World's Billionaires 2009

World's Billionaires 2009
by Luisa Kroll, Matthew Miller, and Tatiana Serafin
Wednesday, March 11, 2009

It's been a tough year for the richest people in the world. Last year there were 1,125 billionaires. This year there are just 793 people rich enough to make our list.
The world has become a wealth wasteland.

More from Forbes.com: • Billionaire Bachelors and Bachelorettes • Women Billionaires • Celebrity Billionaires
Click here for the full list of the World's Billionaires

Like the rest of us, the richest people in the world have endured a financial disaster over the past year. Today there are 793 people on our list of the World's Billionaires, a 30% decline from a year ago.
Of the 1,125 billionaires who made last year's ranking, 373 fell off the list--355 from declining fortunes and 18 who died. There are 38 newcomers, plus three moguls who returned to the list after regaining their 10-figure fortunes. It is the first time since 2003 that the world has had a net loss in the number of billionaires.
The world's richest are also a lot poorer. Their collective net worth is $2.4 trillion, down $2 trillion from a year ago. Their average net worth fell 23% to $3 billion. The last time the average was that low was in 2003.
Bill Gates lost $18 billion but regained his title as the world's richest man. Warren Buffett, last year's No. 1, saw his fortune decline $25 billion as shares of Berkshire Hathaway (BRK) fell nearly 50% in 12 months, but he still managed to slip just one spot to No. 2. Mexican telecom titan Carlos Slim Helú also lost $25 billion and dropped one spot to No. 3.
It was hard to avoid the carnage, whether you were in stocks, commodities, real estate or technology. Even people running profitable businesses were hammered by frozen credit markets, weak consumer spending or declining currencies.
The biggest loser in the world this year, by dollars, was last year's biggest gainer. India's Anil Ambani lost $32 billion--76% of his fortune--as shares of his Reliance Communications, Reliance Power and Reliance Capital all collapsed.
Ambani is one of 24 Indian billionaires, all but one of whom are poorer than a year ago. Another 29 Indians lost their billionaire status entirely as India's stock market tumbled 44% in the past year and the Indian rupee depreciated 18% against the dollar. It is no longer the top spot in Asia for billionaires, ceding that title to China, which has 28.
Russia became the epicenter of the world's commodities bust, dropping 55 billionaires--two-thirds of its 2008 crop. Among them: Dmitry Pumpyansky, an industrialist from the resource-rich Ural mountain region, who lost $5 billion as shares of his pipe producer, TMK, sank 84%. Also gone is Vasily Anisimov, father of Moscow's Paris Hilton, Anna Anisimova, who lost $3.2 billion as the value of his Metalloinvest Holding, one of Russia's largest ore mining and processing firms, fell along with his real estate holdings.
Twelve months ago Moscow overtook New York as the billionaire capital of the world, with 74 tycoons to New York's 71. Today there are 27 in Moscow and 55 in New York.
After slipping in recent years, the U.S. is regaining its dominance as a repository of wealth. Americans account for 44% of the money and 45% of the list's slots, up seven and three percentage points from last year, respectively. Still, it has 110 fewer billionaires than a year ago.
Those with ties to Wall Street were particularly hard hit. Former head of AIG (AIG) Maurice (Hank) Greenberg saw his $1.9 billion fortune nearly wiped out after the insurance behemoth had to be bailed out by the U.S. government. Today Greenberg is worth less than $100 million. Former Citigroup (C) Chairman Sandy Weill also falls from the ranks.
Last year there were 39 American billionaire hedge fund managers; this year there are 28. Twelve American private equity tycoons dropped out of the billionaire ranks.Blackstone Group's (BX) Stephen Schwarzman, who lost $4 billion, and Kohlberg Kravis & Roberts' Henry Kravis, who lost $2.5 billion, retain their billionaire status despite their weaker fortunes.
Worldwide, 80 of the 355 drop-offs from last year's list had fortunes derived from finance or investments.
While 656 billionaires lost money in the past year, 44 added to their fortunes. Those who made money did so by:

• catering to budget-conscious consumers (discount retailer Uniqlo's Tadashi Yanai),
• predicting the crash (investor John Paulson) or
• cashing out in the nick of time (Cirque du Soleil's Guy Laliberte).
  

So is there anywhere one can still make a fortune these days? The 38 newcomers offer a few clues. Among the more notable new billionaires are Mexican Joaquín Guzmán Loera, one of the biggest suppliers of cocaine to the U.S.; Wang Chuanfu of China, whose BYD Co. began selling electric cars in December, and American John Paul Dejoria, who got the world clean with his Paul Mitchell shampoos and sloppy with his Patrón Tequila.

http://finance.yahoo.com/banking-budgeting/article/106712/World's-Billionaires-2009

What Will It Take to Earn Your Money Back?

What Will It Take to Earn Your Money Back?
Tuesday March 10, 7:00 am ET
By David Kathman, CFA

The terrible market declines of the past year have investors everywhere licking their wounds and toting up their losses, even as they prepare for the possibility of more losses to come. Nearly every portfolio that holds stocks is down significantly since late 2007, with 40% declines not uncommon. Just about the only solace is the thought that the market is bound to turn around at some point, and then people can start making up some of the ground they've lost.
But what, exactly, will it take to make up those losses? Many people underestimate the gains needed to recover from big investment losses, and the extent to which additional losses put you deeper in the hole. Amid all the current market gloom, it's worth taking some time to understand what it might take to recover from the current market swoon.
Climbing Out of the Hole
Suppose you hold a stock that falls 50% in value. How much does that stock have to gain before you're back where you started? Many people instinctively say 50%, but that's wrong. If the stock's price starts at $10 and loses 50%, it's at $5; from there, gaining 50% would put it only back up to $7.50. To get back to $10, the stock would have to gain 100%, twice as much as it lost in percentage terms.
Recouping losses always requires a larger percentage gain than the loss itself, and the difference between the two gets more dramatic as the losses get larger. For example, as of March 5, Tivo (NasdaqGM:TIVO - News) stock had lost 10.1% over the past year, meaning it will have to gain 11.2% to recoup that loss. As of the same date, homebuilder Toll Brothers (NYSE:TOL - News) had lost 30% over the past year, but it will have to gain 43% to get back to where it was a year ago. Starbucks (NasdaqGS:SBUX - News) had lost 51%, and it will need to gain 103% to make up those losses.
Once the losses exceed 50%, as they have for many financial stocks, the numbers get even uglier. For example, regional bank KeyCorp (NYSE:KEY - News) has lost 68% of its value over the past year as of March 5, meaning it would need to more than triple in price (gaining 214%) in order to make up for that loss. (If KeyCorp gained 68% from this point, shareholders would still be down 46% overall.) The numerous stocks that have lost 80% or more over the past year--nearly 900 of which are traded on the New York Stock Exchange or on Nasdaq--are in much worse shape and are unlikely to get back to where they were in the foreseeable future.
Easing the Pain
All this may seem a bit depressing, and it is, but it highlights the importance of diversification. If you had your entire life's savings invested in one of the stocks that have completely imploded, your portfolio would be critically damaged and would be facing a long recovery. But, of course, very few investors have all their money tied up in a single stock, and with good reason; as we've pointed out many times before, diversifying your holdings helps stabilize a portfolio and lessens the chance of one investment torpedoing returns. Even in a market where everything is down, like last year, moderating your losses can make it much easier to bounce back.
The best way of diversifying a stock portfolio is through asset-class diversification. While major stock indexes all lost more than 30% in 2008, the Barclays Capital (formerly Lehman Brothers) Aggregate Bond Index gained 5%. Of course, many individual bonds and bond funds declined in value last year, but the magnitude of those losses was generally much less than for stocks. A portfolio consisting entirely of Vanguard 500 Index (NASDAQ:VFINX - News) would have lost 37% in 2008, and would need to gain almost 59% to regain that lost ground. Putting 20% of the portfolio in Vanguard Total Bond Market Index (NASDAQ:VBMFX - News) would have reduced that loss to 29%, and the percentage needed to make it up would be reduced to 41%. Putting 40% in the bond fund would reduce the portfolio's loss to 20%, which requires only a 25% gain to make up. Losing 20% or 30% in a year is certainly not fun, but it's a lot better than losing 40%, 50%, or 60%, as these figures illustrate so well.
One very basic rule of thumb for determining a good stock-bond allocation is to subtract your age from 100, which gives a rough estimate of the percentage you should have in stocks. Thus, if you're 50 years old, it's a good idea to have 50% of your portfolio in stocks; if you're 60, it makes sense to have 40% in stocks; and so on. Alternatively, tools like Morningstar's Asset Allocator (available to Premium members) can help you arrive at a customized stock/bond split.
In addition to making sure your portfolio is diversified by asset class, it's also important to ensure that its spread across different industries and individual securities. A simple way to get broad stock exposure is through an index fund such as Vanguard Total Stock Market Index (NASDAQ:VTSMX - News), which tracks the Dow Jones Wilshire 5000 Index, or Vanguard 500 Index, which tracks the S&P 500 benchmark. Vanguard 500 Index lost 37% in 2008, which was certainly painful, but not nearly as bad as many individual stocks performed. And such losses are very rare for broad market indexes like this one; only once since 1926 has the total return of the S&P 500 (or its predecessor the S&P 90) been lower than it was in 2008. (That was in 1931, when the index lost 43%.) On the other hand, the S&P 500 has gained at least 37% in eight different years since 1926, twice gaining more than 50% (in 1933 and 1954).
While there's certainly no guarantee that the market will go on a tear like that any time soon, the potential for sharp upward gains--or perhaps better yet, slow and steady gains over a period of several years--makes it possible that long-term stock investors will not only be able to make up their recent losses but will outpace conservative investments like cash and bonds over time.
David Kathman, CFA does not own shares in any of the securities mentioned above.

http://biz.yahoo.com/ms/090310/283348.html?.&.pf=retirement

Banking Profits In Bull And Bear Markets

Banking Profits In Bull And Bear Markets
Chris Seabury
Monday March 9, 2009, 4:44 pm EDT

Both bear markets and bull markets represent tremendous opportunities to make money, and the key to success is to use strategies and ideas that can generate profits under a variety of conditions. This requires consistency, discipline, focus and the ability to take advantage of fear and greed. This article will help familiarize you with investments that can prosper in up or down markets.

Ways to Profit in Bear Markets
A bear market is defined as a drop of 20% or more in a market average over a one year period, measured from the closing low to the closing high. Generally, these types of markets occur during economic recessions or depressions, when pessimism prevails. But amidst the rubble lie opportunities to make money for those who know how to use the right tools. The following are some ways to profit in bear markets.


Short Positions
Taking a short position, also called short selling, occurs when you sell shares that you don't own in anticipation that the stock will fall in the future. If it works as planned and the share price drops, you must buy those shares at the lower price to cover the open sell or short position. For example, it you short ABC stock at $35 per share and the stock falls to $20, you can buy the shares back at $20 to close out the short position. Your overall profit would be $15 per share.


Put Options: A put option is the right to sell a stock at particular strike price until a certain date in the future, called the expiration date. The money you pay for the option is called a premium. As the price of the stock falls, you can either exercise the right to sell the stock at the higher strike price, or you can sell the put option, which increases in value as the stock falls, for a profit (provided the stock moves below the strike price).


Short ETFs: A short exchange traded fund (ETF), also called an inverse ETF, produces returns that are the inverse of a particular index. For example, an ETF that performs inversely to the Nasdaq 100 will drop about 25% if that index rises by 25%. But if the index falls 25%, the ETF will rise proportionally. This inverse relationship makes short/inverse ETFs appropriate for investors who want to profit from a downturn in the markets, or who wish to hedge long positions against such a downturn.

Ways to Profit in Bull Markets
A bull market occurs when security prices rise at a faster rate than the overall average rate. These types of markets are accompanied by periods of economic growth and optimism among investors. The following are some of the tools that are appropriate for rising stock markets.


Long Positions: A long position is simply buying a stock or any other security in anticipation that its price will rise. The overall objective is to buy the stock at a low price and sell it for more than you paid. The difference represents your profit.


Calls: A call option is the right to buy a stock at a particular price until a specified date. The buyer of a call option, who pays a premium, anticipates that the stock's price will rise, while the seller of the call option anticipates it will fall. If the price of the stock rises, the option buyer can exercise the right to buy the stock at the lower strike price and then sell it for a higher price on the open market. The option buyer can also sell the call option in the open market for a profit, assuming the stock is above the strike price.


Exchange-Traded Funds (ETFs): Most ETFs follow a particular market average, such as the Dow Jones Industrial Average (DJIA) or the Standard & Poor's 500 Index (S&P 500) and trade like stocks. Generally, the transaction costs and operating expenses are low and they require no investment minimum. ETFs seek to replicate the movement of the indexes they follow, less expenses. For example, if the S&P 500 rises 10%, an ETF based on the index will rise by approximately the same amount.

How to Spot Bear and Bull Markets
Markets trade in cycles, which means that most investors will experience both in a lifetime. The key to profiting in both types of markets is to spot when the markets are starting to top out or when they are bottoming. The following are two key indicators to look for.

Advance/Decline Line: The advance/decline line represents the number of advancing issues divided by the number of declining issues over a given period. A number greater than 1 is considered bullish, while a number less than 1 is considered bearish. A rising line confirms that the markets are moving higher. However, a declining line during a period when markets continue to rise could signal a correction. When the line has been declining for several months while the averages continue to move higher, this could be considered a negative correlation, and a major correction or a bear market is likely. An advance/decline line that continues to move down signals that the averages will remain weak. However, if the line rises for several months and the averages have moved down, this positive divergence could mean the start of a bull market.


Price Dividend Ratio: The price dividend ratio is the ratio that compares the share price of the stock with the dividend paid out over the past year. It is calculated by dividing the current price of the stock by the dividend. A decline in the ratio in the area of 14-17 could indicate an attractive bargain, while a reading above 26 may signal overvaluation. This ratio and its interpretation will vary by industry, as some industries traditionally pay high dividends, while growth sectors often pay little or no dividends.

Conclusion
There are many ways to profit in both bear and bull markets. The key to success is using the tools for each market to their full advantage. In addition, it is important to use the indicators in conjunction with one another to spot when both bull and bear markets are beginning or ending.

Short selling, put options, and short or inverse ETFs are just a few bear market tools that allow investors to take advantage of the market weakness, while long positions in stocks and ETFs and a call option are suitable for bull markets. The advanced decline line and price dividend ratio will allow you to spot market tops and bottoms.

http://finance.yahoo.com/news/Banking-Profits-In-Bull-And-investopedia-14586735.html;_ylt=AhOkCA7MIJySEnHuserF1MO7YWsA

House prices 'could fall by further 55 per cent'

House prices 'could fall by further 55 per cent'
House prices may fall by a further 55 percent and there is a "very real probability" that Britain will be bankrupted, a leading investment bank has warned in a private note to clients.

By Robert Winnett, Deputy Political Editor
Last Updated: 10:41PM GMT 11 Mar 2009

People who bought buy-to-let flats are expected to “begin panic selling” and the average home value could drop below £100,000.

The predictions in a 298-page report from Numis Securities, a City investment bank, are the bleakest yet on the deteriorating state of the British property market.


However, in the note written last month, Numis said: “Despite UK house prices already having fallen 21% from the peak, we do not believe that the correction is anywhere near over.

“Our core headline forecast is that UK property prices remain between 17% and 39% overvalued based on fair valuation. Moreover, history has shown us that when property…which has experienced a price bubble corrects, the price tends to fall below fair value for a period of time, as confidence in that market remains low. Prices could fall a further 40-55% if the over-correction was as bad as the early 1990s in our view.”

The report warns that “city centre flats” and “new executive homes” are likely to record the biggest reductions and describes investing in buy-to-let property as a “poor man’s hedge fund”.

“It is the action of these amateur investors over the next few months which we are most concerned about,” the report says. “We expect some to begin panic selling their portfolios, with the peak volume as is almost always the case with private investors, being at the market trough.”

Yesterday, Alistair Darling, the Chancellor, warned that the world is facing the most difficult economic conditions for “generations”.

However, the Numis report is scathing of Government attempts to help the economy.

“The Prime Minister and Chancellor have publicly stated that they want banks this year to lend at 2007 levels,” it said. “We think this is a crazy policy, given that too much debt was one of the prime reasons why the economy has its current problems.”

It also criticises the huge debts being run up by the Government to pump money into the economy. Yesterday, John Lewis, the retailer, said that the £12.5 billion cut in Vat has not made “any long term difference at all”.

The Numis report says: “The bankruptcy of the UK is a very real probability as the UK Government is trying to stimulate a greater debt burden in a grossly indebted economy. We believe the scale of the macro imbalances in the UK means there is no prospect of a recovery in 2009 and we expect the UK to be mired in a deep recession through all of 2010.”

Last night, the Conservatives said that the Numis analysis increased the pressure on the Prime Minister to apologise. Grant Shapps, the shadow Housing minister, said: “This is a devastating critique of the Government’s record and how Gordon Brown’s credit bubble will lead to a mountain of debt, a wave of repossessions and negative equity misery. Labour Ministers must take direct responsibility for fuelling buy-to-let speculation.

“Gordon Brown’s fingerprints are all over this economic wreckage and he should now have the decency to at least apologies for his mistakes.”

Yesterday, it emerged that the number of borrowers falling behind with their mortgage repayments has already doubled in the past year. According to Moody’s Investors Services, borrowers more than 90 days in arrears have increased to 1.5 percent of all home loans compared to 0.6 percent a year ago.


http://www.telegraph.co.uk/finance/economics/houseprices/4974499/House-prices-could-fall-by-further-55-per-cent.html


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'Sell every asset except gilts'

'Sell every asset except gilts'
Conventional assets – even gold – are no good as hedges against the inevitable deflation, says one asset manager.

By David Kauders
Last Updated: 12:17PM GMT 11 Mar 2009

At the end of last week, gilt prices soared and yields fell again. The market reacted positively to the Bank of England's announcement of quantitative easing. Yet in the preceding days and weeks the market had been spooked by concerns that the bail-outs would create inflation. Why the sudden change in sentiment?

It has long been our view that inflation scares have been seriously overstated and the real risk is deflation. Deflation occurs when a shrinking economy leaves businesses and consumers who have already borrowed heavily earning less and therefore unable to afford their existing debts.

There is the danger of a downward spiral caused by less income to pay interest. This is what the authorities are trying to avoid.

In a deflationary environment, only fixed-coupon gilts prosper: even index-linked stocks are ineffective. This is because the real rate of interest (nominal interest less inflation) has historically been around 2pc to 3pc for centuries.

If prices are falling rather than rising, fixed-coupon gilts gain in value, whereas the indexation formula for index-linked gilts indexes downwards with no floor. Other asset classes such as shares, property and many commodities depend on the continued take-up of more credit – which is why they did so well for many years.

As the credit crunch proceeded, governments introduced more and more bail-outs to keep banks lending. Real money, which has to be raised by increased taxation or by selling new gilts, was spent. This gave rise to fears that excess supply would depress gilt prices. Yet events show that the fears were mistaken. There are a number of reasons for gilt prices rising as supply expands:

• The biggest beneficiary of lower interest rates is government, as lower rates cut the cost of servicing the national debt;
• Pension funds are willing buyers and therefore absorb any supply offered to them;
• Risk elsewhere leads to a flight to quality and safety, irrespective of price.
• In addition, the Treasury have been selling new gilts to the market through the Debt Management Office's auction programme in order to fund the Government's spending. This takes cash out of the economy, yet the Bank of England wants to buy gilts back to put public money into the economy.
  
  

If the policy works it may ameliorate the recession, but the result is that the Bank of England counteracts the effect of the Treasury's extra supply of gilts.

Being realistic, there are many reasons why this quantitative easing may be of only cosmetic effect: why should banks lend to over-indebted businesses and consumers? What if they just run down their derivatives positions further?

Banks and building societies have to hold capital in reserve to ensure they can meet any losses. Historically, they had significant holdings in gilts and deposits at the Bank of England, but over the past 30 years standards were relaxed and other types of debt security were brought into those reserves.

Now they are rediscovering the advantages of having highly saleable assets such as gilts in their core capital and are therefore willing buyers of government bonds. Such bank purchases are significant, just as pension funds will be material buyers when they opt for certainty instead of risk to stem their losses in stock markets.

These large investors are the only ones who can sell to the Bank of England, yet they have good reasons for being net buyers.

However you look at it, institutional demand is increasing no matter what the supply of gilts. Nearly 20 years ago, in the recession of the early 1990s, the Government sold more gilts and prices rose (yields fell), in that case from around 13pc in 1990 to around 9pc in 1993. Inflation then was around 10pc and about to fall sharply. Notice the parallels as inflation now threatens to turn into deflation, the Government issues more gilts and prices rise again.

Investors have been pursuing property and gold for protection against financial risk. But property is an inflation hedge, not a deflation hedge, since its price level depends on the continued supply of credit.

There are also demographic factors that have favoured property in the postwar years but now turn against it: the lower birth rate, extensive owner occupation and the shift from net immigration to net emigration. Add this to the current financial pressure, and you can see why property is no longer a viable investment.

As for gold, it is the ultimate inflation hedge, since easy money provides the fuel for more people to buy it. But it is not a deflation hedge, for one simple reason. No currency is exchangeable into gold and no government is going to wreck its country's economy by adopting a gold standard.

This explains why the gold price perks up occasionally then always slips back again. The safest asset in the financial system is the promise of government to honour its own debt.

Private investors need to go with the flow. Investing in stock markets, like property, is proving singularly unrewarding at present. We believe the bear markets have much further to run before shares and property are cheap enough to buy again.

Since income offered by gilts is still above that earned from many bank accounts and there is a continuing flight to quality, gilt prices must go on rising until this deflation is over.

Investors should change to a gilt-only strategy to preserve capital and income. This way, they will have the cash to buy the bargains when stock markets offer them.

David Kauders is a partner at Kauders Portfolio Management.

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http://www.telegraph.co.uk/finance/personalfinance/investing/4969399/Sell-every-asset-except-gilts.html

Bank shares: Bargain or basket case?

Bank shares: Bargain or basket case?
As some of Britain's banks languish in the 90pc club, have the shares fallen far enough to be worth buying again?

By Richard Evans
Last Updated: 6:20PM GMT 11 Mar 2009

RBS could be nationalised completely

Britain's banks have been a terrible investment. Many have joined the "90pc club" of companies whose share prices have fallen to a mere 10th of their former highs.

Shares in Royal Bank of Scotland, for example, had lost 94pc of their value at the time of writing, while Lloyds Banking Group was not far behind on 91pc. The figure for Barclays was 88pc. Even HSBC, which is seen as one of the strongest banks around, was trading 62pc below its peak at one stage, while Standard Chartered had lost 54pc of its value.


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Financial funds: 'The first good news could see a reversal'

Financial funds: 'The first good news could see a reversal'
Shareholders' gloom is deepened by the fact that they are unlikely to see any dividends for a while and that, in the case of Lloyds and RBS, the Government holds a controlling stake, potentially bringing political as well as commercial considerations into their decision-making.

Contrarian investors, who are used to buying at the point of maximum pessimism, may think it is time to buy the banks' shares. After all, they reason, all the bad news should be in the price, while the banks could prosper again when the economy eventually recovers. In five years' time, today's prices could look very cheap.

Others say the banks are bust in all but name and could be fully nationalised if the recent string of bail-outs fails to work.

So should investors be buying bank shares or steering clear? And should existing investors grit their teeth and hang on – or sell at a huge loss? We asked the experts for their views.

JONATHAN JACKSON, KILLIK & CO
The bottom line is that all banks are high risk at present given the lack of visibility over the economy or the level of possible write downs in the future. It depends on what type of investor you are.

We don't think RBS or Lloyds are likely to be nationalised but the state's stakes could rise further if the economy turns out worse than we think. If you buy shares in Lloyds you are effectively buying an option on it surviving for three to five years and benefiting from its huge market share. Given the lack of visibility, both share prices will be very volatile.

With HSBC, the falling shares price is a reflection of investor concern that the bank may need to come back for more capital and the presence of hedge fund short positions betting on that.

Standard Chartered should benefit from the trend of survival of the fittest; it should be able to mop up market share as weak players fall away. It operates in a part of the world – Asia – that should experience stronger growth in the long term. It is well placed, but short sellers are attracted by the fact that the share price has held up well, so there could be more volatility. In the long term it's a strong bank and is much less likely to go under.

Barclays is not in as bad shape as Lloyds or RBS and has less chance of being nationalised. The market believes that Barclays will have to join the government asset protection scheme. The risk is that it may have to come back for more money. So far, it hasn't turned to the Government for capital, preferring instead to use third party investors.

In the long term, the Lehmans deal should turn out well. We will have more visibility by the end of the month.

MARK HALL, RENSBURG SHEPPARDS
There is a credible case for believing that the equity in the UK banks should already be worthless, given the scale of government intervention that has been necessary to keep the banks afloat.

However, with the authorities seemingly intent on avoiding full nationalisation, at least for now, the case for and against the shares is not quite so clear cut. There are still very realistic scenarios under which the shares are worthless but the upside could also be very substantial for any survivors of the current recession.

The only certainty is that the shares should be held only as part of a well-diversified portfolio or by those with a very high risk tolerance. The stories of pensioners with their life savings in one or two bank shares are very distressing.

NIC CLARKE, CHARLES STANLEY
We have a great deal of sympathy for those Lloyds TSB investors who bought a low-risk bank and through its management launching an ill advised acquisition [of HBOS] have lost a great proportion of the company.

We believe that the threat of complete nationalisation has been reduced significantly through this deal [with the Government to insure toxic assets]. Lloyds says it can now weather the severest of economic downturns as its assets have been thoroughly stress-tested.

The group will be loss-making in 2009 and there is a chance that it will be loss-making in 2010, despite the synergies from HBOS coming through, unless the outlook for the UK economy improves. And of course if the group is making a loss it is unlikely to pay a dividend, whether it is blocked or not. But at least the announcement [of the government deal] should improve the group's credit ratings and takes it a step nearer to a time when the market is able to value the group on an earnings basis. Unfortunately, due to the fallout from the HBOS deal that is the best that investors can hope for and any sort of recovery will take time. Our recommendation remains hold.

Putting a value on RBS currently is really about trying to decide what the odds are that it will be nationalised or whether it remains a listed company in say three years' time when the economy has improved.

Chief executive Stephen Hester's comment that "to make any forecast is hazardous" and that credit losses will rise "probably sharply" underlines the level of risk that investors are exposed to owning the stock during a prolonged recession. On balance our recommendation remains hold.

On Barclays, one key question mark has been whether the group has been conservative enough writing down its wholesale assets. It has seemed odd that RBS's global markets/wholesale bank has performed so markedly worse than Barclays Capital. Moody's cut its long-term ratings on Barclays by two notches to Aa3 on February 2 due to the potential for "significant" further losses due to credit-related write downs and rising impairments.

It would be helpful to know more detail regarding the Government's asset protection scheme. If participation makes economic sense Barclays' risk weighted assets will be reduced, which will diminish markets concerns about its capital.

And of course whether the macroeconomic forecasts improve/deteriorate in a number of key countries (US, UK, Spain and South Africa) will have a huge bearing on stock performance. Our recommendation remains hold.

http://www.telegraph.co.uk/finance/personalfinance/investing/shares/4973811/Bank-shares-Bargain-or-basket-case.html

Warren Buffett says financial crisis is 'economic Pearl Harbor'

Warren Buffett says financial crisis is 'economic Pearl Harbor'
Warren Buffett, the influential American investor, has likened his country's escalating fiscal woes to "an economic Pearl Harbor".

By Mark Coleman in Los Angeles Last Updated: 12:23PM GMT 10 Mar 2009
The multi-billionaire, who is an informal advisor to President Barack Obama, conceded the economy had approached "close to the worse case" possible.
He also warned that recovery would not come quickly.

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Acknowledging his own failure to foresee the scale of the crisis, he admitted: "It's fallen off a cliff. Not only has the economy slowed down but people have really changed their habits like I haven't seen."
Mr Buffett, recently ranked the second-richest American by Forbes magazine, said that fear was the greatest cause of damage to the economy, claiming it is now dominating the public's behaviour to an alarming degree.
"People are confused and scared," he said.
"People can't be worried about banks, and a lot of them are."
Mr Buffett singled out Americans' failure to predict the severity of home price declines, which he said in turn led to problems with securitizations and other debts tied to the stability of house prices.
He said: "It was like some kids saying the emperor has no clothes, and then after he says that, he says now that the emperor doesn't have any underwear either.
"We want to err on the side next time of not allowing big institutions to get as unchecked on leverage as we have allowed them to do."
Mr Buffett also urged consumers to curb their dependence on credit cards.
"I can't make money borrowing money at 18 or 20 per cent. I'd go broke."

http://www.telegraph.co.uk/finance/financetopics/recession/4965408/Warren-Buffett-says-financial-crisis-is-economic-Pearl-Harbor.html

Why You Should Love Economic Cycles

Why You Should Love Economic Cycles
By Motley Fool Staff
March 11, 2009 Comments (0)



With regard to the stock market, legendary investor Bernard Baruch was sure of only one thing: "It will fluctuate." Baruch's remark is the stock market's only guarantee, and it's no less true for the various industries that make up the business environment. No one can time these ups and downs precisely, but paying close attention to which way the economy and market are moving can help you spot great investing opportunities.

Basic economics
All industries and businesses follow the same laws of supply and demand. This concept has never changed and never will, and it follows a clear cycle.
During periods of high demand, high capacity utilization, and increasing operating margins, businesses begin implementing steps to meet the demand. The result usually includes new plant investment, increased product pricing, and increased production -- until supply exceeds demand. Then prices decline, less capacity gets used, and margins shrink. This period continues until -- you guessed it -- the available supply is outstripped by demand, at which point the cycle starts all over again.

For sale by owner
The homebuilding industry offers a near-perfect example of this cycle. After the tech bubble (a cycle in itself), the economy became a low-interest rate environment, making access to capital very easy and cheap. Demand for housing grew rapidly. First-time home buyers found it more manageable to assume loans, and newly minted real estate speculators used the flow of cheap money to "flip" homes. Homebuilders responded by turning out more homes and acquiring land lots at a blistering pace. For years, all was well.
Of course, the clock had to strike midnight sometime. The increased housing production ultimately exceeded demand, and homebuilders like Ryland (NYSE: RYL), KB Home (NYSE: KBH), and DR Horton (NYSE: DHI) now command a fraction of the market values they enjoyed in rosier times. No matter how fine these companies' management teams might be, with supply exceeding demand, it's not difficult to see why these firms have been battered.

In the oil patch
The same situation has playing out with just about anyone involved in energy these days. For years, energy prices languished as supply outstripped demand. But then demand started steadily growing, until oil prices reached nearly $150 per barrel last year.
In the end, the recession stopped that trend in its tracks, causing oil companies like ExxonMobil (NYSE: XOM) and Chevron (NYSE: CVX) to fall dramatically from their 2008 highs. Yet while the prospects for homebuilders seem cloudy for the indefinite future, many still believe that energy prices are now unsustainably low, which could start a new upward cycle both for oil producers and natural gas companies such as Chesapeake Energy (NYSE: CHK) and XTO Energy (NYSE: XTO).

The key takeaway
An old proverb says, "What has risen shall one day fall, and what is fallen shall again rise." Should investors concentrate their efforts on trying to time such cycles? Not at all, Fools -- that's a sucker's game. However, we do think that it's exceedingly important to understand the industries in which you invest, to reduce the chance that you'll make your investments at inopportune times.
As investors, we attempt to buy low and sell high -- but don't confuse that with buying at the absolute bottom, and selling at the absolute top. That level of investing precision is mostly a matter of luck. Instead, Fools are better off focusing on buying underpriced businesses and selling overpriced ones.

Further Foolishness:
Is This the Next Incredible Buying Opportunity?
This Might Be the Market Bottom
Rule No. 1: It's OK to Lose Money

Want some help in figuring out whether a beaten-down company deserves your investment?

This article, written by Sham Gad, was originally published on Jan. 7, 2008. It has been updated by Dan Caplinger, who owns shares of Chesapeake Energy. Chesapeake Energy is a Motley Fool Inside Value pick.

http://www.fool.com/investing/value/2009/03/11/why-you-should-love-economic-cycles.aspx

Buffett Likes Banks

Buffett Likes Banks
By Alex Dumortier, CFA
March 11, 2009 Comments (3)

When Warren Buffett speaks, the market listens. On Monday, in a three-hour interview on CNBC, Buffett had some good things to say about the banking sector. That was all the fuel that was needed for some of the bank stocks to take off:

Bank
Daily Return (03/09/2009)

Bank of America (NYSE: BAC)
19.4%
Wells Fargo (NYSE: WFC)
15.8%
US Bancorp (NYSE: USB)
15.5%
SunTrust Banks (NYSE: STI)
7.8%
BB&T (NYSE: BBT)
4.1%

Some of the best gains were naturally reserved for stocks that Buffett owns on behalf of Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B): US Bancorp and Wells Fargo.
"Banking has never been better, in one sense." Spelling out the reasons for his cheery disposition toward the sector in straightforward terms, Buffett said:
The banks are getting their money very cheaply, deposits are coming in, spreads have never been wider, all the new business they're doing is terrific. They will earn their way out of it [in the] overwhelming number of cases.

He went on to give specifics concerning Wells Fargo:
I would expect $40 billion a year pre-provision income. And under normal conditions I would expect maybe 10 to $12 billion a year of losses … So, you know, you get to very interesting figures.
What could Wells earn a few years out? Those numbers are pretty close to the results that Wells put up last year (which don't include Wachovia), so I'm going to assume that Buffett was referring to Wells Fargo's earnings power without Wachovia.
Let's accept those numbers (using the upper bound for loan losses) and make the following assumptions:
Wachovia provides an incremental $3 billion in net income.
The merger achieves the announced $5 billion in cost savings.
Wells Fargo doesn't repay the government's $25 billion preferred share investment.
Under that scenario -- that of a normal operating environment -- I estimate that Wells Fargo could generate approximately $2.50 in earnings per share annually. Based on Monday's closing price of $9.97, that's equivalent to a price-to-earnings ratio of 4 -- pretty attractive!

Let's remember a couple of things, though: First, we aren't in a normal environment yet, and it's not clear how long it will take us to get there. Second, there is a reason that bank shares are trading at such depressed valuations. As Buffett pointed out:
"The only worry in that is the government will force you to sell shares at some terribly low price." He went on to admit that forced dilution isn't an idle concern -- it's something that he himself thinks about. Furthermore, even the Oracle has been bitten by banks in this crisis. In 2008, he purchased $244 million worth of shares in two Irish banks, leaving him with an 89% loss at year's end. He gave himself a stern self-assessment on that situation during the interview: "I did not do my homework sufficiently on that, and I was just dead wrong."

Nonetheless, Berkshire is Wells Fargo's largest shareholder -- the position dates back to the last banking crisis in the early 1990s. In other words, Buffett's been doing his homework on Wells Fargo for a long time, and his degree of confidence should be much higher. I have to go with Buffett on this one: Despite my concerns about the California lender, I think it looks like a good bet right now.

More Foolishness:
Are GE Shares Finally a Buy?
10 Dividend Stocks for the Next Decade and Beyond
The Worst News in 53 Years


Take a hint from Buffett's recent investments in preferred shares with fat yields: In this market, dividends -- those that are sustainable -- will be a big component of future shareholder returns.


Alex Dumortier, CFA has a beneficial interest in Wells Fargo and BB&T, but not in any of the other companies mentioned in this article. BB&T is a Motley Fool Income Investor pick. Berkshire Hathaway is a Motley Fool Inside Value and a Motley Fool Stock Advisor recommendation. The Fool owns shares of Berkshire Hathaway. US Bancorp is a former Motley Fool Income Investor pick.

http://www.fool.com/investing/dividends-income/2009/03/11/buffett-likes-banks.aspx

3 Reasons Why Investors Will Panic Again

3 Reasons Why Investors Will Panic Again
By Dan Caplinger
March 11, 2009 Comments (1)


Few things beat the thrill of owning stocks on a day like Tuesday. Yet just as experienced long-term investors have kept the losses of the past year in perspective, so too should you not draw any major conclusions from yesterday's gains.
Sure, the major market benchmarks gained 5% or more on Tuesday. Those are healthy rises -- but if you look back, you'll see that the last time the S&P 500 closed this high was on Feb. 27, less than two weeks ago.

Unfortunately, there are plenty of reasons why we may not be out of the woods yet. Here are just a few.

1. Even in a rebound, for every two steps forward, there's a step back
Just as few bull markets feature stocks moving straight up without any hiccups along the way, bear markets don't always involve uninterrupted crashes. Most often, you'll see plenty of moves in both directions, with the overall trend only becoming clear after longer periods of time.
For instance, since the last bull market ended in October of 2007, we've had a number of significant bounces in the S&P:
From March to May 2008, the S&P rose from its March lows of slightly less than 1,275 to about 1,425.
After October 2008's lows around 850, the index bounced back to over 1,000 in just over a week.
Then later in November, the index plummeted to 750 before recovering to 935.
To put in that perspective, Tuesday's gains could easily be just the beginning of a more substantial up move -- and yet still constitute only a bounce in the ongoing bear market.

2. More bad news on the earnings front
Most analysts expect another round of terrible earnings reports from the first quarter of this year, which will get announced predominantly in April and May. For instance, look at these projections for some major U.S. companies:

Stock
Estimated 1st-Quarter EPS Growth,Year-Over-Year
Reduction in Estimate,Last 90 Days

Intel (Nasdaq: INTC)
(92%)
88%
Target (NYSE: TGT)
(36%)
20%
Mosaic (NYSE: MOS)
(70%)
78%
ConocoPhillips (NYSE: COP)
(72%)
53%
Wells Fargo (NYSE: WFC)
(58%)
47%
Deere (NYSE: DE)
(36%)
30%
J.C. Penney (NYSE: JCP)
(144%)
271%
Source: Yahoo! Finance. As of March 10.

Even if the economy has started to turn back from recession to recovery, it won't do so overnight. As massive as the amount of economic activity in the U.S. is, turning on a dime isn't a reasonable expectation.

3. Investors have to change their attitude
And expectations are what matters most right now. What the economy will actually do isn't all that important -- because everyone has a pretty good sense that the economy will be lousy for the foreseeable future. However, the sea change in the markets will come when investors start reacting differently to all the bad news.
Recently, uncertainty has dominated the markets. With government intervention becoming a nearly everyday occurrence, investors haven't had any idea what to expect. The specter of nationalization put fear into shareholders of financial companies -- and since they are at the epicenter of the current crisis, they carry huge symbolic value even beyond the critical role they play in our economic system.
However, if investors start looking for news that supports a glass-half-full theory rather than sticking with the gloom and doom that has dominated over the past six months, the markets have plenty of room to run on the upside -- even before a real recovery takes hold.

How to prepare
So what's the right strategy for your investments now? What you should do hasn't changed since yesterday, or last month, or last year. Many of those who've carried on with their normal investing strategies have taken big losses, but they see those losses as temporary. Meanwhile, with money they've added to the market after its crash, they're picking up shares of the companies they want to own at prices they could never have imagined seeing before all this happened.
So, just as the market's drop didn't mean that the world was going to end, yesterday's rally certainly doesn't mean that we've hit bottom and the bear market is officially over. When it comes to the important investing decisions you need to make, however, none of that really matters -- so enjoy your gains, but don't think of them as anything but a bump in the road.

For more on investing in any market, read about:
Stocks for the next Great Depression.
Why Warren Buffett is buying stocks now.
You should buy the cheapest stocks around.

Fool contributor Dan Caplinger isn't panicking. He doesn't own shares of the companies mentioned in this article. Intel is a Motley Fool Inside Value recommendation. The Fool owns shares and covered calls of Intel.

http://www.fool.com/investing/general/2009/03/11/3-reasons-why-investors-will-panic-again.aspx

HSBC Stock Plunge Prompts Regulator Probe of Trade

HSBC Stock Plunge Prompts Regulator Probe of Trade (Update2)
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By Hanny Wan and Kelvin Wong
March 10 (Bloomberg) -- HSBC Holdings Plc’s 24 percent plunge in Hong Kong yesterday prompted a government probe and the stock exchange to consider bringing forward changes to end- of-day trading processes. The shares rallied 14 percent today.
The Securities and Futures Commission is investigating trades put through at yesterday’s close, Financial Secretary John Tsang told reporters today in comments broadcast by local television. Hong Kong Exchanges & Clearing Ltd. may accelerate the implementation of a 2 percent cap on stock fluctuations during so-called closing auction sessions, a spokesman said.
“Yesterday’s closing auction exposes the flaw in our stock trading system that allows these kinds of trades,” said Chim Pui-chung, a Hong Kong legislator who represents the financial services industry. “The SFC needs to take responsibility for this and to investigate immediately, and release their findings to let investors know what happened.”
The closing auction process, used by the exchange since May last year, has attracted criticism from lawmakers and investors who claim it distorts stock pricing. The session extends trading by 10 minutes from the original 4 p.m. local time close, during which buy and sell orders are matched by an auction trading mechanism.
Four days after the closing auction was introduced, eight stocks moved by more than 10 percent from the last traded price at 4 p.m., which Hong Kong Exchanges said was due to a rebalancing of MSCI Barra indexes.
‘Annoys The Market’
“It annoys the market and especially retail investors,” said Andrew Sullivan, a sales trader at Mainfirst Securities Hong Kong Ltd., referring to the stock fluctuations during the auctions.
The sessions are an international practice aimed at providing a “fair and market-driven method” to determine closing stock prices, the exchange said in October 2007 when it announced the new system.
Hong Kong Exchanges said March 5 that it planned to implement a 2 percent limit on the changes of stock prices within the auctions on June 22.
“Our plan hasn’t changed, but we can’t rule out the possibility of pushing the plan forward,” spokesman Henry Law said in an interview today. “It depends on how soon the market can upgrade its trading systems.”
All brokerages need to finish testing the parameters they set for the closing auction session before the exchange can go ahead with the new volatility cap, he said.
HSBC Shares Rally
The bourse said in November 2008 that the Tokyo Stock Exchange, Korea Exchange, Taiwan Stock Exchange, and Shenzhen Stock Exchange had price controls in their closing auction sessions, whereas the New York Stock Exchange, London Stock Exchange, and Australian Securities Exchange do not.
HSBC’s 24 percent tumble yesterday wasn’t the result of “panic selling, it was technical trades,” Sandy Flockhart, chief executive officer of the bank’s Asian business told reporters in Hong Kong today.
The stock, the second-largest constituent on the benchmark Hang Seng Index, fell more than 10 percent during the closing auction session, dragging the shares to the lowest since May 1995. The shares rallied 14 percent today to HK$37.60.
“HSBC is a very unique stock and it has an intricate relationship with Hong Kong people’s lives,” said legislator Chim. “When it fluctuates like yesterday it has a huge impact on people’s sentiment and wealth.”
To contact the reporters on this story: Hanny Wan in Hong Kong at hwan3@bloomberg.net; Kelvin Wong in Hong Kong at kwong40@bloomberg.net. Last Updated: March 10, 2009 05:28 EDT

http://www.bloomberg.com/apps/news?pid=20601089&refer=china&sid=aQ_lndHEmwUg

http://www.breakingviews.com/2009/03/10/HSBC.aspx?sg=nytimes

Australia Retail Sales Growth to Slump on Job Cuts, Access Says

Australia Retail Sales Growth to Slump on Job Cuts, Access Says
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By Jacob Greber

March 11 (Bloomberg) -- Australian retail sales growth will slump from the middle of this year as rising unemployment offsets the positive impact from government cash handouts to workers, research company Access Economics said.
Retail sales growth, adjusted to remove the effect of inflation, will slow to 0.2 percent in the 12 months through June 2010 from 0.8 percent in fiscal 2009, Access Director David Rumbens said in a report released in Canberra today.
Prime Minister Kevin Rudd’s government will this month begin distributing A$11 billion ($7 billion) in cash to families and workers to stoke household spending that accounts for more than half the economy. Gross domestic product unexpectedly shrank in the fourth quarter for the first time in eight years as consumers spent less at retailers including David Jones Ltd.
“Retailers face a tough road ahead,” Rumbens said. “The economic backdrop continues to get uglier, so these measures are only likely to result in real retail spending treading water in the first half of 2009.”
Access estimates the cash handouts will increase total consumer spending by A$500 million in the current quarter, and A$1.6 billion in the three months through June.
“The boost to consumer spending which will result, however, will be against a backdrop of a significant loss of labor income and further asset price falls in 2009,” the report said. “The real pain on profits and on jobs is just around the corner.”
Jobs advertised in newspapers and on the Internet tumbled by a record 10.4 percent in February and 39.8 percent from a year earlier, according to an Australia & New Zealand Banking Group Ltd. report released in Melbourne yesterday.

Jobless Rate
Employers probably cut 20,000 jobs last month and the unemployment rate rose to 5 percent from 4.8 percent in January, according to a Bloomberg survey of economists. Jobs figures will be released on March 12.
Access predicts the jobless rate will peak at around 7.5 percent in mid 2010.
“A retail recovery may have to wait until fiscal 2011,” Rumbens said. “And watch out for housing prices,” which fell 3.3 percent last year. “If they were to take a major tumble, then the outlook for retailers would be notably worse.”
Companies including BHP Billiton Ltd., the world’s biggest miner, and manufacturer Pacific Brands Ltd., are firing workers after the economy shrank 0.5 percent in the fourth quarter from the previous three months as exports slumped.
To boost sales at retailers such as David Jones, Australia’s second-biggest department store chain, the government distributed A$8.7 billion in cash grants to families and pensioners in December. Of that, about 25 percent was spent, Access said.

Retail Sales
Retail sales jumped 3.8 percent in December, the most in eight years, and advanced 0.2 percent in January, according Bureau of Statistics figures.
Without the government’s December cash boost, retail sales that month would probably have stalled, Rumbens said in today’s report. Households will probably spend around 25 percent of the next round of handouts and use the rest to pay off debt or increase savings, he said.
“The outlook for retail in 2009 will be directly affected by the amount of deleveraging that households decide is prudent, as they attempt to build a buffer against uncertainty,” Rumbens said.
“This means that consumer caution -- paying down debt and saving more -- will compound the effects of lost labor income as the unemployment rate rises.”
Retailers will respond to weakening sales growth by firing workers, renegotiating property rents, cutting stock and working to maintain cash flow, today’s report said.
To contact the reporter for this story: Jacob Greber in Sydney at jgreber@bloomberg.net Last Updated: March 10, 2009 09:01 EDT

http://www.bloomberg.com/apps/news?pid=20601081&sid=agFpM3i3E92c&refer=australia

Australia Dollar Gains to 1-Week High After U.S. Stocks Rally

Australia Dollar Gains to 1-Week High After U.S. Stocks Rally
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By Candice Zachariahs

March 11 (Bloomberg) -- The Australian dollar gained to the highest in a week as U.S. stocks posted their biggest rally this year, raising speculation investors will buy riskier assets. New Zealand’s dollar also advanced.
The currencies traded near the strongest in three days against the yen after Citigroup Inc. said it is having its best quarter since 2007. Gains in the currencies may be limited before a meeting tomorrow where New Zealand’s central bank is forecast to lower interest rates to a record low to boost an economy that’s entered its fifth quarter in recession.
“Lowered risk aversion concerns, driven by equity gains, delivered steady buying demand,” for the South Pacific nations’ currencies, wrote David Croy, a strategist at ANZ Investment Bank in Wellington. New Zealand’s currency was “dragged reluctantly higher off the back of a stronger Australian dollar.”
Australia’s currency rose 0.9 percent to 64.64 U.S. cents as of 8:56 a.m. in Sydney from 64.06 cents late in Asia yesterday. It earlier touched 64.88 cents, the most since March 5. The currency advanced 1.2 percent to 63.82 yen.
New Zealand’s dollar gained 1.2 percent to 50.44 U.S. cents from 49.83 cents in Asia yesterday. It bought 49.80 yen from 49.06 yen.

Stocks Rally
The currencies climbed as the Standard and Poor’s 500 Index jumped 6.4 percent, the most since Nov. 24. Citigroup Chief Executive officer Vikram Pandit said the bank had been profitable through the first two months of 2009.
Technical analysts at Citigroup recommended raising the exit point on their trading recommendation to buy the Australian dollar at 63.50 U.S. cents with an initial target of 68.50 U.S. cents and then 72.70 cents. Investors should place a stop at 63.30 cents to “limit downside exposure,” wrote New York-based Tom Fitzpatrick and London-based Shyam Devani, technical analysts at Citigroup, in a research note yesterday.
Recent “gains for the Australian dollar-U.S. dollar have been rather quick and are likely to be tested by short-term pullbacks in risk sentiment,” they wrote.
Gains in the Australian and New Zealand dollars may also be limited as New Zealand’s central bank will cut the official cash rate to at least 3 percent from 3.5 percent, according to 13 economists surveyed by Bloomberg. Seven analysts estimate Governor Alan Bollard will lower the rate by 50 basis points, three expect a reduction of 75 basis points and three predict a 100 basis-point cut. A basis point is 0.01 percentage point.
The number of people employed in Australia probably fell by 20,000 and the unemployment rate likely climbed to 5 percent in February, the highest since April 2006, according to separate surveys. The government will report the jobless figures tomorrow.
Benchmark interest rates are 3.25 percent in Australia and 3.5 percent in New Zealand, compared with 0.1 percent in Japan and as low as zero in the U.S., attracting investors to the South Pacific nations’ higher-yielding assets. The risk in such trades is that currency market moves will erase profits.
To contact the reporter on this story: Candice Zachariahs in Sydney at czachariahs2@bloomberg.net Last Updated: March 10, 2009 18:13 EDT

http://www.bloomberg.com/apps/news?pid=20601081&sid=a3au2m9amEak&refer=australia

U.K., French Industrial Production Falls, Worsening Recession

U.K., French Industrial Production Falls, Worsening Recession
By Simon Kennedy and Brian Swint

March 10 (Bloomberg) -- Industrial production plunged in the U.K. and France in January, threatening to push Europe into a deeper recession.
U.K. factory output fell 2.9 percent from December and 6.4 percent in the three months through January, the most in at least four decades. French industrial production sank 3.1 percent on the month, five times the pace predicted by economists, and 13.8 percent from a year earlier.
Companies from IMI Plc to Valeo SA are being ravaged by the global economic crisis as demand slumps and credit remains tight. With the worst recession since World War II driving up unemployment, the European Central Bank and Bank of England are under mounting pressure to keep easing monetary policy.
“Manufacturing is being very hard hit and there’s little prospect of a turnaround,” said Collin Ellis, European economist at Daiwa Securities SMBC Europe Ltd. in London. “The data raises fresh questions about the severity of the European downturn.”
British manufacturing has now dropped for 11 months, the worst streak of contraction since 1980, when Margaret Thatcher was prime minister. Factory production accounts for about 15 percent of the economy, compared with about 75 percent for services and 6 percent for construction.
“This is unbelievably grim,” Alan Clarke, a London-based economist at BNP Paribas SA, said in an interview. “There’s no sign of the slowdown abating. The Bank of England will probably need to do more.”
Out of 13 categories of manufacturing, nine fell and four rose on the month, the statistics office said. Transport equipment, electrical, optical goods, and machinery and equipment led the declines. Production of motor vehicles and auto parts drove the slump in the transport category, the data showed.

Car Sales
European car production will probably fall 25 percent and sales are likely to drop 20 percent this year, the European Automobile Manufacturers Association said on March 5.
Separate reports today showed the French trade deficit swelled in January as the value of exports fell to the lowest in almost four years, while German shipments slid for the fourth straight month by declining 4.4 percent on the month.
“The pace of contraction remains extremely strong” in France, said Frederique Cerisier, an economist at BNP Paribas in Paris. The figures may prompt him to further downgrade his forecast that the economy will contract 2.3 percent this year.
To combat the slump, President Nicolas Sarkozy’s government is injecting funds into banks and helping them raise cash to lend to companies and households. In December, he introduced a 26 billion-euro ($33 billion) economic-stimulus package to spur construction.

U.K. Aid Package
U.K. Trade Minister Ian Pearson will set out how a 2.3 billion-pound ($3.2 billion) aid package for automakers will work and which companies will be eligible when he meets executives tomorrow. The government is considering separate help for General Motors Corp.’s Vauxhall unit.
The European Central Bank last week cut its benchmark to a record low of 1.5 percent, while its U.K. counterpart lowered its to a record 0.5 percent and took the unprecedented step of printing money to buy assets and replenish bank balance sheets.
IMI Plc, the world’s biggest maker of pneumatic controls, said last week it reduced its global workforce by 10 percent and plans further reductions in the coming weeks. Valeo SA, France’s second-largest auto-parts maker, has temporarily shuttered plants.
To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net. To contact the reporter on this story: Simon Kennedy in Paris at Skennedy4@bloomberg.net. Last Updated: March 10, 2009 08:32 EDT

http://www.bloomberg.com/apps/news?pid=20601102&refer=uk&sid=aUvgE0D.somI