expected growth in telephone subscribers. MarketingWeek (subscription required) (20 May.)

U.K.'s gap in bond yields creates doubt about inflation fight

Investors appeared skeptical of the Bank of England's ability to fight inflation rising at its fastest rate in more than a decade. The gap has widened in recent months between the yields on index-linked U.K. government bonds and conventional bonds. The broader gap shows that bond investors want to pay increasingly higher prices for inflation protection. ClipSyndicate/Bloomberg (20 May.) , Financial Times (19 May.)


In unanimous decision, Bank of Japan holds interest rates

After dropping its growth outlook, the Bank of Japan decided Tuesday to keep interest rates steady. The overnight lending rate in Japan, at 0.5%, is the lowest among the world's major economies. "There are no options for the Bank of Japan other than to adopt a policy status quo," said Yasunari Ueno, chief market economist at Mizuho Securities. "It won't raise rates until around July next year at the earliest. At the same time, we don't expect a cut." ClipSyndicate/Bloomberg (19 May.) , International Herald Tribune/Bloomberg (20 May.)

Aussie dollar peaks on possible interest rate hike

The Australian dollar punched to a 24-year high Tuesday against the U.S. currency when traders priced in expectations of a coming interest rate hike by the Reserve Bank of Australia. Records of the RBA's May meeting showed that central bank policymakers discussed raising a key cash rate to fight inflation that is at a 17-year high. The Sydney Morning Herald (20 May.)

Brazilian president vows to fight rising inflation

Brazilian President Luiz Inacio Lula da Silva said the government will fight accelerating inflation. Economists predicted that consumer prices will jump to 5.12% this year, a central bank survey shows. Brazil's central bank is expected to raise its key interest rate by a half percentage point to 12.25% at its meeting June 3-4. Bloomberg (19 May.)


U.S. change to global accounting standards could jolt

The widely expected U.S. adoption of international financial reporting standards could lead companies to dress up their bottom line. Of about 130 companies reconciling accounts from foreign filers using IFRS in 2006, 63% increased their earnings over GAAP reporting by a median 11.1%, according to a study by accounting analyst Jack Ciesielski. The most frequent differences were in the accounting for pensions, share-based compensation and derivatives, his analysis found. FinancialWeek (19 May.)

Nigeria to reform state oil company into private firm

Nigeria's president said the country's dominant and corrupt state oil company will be turned into an efficient private business once a reform process finishes sometime next year. President Umaru Yar'Adua heads a committee whose proposals on restructuring Nigerian National Petroleum Co. are expected in a couple of weeks. Nigeria is the world's eighth-largest oil producer, and the product is the country's main foreign currency earner. Agence France-Presse (18 May.)

Egypt says no tax is coming to reassure investors

Egyptian officials said they have no plans to impose a capital gains tax, hoping the reassurance will stop a slide in stock markets of more than 10% since the start of last week. The plunge came after President Hosni Mubarak announced new tax measures to raise US$2.6 billion for a 30% pay raise for public employees. Investors said the government failed to communicate its intentions, creating fear that more steps were coming and the sell-off of Egyptian shares. Financial Times (20 May.)

Financial Products

Gold in high demand despite decreased production

At the same time that gold production has dropped to its lowest in five years, demand by investors is booming. Demand for gold exchange-traded funds doubled from the first quarter of 2007, the World Gold Council said. MarketWatch (20 May.)

S&P starts new agribusiness composite index

Standard & Poor's has created a composite index that tracks both global agribusiness companies and farm commodities. S&P's Global Agribusiness Composite Index meshes subindexes based on crops and livestock with its agribusiness equities tracker. The new model will be less volatile, the company said. Structured Products (19 May.)


SEC sues former AOL execs over inflated ad revenue

Eight former AOL executives overstated online advertising revenue by $1 billion, the Securities and Exchange Commission said in a lawsuit against them. The allegedly inflated revenue increased AOL's stock price, allowing it to buy Time Warner in 2000 for $184 billion to form the world's largest media company. The merged company's market capitalization has now fallen to about $56 billion. Four of the executives agreed to settle with the SEC without admitting or denying the allegations and to disgorge a total of $8 million. Forbes (19 May.)

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