Actual finance blog

Singapore raised its 2009 economic forecast after gross domestic product expanded for a second consecutive quarter, strengthening a regional recovery that has prompted policy makers to consider ending stimulus measures.

The economy will shrink 2 percent to 2.5 percent this year, less than an earlier forecast for a contraction of 4 percent to 6 percent, the trade ministry said in a statement today. GDP expanded an annualized 14.9 percent last quarter from the previous three months, the second consecutive expansion.

Singapore’s benchmark stock index has surged 51 percent this year as a rebound in manufacturing helped the nation emerge from its worst recession since independence in 1965. Asia is leading the world’s recovery from its economic slump after policy makers slashed interest rates to unprecedented lows and governments announced more than $950 billion of stimulus.

“Singapore is always the first in the region to provide a reliable GDP report so a strong reading would be a positive sign for other outcomes in the region,” said Matthew Hildebrandt, an economist at JPMorgan Chase & Co. in Singapore. “The worst of global economic turmoil is behind us,” reducing the need to further ease monetary policy, he said.

The Monetary Authority of Singapore, known as MAS, maintained a neutral stance in its twice-yearly currency policy review today, favoring neither appreciation nor depreciation against its trade-weighted basket of currencies. The central bank opted for a de-facto devaluation of the Singapore dollar in April to help reverse a collapse in exports.

The currency fell 0.3 percent as at 8:08 a.m. in Singapore.

Raising Rates

Central banks around the world have begun to indicate a willingness to raise interest rates as inflation returns with economic recovery.

Australia last week became the first among the Group of 20 nations to raise borrowing costs since the height of the global financial crisis, and U.S. Federal Reserve Chairman Ben S. Bernanke said the Fed is prepared to tighten monetary policy when the outlook for the economy “has improved sufficiently.”

“Uncertainties over the pace of the withdrawal of monetary and fiscal stimulus measures pose an additional risk,” the trade ministry said today. “While these factors may dampen growth in the second half of 2010 and result in an uneven recovery, the likelihood of a return to recessionary conditions is low in the absence of further financial shocks.”

Singapore is forecast by economists including JPMorgan’s Hildebrandt to delay any change in its currency policy until April. The government is due to say this week if it will extend a program that pays companies to retain workers.

‘Extremely Volatile’

“Singapore’s economy is extremely volatile” and the boost to growth from companies rebuilding inventory and government stimulus is starting to fade, said Hildebrandt low interest payday loans. “Because of this uncertainty, we do not expect the MAS to change its monetary policy stance. The risk to inflation is still low so the MAS has no need to tighten policy.”

The central bank expects inflation to be about zero this year, before accelerating to a range of 1 percent to 2 percent in 2010, it said in a statement today.

Singapore’s $182 billion economy grew 0.8 percent in the third quarter from a year earlier, better than the median estimate for a 0.5 percent gain in a Bloomberg survey of 16 economists. The government has raised its 2009 economic forecast twice this year from an April prediction for a contraction of as much as 9 percent.

Manufacturing

Manufacturing, which accounts for about a quarter of the economy, rose 8.3 percent from a year earlier last quarter, after sliding a revised 1.1 percent in the three months through June.

Improving demand for pharmaceuticals and electronics has prompted companies including Chartered Semiconductor Manufacturing Ltd. to predict sales will increase. Singapore’s industrial output climbed in the first two months of last quarter, and the island’s exports fell the least in almost a year in August.

“The economy looks to have a broad-based recovery under way across most sectors,” said Philip McNicholas, an economist at IDEAglobal in Singapore. “The services sector, led by financial services and retail trade, should show further improvement and underpin the recovery. The same is true for much of the manufacturing sector, with the electronics cluster being a key driver.”

The island’s services industry declined 2.4 percent last quarter from a year earlier, after falling 4.8 percent in the previous three months. The construction industry gained 12.4 percent as real-estate developers including Frasers Centrepoint Ltd. built homes, hotels and office towers.

2010 Growth

The island’s private residential property prices rose last quarter for the first time in more than a year. The government said last month it would introduce new measures to prevent excessive price swings in the property market following signs that speculative home buying may be on the rise.

“Looking ahead, the economy is not expected to sustain the strong pace of expansion” seen in the second and third quarters, the central bank said. “GDP growth in 2010 is expected to be slower than in previous post-recession periods.”

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The U.S. government’s “pay czar” played a critical role in Citigroup’s decision to sell off its lucrative commodities trading business, Phibro, a source familiar with the matter said Friday.

The sale of the unit to Occidental Petroleum Corp relieves beleaguered Citigroup of a massive political headache– what to do with Phibro trader Andrew Hall and his paycheck of up to $100 million.

Hall has become the poster child of Wall Street’s top earners; and while pay czar Kenneth Feinberg would have limited power over his pay this year, he would undoubtedly have dramatically restructured Hall’s pay in future years.

Feinberg made it clear to Citigroup that Hall would not be able to keep earning his eye-popping paychecks, leaving Citigroup with the decision of selling off Phibro and parting with Hall or keeping Phibro but losing the unit’s moneymaker, according to the source.

The source spoke anonymously because the negotiations between Citigroup and the pay czar have not been made public.

Citigroup’s decision to offload both Phibro, and so Hall, demonstrates the extent of Feinberg’s power over the seven firms that have received “exceptional assistance” from the government.

The other firms are Bank of America Corp, American International Group Inc, Chrysler Group LLC, General Motors Co, Chrysler Financial and GMAC.

Alan Johnson, a Wall Street compensation consultant, said the deal helped Citigroup unload what was becoming “an embarrassment on line pay day loans.”

Occidental did not disclose the terms of the deal but said that its net investment would be about $250 million and that it was paying roughly the net asset value of the business.

Citigroup has received multiple bailouts from the government, including $45 billion from the U.S. Treasury’s Troubled Asset Relief Program.

POWER PLAY

Feinberg is in the thick of a 60-day intensive review of the pay contracts for the top 25 earners at the seven firms, in which he has the power to approve or renegotiate their compensation packages.

Citigroup’s announcement that it is shedding Phibro comes just three weeks before Feinberg’s rulings are due.

Feinberg did not have explicit authority to approve or reject Hall’s pay for this year because the contract was signed before a cut-off date of February 11, 2009.

But in a demonstration of the reach of Feinberg’s powers, he would still have a say over Hall’s future pay. He would have likely forced much more of it to be in equity that vested over a longer time horizon, crimping Hall’s ability to take home cash. 

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Senate Banking Committee Chairman Christopher Dodd told Reuters Television on Thursday he sees no obstacles in the way of the Senate reconfirming Ben Bernanke as Federal Reserve chairman.

Asked in an interview if he saw any roadblocks to the reconfirmation, Dodd said, “No, I don’t think so.”

“I’ve indicated I want to be supportive. I think Ben Bernanke’s done a very good job, particularly in the last year or so. I think that view is embraced by a lot of people,” said Dodd, a Democrat.

President Barack Obama nominated Bernanke to a second term as Fed chairman in August quick pay day loan. His four-year term expires in January.

“The chairman’s not going anywhere,” Dodd said.

“We’re so preoccupied now with trying to pull together the modernization of the financial structure, which is taking a lot of time, as it should.”

(Reporting by Kevin Drawbaugh and Corbett Daly; editing by Jeffrey Benkoe)

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U.S. government-controlled mortgage finance companies Freddie Mac and Fannie Mae are working on a program to help independent mortgage banks get access to short-term credit needed to make home loans, the Wall Street Journal said, citing people familiar with the matter.

Fannie and Freddie will provide advance commitments for the purchase of home mortgages that meet certain standards, according to the paper.

The program aims to reduce risks that independent mortgage banks face so they can obtain short-term credit, the paper said.

The Journal’s sources added that the companies are planning to build on an undisclosed pilot program that Freddie has with Provident Funding Associates LP and warehouse-lender NattyMac, where short-term funding would be provided to mortgage companies. Spokesmen for Fannie and Freddie declined to discuss details of the plan with the paper.

Fannie and Freddie could not be immediately reached for comment by Reuters outside regular U.S. business hours.

(Reporting by Ajay Kamalakaran in Bangalore; Editing by Kim Coghill)

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Conde Nast will close four magazines — Modern Bride, Elegant Bride, Gourmet, and Cookie — following a review the publisher undertook to find ways to reduce costs and staff in the face of a slump in advertising.

The decision is among the clearest signs yet of severe cost cuts at the publishing house best known for magazines such as The New Yorker, Vanity Fair and Vogue. Those cuts follow a study from McKinsey & Co consultants who were brought in by management this summer.

Word of the cuts had loomed over Conde Nast since then, leading to speculation that they could even touch the expense accounts of editors such as fashion magazine Vogue’s U.S. chief Anna Wintour, considered the inspiration for the editor portrayed in the book and film “The Devil Wears Prada.”

The company said the review has been completed. It is unclear whether Monday’s announcement is the last.

For some readers, closing Gourmet, which some fear could lead to the sacking of its editor Ruth Reichl, was the most painful move. The magazine is revered among home chefs and Reichl is one of the food writing business’s most popular figures.

On the Twitter social network, a news feed called “@savegourmet” appeared on Monday.

Reichl did not respond to an e-mail message seeking comment.

Media bloggers and other scribes have searched for signs that publishers and editors would see big, painful cuts — from first-class travel to gourmet meals at the Frank Gehry-designed cafeteria.

Conde Nast previously closed its Portfolio business magazine and home decor magazine Domino and had trimmed spending across the company.

The latest magazine shutdowns “combined with cost and workforce reductions now under way throughout the company, will speed the recovery of our current businesses and enable us to pursue new ventures,” Chief Executive Chuck Townsend said on Monday in a memo to staff.

About 180 employees will lose their jobs in the cuts, a Conde Nast spokeswoman said.

With the shutdown of Modern Bride and Elegant Bride, a third wedding magazine, Brides, will increase its publication schedule to monthly from once every two months. As for Gourmet, Conde Nast said it remains committed to the brand and would continue Gourmet’s book publishing and TV programing.

The company is far from being the only U.S. publisher to suffer circulation and advertising revenue declines as readers go online and advertisers slash budgets because of the recession. It is, however, one of the most conspicuous.

The privately-held company, headquartered in New York City’s Times Square, has long enjoyed a reputation as sophisticated as the one depicted in its glossy fashion magazines.

A roster of high-priced editors such as Wintour and Vanity Fair’s Graydon Carter, and the image of a staff leading an exhausting but glamorous lifestyle ensures that when Conde Nast tightens budgets it becomes big news for the movers and shakers in New York’s media, fashion and advertising worlds. 

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In the 1980s, when stocks mostly surged, a few mutual fund managers became the equivalent of rock stars.

Tops among them: Peter Lynch, who racked up average annual returns of a remarkable 29 percent over a 13-year run.

Lynch did it at Fidelity Magellan, which continued to grow after he left in 1990. What once was the world’s largest fund swelled from $13 billion to nearly $110 billion a decade later. Assets peaked three years after the fund shut its doors to new investors because it became so big it was hard to manage effectively.

So where is Magellan now? It’s at $24 billion, and struggling to draw investors who fled in droves after years of mediocre performance. Magellan is still big by any standard, but it’s merely Fidelity’s fourth-largest stock fund.
"I don’t worry about too many assets now," says current manager Harry Lange, who took over in late 2005.

Magellan reopened to new investors early last year, but those who gave it a try were disappointed. The fund’s 2008 plunge? Forty-nine percent — steeper than the market’s nearly 39 percent decline. Blame bad bets on dogs like AIG and Wachovia — financial companies that Lange held on to for too long.

But Lange is turning things around, thanks to a sharp departure from his predecessor’s style. Where Robert Stansky was criticized for too closely mirroring broader markets, Lange has tilted the fund heavily in favor of growth stocks — companies whose comparatively steep share prices are backed by expectations that earnings will keep growing rapidly. He’s eased out of cheaper value stocks with steadier earnings, and takes a go-anywhere approach in keeping with the fund’s namesake 16th century explorer. Nearly one-quarter of Magellan’s holdings are international stocks.

Many of the same bets on riskier stocks that weighed Magellan down last year are lifting it in 2009. It’s up 35.6 percent, easily topping the nearly 17 percent gain for its benchmark, the Standard & Poor’s 500, and beating nearly nine of 10 of its peer funds.

So is it time to climb back aboard Magellan? Only if you’re willing to commit to a fund whose penchant for racy stocks makes it unusually volatile.

This year, the fund expanded its already substantial stake in recently hot technology stocks — its second- and third-largest holdings are specialty glass maker Corning Inc. (up 62 percent this year) and semiconductor maker Applied Material (up 34 percent). It’s also favored hard-hit fare like home builder Toll Brothers (down 8 online cash advance.8 percent) and big banks — Magellan’s most recent list of top 10 holdings included Bank of America, J.P. Morgan Chase, Wells Fargo and Goldman Sachs.

Lange has turned Magellan into "a fund for optimists," according to Morningstar’s lead Fidelity analyst, Christopher Davis.

"If you look at its portfolio, it’s positioned for an economy that’s improving," Davis says, noting an absence of such defensive favorites as Wal-Mart and Procter & Gamble.

Lange says this year he’s slightly eased off his leaning toward growth stocks but still heavily favors the category. Though value stocks outperformed growth for an eight-year run after the dot-com bubble deflated early this decade, the pendulum swung back to growth last year — financial stocks that were hit so hard last year are mostly in the value category. Growth’s ranks include plenty of tech names that have recently fared well.

Lange still likes tech because of its big stake in emerging markets, where consumers in countries like China and India continue to drive growing demand for gadgets including mobile phones from makers like Nokia, Magellan’s top holding. He figures that trend will continue giving growth an edge over value. "I’m pretty confident that growth will be as strong in the next six to 12 months," Lange says. "There are a lot of people out there who think after that, it will be a sluggish recovery. I’m more bullish than that."

As for his fund’s choppiness, Lange acknowledges that with his growth-oriented style, "it’s pretty tough not to have volatility in these unusual times."

Even with this year’s strong results, winning back investors who fled Magellan has proved tough. Lange is still trying to shake the cumulative record of the last 10 years, a period when Magellan posted an average annual loss of 1.2 percent, slightly worse than most of its peers.

"This is not your grandfather’s Magellan fund," says Jim Lowell, a former Fidelity employee who runs an independent newsletter, FidelityInvestor.com, that evaluates the company’s funds.

Lowell currently recommends Magellan but says it’s no longer appropriate as a core retirement holding for investors who are looking for the broad exposure it once offered. Instead, Magellan is geared toward those seeking more growth exposure in an otherwise diversified portfolio.

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Recession-pounded consumers who find Target, Kohl’s and even Wal-Mart a bit pricey are moving down to the dollar stores.

As many retailers suffer — quarterly profits dipped this summer at mighty Wal-Mart, for example — dollar stores are opening by the hundreds. And some locate in well-to-do suburbs that once seemed out of reach for chains near the bottom of the retail barrel.

Growth by Dollar Tree, Family Dollar and Dollar General — the Big Three of discount retailing — has become a lifeline to commercial property owners struggling against rising vacancy rates.

"It’s a fascinating trend consistent with neoclassic economic theory," said Bob Lewis, president of Development Strategies, an economic development consultant in St. Louis. "It relates to marginal utility and inferior goods concepts. And the need for commercial real estate owners to fill up space."

Dollar Tree, with nearly two dozen stores in the St. Louis area, is about to open another store at the Heritage Place shopping center on Olive Boulevard in Creve Coeur. The latest Dollar Tree, scheduled to open Thursday, is taking space formerly occupied by Famous Footwear, which moved in July to a smaller spot.

Marginal utility? Inferior goods? Lewis doesn’t equate inferior with poor quality. He means inexpensive items.

"You can survive on ramen noodles if you’re poor," Lewis said. "You don’t buy more of them after you get a good job. But if you’re poor, inferior goods go up in demand."

Marginal utility relates to shopping "ambience," he said. While many shoppers prefer the surroundings of upscale stores, some find that dollar-store shopping for staple items bestows smart-shopper status, Lewis said.

"It’s a fascinating little situation we have going on here," he added. "If you’re buying the things you might normally pick up at Target or Wal-Mart for a few pennies more, why not use the dollar place?"

Shopping center owners benefit by getting occupants for millions of square feet of retail space payday loans.

"Otherwise, it would probably stay vacant or be rented out to a dance studio, or something, just so that the owners can generate a bit of income and keep the lights on," Lewis said.

Mike Swearngin, vice president of Pace Properties, said Dollar Tree’s presence at Heritage Place helps boost the center’s occupancy to 90 percent, up from 80 percent a year ago. He said Dollar Tree will add stability to Heritage Place and draw the same women who already shop at the center’s Marshalls and TJ Maxx stores.

"It’s the type of retailer that seems to be relatively recession-proof," Swearngin said.

In August, Dollar Tree, based in Chesapeake, Va., reported a 50 percent jump in per-share quarterly earnings. Sales rose 12 percent, to $1.22 billion. Dollar Tree had 3,717 stores, 200 more than a year earlier. Spokeswoman Shelley Davis said the company knows the recession is sending shoppers its way from more upscale places.

"We have a sense we are benefiting from trade downs," she said. "But we also feel our regular loyal customers are shopping us more. We do feel that Dollar Tree can operate in a booming or recovering economy."

She said the 9,600-square-foot Creve Coeur outlet is within the company’s ideal size.

Dollar Tree isn’t alone in enjoying growth. Dollar General Co.’s latest quarterly profit tripled, to $93.6 million, from $27.7 million a year earlier. Sales rose 11 percent, to $2.91 billion. The Goodlettsville, Tenn., company has said it will open 500 stores in addition to the 8,577 it had at the end of July.

Dollar General already has more than 600 stores in Missouri and Illinois, including about 20 in the St. Louis area. Family Dollar has about 30 area stores. The region’s next Family Dollar will open in January at 9070 West Florissant Avenue in Ferguson.

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CIT Group Inc is eyeing a loan of up to $7 billion if a planned debt exchange offer fails and the commercial lender has to file for pre-packaged bankruptcy, two sources familiar with the matter said on Thursday.

The board of the lender, which caters to small and mid-sized businesses, was meeting on Thursday to consider a restructuring plan, a third source familiar with the matter said.

Under the terms of a rescue loan CIT received in July, Thursday is the deadline for the company to come up with a restructuring plan agreeable to lenders.

CIT plans to offer its unsecured debt holders two options — either exchange their debt voluntarily or face a pre-packaged bankruptcy.

If the company goes through a pre-packaged bankruptcy, it would need a debtor-in-possession (DIP) loan to finance it during the process. The company is eyeing a DIP loan of $5 billion to $7 billion, the sources said. No such loan has yet been finalized, they said.

CIT declined to comment. The sources declined to be identified because talks are not public.

CIT shares closed down 15 cents, or 12.4 percent, at $1.06 on the New York Stock Exchange.

Its bonds were mixed. The 7.625 percent bond due 2012 was the most actively traded earlier in the day, rising 1.5 cents to 66 cents on the dollar, according to MarketAxess.

RESTRUCTURING PLAN

In a regulatory filing on Thursday, CIT said it intends to restructure outside court through an exchange offer, but may have to file for pre-packaged bankruptcy if it was unsuccessful.

If neither of those work, CIT will likely have to file for bankruptcy without an agreed on plan, which may lead to asset liquidations, it said in a U.S. Securities and Exchange Commission filing.

On Tuesday, sources told Reuters that the exchange offer is likely to essentially turn the company over to bondholders.

Debt investors would get some combination of new debt secured by assets and shares in the company. CIT’s overall debt levels would shrink.

CIT’s longer-term plan is to essentially turn itself into a bank. The company is one of scores of lenders and underwriters that relied on bond markets to fund their operations, only to suffer as the credit crunch has raged for two years.

In the filing, CIT said it expects to seek permission to transfer certain business platforms into its CIT Bank unit within 12 to 18 months after the completion of its restructuring. 

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Federal Reserve Vice Chairman Donald Kohn said on Wednesday policymakers would raise benchmark interest rates well before consumer spending and business investment overheats, adding that obstacles to borrowing are likely to subdue the economic recovery.

“We must begin to withdraw (monetary policy) accommodation well before aggregate spending threatens to press against potential supply, and well before inflation as well as inflation expectations rise above levels consistent with price stability,” he said at a monetary policy conference at the Cato Institute.

Kohn said he could not predict how rapidly the Fed would raise rates or withdraw its massive supply of money to the financial system. He said the Fed — the U.S. central bank –would watch carefully how its extraordinary efforts to support the economy are affecting spending decisions and inflation expectations in timing its exit strategy.

The Fed has the necessary tools to pull back its help for the economy, he said. Paying interest on bank reserves is chief among these, he added.

However, the Fed will also need to drain reserves at some point, he said.

The Fed might also consider sales of longer-term assets if it believes that longer-term rates are not responding appropriately to its removal of monetary stimulus, Kohn said.

The Fed has chopped benchmark interbank lending rates to zero and pumped hundreds of billions of dollars into the economy to pull it out of a devastating financial crisis and deep recession.

Policy-makers have in recent weeks noted signs the downturn may have ended, but promised at their most recent meeting to keep rates extremely low for a long time to support the recovery, which they expect to be slowed down by high unemployment.

Kohn renewed the Fed’s cautious assessment of the economic outlook and its low-rate pledge.

“Although economic conditions have apparently begun to improve … continuing restraints on credit are likely to constrain the speed of recovery,” he said.

(Reporting by Mark Felsenthal; Editing by James Dalgleish)

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