Thursday, February 7, 2008

Regulators should allow bond insurers to fail: Ackman

(Reuters) - Bill Ackman, whose hedge fund has been betting against bond insurers since at least 2002, said in a letter to U.S. regulators that rescuing the bond insurers will only prolong the credit crisis, and the companies should instead be allowed to fail.

In the letter obtained by Reuters, Ackman said bond insurers in recent years have become a means for banks to avoid reporting their full credit exposure and make their capital ratios appear stronger, but that banks should be forced to own up to their full credit risk.

"(W)e understand that the banking industry counterparties to the bond insurers would prefer to avoid taking these ... risks back on balance sheet -- particularly at a time when their balance sheets are strained by subprime and other losses that have not been hedged," Ackman wrote, adding that "there are no such free lunches available in the capital markets."

Bond insurers have in turn been critical of Ackman and other investors betting against the companies. On a recent conference call, MBIA Inc (MBI.N: Quote, Profile, Research) Chief Executive Gary Dunton railed against "the fear mongering and intentional distortions of facts about our business that have been pumped into the market by self-interested parties."

New York State Superintendent Eric Dinallo is working with banks to rescue bond insurers including Ambac Financial Group Inc (ABK.N: Quote, Profile, Research) and FGIC Corp, which face billions of dollars of potential losses after guaranteeing bonds linked to risky subprime mortgages and other debt.
 

Retailers struggle through dismal January

(Reuters) - Consumers held on to their cash and gift cards longer than usual and ignored widespread discounting in January, resulting in disappointing sales at many retailers, most notably industry leader Wal-Mart Stores Inc (WMT.N: Quote, Profile, Research).

The world's largest retailer reported a 0.5 percent rise in January same-store sales, falling short of the 2 percent rise that analysts expected. Target Corp (TGT.N: Quote, Profile, Research), the No. 2 U.S. retailer posted a 1.1 percent drop in same-store sales, deeper than the 0.4 percent fall expected by Wall Street.

Wal-Mart said gift-card redemptions fell short of expectations, as consumers held on longer to their gift cards. Those who did, used gift cards for necessities like food and consumables, instead of higher margin discretionary items, the company said.

Reflecting the weakening economy and the tendency to trade down in tough times, warehouse retailers Costco Wholesale Corp (COST.O: Quote, Profile, Research) and BJ's Wholesale Club (BJ.N: Quote, Profile, Research) both reported better-than-expected January sales, boosted by the demand for gasoline. Costco also cited strength in its deli, candy, small appliance and automotive businesses.

January's sales data follow a disappointing holiday season for retailers and come amid mounting fears that the U.S. economy could be tipping into recession, as consumers faced with higher fuel and food costs and a crumbling housing markets cut back on spending.

"January has been no different," said Ken Perkins, president of research firm Retail Metrics in a note on Wednesday. "Given the difficult economic backdrop retailers/ consumers are facing, expectations have still been pared to lower levels despite starting out at very modest initial projections."
 

Pending Sales of Existing U.S. Homes Fell 1.5% in December

(Bloomberg) -- The number of Americans signing contracts to buy previously owned homes fell in December for a second straight month, signaling the worst housing slump in 25 years will persist well into 2008.

The National Association of Realtors' index of signed purchase agreements decreased 1.5 percent to 85.9, the group said today. The drop follows a revised 3 percent decline for November that was larger than previously reported.

Today's report reinforces concern that the housing recession will linger as foreclosures add to a glut of unsold homes. The housing slump is weighing on the job market and consumer spending, putting pressure on Federal Reserve policy makers to lowering interest rates further to keep the economy out of a recession.

``The housing outlook has deteriorated significantly and I don't see a bottom on sales and starts until the middle of the year at the earliest,'' Scott Anderson, senior economist at Wells Fargo & Co. in Minneapolis, said before the report. ``And our outlook on home prices has gotten worse.''

Economists had forecast the index would fall 1 percent, according to the median of 33 estimates in a Bloomberg News survey. Projections ranged from a drop of 3 percent to an increase of 1.8 percent.

Compared with a year earlier, the measure was down 24.2 percent.

Forecast Lowered

The Realtors lowered their forecast for existing-home sales in 2008 to 5.38 million from a January forecast of 5.7 million. Last year, 5.65 million homes were sold. Purchases of new homes will decline to 637,000 from 774,000, the group said today.

Pending resales fell in three of four regions. Purchases decreased 3.1 percent in the West, 3 percent in the South and 1.7 percent in the Northeast. They rose 3.4 percent in the Midwest.

The real-estate agents' group began reporting pending home resales in March 2005 and has supplied historical data back to February 2001. The gauge is considered a leading indicator because it tracks contract signings. The Realtors reported Jan. 24 that existing-home purchases, which are compiled from closings, fell 2.2 percent in December, more than economists had forecast.

New-Home Sales

Another leading indicator of the housing market, new-home sales, fell in December to a 12-year low, according to Commerce Department statistics. New home sales also are recorded when a contract is signed.

Homebuilder Pulte Homes Inc. said Jan. 30 that it had its fifth consecutive quarterly loss in the fourth quarter because of falling sales. Chief Executive Officer Richard Dugas forecast there will be a net loss from continuing operations, excluding potential land charges and tax benefits, this quarter.

``Sales levels are still depressed as compared to prior periods,'' even though the company has lowered prices, Dugas said on a conference call on Jan. 31.

Builders have little incentive to start new projects until they see inventories of unsold homes coming down. Both new and existing homes had a 9.6 months supply on the market in December.
 

Sales at U.S. Retailers Languish on Recession Concern

(Bloomberg) -- Sales at U.S. retailers languished in January as discounts failed to lure consumers concerned that a recession is coming. Macy's Inc. and Nordstrom Inc. reported declines, while sales at Wal-Mart Stores Inc. rose less than analysts estimated.

Sales at stores open at least a year gained 0.5 percent at Wal-Mart, the retailer said today, as winter storms hurt sales in the Midwest and fewer customers redeemed gift cards. Limited Brands Inc. and Target Corp. also reported declines larger than analysts predicted.

Department stores and mall-based shops slashed prices on clothing and bedding to attract customers following the slowest holiday season since 2002. Consumers refrained from spending as median home values probably fell for the first time since the Great Depression and employers cut back on hiring.

``You're seeing the continuing unfolding of the consumer spending slowdown,'' said Ken Perkins, president of Retail Metrics LLC, a Swampscott, Massachusetts-based research firm. ``Clearance sales were widespread, there were certainly enough incentives to draw the consumer in under normal economic circumstances, but consumers are hunkering down.''

Department stores have been hit hard by a decline in customer visits to malls and a lack of new products that excite consumers, Perkins said. Nordstrom's sales sank 6.6 percent. Analysts surveyed by Retail Metrics expected a 0.4 percent decline.

Macy's, the second-biggest U.S. department-store chain, said yesterday that January same-store sales dropped 7.1 percent, cut its fourth-quarter profit forecast and said it will eliminate 2,300 jobs. Kohl's, the fourth-largest U.S. department-store chain, said same-store sales fell 8.3 percent, worse than the estimate for a 7.9 percent drop.

Share Performance

Wal-Mart, the world's largest retailer, rose 7 cents to $48.90 at 9:41 a.m. in composite trading at the New York Stock Exchange. The Standard & Poor's 500 Retailing Index of 31 members rose 2.3 percent. It has slumped 5.1 percent this year before today compared with a 9.7 percent decline by the broader S&P 500.

January sales at U.S. retailers probably were unchanged, the International Council of Shopping Centers said on Feb. 5. That would be the first month without a gain since last April.

Last month will probably turn out to be the worst January performance on record, said Michael Niemira, the New York-based trade group's chief economist. The ICSC surveys almost 60 chains and will report figures later today.

Same-store sales are seen as a key gauge of a retailer's performance because they exclude locations that have recently opened or closed.

Limited Brands

Sales dropped 8 percent at Limited Brands, owner of the Victoria's Secret chain. The sales decrease exceeded the average analyst estimate for a decline of 7.1 percent. American Eagle Outfitters Inc. said yesterday that same-store sales fell 7 percent.

Wal-Mart had predicted a January same-store sales gain of 2 percent, the same as the average Retail Metrics estimate.

Target Corp., the second-largest U.S. discount chain, reported a 1.1 percent decline. It had said Jan. 21 it expected January sales to be ``near the low end'' of its forecast range of a 1 percent decrease to a 1 percent gain.

Other retailers performed better than analysts expected.

Children's Place Retail Stores Inc. reported a 6 percent same-store sales increase, ahead of the 3.6 percent estimated gain. AnnTaylor Stores Corp., a women's clothing retailer, said sales were unchanged from a year earlier, better than the estimated 3.7 percent decline. Chief Executive Officer Kay Krill said in the statement it was ``promotionally aggressive'' to clear inventory.
 

Trichet Sees `Unusually High Uncertainty' on Growth

(Bloomberg) -- European Central Bank President Jean- Claude Trichet signaled that risks to euro-region economic growth are increasing, prompting investors to raise bets on interest-rate cuts.

``As the reappraisal of risk in financial markets continues, there remains unusually high uncertainty about its overall impact on the real economy,'' Trichet said at a press conference in Frankfurt today after the ECB kept its key rate at 4 percent. ``We will continue to monitor very closely all developments over the coming weeks.''

The ECB has kept borrowing costs at a six-year high, declining to follow counterparts in the U.S. and Great Britain by cutting borrowing costs as it seeks to contain inflation in the 15 euro nations. Investors predict that a slowing economy will prompt the ECB to reduce its key interest rate.

``There is a greater acknowledgment that risks to growth are on the downside,'' said David Owen, chief European economist at Dresdner Kleinwort in London. ``The ECB's not going to cut in next couple of months, but it is starting to prepare the markets for rate reductions.''

The euro weakened 0.8 percent to $1.4521 at 3:21 p.m. in Frankfurt and the yield on 10-year German bunds fell 5 basis points to 3.85 percent.

Growth Forecasts

The ECB on Dec. 6 projected the euro-region economy to expand about 2 percent this year after 2.6 percent in 2007. Trichet said today that latest data confirmed the bank's assessment that ``risks surrounding the economic outlook lie on the downside.''

The International Monetary Fund on Jan. 29 cut its 2008 euro-region growth estimate by half a point to 1.6 percent, saying that ``no one is going to be exempt from some slowdown.'' The Washington-based fund also trimmed its growth estimates for the U.S. and Japan, the world's two largest economies.

Stock markets have dropped this year on concern the U.S. economy is sliding into a recession, curbing earnings growth. Germany's benchmark DAX Index has lost 16 percent this year and the Dow Jones Stoxx 600 Index 12 percent.

The Bank of England today cut interest rates for the second time in three months, lowering the benchmark by a quarter point to 5.25 percent. The Fed last month lowered its rate by 1.25 percentage points in two reductions to 3 percent.