Corn, Soybeans, Wheat Fall as Slumping U.S. Economy Cuts Demand

(Bloomberg) -- Corn and soybeans and wheat fell on speculation the U.S. economy will slide into recession, triggering a global slump and damping demand for grains and other commodities.

The Federal Reserve today cut its benchmark interest rate the most in 23 years in an effort to prevent a recession. Even after the move, U.S. equities and commodities fell. Before today, wheat prices had doubled in the past year and corn and soybean futures reached records last week.

``The projected growth in consumption of grains is in question,'' said Darrell Holaday, president of Advanced Market Concepts in Manhattan, Kansas. ``World economies are going to retract. We thought this could happen, but some thought that the rest of the world is insulated from the U.S. economy. It was a nice theory, but today, you can say that's not true.''

Corn futures for March delivery fell 4.5 cents, or 0.9 percent, to $4.9375 a bushel at 10:58 a.m. on the Chicago Board of Trade, the fifth-straight drop since the most-active futures rose to a record $5.1925 on Jan. 15. Corn gained 17 percent in 2007 after rising 81 percent in 2006 on record demand to produce ethanol and feed livestock.

Soybean futures for March delivery fell 15.75 cents, or 1.3 percent, to $12.4825 a bushel in Chicago, after last week falling for the first time in seven weeks. The price on Jan. 14 reached a record $13.415. Futures gained 78 percent last year after U.S. farmers planted the fewest acres in 12 years to sow the most corn since 1944.

Wheat futures for March delivery fell 7.5 cents, or 0.8 percent, to $9.55 a bushel in Chicago. Even with today's decline, the price has doubled in a year. Wheat reached a record $10.095 a bushel on Dec. 17 as global demand outpaced supply.

Hedge-Fund Bets

Since the end of November, hedge funds as of Jan. 16 increased bets by 44 percent that corn futures would rise, data from the Commodity Futures Trading Commission show. Funds that buy commodities in indexes raised bets 14 percent. Open interest has climbed 8.9 percent to almost 1.41 million contracts since the start of the year, the highest in more than nine months.

Funds that track commodity indexes cut bets on higher soybeans to 176,461 contracts as of Jan. 16, down 5.8 percent from a record net long position a week earlier, according to the CFTC report.

 

Read more at Bloomberg

Motorola May Face Razr 2 Flop as IPhone Sales Surge

(Bloomberg) -- Motorola Inc.'s Greg Brown, in his first earnings report as chief executive officer, may post disappointing sales of the Razr 2 phone after holiday shoppers flocked to Apple Inc.'s iPhone.

Motorola probably sold 2 million Razr 2s, the slimmer camera phones Brown is relying on to revive revenue, in the fourth quarter, said Lawrence Harris, a former Oppenheimer & Co. analyst in New York. Steve Jobs's Apple may have sold 2.4 million iPhones.

Harris estimated Motorola sold half as many Razr 2s over a similar period compared with the original model, whose 2004 debut started a craze for ever-thinner phones. Motorola, which fell to third place among global phone makers last year, may drop to fourth in 2008.

``The Razr 2 didn't set the world on fire and it won't be a phenomenon like the original one,'' Harris said.

Motorola, based in Schaumburg, Illinois, may say tomorrow that net income fell 59 percent to $257.9 million in the fourth quarter, according to the average of nine estimates compiled by Bloomberg. Sales probably slid 18 percent to $9.65 billion, the survey showed.

Jennifer Erickson, a spokeswoman for Motorola, declined to comment on sales or earnings before the report.

Motorola shares dropped 22 percent last year on the New York Stock Exchange, while Apple more than doubled. Motorola fell $1.48, or 11 percent, to $11.85 at 9:34 a.m. New York time, the lowest in more than four years. The Standard & Poor's 500 Information Technology Index dropped 4.3 percent.

No. 1 No Longer

The fading popularity of the original Razr probably cost Motorola its position as the top-selling handset at AT&T Inc., the biggest U.S. phone-service company, for the first time since 2004, said Piper Jaffray & Co. analyst Michael Walkley. Motorola probably ceded that spot to Samsung Electronics Co.'s Sync video and camera phone last quarter, he said.

The 47-year-old Brown, who took over as CEO after Ed Zander's Nov. 30 resignation, has to improve marketing to show consumers the new phone is a step up, Walkley said. The $300 Razr 2 is too similar to the first, which is available for free with a contract, said Minneapolis-based Walkley, who called Razr 2 holiday sales ``disappointing.''

Motorola probably sold about 3 million Razr 2s since the debut in the second quarter, Harris said. The original sold almost 6 million over a similar span after its release, and 12 million in the first year, he said.

Too Similar

The Razr 2 is thinner, has a better camera and can store more songs than the original. Consumers haven't bought the phones as quickly as Motorola shipped them, building inventories at carriers and retailers, Walkley said.

``The Razr 2 doesn't stand out the way the original did,'' said Brad Williams, who helps manage $11 billion as an analyst at MTB Investment Advisors in Baltimore. His firm sold its Motorola shares last year. ``You go to a store and there are less-expensive products that look strikingly similar to the Razr 2.''

The $399 iPhone, which blends Apple's best-selling iPod music player with an e-mail-equipped handset, is stealing sales from Motorola. The iPhone broke AT&T's opening-weekend records and sold more in three days after its June 29 debut than the original Razr did in its first month.

Last week, Jobs, 52, said Apple has sold more than 4 million of the phones. Analysts including UBS AG's Benjamin Reitzes in New York said Apple probably sold 2.4 million last quarter.

Nokia Oyj, Samsung and Sony Ericsson Mobile Communications Ltd. also introduced phones superior to the Razr 2 in features, according to a Jan. 4 analysis by Cowen & Co. That may help Sony Ericsson overtake Motorola as the No. 3 handset maker in the world this year, according to Cowen analysts including Matthew Hoffman in Boston.

 

Read more at Bloomberg

UBS, Bank of America Recommend Buying U.S. Stocks

(Bloomberg) -- Investors should buy U.S. stocks in the ongoing market selloff, according to UBS AG and Bank of America Corp. strategists, because share prices already reflect a slowdown in earnings growth.

``We understand the macro challenges facing the economy and many uncertainties, but we believe this level of pessimism is unwarranted,'' UBS equity strategist David Bianco wrote in a note to investors today. ``The market is panicked over a substantial and secular drop in earnings power.''

More than half of the world's biggest stock indexes fell into a bear market this week on mounting concern the U.S. is headed for a recession. The Standard & Poor's 500 Index fell 0.7 percent to 1,316.01 as of 11:06 a.m. in New York today, even after the Federal Reserve lowered its benchmark rate in its first emergency move since 2001.

The U.S. index has fallen 16 percent from a record reached on Oct. 9.

``It makes sense for investors to consider increasing their exposure to equities'' after declines in the past 12 months, wrote Thomas McManus, chief investment strategist at Bank of America's securities unit, in a report today. He advised buying ``gingerly or aggressively,'' depending on each investor's goals.

 

Read more at Bloomberg

Bank of America, Wachovia Profits Slump on Writedowns

(Bloomberg) -- Bank of America Corp. and Wachovia Corp., the second- and fourth-largest U.S. banks, said earnings plummeted after more than $6 billion of combined mortgage- related writedowns.

Bank of America's fourth-quarter profit dropped 95 percent to $268 million, while net income at Wachovia was almost wiped out, plunging 98 percent to $51 million. Bank of America gained 15 cents to $36.12 at 10:25 a.m. in New York trading. Wachovia declined $1, or 3.3 percent, to $29.78 after the Federal Reserve lowered its benchmark interest rate in an emergency move for the first time since 2001.

Kenneth Lewis, Bank of America's chief executive officer, and Kennedy Thompson, his counterpart at Wachovia, said in separate statements today that the companies were battered by the fixed-income markets. Lewis said he expects economic growth to ``be anemic at best in the first half.'' Bank of America's reserve to cover losses from loans and debt securities doubled to $3.3 billion in the fourth quarter.

Bank of America and Wachovia, both based in Charlotte, North Carolina, reported the lowest quarterly profits in at least six years during the country's worst housing slump in more than two decades. The world's biggest banks and brokerages have disclosed more than $120 billion of writedowns and credit losses since June, mostly caused by the collapse of the subprime mortgage market.

``The revaluation of assets that initially looked like a very exclusive subprime problem is emerging to be something much more,'' Kevin Fitzsimmons, analyst at Sandler O'Neill & Partners in New York, said today in an interview.

Missed Estimates

Bank of America earned 5 cents a share in the fourth quarter, excluding merger and restructuring costs and a gain from the sale of Marsico Capital Management LLC, falling short of the 21-cent average estimate from 21 analysts surveyed by Bloomberg. Wachovia's profit of 8 cents a share, excluding takeover-related costs, also missed analysts' estimates.

National City Corp., Ohio's largest bank, reported a loss, and Fifth Third Bancorp and KeyCorp, the state's No. 2 and No 3 lenders, said profit declined.

``Our fourth-quarter results were severely impacted by ongoing dislocations in capital markets and the slowing economy,'' Lewis said in today's statement. He added that the company is ``cautiously optimistic about 2008.''

Bank of America increased its bet on the faltering U.S. economy earlier this month by agreeing to acquire Countrywide Financial Corp., the largest U.S. mortgage lender, for about $4 billion in stock.

Countrywide Financial

Countrywide would give Bank of America a 25 percent share of U.S. mortgage originations, Lehman Brothers Holdings Inc. analyst Jason Goldberg wrote in a Jan. 11 report to clients. Almost two-thirds of Countrywide's loan originations in 2007 came from mortgage brokers and other third parties, a practice that Lewis has said Bank of America expects to curtail.

The corporate and investment bank lost $2.76 billion, compared with a profit of $1.4 billion a year earlier, and earnings at the consumer and small-business banking unit declined 28 percent to $1.87 billion. Lewis has scaled back investment banking by cutting 1,150 jobs since October and putting the hedge-fund brokerage unit up for sale.

First Drop Since 2001

``Investment banking isn't Ken Lewis's core competency and he doesn't need it,'' said Bruce Foerster, a former Lehman Brothers managing director who's now president of the South Beach Capital Markets advisory firm in Miami.

Bank of America's total fourth-quarter revenue fell 31 percent to $12.7 billion, while non-interest costs rose 15 percent to $10.1 billion. Return on equity, a gauge of how effectively the company reinvests profit, declined to 11.1 percent for the year from 16.3 percent in 2006.

Full-year earnings dropped for the first time in Lewis's tenure since the 60-year-old CEO succeeded Hugh McColl Jr. in 2001, with net income sliding 29 percent to $15 billion.

Wachovia's fourth-quarter earnings were the lowest since 2001 after $1.7 billion of writedowns, including $1 billion for subprime mortgage-related holdings. The company's corporate and investment bank had a loss of $596 million after the costs.

``The continued turmoil in the capital markets and the dramatic change in the credit environment diminished our fourth- quarter results substantially,'' Thompson said in the statement.

Fourth-quarter revenue fell 17 percent to $7.2 billion. Return on equity was 0.28 percent, down from 13.1 percent a year earlier. The net interest margin, the difference between what Wachovia pays for deposits and what it charges on loans, narrowed to 2.88 percent from 2.92 percent on Sept. 30.

 

Read more at Bloomberg

U.S. Stocks Pare Declines; Exxon Retreats, Financials Gain

(Bloomberg) -- U.S. stocks fell for a fifth day, the longest streak of declines in 11 months, as growing concern about the slowing economy prompted the Federal Reserve to cut interest rates by the most in two decades.

The Standard & Poor's 500 Index pared its worst loss in five years after some investors were persuaded the Fed would continue cutting rates after its emergency reduction today. Exxon Mobil Corp., Microsoft Corp. and AT&T Inc. led declines. Bank of America Corp., Wells Fargo & Co. and JPMorgan Chase & Co. helped carry financial shares higher for the first time in three days after the Fed cut its benchmark rate by 0.75 percentage point.

``It shows that they're trying to stem the negative sentiment that's out there that there's a recession under way,'' said Ed Peters, chief investment officer at PanAgora Asset Management in Boston, which manages $25 billion.

The S&P 500 retreated 23, or 1.7 percent, to 1,302.19 at 12 p.m. in New York. The Dow Jones Industrial Average decreased 179, or 1.5 percent, to 11,920.3. The Nasdaq Composite Index lost 56.66, or 2.4 percent, to 2, 283.36. About three stocks fell for every two that rose on the New York Stock Exchange.

Growing evidence that the U.S. economy is slowing has dragged more than half of the world's biggest stock indexes into a bear market and wiped out $7.3 trillion in global stock-market value this year.

`Increasing Downside Risks'

The Fed cited ``a weakening of the economic outlook and increasing downside risks to growth'' for its first emergency cut since 2001. Policy makers weren't scheduled to gather on rates until Jan. 29-30.

The U.S. market was closed for Martin Luther King Day yesterday. Stocks posted the steepest weekly drop since July 2002 last week after lower-than-estimated home construction, retail sales and manufacturing reinforced speculation that the economy is contracting.

Exxon, the largest U.S. crude producer, decreased $2.48 to $82.60. Chevron Corp., the second biggest, lost $2.96 to $80.50. Crude oil dropped to a six-week low, falling $2.39 to $88.18 a barrel in New York, on concern demand will diminish in an economic slowdown.

Microsoft, the biggest software company, retreated $1.04 to $31.87. AT&T slid 78 cents to $35.33.

Bank of America

Bank of America gained 87 cents, or 2.4 percent, to $36.84 even after reporting earnings that fell 97 percent. Fourth- quarter net income slumped to $268 million, or 5 cents a share, from $5.26 billion, or $1.16, a year earlier the bank said in a statement. Excluding merger and restructuring costs and a gain from the sale of Marsico Capital Management LLC, the company earned 5 cents a share, missing the 21-cent average estimate of analysts surveyed by Bloomberg.

Wells Fargo, the biggest bank on the West Coast, rose $1.35 to $26.83. JPMorgan, the third-largest U.S. bank, increased $1.30 to $40.89.

The MSCI World Index fell 0.6 percent. The Dow Jones Stoxx 600 Index of European shares added 2.4 percent.

The Nasdaq Composite today entered a so-called bear market, marked by a decline of at least 20 percent from a high. The S&P 500 and Dow average have both lost about 16 percent from their Oct. 9 records. The Nasdaq reached an almost seven-year high on Oct. 31.

Wachovia Corp., the fourth-largest U.S. bank, said profit fell 98 percent after writedowns for bad loans and mortgage- backed securities. Its shares added 15 cents to $30.95.

 

Read more at Bloomberg

Fed Cuts Rate 0.75 Percentage Point in Emergency Move

(Bloomberg) -- The Federal Reserve cut the benchmark interest rate by three quarters of a percentage point, its first emergency reduction since 2001, after stock markets tumbled from Hong Kong to London amid increasing signs of a U.S. recession.

The central bank cut the target overnight lending rate to 3.5 percent from 4.25 percent, the Federal Open Market Committee said in a statement in Washington. Policy makers weren't scheduled to gather until next week. It's the biggest single reduction since the Fed began using the rate as the principal tool of monetary policy around 1990.

``Broader financial market conditions have continued to deteriorate and credit has tightened further for some businesses and households,'' the Fed said in a statement in Washington. The FOMC took the action ``in view of a weakening of the economic outlook and increasing downside risks to growth.''

Policy makers set aside concerns about inflation to lower borrowing costs for the fourth time since September after the unemployment rate rose, retail sales fell and stocks slumped. Chairman Ben S. Bernanke shifted the Fed's stance to a more aggressive approach in remarks this month citing a need for ``decisive and timely'' action.

The dollar slid and Treasury securities rallied after the announcement. Stocks slumped as some investors questioned whether the Fed would be able to avert a recession, and then recouped more than half the losses. The Standard & Poor's 500 Index fell 0.5 percent to 1,318.28 at 11:15 a.m. in New York, after dropping as much as 3.8 percent earlier.

Bear Market

Yesterday, almost half of the world's biggest stock indexes fell into a bear market as mounting concern about a U.S. recession dragged down banking and retail shares across Asia, Europe and Latin America.

``The bottom line was that financial conditions were tightening sharply'' and affecting the economic outlook, said former Fed economist Brian Sack, who is now with Macroeconomic Advisers LLC in Washington. ``The view so far has been that they're somewhat behind the curve and needed to adopt a somewhat more aggressive approach.''

The Bank of Canada, in a scheduled meeting, lowered its main interest rate by a quarter point today to 4 percent and signaled it will act again to shield Canada from the U.S. slowdown. The Bank of England said it has no plans to change the date of its next rate decision. The bank's policy makers are due to begin a two-day meeting in London on Feb. 7.

Paulson Reaction

Treasury Secretary Henry Paulson called the Fed's move ``very constructive'' and a ``confidence builder,'' when asked about the Fed decision after a speech in Washington. He also said it was a sign to the rest of the world that the U.S. central bank is ``nimble.''

Paulson, charged by President George W. Bush last week with negotiating a fiscal stimulus plan with lawmakers, said a package ``must be enacted quickly.'' White House spokeswoman Dana Perino told reporters that the administration hasn't ruled out a proposal exceeding $150 billion.

The Fed Board of Governors, in a related move, lowered the so-called discount rate on direct loans to commercial banks by a 0.75 percentage point to 4 percent. The Chicago and Minneapolis district banks had requested the reduction, the Fed said.

``Appreciable downside risks to growth remain,'' the Fed statement said. ``The Committee will continue to assess the effects of financial and other developments on economic prospects and will act in a timely manner as needed to address those risks.''

Futures Contracts

Traders had anticipated 75 basis points of rate cuts this month, according to futures prices on the Chicago Board of Trade.

The FOMC vote was 8-1, with St. Louis Fed President William Poole preferring to wait until the regularly scheduled meeting. Fed Governor Frederic Mishkin was absent and not voting.

Fed officials met by video conference at about 6 p.m. yesterday, spokeswoman Michelle Smith said. Mishkin was traveling and unable to participate, she said. The voting members were the same as in 2007 because the presidents don't rotate in until the first regular meeting, Smith said.

Today's so-called inter-meeting rate cut is the first since Sept. 17, 2001, when the Fed lowered borrowing costs in the aftermath of the terrorist attacks six days before. That was the third emergency reduction in a year which saw the last U.S. recession.

 

Read more at Bloomberg

Blackouts a worry: Lehman

(Fin24) - Global analysts Lehman Brothers has expressed concern over the effect of Eskom's blackouts on infrastructure-related work in South Africa.

Wide-scale blackouts continued over the weekend as Eskom could not keep up with demand.

"Of concern are reports in the local press that the power cuts are now affecting infrastructure work related to the World Cup and industry in general," said the analysts in a research note.   

According to the energy supplier, the country needs to reduce its load demand by about 20%.
 

Read more at Fin24