Sunday, March 18, 2012

Analysis: Emerging markets face capital exodus again (Reuters)

LONDON (Reuters) ? A sell-off precipitated by global recession fears and the deepening euro zone debt crisis has resurrected the specter of capital flight, a threat that still haunts emerging markets for all their vaunted strengths.

Three years after the collapse of Wall Street giant Lehman Bros sparked a stampede out of higher risk assets and sent emerging economies reliant on foreign funding into shock, such fears have resurfaced in recent days amid heavy emerging equity and bond losses accompanied by sharp currency weakness.

Persistent hopes that developing economies can defy a Western downturn are set to be dashed the second time in four years, once again threatening to wrong foot investors who have bet big on the resilience of these markets.

"The process has just begun as real money investors haven't yet exited....All the ingredients are in place for a similar crisis to occur. The question is what magnitude," said Benoit Anne, head global emerging markets strategy at Societe Generale.

Since Aug 1, emerging stocks (.MSCIEF) have tumbled 22 percent to underperform world markets (.MIWO00000PUS), down 15 percent. Sovereign hard-currency bonds are at their weakest in over two years while local-currency debt (.JGEGDCM) year-to-date returns have turned negative in dollar terms.

Evoking memories of 2008 when investors offloaded emerging assets for more liquid securities such as U.S. Treasuries, this latest wave of foreign-led selling has been especially punishing on recent market darlings Indonesia, South Korea and Russia.

In the last seven weeks, the Korean won has skidded 12 percent lower while Russia's rouble has dropped 13 percent versus its dollar-euro basket. Brazil has lost 14 percent of its value against the dollar this month, chalking up its biggest one-day falls since October 2008.

This sudden exchange-rate weakness has unnerved investors, who have until now regarded currency appreciation as an added sweetener to returns generated by emerging stock and bond bets.

Record allocations to emerging debt in the last 21 months have mostly been unhedged as investors confident of currency appreciation shorted the dollar and euro to buy bonds in rand or reais. But the latest flight to the dollar has shattered the assumption that emerging-currency appreciation would be steady.

"It's become expensive to hedge currency exposure now and many investors are exiting unhedged local-currency positions, just as they had exited equity positions weeks earlier," said Murat Toprak, emerging markets strategist at HSBC.


Overall positioning in emerging assets is still heavy, suggesting prices may still have further to fall. Bank of America-Merrill Lynch's latest survey found a third of investors remain overweight emerging stocks this month.

"Institutional investors are keeping emerging markets as their last overweight but if they see more redemptions, they will be forced to sell to raise additional cash," said BA-ML global equities strategist Kate Moore.

Jitters are also growing over emerging debt, among the few asset classes along with gold and U.S. Treasuries that data from funds tracker EPFR shows attracting new money in the febrile markets of recent months.

"My sense is that the real money is still quite complacent about positioning. People are not well prepared for a huge cash outflow from emerging markets. So far we've only seen a speculative position washout," said Kieran Curtis, a debt portfolio manager at Aviva Investors.

Much of the new cash since the Lehman crash comes from so-called crossover investors such as pension funds who are only just beginning to venture into emerging markets -- their tolerance for volatility in these markets remains untested.

JPMorgan notes that the Brazilian real has been a major beneficiary of inflows from dedicated overlay funds sold to Japanese retail investors since 2009 and there is "significant uncertainty" how they will react to further market turbulence.

Foreign ownership of some local bond markets are at all-time highs, raising their sensitivity to global risk appetite.

"In some markets -- Indonesia, Hungary, Malaysia and Mexico, for instance -- foreign investor exposure has grown disproportionately quickly to the size of the market. Duration in these markets is thus most at risk from an unwind of global real money flows," UBS said in a note.


But many argue that the longer term structural shift of portfolio allocations in favor of emerging markets will moderate the magnitude of the current selldown.

"When it comes to portfolio money, you have pension funds looking at two-percent returns on U.S. 10-year debt and no great likelihood of great equity performance," said Charles Robertson, global chief economist at Renaissance Capital.

Emerging local bonds offer yields of 5-12 percent.

Given the rude health of their public finances, these markets could rebound quickly when the global backdrop improves as evident following the Lehman bust. Net capital flows to emerging markets, for instance, jumped from $715 billion in 2009 to $1.1 trillion in 2010, data from the Institute of International Finance (IIF) show.

"If recovery is quicker and stronger, you don't want to sell out everything," said Renaissance's Robertson.

Since 2007, developing economies have cut external debt issuance by a third, IIF said. In the private sector, the stock of external debt owned by foreign private creditors has fallen 26 percent in the last three years.

Lower reliance on foreign cash may prevent a repeat of 2008 when capital flight sent countries such as Ukraine and Romania to the International Monetary Fund for emergency loans and necessitated recapitalisation of Russian and Kazakh banks.

But that may not be enough to stem near-term fears stalking the markets.

"My problem is not with the fundamentals but the fact that a lot of emerging assets are in the hands of people who will panic," said Alia Yousuf, portfolio manager at ACPI Investment.

"Are we really at the stage when people would rather hold Kazakhstan than the U.S.? I don't think so."

(Reporting by Sujata Rao and Sebastian Tong; editing by Ron Askew)


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European Stocks Post Biggest Weekly Rally of 2012; Xstrata Gains

February 04, 2012, 9:37 AM EST

By Cecile Vannucci

Feb. 4 (Bloomberg) -- European stocks posted the biggest weekly gain this year, sending the Stoxx Europe 600 Index to its highest level in six months, as manufacturing increased globally and the U.S. jobless rate fell to the lowest in three years.

Xstrata Plc and Glencore International Plc surged more than 13 percent after the world?s largest publicly traded commodities trader held talks to buy the Zug, Switzerland-based mining company. Temenos Group AG rallied 20 percent as Misys Plc, the British maker of software for banks, said it has held talks about a merger with the Swiss company.

The Stoxx 600 climbed 3.6 percent to 264.6 this past week, extending the January rally of 4 percent that was the best start to a year since 1998. The equity gauge has gained 8.2 percent in 2012 and is up 23 percent since its 2 1/2-year low on Sept. 22.

?We had a very good week,? Veronika Pechlaner, who helps manage 1.1 billion pounds ($1.7 billion) at Jersey, Channel Islands-based Ashburton Ltd., said in a telephone interview. The U.S. employment numbers ?are providing more hope to the market that the recovery in the U.S. is not only on track, but maybe accelerating a little bit.?

The Stoxx 600 on Feb. 1 surged 2 percent, the most in six weeks, as gauges of manufacturing increased from the U.S. to China. The Institute for Supply Management?s U.S. manufacturing index rose to 54.1 in January from 53.1 in December, while China?s official purchasing managers? index increased to 50.5 in January from 50.3 in December.

European Manufacturing

The Markit Economics final purchasing managers? index, a gauge of manufacturing in the euro area, climbed to 48.8 in January from 46.9 in the prior month. A U.K. manufacturing index also jumped to an eight-month high.

The European stocks gauge rallied 1.7 percent yesterday after U.S. Labor Department figures showed employment climbed more than forecast, with a 243,000 increase in payrolls that was the most since April. The jobless rate unexpectedly fell to 8.3 percent, the lowest since February 2009.

German unemployment also dropped more than economists forecast to a two-decade low in January, the Federal Labor Agency said Jan. 31. The number of people out of work fell a seasonally adjusted 34,000 to 2.85 million for the biggest drop since March. The adjusted jobless rate slipped to 6.7 percent from 6.8 percent.

Portuguese Bonds

European stocks fell the most in six weeks on Jan. 30 as Portuguese bonds sank. Prime Minister Pedro Passos Coelho then said his country?s debt has been judged ?perfectly sustainable? by the European Union and International Monetary Fund and that there is no risk of writedowns on the bonds.

EU policy makers agreed on a fiscal-discipline treaty that allows for sanctions on high-deficit states and requires members to enact laws to limit budget shortfalls. They decided to bring the region?s permanent bailout fund, the European Stability Mechanism, into operation on July 1, a year before schedule. The U.K. and the Czech Republic both refused to sign the pact.

Negotiations between Greece and its creditors on the terms of an accord to reduce the country?s borrowings continued all week. Greek bondholders may get a sweetener tied to a revival in economic growth that would ease the impact of accepting a lower interest rate on new bonds, according to people with knowledge of the talks.

All 19 industry groups in the Stoxx 600 gained more than 1.2 percent. Automakers and mining companies rose the most, adding 6.6 percent and 6 percent, respectively.

Xstrata, Glencore

Xstrata surged 16 percent and Glencore jumped 13 percent after Glencore held talks to buy the shares in Xstrata that it doesn?t already own to add mines from Africa to Asia. Glencore, which holds a 34 percent stake in Xstrata, said that there?s no certainty it will make an offer.

London-based Anglo American Plc rose 7.8 percent, Nyrstar NV, the world?s largest producer of refined zinc, climbed 5.7 percent and Rio Tinto Group, the third-biggest mining company, gained 4.7 percent.

PSA Peugeot Citroen, Europe?s second-largest carmaker, jumped 13 percent, the biggest gain among carmakers. Renault SA, France?s second-biggest carmaker, gained 8.1 percent. Renault- Nissan 2011 global sales rose 10 percent to a record, driven by emerging markets and the U.S., the company said on Feb. 1.

Volvo AB rose 4.6 percent after the world?s second-largest truckmaker reported fourth-quarter earnings before interest and taxes that increased 26 percent to 6.96 billion kronor ($1.04 billion) from 5.52 billion kronor a year earlier.

Banks Rally

Banks as a group added 5 percent, with Bank of Ireland Plc rising 30 percent for the biggest gain, followed by a 23 percent advance for Banca Popolare di Milano Scarl and an increase of 19 percent for Banco Popolare SC.

Temenos surged 20 percent, the most since October, as Misys said it has held talks with the Swiss software maker about an all-share merger. In a separate statement, Temenos said it is ?evaluating its strategic options.? Misys gained 0.8 percent.

ThyssenKrupp AG, Germany?s largest steelmaker, rose 2.6 percent as it agreed to sell its Inoxum stainless steel unit to Outokumpu Oyj. The deal valued the division at about 2.7 billion euros ($3.5 billion).

Outokumpu, Finland?s biggest stainless-steel producer, tumbled 22 percent, the largest decline since 2008.

Repsol YPF SA, the biggest oil company in Spain, fell 3.2 percent. Pagina/12 newspaper said Argentine officials had discussed a takeover of its YPF unit, the South American country?s biggest oil producer.

--Editors: Andrew Rummer

To contact the reporters on this story: Cecile Vannucci in Amsterdam at

To contact the editor responsible for this story: Andrew Rummer at


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Debt crisis: as it happened - February 2, 2012

21.03 As mentioned earlier, we're expecting US jobs data for January to be released tomorrow, which will give a good indication of the rate of recovery in the economy across the Atlantic.

Analysts are forecasting a slowdown in job creation to have taken place after December's surge in holiday hiring, so it's likely that there'll be no improvement in the unemployment rate of 8.5pc. They also predict a fall in the net number of jobs added to the economy, to 155,000 from 200,000 in December.

Tune in tomorrow to see whether these estimates ring true.

20.52 Greek Government spokesman Pantelis Kapsis has spoken to Mega television:

Quote As a country, we have reached the brink of official bankruptcy. We have been borrowing for so many years and now we have our backs to the wall, so we have difficult decisions to make.

19.59 The US reports jobs data for January tomorrow, and bond traders aren't sure what to expect: Treasury prices barely budged in trading today.

The price of the 10-year Treasury note rose 6.2 cents for every $100 invested, sending its yield to 1.82pc from 1.83pc late yesterday.

19.45 Italian PM Mario Monti is in hot water after saying that job security was "boring".

A commenter on his Facebook page said: "You should be ashamed of yourself."

Another chimed in with: "How could you say such a stupid thing? University graduates are working as doormen just to survive."

His original comment was made on a television chat show last night:

Quote Young people have to get used to the fact that they will not have one fixed job all their lives. Having the same job all your life is boring.

19.23 Potentially bad news for HMRC: Switzerland signed a deal with the UK last year over secret bank accounts that the Treasury claimed would generate �4bn to �7bn in tax revenue. But Switzerland is now saying that the income may not even reach a billion...

18.51 The ECB must take part in Greece's debt swap, says Finance Minister Evangelos Venizelos. Talks with banks and insurers are almost finished and the focus has switched to whether the ECB will take part in the debt swap:

Quote In parallel with negotiations with private creditors, there must be negotiations for the official sector involvement. This means that the ECB must be mobilised, and we must resolve issues pertaining to national central banks.

18.29 No real surprise, but still bad news: Fitch has downgraded the Bank of Cyprus, Marfin Popular Bank and Hellenic Bank from BBB- to BB+ after last week's sovereign rating cut of Cyprus.

18.15 French newspaper La Tribune reports today that Nicolas Sarkozy could seal a deal to sell 60 Rafale fighter jets to the UAE by April. Those jets seem very popular at the moment: on Tuesday it emerged that India had dumped the idea of going with BAE's Typhoon and opted instead for 126 Rafale jets from Dassault.

18.01 Many eurozone member states are in financial strife at the moment, but the EU still has enough spare cash to splashed out on new gadgets...

Today it signed contracts with German and French firms to build another eight satellites for Galileo - Europe's answer to GPS. Germany's OHB System AG got a ?250m contract, while France's Arianespace and Astrium SAS share ?60m.

Galileo is expected to cost ?5.4bn and will be complete in 2020, when 30 satellites will provide an alternative to the US GPS network.

17.27 Spain's Government is pushing new reforms that will oblige banks to create a safety net for bad loans by building up capital reserves of ?50bn. "This process must be carried out in one year," said Economy Minister Luis de Guindos.

17.02 More from US Fed chairman Ben Bernanke: he warned that the debt crisis in Europe risked undermining recovery across the Atlantic:

Quote Risks remain that developments in Europe or elsewhere may unfold unfavorably and could worsen economic prospects here at home. We are in frequent contact with European authorities, and we will continue to monitor the situation closely and take every available step to protect the US financial system and the economy.

16.59 Time for a chart showing the performance of European markets over the last couple of weeks. As usual, you can hide individual markets by clicking on their name to get a closer look at those remaining. It all looks plain sailing until you get close-up...

16.45 European markets have drawn to a close for the day now.

The FTSE 100 ended up 0.02pc, the DAX rose by 0.62pc and the CAC gained 0.28pc.

16.36 Earlier on Bernanke warned that the US must rein in its spending or risk moving closer to a situation where its borrowing costs spike dramatically - something which Italy and Spain are all too familiar with. But he also says that the US remains a safe haven at the moment and that investors are putting cash into Treasuries...

16.35 He says the worst case for the US economy is that investors lose confidence that the country can manage its fiscal situation. The biggest fiscal problem it faces beyond the next decade will be cause by its ageing population.

16.31 Ben Bernanke says that European banks remain undercapitalised and that many European countries will see slow growth.

16.06 Wolfgang Sch�uble, Germany's finance minister, has said that his country's part in the stabilisation of Greece is "sufficient". Earlier today Greece's debt inspectors warned that the nation needs an extra ?15bn - on top of the ?130bn bail-out and ?100bn debt write-off - in order to avoid bankruptcy.

It certainly doesn't sound like Germany are keen to put their hands deeper into their pocket...

15.45 More from Ben Bernanke now: he's spoken on European bond markets and how they can turn on the most indebted governments, sending debt costs skyrocketing. He warned that the US could face a similar fate if it doesn't rein in its own borrowing:

Quote As we have seen in a number of countries recently, interest rates can soar quickly if investors lose confidence in the ability of a government to manage its fiscal policy. We can be sure that, without corrective action, our fiscal trajectory will move the nation ever closer to that point.

15.27 Archbishop Leronymos, head of Greece's Orthodox church, has called for his government to reject what he calls "foreigners' blackmail and fatal recipes".

He's written to PM Lucas Papademos, claiming that the country's being asked to implement "even tougher, more painful and unjust measures".

Greece was being asked to take bigger doses of "fatal medicine" and that the "illogical phenomenon... is taking on nightmarish proportions". Strong words.

15.15 US markets just opened for the day and have risen slightly in early trading. On the upside, initial jobless claims showed signs of improvement in the labour market, but Ben Bernanke talking about the economy remaining vulnerable to eurozone troubles has largely balance things out.

The Dow Jones is 0.02pc higher, the S&P 500 rose 0.16pc and the Nasdaq managed to gain 0.34pc.

15.08 Ben Bernanke has spoken to Congress, claiming that the US economy has strengthened but still remains vulnerable to the turmoil in the eurozone. If things turn worse the Fed would "take every available step to protect the US financial system and the economy," he added.

Even after sharp budget cutting by the Obama administration, based on current US taxation and spending policies, the budget gap and the ratio of country's debt to the size of the economy will rise rapidly:

Quote This dynamic is clearly unsustainable. To achieve economic and financial stability, US fiscal policy must be placed on a sustainable path that ensures that debt relative to national income is at least stable or, preferably, declining over time. Attaining this goal should be a top priority.

15.04 US Fed chairman Ben Bernanke says that a sustainable budget should be the country's "top priority".

14.45 We've just been sent some betting odds on Facebook by Paddy Power. First, here are the odds for the initial share price:

10/1 - Less than $25
7/2 - $25 to $34.99
10/11 - $35 to $44.99
9/4 - $45 to $54.99
7/1 - $55 to $64.99
9/2 - $65 or more

And you could even put some money on who'll ring the opening bell on the first day of trading:

1/100 - Mark Zuckerberg
25/1 - Sean Parker
50/1 - Bill Gates
100/1 - Bono

14.10 Britain's Financial Services Authority, due to be replaced in 2013 after being heavily criticised during the credit crisis, has said it needs a 16pc rise in funding for its last year.

The regulator said it had an annual funding requirement of �578.4m for 2012-13, up from �500m in 2011/12.

14.07 The head of Italy's bourse regulator says further bank capital hikes requested by the European Banking Authority risks worsening investor confidence.


The OECD has said that current eurozone bailout funds are not enough. It adds that they need to be around ?1 trillion; and that a fracture of the eurozone is possible but avoidable. OECD says ECB should consider QE to support growth and confidence.

13.59 The central bank in the Czech Republic, which recently rejected membership in the EU's new budgetary discipline pact, has cut GDP forecasts to 0pc from 1.2pc in 2012; 1.9pc in 2013.

13.55 Olli Rehn, vice-president of the European Commission, says talks on Greece are very close to conclusion, but the country has done many things such as reduce its fiscal deficit. He expects the Netherlands to take pre-emptive action after the Dutch PM said its budget deficit levels were not sustainable.

Rehn says he prefers a Financial Transaction Tax at a global level. France is to introduce a 0.1pc tax on financial transactions in August.

13.47 MPC member Adam Posen has told Sky that the Government hasn't made much progress on improving lending to business. He adds that the the UK Government is not getting value for money from banks, which are using capital requirements as an excuse not to lend.


US weekly jobless claims fell to 367,000 in the week to January 28 against the previous week's 379,000. Analysts predicted claims of 372,000.

Continuing claims fell to 3.437m from 3.567m. Analysts expected 3.535.

13.35 Deutsche Bank has reportedly written down Greek bonds to a notional value of 29pc.

13.27 David Riley, head of the sovereign-debt unit at Fitch Ratings, has said that Portugal doesn't present the risk of default that Greece does to the rest of the EU because its government is "credible" and "committed".

13.25 AP is reporting that Greece's international debt inspectors have discovered that the debt-ridden country still needs an extra ?15bn in help - on top of a promised ?130bn bailout and a ?100bn debt relief from private investors, an unnamed European official said Thursday.

The European Commission, the executive arm of the European Union, has reportedly asked the other 16 countries that also use the euro to help foot the bill for the missing ?15bn, the official said, indicating that a limit has been reached of what can be achieved by Athens implementing further cuts and private investors taking losses on the bonds they hold in the country.

13.17 Further to the news that Xstrata and Glencore are in merger talks, Glencore chief executive Ivan Glasenberg has said that "we've always had the belief these two companies should be together".

12.55 Czech Prime Minister Petr Necas, who recently nixed his country's membership in the EU's new budgetary discipline pact, has said the eurozone needed a federal fiscal union in order to survive.

Quote The eurozone has no choice now: either it will melt down - something which nobody wants - or it will move towards a federal fiscal body.

Necas called the new pact on budgetary discipline, which all EU states save the Czech Republic and Great Britain intend to join, a "fundamental step in this direction".

Quote States are renouncing their right to a free vote in the EU on important topics concerning the budget, and they are giving up a part of their sovereignty.

12.46 Shell has said it doesn't plan to supply crude to Petroplus refineries. Not good news for the plant in Coryton, UK. Fuel shortage in the South?

12.33 Announced job cuts in January were lower than average for the month, showing firings in the US are on the decline, Bloomberg reported.

Employers planned to eliminate 53,486 positions, down from a January average of 101,084 covering 1993 to 2011, according to data issued today by Chicago-based Challenger, Gray & Christmas. The reading was up 39pc from the same month in 2011, the lowest for any January in almost two decades of data.

12.24 Time for a markets update:

FTSE 100 -0.3pc

CAC -0.1pc

DAX +0.1pc

IBEX +0.3pc

MIB -0.2pc

12.06 The Telegraph's Richard Blackden has written a blog on why the Facebook IPO is not completely good news for the US:

For a country battling almost 9pc unemployment, the most worrying statistic in the prospectus is that Facebook employs just 3,200 people. It is, of course, hiring and staff numbers did double last year. But it's far-fetched to imagine that Facebook will ever provide employment on the scale that companies like GE, Ford or, more recently, Microsoft did. Like other web-based companies such as Zynga and LinkedIn, Facebook is a business that just doesn't need as many people.

Meanwhile, Katherine Rushton reveals that Facebook founder Mark Zuckerberg will retain the right to choose his successor before he dies:

The documents make clear that Facebook regards Mark Zuckerberg as being as integral to the business as SteveJobs was to Apple, until his death last year.

The filings grant the Facebook founder use of a private jet for personal purposes, under a "comprehensive security programme? designed to "address safety concerns resulting from his position?.

12.00 The head of the Eurogroup, Jean-Claude Juncker (below), believes the measures from the January 30 EU summit are "largely insufficient", and the Greek PSI talks are "ultra-difficult". Euro hits session low versus the dollar of $1.3103.

11.56 Deutsche Bank chief executive Josef Ackermann believes that Greek aid is now less dependent on banks but on "others", adding that the present net haircut on Greece is 70pc or more. But he warns that if the country fell then Portugal could be next.

11.39 US economist Paul Krugman has said that Greece will default on its debt and will "more likely than not" quit the euro.

Meanwhile, Olli Rehn, vice-president of the European Commission, believes the Greek debt swap talks shoud be concluded in "coming days" and urges the country to show stronger political unity.

Quote We are living through a mild recession which can be relatively short under the promise the euro area and the EU will take the necessary decisions on fiscal consolidation and firewalls. Then it can return to growth in the second half of the year.

11.13 EU officials have scheduled a meeting of the eurogroup for Monday, to discuss second bailout programme for Greece.

11.00 The Irish central bank has cut its growth forecasts for 2011 and 2012. It sees last year's GDP rising 0.8pc versus an earlier forecast of 1pc, and this year's GDP rising 0.5pc versus a previous forecast of 1.8pc. Sees 2013 GDP of 2.1pc.

The country should reduce its deficit to 8.6pc of GDP by the end of this year, but that a prolonged external slowdown would make fiscal targets for 212 and 2013 more difficult to attain. The central bank adds that bank deleveraging must take account of adverse market conditions in the short term.

10.43 Chinese Premier Wen Jiabao: "Europe must rely on itself, reduce its debt load and introduce structural reforms."

10.41 The UK has sold �1.25bn of inflation-linked 2029 bonds at a negative yield of -0.188pc. Good demand.

10.39 French President Nicolas Sarkozy says real estate prices are too high... has he tried buying a house in London?

He adds that state subsidies boosted property speculation.

10.31 Jos� Manuel Barroso, President of the European Commission, has been speaking in Brussels on competition policy:

Quote If we want to regain confidence of investors and of market participants, this can only be achieved within a system based on solid rules that are fairly enforced. This is the basis of the Commission's approach to competition policy. Our Single Market is our greatest asset, the crown jewel of the European Union, our greatest asset in a competitive and globalised world, and it is our most promising engine for growth. Europe's future growth prospects depend on a rules-based Single Market that fosters openness and innovation.

"On one thing we have to be clear ? yes we need to consolidate undertakings, but in the medium to long term, only those who are able to successfully compete in Europe, will be fit to face competition globally. If an athlete aspires to compete in the Olympic Games, he must first be fit and be among the best in his own country. Competition helps undertakings to be fit enough to compete on a global scale.

10.26 German Chancellor Angela Merkel is in China for talks. Here she is looking at traditional houses in Beijing:

Chinese Premier Wen Jiabao has said it is very important to resolve the eurozone debt crisis. His country is considering greater involvement in the EFSF and ESM bailout funds.

Euro jumps against the dollar to $1.31889 on Chinese leader's comments.

10.24 OECD Secretary-General Angel Gurr�a has said the ECB could contribute to cut Greek debt.

10.22 According to Reuters, an Italian minister has told unions that the government will push ahead with labour market reforms even without their agreement. Labour minister reportedly says the government intends to agree labour reforms within two weeks.

10.16 A map of the EU made from Lego is hung in the atrium of the European Council:

10.09 Eurozone producer prices rose 4.3pc year-on-year in December, slower than 5.4pc in November. Slowest since November 2010. Month-on-month producer prices fell 0.2pc, worse than the 0.1pc fall expected.

10.07 France has sold 10-year bonds at an average yield of 3.13pc (versus 3.29pc previously), eight-year bonds at 2.91pc (versus 3.64pc previously).

10.06 Time for an update on the markets:

FTSE 100 -0.2pc

CAC -0.1pc

DAX flat

IBEX +0.2pc

MIB -0.4pc

Ilya Spivak, Currency Strategist at FXCM, said:

Quote European shares are sending mixed signals in early trade, with sentiment trends torn between headwinds from Europe and what is likely to be supportive commentary from the Fed?s Ben Bernanke later in the day. On the eurozone crisis front, the situation remains tense. An accord on private-sector involvement in the second Greek bailout ? without which the debt-strapped country may face default as soon as early March ? remains stubbornly elusive.

09.51 Spain has sold ?4.56bn of bonds, slightly more than planned. ?2.52bn of 2.861pc 2015 bonds, ?1.05bn of 3.455pc 2016 bonds and ?984m of 3.565pc 2017 bonds. Yields all fell from previous auction, demand higher.

Spain now issued close to 25pc of full-year target - not bad for the beginning of February.

09.41 Bloomberg is reporting that Anglo American chief executive Cynthia Carroll has undergone an operation on her hip after a horse-riding accident at the weekend.

Carroll, who is understood to be ?recovering well?, has been advised by her doctor not to travel internationally for about two months, Pranill Ramchander, a spokesman for the company, said by phone.

?Plans are in place to cover her overseas engagements,? he said, adding she is in full contact with her executives and is expected back in the office by the end of next week.


UK Construction PMI fell to 51.4 in January versus 53.2 in December. Analysts expetced 52.5.

(For a larger version of this graph, click the right-hand-side of the main picture at the top of this blog)

Poor result for the construction sector, and was the weakest result for four months. But reading is still above 50 mark that seperates contraction from growth

09.06 Good news. S&P, the ratings agency, believes that the eurozone recession could end later this year.

Meanwhile, Norwegian Finance Minister Sigbjorn Johnsen has said there are "good signals" for a euro recovery.

09.02 A veteran retailer has urged the Government to reject Mary Portas's plans to save the high street, claiming many shopping streets are "in a death spiral".

Phil Wrigley, the chairman of Majestic Wine, who has held directorships at New Look, Debenhams and BHS, likened high streets to the shipbuilding industry and said many should be converted to housing.

Ms Portas made 28 recommendations to the Government, including setting up national market days and "town teams" to get retailers, landlords and councils to work more closely together and introduce more free parking.

Mr Wrigley said:

Quote Unlike Mary Portas, I don't think we can continue to try and muddle through, supporting the traditional high street model. There comes a point when the vacancy rate is so high that no new retailers will come in to a location because they don't want to be sited among empty shops. It is, in effect, a death spiral. There is some debate about where the threshold lies but it is probably between 20pc and 30pc.

08.48 Spanish Economy Minister Luis de Guindos is to announce an overhaul of the country's banks this afternoon.

08.28 Benedict Brogan's email focuses on the Miliband brothers:

David Miliband, Labour?s submarine, surfaces and launches a torpedo: the former foreign secretary has an essay in today?s New Statesman (where else?) which is being widely intepreted as an attack on his brother. We've put it on page one and Today is leading on the story.

And though there is some careful praise for Ed, it?s hard not to see it as unhelpful for the Labour leader. As we report in our splash , David M attacks Roy Hattersley and Lord Kinnock (both Ed allies) for adopting what David calls a?reassurance Labour? response to the Coalition government.

08.20 In his daily email today, Telegraph City Editor Richard Fletcher focuses on some of the UK's biggest companies:

Fourth-quarter profits at Royal Dutch Shell are up 14pc as the high oil price made up for dismal margins in its refining business. The oil giant is upbeat: claiming that new projects will drive a 50pc rise in its cashflow and a 25pc rise in oil and gas production in the coming years. Profits are also up at AstraZeneca , although the company has warned that it expects earnings to fall this year as patents on key drugs expire and governments squeeze prices. Alongside its results the UK?s second largest drugmaker has announced plans to cut a further 7,300 jobs. Meanwhile, Unilver chief executive Paul Polman has warned "of a difficult 2012".

08.14 The BBC's Robert Peston on the business events of the past 24 hours:

08.05 Spanish unemployment jumped in January, new figures show. Country saw 177,470 more people out of work last month, higher than an estimated 127,000 and the larget number in three years. Unemployment now stands at 4.6m, or 22.9pc.

08.02 European markets have opened. FTSE 100 is flat, DAX is up 0.4pc, CAC is up 0.8pc, IBEX up 0.7pc, MIB up 0.7pc.

Royal Dutch Shell falls 1.4pc after results missed forecasts, despite its 2011 profit jumping 54pc to nearly $31bn. Xstrata jumps 11.7pc on merger talks.

07.47 More on the rumours that Glencore is nearing an agreement to combine with Xstrata (see 07.15). Xstrata has confirmed it is has received an approach from Glencore regarding an all-share merger of equals and is in talks. Xstrata stressed that there can be no certainty any offer will be made.


Royal Dutch Shell has revealed that its 2011 net profit jumped by 54pc to $30.92bn on the back of higher energy prices.

07.41 A spokesman for the Greek government has said that the bulk of talks with troika lenders is over and just a few sticking points remain.

07.39 Switzerland's exports rebounded 6.1pc in December, imports 7.6pc, trade surplus of CHF2.07bn. Watch exports rose 21pc that month.

07.33 And the winner is... not Kodak. The century-old photography trailblazer has filed a request to pull its name from the Los Angeles theater hosting the Oscars as part of bankruptcy proceedings launched last month.

The request, filed at a New York bankruptcy court, asks for the cancellation of a contract signed in 2001 with developer TrizecHahn Hollywood in which Kodak paid an annual sum to attach its name to the venue.

07.15 Glencore is nearing an agreement to combine with Xstrata in a deal that may value the combined entity at �52bn, Bloomberg said, citing two people with knowledge of the plan. The two commodities-focused companies may announce a deal as early as this week, the people told the news agency.


Pharmaceutical company AstraZeneca is to cut 7,300 jobs as part of a restructuring.

The company, which employs 8,000 people in the UK, is looking to axe 2,200 is research and development and 1,350 in operations. It will end R&D activity on two sites focused on neuroscience in Sweden and Canada. Around 3,750 positions in selling, general and administrative expenses will also be affected.

07.05 Key economic data out today include UK PMI construction at 9.30am, eurozone PPI at 10am, and US jobless claims and continuing claims at 1.30pm. We'll have the latest here when they come out.

07.00 Deutsche Bank has announced results. Net income of ?4.3bn for 2011. Q4 revenues of ?6.9bn were down 7pc from a year earlier. Provision for credit losses was ?1.8bn for 2011 versus ?1.3bn in 2010. Chief executive Josef Ackermann sees 2102 as "economically very challenging".

Meanwhile, Sony has reported a net loss of $1.2bn in the October-December quarter. Company blames weak TV sales and strong yen.

06.55 Back to the UK and Adam Posen, Monetary Policy Committee Member, believes things would have been much worse for Britain if the Bank of England hadn't launched quantitative easing.

He adds that inflation will fall all year, just as the BoE forecast.

06.53 First pieces of news coming out China, where Merkel is holding talks with leaders. She says high debt levels are not just a European problem, they are a global problem. She adds that the German market is open to Chinese business but urges the country to imporve its intellectual property protections.

Merkel wants rules for shadow banking to come about within G20 framework in the next two years.

Meanwhile, S&P sees Chinese soft landing as most likely scenario.

06.50 Meanwhile, in the Telegraph, Jeremy Warner asks what the Government has done for British business:

The banker bashing of the political class is now so out of hand it threatens serious damage to the UK economy. The tone and rhetoric is not just anti-banker, it is anti-business and sends all the wrong messages for a country which is meant to be "open for business". The only jobs being created in reasonable numbers in Western economies these days are in healthcare, education and business services. The first two of these sectors are largely public sector, which the Government is cutting as fast as it can. For Britain, the third largely revolves around the City, which the Government undermines with its every word and action.

06.47 In The Independent today, several financial experts offer their views on the future of the euro, with worrying results:

Danny Blanchflower, Professor of Economics, Dartmouth College: ?The fundamental problem that has not been addressed is that there is no growth plan for Greece."

Nouriel Roubini, Professor of Economics, New York University: ?The eurozone is a slow-motion train wreck. Not only Greece, other countries as well are insolvent. There?s a 50pc probability that over the next three to five years the eurozone will break up."

George Soros, currency trader: "We remain in the acute phase of the crisis; the prospect of a meltdown of the global financial system has not been removed. The trouble is that the cuts in government expenditures that Germany wants to impose on other countries will push Europe into a deflationary debt trap."

Alistair Darling, Chancellor of the Exchequer 2007-2010: "I don?t think anyone can realistically say that the eurozone will survive with its present membership and the longer the inaction goes on the greater the chance that one or more countries will be forced out."

Jim O?Neil, Chairman of Goldman Sachs Asset Management: "The reality is that too many countries joined the euro in the first place and ultimately without dramatic change they can?t probably survive."

Ed Balls, Shadow Chancellor: "Far from being over, I fear the eurozone crisis is this year entering a more chronic, drawn out but equally dangerous phase."

Olli Rehn, Vice President of the European Commission responsible for the euro: "The euro is here to stay and will emerge stronger from the current crisis. The events of the last two years have created the conditions for us to strengthen its foundations decisively."

06.44 Ed Balls has told the Financial Times that a "gaping hole" in the bill to revamp City regulation could prevent important warnings from reaching the Chancellor.

The Shadow Chancellor has criticised some of the extensive powers that the bill would grant to the Governor of the Bank of England, saying that the new structure could stifle dissenting voices.

QuoteI don?t think [the current system] can be said to have caused the global crisis. Countries with very different structures got this wrong. We are at best very unconvinced that this [bill] is a comprehensive solution.

Elsewhere in the FT, Kenneth Rogoff, professor of economics at Harvard University, has written a column on a crisis in capitalism:

Quote The idea that Chinese capitalism provides a blueprint for the rest of the world economy is an absurd exaggeration.

06.41 German Chancellor Angela Merkel is in China today to reassure Chinese leaders that Europe is resolving its debt crisis. Merkel is to deliver a speech later at a government think tank and meet Chinese leaders. German officials say Merkel's goals include reassuring Chinese leaders about the stability of the 17-nation euro area. They said she will brief them on this week's meeting of European leaders, who agreed on a treaty to impose new spending controls.

Merkel is expected to press Beijing to buy less Iranian oil to help Western governments pressure Iran to give up a possible nuclear weapons program. China gets more than 10pc of its oil imports from Iran, and Beijing has rejected an embargo.

06.38 Mark Zuckerberg compared the launch of Facebook with the invention of the printing press as the company powered up a $5bn (�3.2bn) initial public offering last night, which is expected to rank as the biggest technology flotation in history.

The Class B shares of Mr Zuckerberg - who owns 28.4pc of the company - will each carry 10 votes, whereas the Class A shares being offered at IPO will have just one vote a piece. The filing said:

Quote[The structure] provides Mr Zuckerberg with the ability to control the outcome of matters requiring stockholder approval, even if he owns significantly less than a majority of the shares.

Key points from Facebook's IPO filing include the fact that the site chalked up $1bn of net income last year, almost doubling the $606m it made in 2010. Revenues shot up to $3.71bn last year from $1.97bn in 2010.

In a letter, Mr Zuckerberg said:

QuoteFacebook was not originally created to be a company. It was built to accomplish a social mission ? to make the world more open and connected. We think it?s important that everyone who invests in Facebook understands what this mission means to us, how we make decisions and why we do the things we do... Simply put: we don?t build services to make money; we make money to build better services.

06.30 The Mirror has led on the news that Ravi Sinha, 47, was fined nearly �3m by the City watchdog for fraud but escaped criminal prosecution after his company JC Flowers allegedly refused to help police nail him. City of London Police and JC Flowers yesterday blamed each other for the scandal ? both accusing the other of having no appetite for prosecution.

Meanwhile, The Times says Lloyds is preparing to hand investment banking chief Truett Tate a �4.8m payout as he leaves the bank as part of a management reshuffle

06.25 This morning's business pages are split between the state of the UK economy and Facebook filing for its IPO:

06.15 Good morning and welcome back to our debt crisis live blog.

Debt crisis live: archive


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Nevada's triple economic whammy

Nevada has the dubious distinction of leading the nation in unemployment, foreclosure filings and number of underwater homes. That's not good for the state's economy.

Nevada has the dubious distinction of leading the nation in unemployment, foreclosure filings and number of underwater homes. That's not good for the state's economy.

NEW YORK (CNNMoney) -- The Great Recession has dealt Nevada a losing hand.

The Silver State, which will hold the Republican caucus on Saturday, has the dubious distinction of leading the nation in unemployment, foreclosure filings and share of homes worth less than the mortgages on them.

The collapse of the housing market wreaked havoc on homeowners, but also caused the once-prospering construction industry to fold, sending the unemployment rate skyrocketing.

Adding to the state's woes, the national economic downturn hurt Nevada's lifeblood of tourism and gambling, costing even more jobs.

Nevada's unemployment rate soared to an all-time high of 14.9% in December 2010. While it's since fallen to 12.6%, that's still more than four percentage points higher than the national rate. And more than half of those out of work have been jobless for at least six months.

A staggering 1 in 16 homes have been hit with a foreclosure filing, versus the national rate of 1 in 69 homes. And more than half of borrowers owe more on their mortgages than their homes are worth, compared to just over a fifth nationwide.

Meanwhile, home prices continue to plummet. S&P/Case Shiller recently reported that Las Vegas home prices fell by 9.1% over the 12 months ending in November, the second-worst performance among the 20 cities surveyed. The reason: a high number of foreclosure sales.

The myriad foreclosure prevention programs rolled out by the Obama administration have done little to stabilize housing and the economy in this hard-hit state, housing counselors say.

"While they've been helpful, they haven't addressed the heart of the problem," said Gail Burks, chief executive of the Nevada Fair Housing Center, noting the unending drop in home values. "Nothing in Nevada has stemmed the tide and gotten the market back on track."

Maria Plumeri is one of those delinquent homeowners fighting to get a loan modification. She and her husband, Paul, stopped paying their mortgage in September after the $1,200 monthly tab became too much for them on his Social Security and pension and her disability checks.

Plumeri, who owes $189,000 on a home worth $32,000, is hardly alone in her Sandy Valley community. Neighbors on either side of her are also delinquent.

"If you drove around Sandy Valley, you'd see a lot of stickers from the bank. There has to be 20 houses with no one living in the them," said Plumeri, 64. "The government hasn't helped anyone here in Sandy Valley."

Experts cite several stumbling blocks, including an unwillingness of the banks to participate and the need to reduce the mortgage principal for so-called underwater borrowers.

Even if home prices rise 2% to 3% a year, it will take an average of 10 years for homeowners' debts to come in line with property values, said Nasser Daneshvary, director of Lied Institute for Real Estate Studies at the University of Nevada, Las Vegas. Many people aren't willing to wait that long, instead choosing to simply walk away.

Others say increasing employment is the key to saving the state's housing market. Not only is joblessness prompting people to default on their mortgages, but it's preventing them from buying properties.

"No matter what we do for them, no matter how much principal reduction we give them, if they don't have a job, they will default," said Leonard Chide, executive director of Neighborhood Housing Services of Southern Nevada. "If people had jobs, they'd pay their bills."

The good news is that a sliver of silver lining has appeared. The state's economy has begun to recover, though improvement is slow, said Stephen Brown, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas. Tourism is picking up, as is gambling. But the housing and construction industries are expected to remain in the doldrums for the time being.

"Nevada cannot look to real estate for its economic growth right now," Brown wrote recently in his 2012 outlook for the state. "Diversification will pay dividends in the future."�To top of page

First Published: February 3, 2012: 5:31 AM ET


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Saturday, March 17, 2012

Toys R Us plans to hire fewer holiday workers (Reuters)

(Reuters) ? Toys R Us Inc (TOY.UL) is cutting its holiday hiring, making it the latest retailer to exercise caution while seeking temporary help in the anemic U.S. economy.

The world's largest toy retailer plans to hire more than 40,000 seasonal workers at its stores and distribution centers this holiday season.

It had hired 45,000 seasonal workers last year -- the same number as its regular U.S. employees.

Retailers normally double their staff levels for the biggest selling season of the year, but many are playing it safe as U.S. shoppers show little appetite for non-essential items in a weak economy.

"It looks to me like they are preparing for lowered spending and will be very cautious about hiring people until they really know they need them," John Challenger, chief executive of global outplacement firm Challenger, Gray & Christmas, said of retailers in general.

Chains such as J.C. Penney (JCP.N), Kohl's (KSS.N), GameStop (GME.N) and Crate & Barrel have told Reuters they plan to hire roughly the same number of seasonal workers as last year. A quarter of the chains surveyed by Hay Group said they were hiring fewer seasonal workers this year.

An increased focus on e-commerce and the opening of fewer temporary U.S. stores this year also seem to have weighed on Toys R Us' hiring plans.

Hiring at Toys R Us begins this week and continues through November, the company said, noting it will add more employees if necessary.

The retailer often lets seasonal workers stay on a permanent basis. About 10 percent of Toys R Us' 2010 holiday workforce remain employed at its stores.

(Reporting by Dhanya Skariachan; Editing by Richard Chang)

(Corrects first paragraph to remove 11 percent)


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Blue chips drop 4 percent on recession fears (Reuters)

NEW YORK (Reuters) ? Stocks fell further on Thursday, with the Dow industrials briefly down 4 percent, as a bleak outlook from the Federal Reserve and weak data from China heightened fears of a global recession.

The Dow Jones industrial average dropped 413.38 points, or 3.72 percent, to 10,711.46. The S&P 500 dropped 38.84 points, or 3.33 percent, to 1,127.92. The Nasdaq Composite dropped 81.79 points, or 3.22 percent, to 2,456.40.

(Editing by James Dalgleish)


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Berkshire Hathaway posts lower 3Q profit

{"s" : "brk-a","k" : "a00,a50,b00,b60,c10,g00,h00,l10,p20,t10,v00","o" : "","j" : ""}

, On Friday November 4, 2011, 7:20 pm EDT

LOS ANGELES (AP) -- Warren Buffett's Berkshire Hathaway Inc. said Friday that its third-quarter profit fell 24 percent from a year ago due to a sharp decline in the value its equity derivative contracts following the wild swings in the stock market this summer.

Paper losses aside, most of the mammoth company's business segments, including its railroad, insurance underwriting and manufacturing operations, reported improved earnings for the quarter.

Berkshire said net income was $2.28 billion, or $1,380 per Class A share, for the three months ended Sept. 30. That's down from net income of nearly $3 billion, or $1,814 per Class A share, a year earlier.

On a Class B share basis, the company's earnings amounted to 92 cents a share, down from $1.21 a share.

Berkshire's results fell short of the $1.20 per Class B share three analysts surveyed by FactSet had expected on average.

Revenue slid to $33.7 billion from $36.3 billion last year.

The Omaha, Neb.-based company recorded a loss from its derivative contracts of about $1.59 billion, much wider than the loss of $95 million booked the year before.

"A lot of that will be reversed this quarter because the market's come back," said Jeff Matthews, a shareholder who wrote "Secrets in Plain Sight: Business & Investing Secrets of Warren Buffett."

All told, Berkshire's investment gains and derivative losses combined to sap $1.53 billion from its profit in the third quarter. A year earlier, the company's derivatives and investments added $202 million to quarterly net income.

The true value of the derivatives won't be clear for at least several years because they don't mature until an average of about 10 years from now. But Berkshire is required to estimate their value every time the company reports earnings. Buffett has said he believes the contracts will ultimately be profitable because the premiums are being invested.

Berkshire executives say the company's operating earnings are a better measure of how the company is performing in any given period because those figures exclude its derivatives and investment gains or losses.

The company said its operating income climbed 37 percent to $3.81 billion in the quarter from $2.79 billion a year earlier.

Besides investments, Berkshire owns roughly 80 subsidiaries, including clothing, furniture and jewelry firms, but its insurance and utility businesses typically account for more than half of the company's net income.

In the latest quarter, most of the company's business segments turned in annual gains in earnings, led by insurance underwriting.

The segment generated net earnings of $1.09 billion, up from $199 million a year earlier.

That included an after-tax gain of about $855 million as the company reduced its estimate of reinsurance contract liabilities and changes in currency exchange rates.

The company's insurance investment income segment posted a 10 percent drop in earnings to $783 million from $873 million in the prior-year quarter -- a result of the drop in the value of the company's derivatives.

Net earnings for Berkshire's railroad business, the Burlington Northern Santa Fe railroad, climbed 8.5 percent to $766 million from $706 million.

The company's utilities and energy, manufacturing, service and retailing, and finance and financial products segments also reported annual gains in net income.

At the end of the quarter, the company's book value was up 1.5 percent from the end of last year to $96,876 per Class A equivalent share, Berkshire said.

The company said in September that it planned to buy back its Class A and B shares should they trade at less than 110 percent of book value. That threshold would be less than $106,563 a Class A share, going by the company's book value at the end of the quarter.

Berkshire's Class A shares were down $4 to $115,802 in aftermarket trading on Friday. They ended the regular session down $2,494, or 2.1 percent, at $115,806.


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Greek PM, opposition reach power-sharing deal

, On Sunday November 6, 2011, 6:48 pm EST

ATHENS, Greece (AP) -- Greece's embattled prime minister and main opposition leader agreed Sunday to form an interim government to ensure the country's new European debt deal, capping a week of political turmoil that saw Greece face a catastrophic default that threatened its euro membership and roiled international markets.

As part of the deal, Prime Minister George Papandreou agreed to step down halfway through his four-year term. He and conservative opposition head Antonis Samaras are to meet Monday to discuss who will become prime minister and the makeup of the Cabinet.

The new unity government's main task will be to pass the European rescue package, reached after marathon negotiations between European leaders barely a week ago -- a move considered crucial to shoring up the euro. The interim government will then lead the country into early elections, expected early next year.

Officials had been anxious to reach some form of agreement before a meeting of eurozone finance ministers in Brussels on Monday.

"Of course it's a breakthrough," government spokesman Elias Mossialos said. "It is a historical day for Greece, we will have a coalition government very soon, early next week. The prime minister and the leader of the opposition will discuss tomorrow the name of the new prime minister and the names of ministers."

Papandreou sparked the latest crisis by announcing last week that he was taking the hard-fought debt agreement to a referendum. That outraged European leaders, who said such a vote could raise the specter of Athens leaving the common currency -- setting off an unpredictable chain reaction that could drag down other European countries.

They also warned a vote would jeopardize the disbursement of a vital $11 billion (euro8 billion) installment of Greece's existing $152 billion (euro110 billion) bailout, which the country desperately needs to avoid the potential of a catastrophic default within weeks.

In the ensuing market turmoil, Italy -- which also faces severe financial difficulties, but is considered too big to bail out -- saw its borrowing costs spiral, sparking fears it could be dragged into the fray.

Papandreou withdrew the referendum plan Thursday in the wake of European anger and after it sparked a rebellion among his own Socialist lawmakers, many of whom called for him to resign. The turmoil also pushed the conservative opposition party to publicly declare it would back the debt agreement.

Any interim government that is formed with the support of both major parties will be almost guaranteed to push the European rescue package through parliament, even if it has to be approved by a reinforced majority of 180 of the legislature's 300 lawmakers.

The new European deal would give Greece an additional $179 billion (euro130 billion) in rescue loans and bank support. It would also see banks and private investors write off 50 percent of their Greek debt holdings, worth some $138 billion (euro100 billion). The goal is to reduce Greece's debts to the point where the country is able to handle its finances without relying on constant bailouts.

Greece's lawmakers must now approve the package, putting intense pressure on the country's leaders to swiftly end the political crisis so parliament can convene and put it to a vote.

A planned meeting with the leaders of all political parties in parliament, which was to take place Monday evening, was canceled after two leftist parties refused to attend, the president's office said.

Sunday's agreement came after a late-night meeting between Papandreou and Samaras called by President Karolos Papoulias at Papandreou's request to end a two-day deadlock. Direct talks had failed to get off the ground because Papandreou had said an agreement had to be reached on a new government before he stepped aside, while Samaras insisted Papandrepou resign before the start of negotiations and demanded quick elections.

An opposition conservative party official said Samaras' New Democracy party was "absolutely satisfied" with the outcome of the talks and that party officials were to hold meetings late Sunday night with Finance Minister Evangelos Venizelos and his advisers to discuss how long it would take to finalize the new debt deal and when elections could be held.

"Our two targets, for Mr. Papandreou to resign and for elections to be held, have been met," the official said, speaking on condition of anonymity to discuss the process.

The Finance Ministry said a late-night meeting between Venizelos and opposition party members determined the "most suitable" date for elections was Feb. 19.

Two turbulent years after coming to power in a landslide election victory, Papandreou has seen his popularity plummet as his government has been forced to severely cut spending while hiking taxes to tackle a runaway deficit and debt that led Greece to become the first eurozone country to seek an international bailout.

Ireland and Portugal have since followed suit, but European leaders have been desperate to ensure other countries with larger economies are not also dragged down.

Associated Press writer Nicholas Paphitis in Athens contributed to this report.


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Carnival reviewing cruise ship safety

Published: Jan. 21, 2012 at 2:44 PM

MIAMI, Jan. 21 (UPI) -- Carnival Corp., the U.S.-based parent of the operator of the Costa Concordia, says it'll review all its cruise ships' safety and emergency-response procedures.

The review, which comes in response to the Costa Concordia disaster that has left at least 12 people dead, will examine the procedures at all 10 Carnival lines, the company said in a news release.

The company said it has had an "excellent safety record over the years."

"However, this tragedy has called into question our company's safety and emergency-response procedures and practices," Micky Arison, Carnival's chairman and chief executive officer, said in a statement.

"While I have every confidence in the safety of our vessels and the professionalism of our crews, this review will evaluate all practices and procedures to make sure that this kind of accident doesn't happen again."

The review is being led by Capt. James Hunn, a retired U.S. Navy captain and Carnival's senior vice president of Maritime Policy & Compliance. Hunn has held senior positions at Carnival nearly a decade focusing on maritime policy and overseeing health, environmental, safety and security practices.

Miami-based Carnival also said its Health, Environment, Safety & Security Committee is enlisting outside industry experts to review all emergency-response and safety procedures and to conduct a "thorough review" of the Costa Concordia accident.

Costa Cruises Chairman Pier Luigi Foschi this week said the captain deviated from frequently traveled routes.

Schettino, 57, is under house arrest, accused of manslaughter, causing a shipwreck and abandoning ship before all passengers were evacuated. Prosecutors he was sailing too close to Giglio on an unauthorized course to perform a "salute" -- a greeting to islanders.

Carnival stock closed Friday at $31.56, down 35 cents, or 1.1 percent on the day.


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Is Meg Whitman Taking Over from Leo Apotheker at HP? (NewsFactor)

With back-to-back poor quarterly earnings reports, Hewlett-Packard isn't willing to give Leo Apotheker any more time to turn the company around. Apotheker took the helm about 10 months ago -- soon after the board fired its last CEO, Mark Hurd, amid allegations of misconduct.

According to The New York Times, Meg Whitman is the leading candidate to replace the former SAP CEO. Whitman served as the CEO for eBay and currently sits on the board of directors at HP. The New York Times cited anonymous sources; if the rumors hold true, this will be the third CEO in a row HP has fired, dating back to Carly Fiorina.

Apotheker's moves in his 10-month tenure have included putting the kibosh on the webOS operating system (software for which HP paid $1.2 billion), the $11.7 billion acquisition of Autonomy (which analysts insist was overpriced), the failure of the TouchPad tablet, and the potential spinoff of the PC business. HP stock has dipped nearly 50 percent since Apotheker took over.

Mistrusting the Board

"Apotheker was brought on board to orchestrate a major change in the company. He's only been there 10 months," said Rob Enderle, principal analyst at Enderle Group. "It would take at least two years for his changes to have effect. Anybody who thought changing HP from a hardware company to what is going to be largely a software company was going to be painless must have missed a few meetings."

Enderle is speculating about a possible unpleasant reality: someone from within the board is orchestrating this leak for their own stardom. In other words, an HP board member or group of board members may be unofficially jockeying to get Apotheker out to put in a favored candidate now rather than in two years. If that truth comes out, Enderle said, the people involved cannot be trusted.

"This is not the typical way a board replaces a CEO. The decision is made confidentially. The CEO is told first and then the announcement is made," Enderle said. "These leaks are trying to orchestrate something either from inside the board or inside Hewlett-Packard by someone who has designs on that job. And it's one of the series of leaks that have come out over time. It looks like there is a secondary agenda if not a mini-rebellion going on at HP."

HP's Most Serious Problem

Whitman has held key executive positions at some of America's most well known brands, including Disney, Stride Rite, FTD and Hasbro. She is also credited with steering eBay through the dot-com rise and fall and avoiding the crash and burn that was the fate of so many of its contemporaries.

When Whitman joined eBay in 1998, it had 30 employees and $4.7 million in revenues. In 10 years, she grew the company to nearly $8 billion in revenues with 15,000 employees worldwide. Whitman later ran for governor of California and lost.

According to The New York Times, if HP hires Whitman as CEO it would likely be for a permanent position, not interim. Part of the problem with Apotheker, as the Times reports, is his communication style. That stance is bolstered by a lawsuit filed against HP claiming execs misled investors about the company's state. But the company's biggest problem may be the reputation for board leaks.

"HP has an environment where leaks are apparently allowed and this practice has transitioned across board members. It's probably HP's most serious problem," Enderle said. "If they cannot contain the leaks, no CEO could be successful at running this company. Leaks create the impression that the board isn't behind its CEO, and it's very hard to get anything done when that's the case."


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Tax Doomsday Is Coming for Amazon

On Tuesday, (AMZN) shocked and dismayed its shareholders. Reporting earnings for the final quarter of 2011, Amazon admitted that despite 35% sales growth, profitability had headed in the entirely wrong direction. Operating profit margins got cut in half, while net profits were down 57%. The culprit: massive spending on a number of initiatives -- everything from building new warehouses, to subsidizing "Prime" membership, to selling Kindles at a loss -- which decimated the company's profit margin.

Investors are now wondering whether all the investment Amazon has been doing lately is worth the cost. If the whole idea behind Amazon is that it's supposed to be a virtual store, free of the fixed costs of ordinary retailers, then why spend money building warehouses? Why invent the Kindle Fire, if all Amazon intends to do with the thing is sell it below cost?

Fans of the company will tell you this is all part of Amazon's grand plan, to invest and accept low profit margins today, in order to set the stage for monster revenue growth and fatter profit margins tomorrow. And that is the plan ... in part. But the truth is actually bigger than that.

The truth is that unless makes the investments it's making today, its business could be in serious trouble within just a couple of years.

What Makes Amazon Great

It's true that Amazon has a big advantage in not operating physical stores. It also has great customer service, superior search and interface, and any number of other advantages.

Perhaps its biggest advantage, though, is that it's become the Walmart (WMT) of online shopping, offering "always low prices" to the Internet shopping masses -- prices often superior to what its bricks-and-mortar rivals can offer.

But key to Amazon's ability to beat the competition on price is the fact that current law permits Amazon to avoid charging sales tax on most of its sales, only collecting tax on sales to states where it maintains a "physical presence."

But maybe not for long.

States Are Sick of the Tax Dodge

Across the nation, dozens of states are struggling with budget deficits, and looking to Amazon's sales success as a partial solution to their problems. A movement's afoot to require the e-tailer to begin collecting taxes for the states, removing one of its biggest advantages over the competition.

So how does Amazon prepare for its date with "tax doomsday"?

  • It steadily expands the list of goods it will ship to you, starting with books and now going all the way through nonperishable groceries, all sold at cut-rate prices.
  • It offers $79 "all you can eat" shipping on these goods through Amazon Prime (with analysts postulating it loses $11 annually per membership).
  • It gives away free streaming of movies and television shows, a la Netflix (NFLX) as part of that service.
  • It offers 15% discounts for "subscribe and save" shopping.
  • And finally, it invents a line of Kindle devices that it sells to customers at an estimated loss of $10 to $15 apiece on just hardware costs alone.
Indeed, it sometimes seems like every new idea Amazon has dreamed up in recent years has been calculated to more efficiently and consistently lose money for the company. And now the company warns that it may lose as much as $200 million in the current quarter as a result. It's enough to make an investor shout: "This is crazy! Is this any way to run a business?"

Crazy Like a Fox

Actually, yes. In fact, it's precisely what Amazon must do if it's to survive tax doomsday.

You see, the day's not far off when Amazon won't be able to offer the lowest prices anymore. Just last month, the company struck a deal with the state of Indiana. The Hoosier State would not ask Amazon to collect sales taxes on goods delivered to in-state shoppers for two years ... but on Jan. 1, 2014, Amazon will begin collecting sales tax.

This deal was significant because historically, Indiana has traded tax favors for warehouse jobs. (Last summer, the company announced its latest, 900,000-square-foot distribution center would be built near Indianapolis.) If Amazon is coming to an agreement with Indiana, though, the writing's on the wall. The sales tax exemption is going away.

Assuming other states follow Indiana's example (as California already has), Amazon has perhaps two years left to "train" shoppers to shop its site. Ideally, Amazon wants customers to do this automatically through subscribe and save features, or as part of the company's Kindle ecosystem. If that doesn't work, Amazon will at least want to make switching to another retailer inconvenient, entailing worse product selection and the loss of Prime privileges such as free shipping and free streaming movies.

In short, Amazon has good reason to lose money today. It has to -- or else it will lose customers tomorrow.

Motley Fool contributor Rich Smith does not own shares of any company mentioned above. The Motley Fool owns shares of Walmart Stores and Motley Fool newsletter services have recommended buying shares of Netflix,, and Walmart Stores. Motley Fool newsletter services have recommended creating a diagonal call position in Walmart Stores.


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