Dec. 5 (Bloomberg) -- The following are the day's top business stories:
1. Bernanke Says More Fed Easing Possible With Jobless Rate Set to Stay High 2. EU Officials Debate Larger Bailout Fund to Stem Sovereign Crisis Contagion 3. Bond Yields at 4% Draw Janney, Northern Trust as Sales Hop: Credit Markets 4. Euro's Worst to Come as Trichet Fails to Calm Crisis, Top Forecasters Say 5. Bond Market Favoring Obama Over Merkel as Euro Threatens Germany as Haven 6. Fed Avoiding Deflation May Depend on Canadian Experiments in CPI-Targeting 7. Bear Market That Wasn't in 2010 Gores Pessimists as S&P 500 Rebounds 20% 8. Hermes Family Bolsters Defense Against LVMH by Creating Holding Company 9. Copper Stockpiles Falling Most in Six Years Makes Metal a Goldman Favorite 10.Dollar Has `Bottomed,' Set for 90 Yen in 2011 on U.S. Yields: Chart of Day 11.Orient Overseas May Add Asian, Mideast Routes to Serve China, India Trade 12.`Superficial' Fashion Leads Uniqlo Billionaire Astray From Drucker Roots
1. Bernanke Says More Fed Easing Possible With Jobless Rate Set to Stay High
Federal Reserve Chairman Ben S. Bernanke said U.S. unemployment may take five years to fall to a normal level and that Fed purchases of Treasury securities beyond the $600 billion announced last month are possible. "At the rate we´re going, it could be four, five years before we are back to a more normal unemployment rate" of about 5 percent to 6 percent, Bernanke said according to the transcript of an interview to air today on CBS Corp.´s "60 Minutes" program. The purchase of more bonds than planned is "certainly possible," said Bernanke, 56. "It depends on the efficacy of the program" and the outlook for inflation and the economy. Bernanke and other Fed officials have defended the central bank´s announcement that it will purchase $75 billion in Treasury securities a month through June to prop up a recovery so weak that only 39,000 jobs were created in November. The unemployment rate last month rose to 9.8 percent, the highest level since April, the Labor Department said on Dec. 3, three days after the Bernanke interview.
2. EU Officials Debate Larger Bailout Fund to Stem Sovereign Crisis Contagion
European finance ministers travel to Brussels today as Belgium argues that the region´s 750 billion- euro ($1 trillion) bailout fund could be increased to fight contagion from the sovereign crisis. Belgian Finance Minister Didier Reynders told reporters on Dec. 4 that the fund might be expanded if ministers decide to introduce a larger permanent facility when the current temporary one expires, breaking ranks with German Chancellor Angela Merkel and France´s Nicolas Sarkozy. "We need to increase the total amount of money for the permanent mechanism coming into 2013," he said. "If it is possible to organize it earlier, why not?" European officials will meet at 5 p.m. Contagion has spread from Greece and Ireland on concern the rescue fund may not be large enough to support nations including Spain if needed. While Sarkozy and Merkel last month rejected expanding the fund, European Central Bank President Jean-Claude Trichet on Dec. 3 indicated governments should consider such a move. European Union leaders last month agreed on a mechanism to smooth bond restructurings after 2013 when the European Financial Stability Facility will be replaced with the so-called European Stability Mechanism. Investors speculate that debt- strapped nations won´t be able to cut deficits fast enough.
3. Bond Yields at 4% Draw Janney, Northern Trust as Sales Hop: Credit Markets
Investment-grade U.S. corporate bonds are attracting investors after yields rose above 4 percent for the first time since early August in a bet that a struggling labor market will help contain inflation. Yields on debt of borrowers from Bentonville, Arkansas- based retailer Wal-Mart Stores Inc. to computer software maker Oracle Corp. in Redwood City, California, have risen from an average of 3.53 percent, the lowest on record, on Nov. 4 amid signs of an improving economy, according to a Bank of America Merrill Lynch index that tracks more than 4,400 bonds. While gains in manufacturing and retail sales data in recent weeks led to speculation the Federal Reserve may end its program to buy $600 billion of Treasuries early, a report on Dec. 3 showing the economy added fewer jobs than forecast in November quashed that concern. Rising demand caused yields on company bonds to fall relative to government debt in last week´s final three days from the widest since Oct. 21. "The softer economic news actually put a bid in on fixed- income prices," said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which has $50 billion of assets under management. "Bonds love the prospects of weakened economic data."
4. Euro's Worst to Come as Trichet Fails to Calm Crisis, Top Forecasters Say
The most accurate foreign-exchange strategists say the euro´s worst annual performance since 2005 will extend into next year as the region´s sovereign-debt crisis saps economic growth. Standard Chartered Plc, the top overall forecaster in the six quarters ended Sept. 30 based on data compiled by Bloomberg predicted the euro may weaken to less than $1.20 by mid-2011 from $1.3414 last week. Westpac Banking Corp., the second most accurate, is "bearish in the short term," and No. 3 Wells Fargo & Co. cut its outlook at the end of last week. The 16-nation currency´s first weekly gain against the dollar since Nov. 5 may prove short lived amid mounting concern that more nations will need rescues. European Central Bank President Jean-Claude Trichet delayed the end of emergency stimulus measures last week and stepped up government-debt purchases as "acute" market tensions drove yields on Spanish and Italian bonds to the highest levels relative to German bunds since the euro started in 1999. "We´re going to get a continuation of the problems that Ireland, Portugal, Spain and others are suffering," said Callum Henderson, Standard Chartered´s global head of foreign-exchange research in Singapore. "The fundamental issue is these are countries that have relatively large debts, large budget deficits, large current-account deficits, they don´t have their own currency and they can´t cut interest rates. The only way they can get out of this is to have significant recessions."
5. Bond Market Favoring Obama Over Merkel as Euro Threatens Germany as Haven
Germany is being penalized in the global bond market as European leaders fail to show investors they have a plan that will succeed in curing the region´s most- indebted economies. Yields on 10-year bunds are poised to rise above comparable maturity U.S. Treasuries for the first time since June 2009 on concern Germany will assume a greater burden to support the European Monetary Union. The difference narrowed to as little as 7 basis points on Nov. 29, from 90 basis points in April as the 85 billion-euro ($114 billion) aid package for Ireland failed to stem concern that Europe´s debt crisis will broaden. German borrowing costs have risen relative to the U.S. as Prime Minister Angela Merkel pushed to limit spending on bailouts and European Central Bank President Jean-Claude Trichet disappointed investors when he didn´t announce new measures to spur a recovery. In the U.S., President Barack Obama has run consecutive $1.4 trillion budget deficits to boost the economy and prevent the financial and auto industries from collapsing. "The ECB and the policy makers in Europe didn´t learn from the experience of the United States that you have to address these problems aggressively, quickly and effectively, and if you don´t, it´s only going to get worse," said James Kochan, chief fixed-income strategist at Wells Fargo Funds Management, which oversees $175.6 billion of bonds in Menomonee Falls, Wisconsin. Investors have been "frightened out of the euro-currency markets, and they´re buying Treasuries again," he said in a Nov. 30 interview.
6. Fed Avoiding Deflation May Depend on Canadian Experiments in CPI-Targeting
Montreal undergraduates may help reshape the Bank of Canada´s monetary policy and give Federal Reserve Chairman Ben S. Bernanke and Bank of Japan Governor Masaaki Shirakawa clues about how to ward off deflation. About 240 students so far have spent two hours in a 25th- floor computer lab near McGill University, earning an average of C$30 ($29.88) by viewing combinations of economic data, including unemployment and gross domestic product, and then predicting what would happen to inflation. Central bank researchers are taking part in the project to see whether people can make such forecasts more easily if policy makers target specific levels in the consumer price index instead of the inflation rate -- which might help households and companies make better decisions about spending and investing. The more accurate the test subjects are, the more they earn. One did so well, "we tried to track this person to see if we could hire her," said Jean Boivin, 38, a Bank of Canada deputy governor who is helping with the research and has also co-written papers with Bernanke. The experiments will help Canada decide if it should switch from inflation targeting to price-level targeting in 2012 and may help the bank better communicate its policies to the public, Boivin said. The test results also might benefit Fed policy makers, who discussed price-level targets on Oct. 15 and voted Nov. 3 to inject another $600 billion of reserves into the banking system to avoid deflation -- a widespread drop in prices that has plagued Japan for more than a decade.
7. Bear Market That Wasn't in 2010 Gores Pessimists as S&P 500 Rebounds 20%
Investors who heeded warnings about falling home sales, record European budget deficits and the debasement of the U.S. dollar can nurse regrets after the 2010 bear market didn´t happen. The Standard & Poor´s 500 Index has gained 9.8 percent this year and 20 percent since hitting its 2010 low on July 2, defying pessimists from Robert Prechter to Albert Edwards and Nouriel Roubini, who expected an economic slowdown that hurt equities. Bulls, who looked like losers when the benchmark gauge for U.S. stocks fell 16 percent between April and July, were vindicated by the rebound that added $2.6 trillion in value. Expanding factory production, retail sales and earnings that topped forecasts as well as the Federal Reserve´s pledge to buy $600 billion of Treasuries spurred the advance as the economy continued to recover from the worst financial crisis since the Great Depression. U.S. equity mutual funds with at least $1 billion in assets returned a median 7.7 percent in the past five months, according to data compiled by Bloomberg. "You still have an investment culture that´s still too heavily steeped in the most recent experience rather than rationally basing it on the evidence of the day," said James Paulsen, chief investment strategist at Minneapolis-based Wells Capital Management Inc., which manages $342 billion. "We had such a terrible crisis of `08,´´ he said. ``It´s not surprising to me that the first slowdown of the recovery brought back deflation-depression mentalities with vengeance.´´
8. Hermes Family Bolsters Defense Against LVMH by Creating Holding Company
Hermes International SCA´s family shareholders sought to bolster their defense against a possible takeover by LVMH Moet Hennessy Louis Vuitton SA by setting up a holding company for more than 50 percent of the share capital. Hermes family members, who own 73.4 percent of the company, need a mechanism to allow shareholders to sell without LVMH swooping on the stock, said a person familiar with the matter. Family members sold an average 0.5 percent of the share capital annually over the last decade, said the person, who declined to be identified because the talks were private. Hermes, the maker of Kelly handbags that retail for about 7,000 euros ($9,375), has said since October that the family is "fully united" in its desire to retain control of the 173- year-old company after LVMH announced it had acquired a 17.1 percent stake via equity swaps and would consider buying more. The proposed holding company will have first right of refusal on the remaining shares held directly by the family, Hermes said in an e-mailed statement late yesterday. The family "have reaffirmed their unity and their confidence in the solidity of their current control of Hermes." The commitment to create the majority holding is "irrevocable."
9. Copper Stockpiles Falling Most in Six Years Makes Metal a Goldman Favorite
The biggest slump in copper inventories in six years is compounding shortages as prices head toward record highs, making the metal a top pick for Goldman Sachs Group Inc. and Morgan Stanley. Demand will outpace supply by 367,500 metric tons next year, enough for wires, pipes and appliances in about 1.8 million U.S. homes, according to the median forecast of 12 analysts surveyed by Bloomberg. Stockpiles may drop to an all-time low of less than one week´s usage, said Michael Widmer, a London-based metals analyst at Bank of America Merrill Lynch. Global exchange inventories have dropped 22 percent this year, heading for the largest slide since 2004, data compiled by Bloomberg show. Prices advanced 34 percent since June 30 even as the International Monetary Fund predicted slower world growth, U.S. unemployment stuck near its highest level in more than a quarter century and China, which uses two in every five tons of copper, curbed lending and raised interest rates. Now, banks from Credit Suisse Group to Barclays Capital are predicting higher prices, with the median in the Bloomberg survey at a record average of $8,542 a ton for 2011, 15 percent more than this year. "Copper is the most attractive" of the base metals, said Ian Henderson, who manages about $8 billion in assets at JPMorgan Chase & Co. in London, including shares of Freeport- McMoRan Copper & Gold Inc. and BHP Billiton Ltd., the second and third-biggest miners. "I don´t expect any decline in copper demand in 2011 and there is little in the way of new mines coming on stream."
10.Dollar Has `Bottomed,' Set for 90 Yen in 2011 on U.S. Yields: Chart of Day
The dollar has "bottomed" and may strengthen to 90 yen by mid-2011 on prospects the U.S. bond yield advantage over Japan will widen, according to Daiwa Institute of Research Ltd. "Expectations are waning that the Federal Reserve will expand its current plan for quantitative easing," said Yuji Kameoka, a Tokyo-based senior economist at Daiwa. "With inflation here being relatively low, Japan will likely lag behind in exiting its monetary easing policy," which will widen the yield spread, he said. The CHART OF THE DAY tracks the dollar-yen exchange rate and the difference between yields on U.S. and Japanese five-year debt. The spread widened in the past month as U.S. rates rallied while Japanese yields were held down amid expectations of continued deflation and near-zero interest rates at the Bank of Japan. The dollar has strengthened since falling to a 15-year low of 80.22 yen on Nov. 1. Since the Federal Reserve announced on Nov. 3 that it will buy $600 billion of Treasuries, concerns have eased that the central bank will add to the plan, Kameoka said. Yields on short-term bonds have started to rise, following the lead of 10- and 30-year Treasuries, he said.
11.Orient Overseas May Add Asian, Mideast Routes to Serve China, India Trade
Orient Overseas (International) Ltd., Hong Kong´s largest container-shipping line, may add routes and services on Asian and Middle East routes as rising wages spur consumer spending in the region. "Intra-Asia is a bright spot," Stephen Ng, director of corporate planning, said in a Dec. 2 interview in Hong Kong. "It´s the biggest market for this industry and it´s growing faster than any other markets." He didn´t elaborate on specific routes the company is considering. Orient Overseas may boost services and add more vessels after third-quarter volumes on intra-Asia and Australasia routes jumped 21 percent. A.P. Moeller-Maersk A/S, the world´s largest container line, is also set to increase investments in China and India in anticipation of emerging market traffic growth outpacing demand on U.S. and European routes. "Intra-Asia routes are particularly lucrative for shipping lines because they have short turnaround times, which helps cut fuel usage and costs," said Johnson Leung, a shipping analyst at Tufton Oceanic Far East Ltd. in Hong Kong. "Orient Overseas is also managing costs well by using a larger share of its own capacity instead of chartering."
12.`Superficial' Fashion Leads Uniqlo Billionaire Astray From Drucker Roots
Tadashi Yanai, Japan´s richest man, used advice from management guru Peter Drucker to build his Uniqlo clothing empire. To pull out of a slump that´s hammered profits and shares, the billionaire is revisiting the lessons. Yanai, 61, founder and president of Fast Retailing Co., built his estimated $9.2 billion fortune over 26 years, turning his father´s tailor shops into the Uniqlo chain of low-priced, casual wear to become Asia´s biggest clothing retailer. Yanai says his success was inspired by Drucker´s management strategies and the idea of "customer creation" with a product that creates demand. This year, something went wrong with Yanai´s strategy. Fast Retailing´s shares plunged 26 percent to 12,990 yen this year. Sales at stores open more than a year fell 25 percent in September continuing to slide through November, and the company forecast its first profit decline in four years for the fiscal year ending next August. "Fast Retailing lost focus on its core products," said Mikihiko Yamato, an analyst at Japaninvest KK in Tokyo. "The company tilted to fashion items that didn´t sell well."
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