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A decade later, lessons in the Nasdaq collapse (Reuters)

admin — Thu, 11 Mar 2010 02:59:45 +0000

SAN FRANCISCO (Reuters) –
Ten years ago today, before the
burst, the
hit a record 5,132.52 points — a peak that the technology-heavy market shows no sign of scaling again any time soon.
start-ups with not a scrap of revenue — sales and profits, or at least the prospect of profits, matter.
Today, the Nasdaq index (.IXIC) rests at less than half its peak, and many of the biggest names from 2000 — IBM (
.N),
.N) and
.O) — are trading more like traditional stocks, based on their fundamentals.
, the companies of the future, has become trickier, investors say.
“Tech stocks were once viewed as unique and different, an industry that would grow rapidly and support extraordinarily high valuations,” said Ken Allen, portfolio manager at
T. Rowe Price
. “We learned a lot about the flaws in that logic. Tech stocks by and large are pretty comparable to other stocks.”
Shares of select tech names have thrived over the past decade. These include companies such as
.O),
Amazon.com
.O) and
RIM.TO
), which have products that defined their category.
.O) and
Salesforce.com
.N), which went public in 2004, have seen their shares more than quadruple.
But many of technology's leading lights have never come close to regaining their past glory. Shares of Cisco Systems Inc (
.O),
.O) and
.O) are down more than 50 percent from that time.
Price-to-earnings multiples have compressed over the past decade as tech investing has become more “rational,” said Jeffrey Lin, an analyst at
TCW Group.
Microsoft's trailing price-to-earnings ratio topped 70 times in early 2000, and today it is roughly 16 times. IBM's P/E ratio was more than 30 times in 2000, but now sits at 13.
“I feel good about tech stocks this decade because we don't have this big valuation headwind like we did 10 years ago,” Lin said. But he estimated the
will take another seven to eight years before it can surpass the March 2000 peak.
In the late 1990s, investors bought shares at sky-high valuations and paid for growth they assumed would materialize.
(.
) was meteoric and, in retrospect, absurd. The index surged from 3,000 to above 5,000 in four months.
The January 2000 Super Bowl football championship was probably the clearest sign of an impending crash, with the broadcast overrun by dot-com commercials. Firms from the now infamous pet supply retailer
pets.com
LifeMinders.com
forked over more than $2 million each to buy 30-second TV ads.
Barry Eggers, a founder of venture capital firm Lightspeed Venture Partners — an investor in companies such as
.O) and
.O), and more recently social gaming firm Playdom, said he remembers getting nervous as he saw the “froth” in the market.
Companies and their VC backers had been under tremendous pressure to go public quickly, he said.
“Those were the days when it was a lot easier to go public, and if you didn't get public or get acquired for a large number, it was a very unsuccessful outcome,” Eggers said.
Today it takes roughly seven to eight years for an initial investment in a company to make a return, he said, but in the tech boom, it took only three to four years.
.” Now he said, “We've learned to be more patient.”
Venture capital firms were hit hard when the bubble burst, and more recently when the financial crisis and recession struck. In 2009, VC fundraising fell 47 percent to $15.2 billion, the lowest level since 2003, according to data from Thomson Reuters and the
.
Tech investors as a whole have learned to be more patient as industry growth rates normalized. But divining the latest hot trend — whether it be social networks, social gaming or mobile Internet — is more challenging than ever.
),” said Broadpoint Amtech analyst Brian Marshall.
He recommends that investors find “idiosyncratic, secular growth stories,” such as Apple,
.N) and
.O), as new technologies like smartphones and virtualization disrupt older ones like PCs and servers.
“You want to play the themes that have the most robust outlooks, and then you identify the leaders that have the best opportunity to grow,” he said.
in 2009 and 2010 will mirror that of 2003 to 2004 when the market emerged from the dot-com crash, and thinks money will soon head for
over value.
He said the Nasdaq could make it all the way back to the March 2000 heights in five to 10 years.
“I hope,” he added.
(Reporting by Gabriel Madway, editing by Tiffany Wu and Robert MacMillan)

us.rd.yahoo.com

Political pressure on CDS instruments rises

admin — Thu, 11 Mar 2010 02:29:00 +0000

Tue, Mar 9 2010, 17:31 GMT
You can almost see the headlines coming now. European politicians are crying foul over rogue derivative bets that helped derail the Greek fiscal wagon. But while the picture is there for all to see, even the German financial regulator BaFin says that there is a lack of evidence of how investors built positions using credit default swaps. The furor is likely to get louder following German Chancellor Merkel’s appeal to President Obama to “act now” to prevent further pressure, or worse still a redux but this time with Portugal running the risk of being forced off the track.
– On the anniversary of the weakest point in the bear market for stocks, investors across the Eurozone pared their appetite for equities following a couple of less upbeat earnings reports. Germany’s Angela Merkel voiced fierce concerns at a Luxembourg press conference with local Prime Minister Jean-Claude Juncker, asking for the swift implementation of measures aimed at tackling the undesirable elements of credit default swap trading. The CDS trades insure bond investors against the default of a bond issue, but there are no rules preventing investors from taking on insurance without an underlying position.
It’s widely expected that Greek Prime Minister George Papandreou will address this issue with President Obama at a visit this week. Conceivably it would be possible for market villains to build a stack of positions that would benefit if a country or company defaulted. The crux of the matter, however, is whether the demand for insurance played out by rising insurance premiums, causes or accelerates default in its own right. According to BaFin, the German financial regulator, there are no signs of a build up of new positions that might have caused a run on Greece.
The urgency to implement such restrictions was put in the spotlight earlier following fears over a Fitch downgrading to debt issued by Portugal. Although its bond prices and yields were unchanged on the day, they did miss out on a sharp Eurozone bond rally, which saw core German bund yields slip from 3.18% to 3.12%. Weakness in stock indices and the shift of emphasis from Greece to Portugal helped spur a bond rally.
Portugal has already announced plans to award sub-inflation pay increases to civil servants, has delayed major infrastructure spending plans and has plans to sell €6 billion in state-owned assets as it tried to trim its budget deficit. And while the situation is less tenuous than that of Greece, investors helped widen the premium over German bunds today by six basis points to 94 basis points.
–Words from the market chief at the New York Fed have soothed money traders’ fears that the Fed might lighten up on some of the debt it has purchased as part of its asset buying spree. The official picked up on previously announced measures by Fed Chairman Bernanke who indicated that at some point the Fed would seek to reduce its balance sheet. But the words today provided further groundwork on the timing and indicated that the recovery needs be “more firmly established” before the Fed would start to incrementally sell previously purchased securities. To do so in one big jolt would send yields at longer maturities sharply higher. Eurodollar prices are displaying enthusiasm over this communication with yields down by four basis points along the strip. June treasury note futures are paring earlier gains but are higher by four ticks at 117-01 where the 10-year yield is at 3.69%.
– The rally in Canadian government bonds is petering out with yields only lower by a basis point at 3.48% as June bonds rise just five ticks to read 118.18.
– Gilt prices rose pretty sharply after a well received auction of government bonds. Yields fell at the 10-year to 4.03% spurred on by comments from a Fitch Ratings spokesman who argued that the “pedestrian pace” of spending and revenue adjustments might put the nation’s credit rating at risk. However, dealers interpreted the words as meaning that the Bank of England might need to step in to buy more government paper and depress yields artificially. Short sterling prices at further maturities rose by seven basis points. Investors were also discouraged by a reading of 17 in the balance of home surveyors reporting higher rather than lower U.K. home prices. That’s the second droopy piece of housing market evidence this week – and it’s only Tuesday.
–Bill prices at short maturities slipped in response to a rather bullish reading of job advertisements from ANZ. The 19% jump in vacancies printed in newspapers and listed online was the strongest pace of increase in the 11-year history of the index. Still, 10-year bond prices rose enabling a two basis point decline in yields to 5.53% as the curve flattened. Speculation is still swirling that the March meeting of the RBA will deliver a quarter point rise to 4.25%.
– A successful auction of 30-year maturities totaling around $6.6 billion at the highest coupon rate since August last year helped provide a positive tone to bonds on Tuesday. Yields fell to a five-week low ahead of Wednesday’s Bank of Japan report on consumer prices. In line data would leave the annualized pace of decline at 1.5%.

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Toyota unit Daihatsu recalls over 274,000 vehicles

admin — Wed, 10 Mar 2010 21:58:12 +0000

Thomson Reuters is the world’s largest international multimedia news agency, providing investing news, world news, business news, technology news, headline news, small business news, news alerts, personal finance, stock market, and mutual funds information available on Reuters.com, video, mobile, and interactive television platforms. Thomson Reuters journalists are subject to an
which requires fair presentation and disclosure of relevant interests.
NYSE and AMEX quotes delayed by at least 20 minutes. Nasdaq delayed by at least 15 minutes. For a complete list of exchanges and delays,
.

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US Budget Deficit comes in as expected

admin — Wed, 10 Mar 2010 21:54:59 +0000

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Asian stocks lower amid spike in China inflation (AP)

admin — Wed, 10 Mar 2010 19:10:55 +0000

’s weaker growth tempered confidence in the regional economic rebound.
Most markets were modestly higher in the first two hours of trading but reversed course as the latest figures raised doubts about the outlook for major economies.
fell below $82 a barrel amid signs of tepid U.S. crude demand and the dollar lost ground against the yen while rising slightly versus the euro.
China’s inflation rate jumped to 2.7 percent in February over a year earlier from 1.5 percent in January, adding to pressure on Beijing to prevent overheating without derailing recovery.
Japan, meanwhile, cut its reading of fourth quarter growth to an annualized 3.8 percent from the initial estimate of 4.6 percent. That underscored the patchy recovery in the world’s No. 2 economy.
In Australia too, there was a break in the recent slew of positive economic news. The
edged up slightly to 5.3 percent in February, the first rise since peaking at 5.8 percent last October.
stock average was up 88.91 points, or 0.9 percent, to 10,653.70 while
lost 74.07, or 0.4 percent, to 21,134.22.
South Korea’s Kospi was off 0.2 percent at 1,659.35 and China’s Shanghai benchmark slipped 0.1 percent to 3,047.92.
Elsewhere, Australia’s index fell 0.1 percent and Singapore’s market also shed 0.1 percent. India’s Sensex added 0.1 percent.
Oil prices were lower in Asia. Benchmark crude for April delivery was down 51 cents to $81.58 a barrel in
. The contract rose 60 cents to settle at $82.09 on Wednesday.
In currencies, the dollar fell to 90.37 yen from 90.49 yen. The euro fell to $1.3646 from $1.3654.

us.rd.yahoo.com

EADS sees no financial hit from U.S. tanker loss

admin — Wed, 10 Mar 2010 18:06:02 +0000

EADS sees no financial hit from U.S. tanker loss
(Reuters) – The apparent loss this week of a U.S. in-flight refueling tanker contract worth up to $50 billion will not affect EADS’s (
EAD.PA
) finances, the European aerospace group’s chief executive said on Thursday.
On Monday EADS’s U.S. partner Northrop Grumman (
NOC.N
) dropped out of the competition to supply the U.S. military with in-flight refueling tanker aircraft, leaving U.S. rival Boeing (
BA.N
) as the sole bidder.
“We can’t say this would have an immediate financial impact for us. It is roughly 15 planes a year and we produce 500 annually, so this is not something that will disrupt the balance at EADS,” Louis Gallois told French radio RTL in an interview.
“But the deal would have seen us set up an assembly line in the United States and become a U.S. plane maker. This won’t be possible now,” Gallois added.
Northrop and EADS had won the competition in February 2008 but the Pentagon canceled the deal after government auditors upheld a Boeing protest.
With Northrop’s decision to pull out of the race, the tanker deal is within Boeing’s reach nearly nine years after the U.S. Air Force first mapped out a sole-source deal with Boeing that was later killed by Congress after a huge procurement scandal.
“The consequence of this is that the U.S. taxpayer will probably pay more because there is no competition and the U.S. Air Force will have less efficient, less modern material,” Gallois said.
Gallois ruled out the possibility of EADS coming back into the race with a solo bid before the bidding deadline on May 10.
“If we wanted to stay we would need to find another U.S. partner because we need one … Can you imagine finding a new partner and putting a bid together in 60 days,” he said, adding though that the United States may decide to extend the bidding deadline following a protest from the French government.
French Prime Minister Francois Fillon has accused Washington of breaching international trade rules.
President Nicolas Sarkozy is also due to discuss the situation with Barack Obama during a trip to Washington at the end of the month.

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Today’s Live Show: Bear Market Anniversary Review of the USD, EUR & GBP

admin — Wed, 10 Mar 2010 12:59:17 +0000

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US wholesale inventories fall 0.2% in Jan

admin — Wed, 10 Mar 2010 12:18:33 +0000

US wholesale inventories fall 0.2% in Jan
Thu, Mar 11 2010, 06:00 GMT
Equities are modestly fi rmer,
currencies little changed, and commodities are lower. US wholesale inventories fell, but the equity market focused more on the detail which said companies’ sales rose. The S&P500 is up 0.4%, just shy of its one year high (set in Jan) and banks are 2.1% higher. The CRB commodities index is down 0.4% (oil a notable exception at +0.1%), copper -1.4%, and gold -1.3%. US treasuries are 2-3bp higher in yield, but were even weaker prior to the 10yr auction which was well bid by all measures.
The US dollar is little changed since the previous NY close at around 80.50, but did spike to 80.85 early Europe, and dip to 80.30 in NY. The spike was likely a
feature, it falling from 1.3600 to 1.3545 on a weaker German current account, but gaining after that to 1.3680. UK IP was also weak, and
fell from 1.4980 to 1.4873 before recovering to 1.4990.
climbed throughout the evening sessions, from 90.00 to 90.80.
ground slightly higher from 0.9140 to 0.9193 (last seen on 20 Jan), falling in NY to 0.9127.
outperformed the majors and rose to 0.7098, pulling back to 0.7050 in NY. AUD/NZD moved lower to 1.2930, as cross-holders bailed ahead of the RBNZ.
US wholesale inventories fall 0.2% in Jan
. This followed a revised 1.0% fall in Dec, and suggests recent inventory rebuilding momentum (it was a big driver of Q4 GDP growth) may be waning, despite low inventory to sale ratios.
Japanese machinery orders fell 3.7% in Jan.
That is a respectable follow up to the 20.1% gain in Dec. Equipment spending is fi nding a base globally, as the investment share of activity recovers from historically low levels. Orders from manufacturers rose 3.3% while orders non-manufacturing fi rms fell 12.9%, consistent with the gulf between the PMI readings recording by the two sectors globally.
UK industrial production fell 0.4% in Jan
, much weaker than expected though consistent with yesterday’s news that exports fell sharply in January. Weather may have had a negative impact. This continues the run of weak Jan offi cial data stretching across the labour market, retailing, factories and the external sector, which adds to risk that Q1 GDP fails to grow.
: Key event risks today are Australian employment, and the RBNZ’s MPS. AUD’s uptrend since Feb remains intact, but today’s pair of event risks will set AUD direction for the day given the market’s focus on the AUD/NZD cross at present. Minor resistance is at 0.9190, but should that break, there’s nothing until 0.9330; minor support is at 0.9120. NZD needs to sustain a break above 0.7080 to escape its sideways range since Feb.

fxstreet.com

Geithner urges reform on housing finance market

admin — Wed, 10 Mar 2010 12:03:53 +0000

(Reuters) – Treasury Secretary Timothy Geithner said on Wednesday that “fundamental reform” of the government’s role in the housing finance market is needed and it will be next year before proposals are ready for Congress.
He told a House of Representatives appropriations subcommittee that principles to guide reform of mortgage finance leaders Fannie Mae and Freddie Mac, as well as other government agencies, will be coming soon.
“This is a very complicated issue,” he said. “It doesn’t just involve Fannie and Freddie, we want to take a careful look at the entire set of government agencies that act in the housing market now and the set of policies that helped contribute to this terrible crisis.”
The government took control of Fannie and Freddie, placing them in conservatorship, in 2008 at the peak of the financial crisis, and it remains unclear what lawmakers want to do with them as they try to reshape housing market finance. Fannie and Freddie have both existed as government-chartered, privately held companies.
There have been growing calls for changes to Fannie and Freddie and questions whether they should be returned to their prior quasi-government status.
Geithner said that after public comment is gathered, Treasury will likely be able to present specific proposals to Congress next year for reform and said it was just too busy to do so any earlier.
“I’ll just be honest with you, we’re doing a lot of things, we just got a lot going on and…to do it right, we wanted to go through a process of more careful reflection,” he said.
“If we rush this, the risk is that we not achieve enough and not get consensus but my first look at it is we’re going to need fundamental reform of the government’s role in the housing market.”
Geithner, who appeared at the hearing to testify on the Treasury Department’s budget, also lashed out at big banks that he said exploited customers for years by charging over-sized fees. He said they have a duty to cut charges now and will be pressured to do so if they don’t act voluntarily.
BAC.N
) on Tuesday that it was cutting debit card overdraft fees to make the case that Congress needs to get a financial regulatory package passed soon.
“After years when we saw financial companies competing to exploit vulnerable borrowers, it is good to see banks competing to benefit their consumers,” Geithner told the subcommittee.
He urged other banks to similarly cut fees but said voluntary action wasn’t enough and urged Senate lawmakers to pick up the pace to complete work on a financial regulatory overhaul as House lawmakers already have done.
Geithner said the Obama administration still supports an independent consumer protection agency, a proposal that does not seem to have strong traction with lawmakers, and urged speed by Congress to complete a financial reforms package.
“Our country can ill afford another race to the bottom in market practices,” Geithner said.
Geithner claimed that administration efforts to boost the economy out of recession have been successful, but warned the economy still faced severe challenges.
There has been progress in reducing taxpayers’ stake in the banking sector as a result of the bailout funds but said more progress is needed.
“Treasury will continue its efforts in these areas until recovery is firmly established and the financial system is repaired and reformed,” Geithner said.
He also was asked about possible U.S. backing for a call by visiting Greek President George Papandreou for a clampdown on the use of some derivatives products, especially if they are used to speculate against a country’s sovereign debt.
Geithner and President Barack Obama met Papandreou on Tuesday and the Greek leader claimed afterward that he had received an encouraging response from Obama to his call.
“It is very important that the United States work with Europe to put in place a comprehensive set of reforms to provide oversight over the derivatives markets,” Geithner said. “It is important to us, it is important to them, it’s something you have to do globally if you’re going to do it effectively.”
The Obama administration and Congress still are trying to complete its own financial regulatory overhaul and have proposed putting more derivatives trading on exchanges where it can be regulated more effectively.
Geithner appeared before the subcommittee in support of Treasury’s request for a $474 million increase in its departmental budget, excluding proposed expenditures for international programs such as the U.S. contribution to a new food security fund.
The $13.9 billion budget for the Treasury’s 10 appropriated bureaus would represent a 3.5 percent increase over fiscal 2009, which ended September 30.
(Additional reporting by David Lawder, editing by Leslie Adler)

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Asia stocks dip on China tightening fears, yen up

admin — Wed, 10 Mar 2010 08:09:34 +0000

Asia stocks dip on China tightening fears, yen up
(Reuters) – Asian stocks fell on Thursday as investors worried strong loan growth and quickening inflation in China would spur Beijing to tighten monetary policy sooner than expected, while the yen rebounded against major currencies.
European equities were set track Asia lower, with financial spreadbetters expecting Britain’s FTSE 100
, Germany’s DAX
to fall as much as 0.5 percent.
The MSCI index of Asian shares outside Japan .MIAPJ0000PUS shed 0.5 percent, retreating from a seven-week high touched before the release of the Chinese data, which showed stronger-than-expected growth in factory output and consumer inflation accelerating to a 16-month high.
Some economists said the central bank would probably not wait long before increasing banks’ required reserves for a third time this year and perhaps even raising interest rates.
Broader losses were limited, however, by the view that gradual policy tightening in China would do little to slow its robust growth and that Asia’s economic recovery remains on track.
Foreign buying of Asian stocks, particularly South Korea, Japan and India, continued unabated with data showing emerging market equity funds reported a third straight week of inflows.
shed as much as 0.8 percent as investors feared that strong loan growth in February could prompt the authorities to soak up more cash from the financial system. But the market later recouped its losses to stand slightly higher, as did the Hang Seng index
in Hong Kong.
China’s central bank drained a net 82 billion yuan from money markets this week by issuing large amounts of bills, as part of its efforts to head off economic overheating and asset bubbles.
“February new loans remained higher than the government intends it to be, so we expect another rise in bank reserve requirements to come very soon, almost certainly this month,” said Zheng Weigang, head of investment at Shanghai Securities.
“An interest rate hike will wait at least until the second quarter.”
Fears that China could tighten monetary policy have fueled risk aversion in recent weeks, alongside jitters over debt problems in some European countries.
Japan’s Nikkei average .N225 bucked the regional weakness, rising 0.9 percent as exporters such as Sony (
6758.T
) climbed on general weakness in the yen.
“Trading by foreign investors and funds backed by domestic individual investors is dominating the market now as Japanese institutional investors can’t really move actively because this month is the end of the business year in Japan,” said Tsuyoshi Segawa, an equity strategist at Mizuho Securities.
“The focus will be on important events in Japan, the United States and Europe all happening next week, namely the Federal Reserve and the Bank of Japan policy review as well as Greece’s future plans.”
EU finance ministers meet on March 16 to discuss Greece’s debt problems and their exit strategies from fiscal stimulus worth hundreds of billions of euros to battle the global financial crisis.
The yen climbed after the Chinese data prompted investors to cut their long positions in higher-yielding currencies.
The dollar fell a fifth of a percent to 90.35 yen, having climbed as far as 90.83 on Wednesday, a two-week high.
But gains in the yen were expected to be limited after sources told Reuters that the Bank of Japan may ease monetary policy as early as next week as it remains under government pressure to help pull the country out of grinding deflation.
Data on Thursday showed the economy grew less than initially expected in the fourth quarter of 2009 and a broad gauge of price trends hit a record negative reading.
The euro dropped to 123.28 yen, while sterling eased to $1.4955 after an unexpected drop in British industrial production data for January released the previous day.
The Australian dollar took a knock after the Chinese data but later bounced on bets of further interest rate rises at home.
Gold regained some strength after falling to its weakest in nearly two weeks the previous day, while oil prices retreated 50 cents from an eight-week high hit on Wednesday.

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