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Archive for January, 2012

In campaign article, Putin says Russia’s economy should diversify away from oil and gas

MOSCOW — Prime Minister Vladimir Putin, who is running for the Russian presidency, on Monday called for the country’s economic diversification away from oil and gas to high-tech products to ensure future prosperity.

Five weeks before the presidential election, he is expanding on crucial points of his campaign programs in weekly articles in the Russian press.

Putin, who was Russia’s president from 2000 to 2008, could occupy the top post for at least six years if he wins the March 4 vote.

Although his popularity has been dented by alleged vote rigging in the December parliamentary vote and mass street protests in Russian cities, pollsters still say he could get from 44 to 62 percent of the vote.

In an article published Monday, Putin, who presided over an oil-fueled economic boom of the 2000s, admitted that the current economic model is ruinous for the country.

Exports of oil, gas, metals, timber and other raw materials account for a quarter of Russia’s gross domestic product, Putin said, lamenting the amount imports into Russia.

“Russia cannot afford to have an economy that does not provide us with stability, sovereignty or prosperity,” Putin wrote in his article in the Vedomosti daily.

He also urged to cut state shareholding in state-owned natural resource giants — a privatization roll that his government has spoken of for years. However, Putin’s close ally and energy czar Igor Sechin has recently advocated against the sale of such assets as oil producer Rosneft, citing unfavorable market conditions.

Columnists in Vedomosti blasted the eleven-page essay as lacking substance and offering few solutions.

Authors of Vedomosti’s editorial have pointed to the predominance of phrases like “ought to”, “necessary” and “will be” and the lack of words, signaling Putin’s responsibility for the country’s development. “What has he been doing all the past years?” the editorial asked.

 

 

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German plan for ‘savings Czar’ finds no taker

BRUSSELS — Germany’s controversial suggestion of a European debt regulator with direct control over Greece’s spending turned out to be such a touchy subject that Chancellor Angela didn’t even mention the idea to the leaders at Monday’s European Union summit in Brussels.

In what was seen as a blow for Germany’s push for tighter European integration, national sovereignty appeared to have won the argument Monday.

Over the weekend, Germany had made a pre-summit call to give a powerful European debt watchdog direct control over Greece’s budget decisions. Despite often stinging criticism over how Greece runs it financial affairs, having a foreigner directly run a nation’s budget found no takers among the other leaders.

Even Merkel’s staunch ally, Nicolas Sarkozy, who is so close that they have morphed into the diplomatic couple “Merkozy”, could not back her.

“We cannot put a country under trusteeship and run it from abroad. It would not be reasonable, not democratic, and, in short, not efficient,” Sarkozy said after the summit.

Going into the summit, German Economics Minister Philipp Roesler had suggested the EU should take over the “leadership and supervision” of Greece’s budget.

Athens is teetering on the brink of a disorderly default and is seeking a key agreement to get a second euro130 billion ($170.43 billion) bailout. The country has been surviving since May 2010 on an initial euro110 billion package of rescue loans from other eurozone countries and the International Monetary Fund.

Greece must also cut its deficit further and push through painful public sector layoffs and sell off several state companies, and its partners are unhappy with the pace of action.

Still, a “Sparkommissar” in German- or “savings Czar” – was beyond the pale for Greece.

“Our partners do know that European integration is based on … the respect of their national identity and dignity,” Greek Finance Minister Evangelos Venizelos wrote in an angry retort.

“I am certain that the political leaderships of all European nations – particularly bigger nations that bear increased responsibility for the course of Europe – are aware of how friends and partners, who have joined their historical destinies, raise questions,” he wrote on Sunday.

Merkel got the message.

“I believe that we are having a discussion that we shouldn’t be having,” she said entering the summit.

Other European leaders have said that the Commission, the EU’s executive, needed the power to block bad spending decisions, but not only in Greece but also other highly indebted countries.

But taking over the leadership of budget went too far.

“It can only be put in place by the Greeks, in a democratic way,” said Sarkozy.

Ever since Greece threw the eurozone into financial turmoil in 2009 when it admitted previous governments had played down the amount of debt, it has been criticized as a profligate nation living off the wealthy northern nations.

It has since committed itself, under often intense pressure, to slowly move back toward a degree of fiscal discipline.

Bill Gates calls on EU to maintain aid to world’s poor

Microsoft founder and billionaire philanthropist Bill Gates on Tuesday told European lawmakers in Brussels not to cut aid to poor countries despite the economic and budgetary problems facing EU countries.

“Even in these challenging economic times, there is no excuse for cutting aid to the world’s poorest,” Gates said in a speech to the European Parliament.

“Europe has a choice to make. Cut investments dedicated to helping the hungry, those with HIV, or children who need vaccines, or continue to work in partnership to increase the impact of our investments and build on tremendous progress.”

The co-founder of software giant Microsoft praised the European Union whose support in health and development he said has been greater than that of the United States.

“European aid has had a tremendous impact on global health and development,” he said. “I urge Europe to keep its promise to the world’s poorest.”

Gates is now president of the Bill and Melinda Gates Foundation, which is active in aid projects in the world’s poorest countries, especially in Africa.

EU development aid reached a record level of 53.8 billion euros ($70 billion) in 2010.

The European Commission recently decided to refocus aid on the poorest countries to the detriment of some emerging economies like China, Brazil and India.

IMF leads global push for eurozone to boost firewall

Davos, Switzerland: International Monetary Fund chief Christine Lagarde led a global push on Saturday for the euro zone to boost its financial firewall, saying “if it is big enough it will not get used.”

Lagarde, supported by the British finance minister, George Osborne, said the IMF could boost its support for the euro zone but pressed its leaders to act first. Some attendees at the Davos Forum still doubted the viability of the currency union.

Countries beyond the 17-country bloc want to see its members stump up more money before they commit additional resources to the IMF, which this month requested an additional 500 billion euros (USD 650 billion) in funding.

“Now is the time – there has been a lot of pressure building in order to see a solution come about,” Lagarde told a Forum panel discussion on the economic outlook from which euro zone leaders – most notably Germany – were conspicuously absent.

“It is critical that the euro zone members develop a clear, simple firewall that can operate both to limit the contagion and to provide this sort of act of trust in the euro zone, so that the financing needs of that zone can actually be met,” she said.

Lagarde’s comments rounded out a crescendo of calls at the Davos Forum for the euro zone to boost its financial defenses. The annual five-day conference began with German Chancellor Angela Merkel deflecting pressure to do so.

In a carefully worded keynote address, Merkel suggested doubling or even tripling the size of the fund may convince markets for a time, but warned that if Germany made a promise that could not be kept, “then Europe is really vulnerable.”

On Friday, US Treasury Secretary Timothy Geithner pressed Europe to make a “bigger commitment” to boosting its firewall.

Two bankers who attended meetings with Geithner at the Forum said on Friday the United States was looking for the euro zone to roughly double the size of its firewall to 1.5 trillion euros. There was no immediate comment from the US Treasury.

Osborne said the currency bloc must beef up its firewall before other countries increase their funding to the IMF.

“I think the euro zone leaders understand that,” said Osborne, the only European minister on Saturday’s panel discussion on the global economic outlook in 2012.

“There are not going to be further contributions from G20 countries, Britain included, unless we see the color of their money,” he added, calling for the euro zone “to provide a significant increase in available resources.”

More Optimism…For Some

Japanese Economics Minister Motohisa Furukawa echoed Osborne’s comments, saying: “Without the firm action of Europe, I don’t think the developing countries like China or others are willing to pay more money for the IMF.”

On condition that the euro zone boosts its own defenses, he said Japan and other countries were willing to additional support via the IMF.

Lagarde said, however, that if the international lender’s resources were boosted sufficiently, this would raise confidence to such a degree that they would not be needed.

“If it is big enough, it will not get used. And the same applies to the euro firewall for that matter,” she added.

Japanese Prime Minister Yoshihiko Noda, speaking to the Forum by video link from Tokyo, said Japan was working with South Korea and India to reduce the risk of the euro zone crisis spreading to Asia.

“Japan stands ready to support the euro zone as much as possible,” he added.

Mexico’s central bank chief, Agustin Carstens, said on Friday he believed a consensus was building on boosting the IMF’s resources to help European countries and others that might need aid from the global lender.

There has been a palpable sense of hope at the Davos Forum that the euro zone is pulling back from the brink of catastrophe, though business leaders are equally worried that Europe’s woes will hold back a global recovery.

Osborne saw some signs of optimism.

“People have commented on the mood of this conference being quite somber but having been here for a couple of days people have also pointed out that actually people are slightly more optimistic at the end of the week than the beginning,” he said.

However, Davos 2011 also ended on upbeat note about the euro zone and a feeling that worst of the crisis was over – only for the situation to deteriorate and financial markets to turn their fire on Italy, the bloc’s third biggest economy.

“The euro zone is a slow-motion train wreck,” said economist Nouriel Roubini, made famous by predictions of the 2008-09 global banking crisis.

He expected Greece, and possibly Portugal, to exit the bloc within the next 12 months and believed there is a 50 percent chance of the bloc breaking up completely in the next 3-5 years.

Hong Kong’s Chief Executive, Donald Tsang, said no matter how strong the euro zone’s firewall is, the market will look at the nature of the economies it is protecting.

“If it is protecting insolvent economies…no matter how strong the firewall is, it won’t survive,” he said.

Bernanke opening the door to the Fed a bit wider

What’s next – cameras in the Federal Reserve’s meetings?

WASHINGTON — What’s next – cameras in the Federal Reserve’s meetings?

Don’t count on it.

But it’s anyone’s guess how far the Fed will go in its mission to be more publicly open – beyond having the chairman hold now-quarterly news conferences and its latest gesture: forecasting where its members think interest rates are headed.

Under Ben Bernanke, the Fed has also sent more frequent clues about the economy’s health. Bernanke has sat for TV interviews, too. He’s held town-hall-style meetings.

It’s all amounted to a radical makeover for an agency that used to rank about as high as the CIA in its mystery.

For decades, everyone pretty much agreed: The Fed had to shroud itself in secrecy to properly perform its mission – control prices and maximize employment.

The Fed chairmanship was seen as the second-most-powerful post in government after the presidency. Telegraphing decisions or opening them to public view? Not part of the job description.

“You didn’t tell people anything,” said David Wyss, an economist who worked at the Fed when Arthur Burns was chairman in the 1970s.

So obscure were the Fed’s operations that a late-1980’s book called “Secrets of the Temple” tantalized readers with the prospect of prying its door open a bit. The chairman then, Paul Volcker, wasn’t operating any differently from his predecessors since the Fed’s creation in 1913.

Things began to change under his successor, Alan Greenspan, who served for 18 years until 2006. Gradually, sometimes grudgingly, the Fed emerged from hiding.

The first big shift came in 1994. Greenspan’s policy-setting panel issued the first-ever announcement of a change in its benchmark interest rate, called the federal funds rate.

Until then, the Fed had said nothing when it changed the funds rate. That’s the rate banks charge each other for overnight loans. It’s also a benchmark rate for consumer and business loans. When the Fed cuts that rate, it tries to spur borrowing and spending. When it raises it, it aims to slow growth and stem inflation.

Wall Street firms had to assign people to scrutinize the Fed’s daily bond-market operations for any move in the funds rate. These Fed-watchers would make guesses based on announcements by the New York Federal Reserve Bank of how much in Treasury securities it bought or sold in a given day. (The New York Fed handles the Federal Reserve’s Treasury operations.)

Transcripts show Greenspan had to twist some arms inside the Fed’s policy panel to gain approval for that first announcement. Greenspan suggested it would help investors: Because five years had passed with no increase in the funds rate, he argued, a heads-up that credit was about to be tightened would prepare them.

Years later, at a conference, Greenspan explained further.

“Simply put,” he said in his less-than-simple style, “financial markets work more efficiently when their participants do not have to waste effort inferring the stance of monetary policy from diffuse signals generated in the day-to-day implementation of policy.”

Still, some of his colleagues clung to the Fed’s secretive ways. That first statement in 1994 was opaque, even for the Fed: The central bank, it said, would “increase slightly the degree of pressure on reserve positions.”

The Fed gave no target for the funds rate. Its four sentences offered scant guidance.

At first, it didn’t release a statement after every meeting – only if a decision had been made to change the funds rate.

Those early statements don’t much resemble those the Fed now issues after every meeting, whether or not it adjusts rates. These days, those statements update the Fed’s views on the economy. And they specify its target for the funds rate.

Under Bernanke, who took over in 2006, the Fed’s moves to openness have accelerated. A core goal has been to signal any imminent rate increase or decrease. For two years, the Fed said it expected to keep rates at current record lows for “an extended period.” In August, it refined its horizon: It said it planned to keep rates super-low “at least through mid-2013.”

On Wednesday, the Fed went further: For the first time, it signaled when committee members expect the first rate increase. The information suggested no increase is likely before late 2014 at the earliest. It also showed that 11 of 17 members see no increase until at least 2015.

Bernanke’s Fed updates its forecasts for the economy four times a year, instead of twice. And it does more than toss out a statement. Bernanke now holds news conferences quarterly, each time the Fed updates its economic forecasts, as it did Wednesday.

The latest changes would have pleased and surprised the late Henry B. Gonzalez. In the early 1990s, as head of the House Banking Committee, Gonzalez sparred with the Fed over its secrecy. After years of prodding, Gonzalez scored a victory in 1995, when Greenspan’s Fed agreed to start releasing transcripts of its meetings once five years have passed.

That deal marked a compromise. The Fed didn’t want to release full transcripts. It preferred to stick with the heavily edited minutes that are issued three weeks after each meeting. Full transcripts, many officials felt, could dampen the free-wheeling discussions deemed essential for proper Fed decision-making.

Gonzalez had high hopes. He wanted transcripts – and videotapes – within two months of each Fed meeting. Gonzalez, who died in 2000, lost that argument.

Yet his broader mission endures. And at this point, who knows where it ends?

Apple stock hits record after boost from earnings

Throngs wait outside the Apple store in Munich before the start of sales of the iPad 2 on March 25. The iPhone 4S was also a hot seller in the last quarter.

Apple shares rose to a record after quarterly profit more than doubled as holiday demand for the iPhone and iPad cemented its position as the most valuable technology company.

Apple’s stock gained 6.2 percent to $446.66 on Wednesday, a day after reporting results. Apple’s increase, the company’s biggest one-day rise since May 2010, made it the day’s best performer in the Standard & Poor’s 500 Index.

The company sold 37 million iPhones in the period ended Dec. 31, with customers snapping up the new 4S model that went on sale in October, a week after the death of co-founder Steve Jobs. Record revenue vaulted Apple ahead of Hewlett-Packard Co. as the world’s biggest computer maker by sales and quelled concern that the company’s allure may dim as it embarks on a new era with Chief Executive Officer Tim Cook at the helm.

“The momentum that Steve Jobs created, Tim Cook is maintaining,” Gene Munster, an analyst at Piper Jaffray Cos., said in a televised interview on “Bloomberg West.” “We kind of run out of adjectives to describe this quarter.”

Net income of $13.1 billion in the period that ended Dec. 31 ranked among the highest quarterly profits on record, putting Apple in the same league as energy companies such as Exxon Mobil Corp. and Russia’s Gazprom OAO, data compiled by Bloomberg show. Per-share profit of $13.87 for the period was more than Apple earned in any full year before 2010, as the success of the new iPhone ramped up pressure on rivals Google and Samsung Electronics.

The gain gives Apple a market value of about $416 billion, just below Exxon’s $418 billion. The two companies have been trading places atop the Standard & Poor’s 500 Index since August.

“Look at the Apple numbers – they were stunning,” Alcatel-Lucent CEO Ben Verwaayen said in an interview with Maryam Nemazee on Bloomberg Television’s “Countdown” show at the World Economic Forum’s annual meeting in Davos, Switzerland. “It shows that even in a time of difficult circumstances, if you have the right product and the right focus, you can make a difference.”

Sales rose 73 percent to $46.3 billion in the fiscal first quarter, Apple said Tuesday in a statement. Analysts surveyed by Bloomberg on average estimated net income of $10.14 a share on sales of $39 billion.

In looking ahead to the second quarter, Apple forecast revenue of about $32.5 billion and profit of $8.50 per share. That compares with average analysts’ predictions for sales of $31.9 billion and profit of $7.96 per share.

Except for the period that ended in September 2011, when customers put off iPhone purchases in anticipation of the 4S, Apple’s profit has exceeded analysts’ projections in every quarter for at least six years, according to data compiled by Bloomberg.

The quarterly results mark the first time Apple’s revenue topped Hewlett-Packard’s, underscoring how the company’s focus on sleek touch-screen mobile devices has rearranged the technology industry’s pecking order.

Apple’s net income exceeded total revenue at Google, Apple’s largest rival in mobile operating systems, for the period.

“Those numbers are just unimaginable,” said Michael Obuchowski, chief investment officer at First Empire Asset Management, which has $4 billion under management, including Apple shares. “It’s still an extremely well-managed company, and they are showing that the product pipeline is sufficient even now to generate growth rates that are unrivaled.”

Apple wasn’t harmed by Amazon.com’s introduction of the Kindle Fire, a tablet designed to compete against the iPad at less than half the price. Apple sold 15.4 million iPads, topping the 13.5 million projected by analysts.

Key Greek bondholders meet in Paris to ‘take stock’ of debt talks after hard eurozone stance

BRUSSELS – Representatives of Greece’s private sector bondholders will meet Wednesday to discuss how and whether to continue talks on a bond swap after the EU toughened its demands, a person close to the investors said.

The so-called steering committee of the Institute of International Finance will gather in Paris for an “important meeting … to really take stock” of the talks, the person said on condition of anonymity because of the sensitivity of the issue.

The committee represents banks and other investment funds that hold a large part of Greece’s debt and are being asked to swap their existing bonds with new ones of a reduced value, longer maturity and lower interest rate.

Eurozone finance ministers decided this week to cap the average interest rate on those new bonds at well below 4 percent. In their last offer, the bondholders said the average interest rate should be above 4 percent.

The finance ministers are pushing for a lower rate because whatever debt relief Greece doesn’t get from the investors will have to come from them and the International Monetary Fund, the country’s bailout rescuers.

The eurozone and the IMF, however, have made clear that they would not increase their loans for Greece above the euro130 billion ($169 billion) tentatively agreed in October.

The person close to the private bondholders said the meeting was called for Wednesday because some eurozone officials wanted the deal to be ready for a summit of EU leaders on Monday.

The bond swap is crucial to cut Greece’s debt by some euro100 billion ($130 billion) and bring it back to a sustainable level. The plan is to have private investors exchange their old Greek bonds for ones with half the face value and to push repayments 20 to 30 years into the future.

A higher interest rate could help buffer losses for investors, but the eurozone and the IMF say it will prevent Greece’s debt from falling to 120 percent of gross domestic product by 2020 — the maximum level they see as sustainable. Without the debt swap, Greece’s debt would approach 200 percent of GDP by the end of this year.

So far, all sides in the negotiations have been trying to make the bond swap a voluntary deal.

If the investors decide against moving voluntarily accepting the eurozone ministers’ tougher terms, the eurozone would face a stark choice between a forced default by Greece or new, bigger aid payments to Athens.

In a forced default, bondholders would likely stand to lose an even bigger part of their investments, though some of them would get payments from bond insurance, the credit default swaps, or CDS.

The eurozone has so far worked hard to prevent a payout of CDS, since the CDS market is obscure — without a clear picture of who owes what to whom — and they worry that it could create uncertainty and panic on financial markets. The private investors also argue that a forced default would make investors more reluctant to lend to Greece and other vulnerable euro countries.