News Archive


‘Good reason to believe’ inflation will rise: Fed’s Fischer


JACKSON HOLE, Wyo. U.S. inflation will likely rebound as pressure from the dollar and other factors fade, allowing the Federal Reserve to raise interest rates gradually, Fed Vice Chairman Stanley Fischer said on Saturday.

The influential U.S. central banker was circumspect whether he would prefer to raise rates from near zero at a much-anticipated policy meeting on Sept. 16-17. But he said downward price pressure from the rising dollar, falling oil prices, and slack in the U.S. labor market is fading.

“Given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further,” he told a central bankers’ conference in Jackson Hole, Wyoming.

“With inflation low, we can probably remove accommodation at a gradual pace,” he added. “Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening.”

The Fed has said it wants to be reasonably confident that inflation, which has been stuck below a 2-percent target for a few years, will rebound in the medium term. Recent financial market turmoil and fears of a Chinese economic slowdown could stall that rebound.

“At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual,” said Fischer, who on Friday said it was too early to decide whether September was the time to hike rates for the first time in nearly a decade.

(Reporting by Jonathan Spicer and Howard Schneider; Editing by Andrea Ricci)

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Buffett’s Berkshire takes $4.48 billion stake in Phillips 66


Warren Buffett’s Berkshire Hathaway Inc (BRKa.N) disclosed a $4.48 billion stake in oil refiner Phillips 66 (PSX.N), rebuilding a bet it had made in the energy industry before oil prices fell.

The 57.98 million-share, or roughly 10.8 percent, stake was revealed in a Friday night filing with the U.S. Securities and Exchange Commission. Phillips 66 shares closed Friday at $77.23.

Berkshire once held a large stake in the Houston-based company, but shed nearly two-thirds of it in February 2014 when it swapped $1.35 billion of shares for a chemicals business that it folded into its Lubrizol unit.

Crude oil prices have since fallen by more than half, though Phillips 66’s share price has dropped by less than 1 percent.

Phillips 66 spokesman Dennis Nuss on Saturday said the Houston-based company does not comment on specific shareholders.Berkshire may have begun rebuilding its Phillips 66 stake in the second quarter, when it bought $3.09 billion of equities overall.

In an Aug. 14 SEC filing detailing its U.S. stock holdings, Berkshire did not mention Phillips 66, after having previously reported a 7.5 million-share stake as of March 31, but said it disclosed some information confidentially to the regulator.

The SEC sometimes lets Omaha, Nebraska-based Berkshire do this so Buffett can quietly buy a large amount of stock, without worrying about investors piggybacking on the famed investor’s apparent stamp of approval.

He did this in 2013, when Berkshire amassed a $3.45 billion stake in Exxon Mobil Corp (XOM.N). Buffett sold that stake in last year’s fourth quarter.

Berkshire does not normally say whether Buffett or his portfolio managers Todd Combs or Ted Weschler make specific investments, but larger investments are generally Buffett’s.

Until this week, when the price briefly fell below $70, Phillips 66 shares have since April traded around or slightly above their current price.

Berkshire ended June owning $117.7 billion of equities.

It also owns more than 80 businesses, and on August 10 said it would buy Precision Castparts Corp (PCP.N), which makes parts for the aerospace and energy industries, for roughly $32.3 billion.

(Editing by Andrew Roche)

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Raising inflation target won’t help much now: researchers


JACKSON HOLE, Wyo. The Federal Reserve could have cut short the Great Recession by a year if it had set a 4 percent inflation target in 1984, but raising the target now would probably do little to help the economy, researchers said on Saturday.

Boston Fed President Eric Rosengren and Minneapolis Fed President Narayana Kocherlakota recently have floated raising the U.S. central bank’s current 2 percent inflation target to give it more room to cut rates during economic downturns.

The idea has not gained much traction in part because the Fed does not want to be seen as fickle about its commitments.

In a paper presented at the Fed’s global central banking conference here, S. Boragan Aruoba of the University of Maryland and Frank Schorfheide of the University of Pennsylvania showed how setting a 4 percent inflation target in 1984 would have allowed the Fed to cut rates more sharply than it was able to do during the 2007-2009 financial crisis.

Under that scenario, they said “the return of inflation to average levels is even quicker and recovery of GDP takes about a year less than under the historical policy.”

But they added that the benefits of raising the target inflation rate depend heavily on the likelihood of a shock pushing the economy to the point where near-zero interest rates are needed.

That probability, the authors said, is very small: less than 0.1 percent in the model they used. When they ran simulations of the economic response to raising the inflation target in early 2014, they found very little benefit.

“While the change in the target inflation rate affects

interest rate and inflation dynamics, the path of GDP is largely unaffected,” the researchers wrote.

“Thus, this analysis suggests that if the central bank raises the inflation target now, even if it is able to communicate and convince the public about the credibility of this new policy, there does not seem to be much real effects of this policy change to make it desirable.”

Aruoba and Schorfheide are known for their research on monetary policy when interest rates are at or near zero, and their models for tracking business cycles and gross domestic product growth are published by the Philadelphia Fed.

(Reporting by Ann Saphir; Editing by Paul Simao)

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Yellen ally pours cold water on rule-based monetary policy


JACKSON HOLE, Wyo. For much of her tenure as head of the Federal Reserve, Janet Yellen has been pressured by Republican lawmakers who want the U.S. central bank to adopt a monetary policy rule, a straightforward formula connecting unemployment and inflation to a benchmark interest rate.

On Saturday a Yellen ally and former adviser at the Fed delivered a provocative retort: the economic models underpinning those simple rules don’t work that well, and the best policy decisions come when central bankers look beyond those models to the unexpected forces shaping the economy.

Former Fed Chair Alan Greenspan famously did it in the 1990s when he argued against a rate hike at a time when rising productivity was holding down inflation, and arguably failed to do it when he ignored the impact of the tech and housing bubbles, Johns Hopkins University economics professor Jon Faust said in a paper presented at an annual Fed conference here.

In each case the point is the same: it was the extraordinary events outside of the basic inflation and output models used by central bankers that ultimately mattered most, argued Faust, who served as a special adviser to the Fed’s board of governors until September 2014.

That approach “brings fears of ‘seat-of-the-pants’ policymaking and, for the more excitable, of barbarians at the central bank gates,” Faust wrote.

But after reviewing the statistical models that try to separate underlying economic trends from other factors, Faust said he concluded it is those other factors that policymakers often need to understand and reflect in their decisions – something that can’t be done through a rule.

“Normal cyclical dynamics … have played a distinctly minor role in both the successes and failures” of monetary policy, Faust wrote. “Understanding … confounding dynamics has always been the key to good policymaking and failure to understand those dynamics has played a key role in major policy mistakes.”

Sophisticated econometric models of inflation, for example, may include “extra wiggles” in the forecast as inflation moves from its current rate to a long-run average, but on the whole do no better than a “mindless” line drawn between the two points, he said.

His argument has bearing for the push by Republicans in Congress and possibly by the party’s eventual 2016 presidential nominee to tie the Fed to a policy rule.

Yellen is arguably facing a “seat-of-the-pants” moment now in judging whether it is time to raise rates, a call tied closely to her judgment about when and how fast inflation might rise to the Fed’s 2 percent target.

That’s a decision no model or rule will help with, Faust suggested.

“Policymakers must take a stand,” he said.

(Reporting by Howard Schneider; Editing by Paul Simao)

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Syngenta may seek partners, JVs after product review: chairman in paper


ZURICH Syngenta AG (SYNN.VX) may seek partners to help improve its product lineup after a thorough review in the wake of a rebuffed takeover approach from Monsanto Co (MON.N), the agrichemicals group’s chairman told a Swiss newspaper.

Syngenta’s board is under pressure from shareholders to show how it plans to generate value after turning its back on Monsanto’s $47 billion cash-and-share offer, which it said undervalued the company and had too great an execution risk.

In an interview with Finanz und Wirtschaft, Michel Demare said it was too early to discuss what steps Syngenta planned to boost its results.

But he added: “We will subject our product portfolio to a total review, especially on the seed side. Then we will see if there are appropriate transactions to improve ourselves, perhaps with partnerships and joint ventures.”

Asked about short-term steps it could take, he said: “Some of these things can be done in the short term. But what we do not want is to improve earnings in the short term at the expense of the future. We must remain responsible.”

Demare said he had no concerns about activist shareholders and had no immediate plans to try to forge a group of core investors from the company’s fragmented investor base.

“But if we made a major acquisition, it would be possible for example to take a major investor on board who co-financed the transaction by purchasing Syngenta shares,” he added.

Demare said he took six calls from Monsanto boss Hugh Grant in the first two weeks of August alone and had no idea what Grant planned next.

Some Syngenta investors have expressed dismay that the company did not at least open talks with Monsanto. “For me it is clear that the chairman did not behave as many shareholders would have wished,” FuW quoted Artisan Partners fund manager Richard Logan as saying.

Demare acknowledged Syngenta had to “explain ourselves, regain trust and deliver results” but also dismissed as “illusion” the offer price of 449 Swiss francs and then 470 francs per share that Monsanto said it had proposed. He noted the 18 months it would have taken to wrap up any deal.

Syngenta shares fell 18 percent on news Monsanto was abandoning its approach and closed on Friday at 323.70 francs.

Demare noted the stock was slightly above the level it was when Monsanto emerged as a suitor, while rivals’ shares were down by as much as a fifth.

He said Syngenta’s cost-cutting program was ahead of plan but could be expanded should it find more room to cut.

(Reporting by Michael Shields; editing by John Stonestreet)

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Ashley Madison courted several buyers, landed none before attack


TORONTO The owner of adultery website Ashley Madison had already been struggling to sell itself or raise funds for at least three years before the publication of details about its members, according to internal documents and emails also released by hackers as part of their assault on the company in recent weeks.

Some unnamed investors wanted out, multiple attempts to close a deal or raise funds failed, and a public market debut looked increasingly unlikely, the documents show.

Avid Life Media announced on Friday that CEO Noel Biderman, who founded the website in 2001, had left the company with immediate effect, the latest sign of the wrenching impact on the company of the attack that led to the disclosure of sensitive data about millions of clients.

In an April 2015 letter addressed to all its investors, closely-held Avid Life acknowledged that some investors had pressed it to improve liquidity so they could sell shares. The company said it would buy back up to $10 million worth of shares.

“Over the last couple of years, we have not been successful in exploring various alternatives including a sale of the business and seeking debt from third parties,” said the letter signed by the board of directors.

Reuters could not independently verify the authenticity of the email messages and internal documents.

Avid Life did not respond to repeated requests for comment. Members of the company’s board also could not be reached for comment. Biderman was not reachable by phone.

DILLER HOPES DASHED

The attack has likely sharply lowered the price Avid Life could muster in any sale of assets, assuming it could find a buyer willing to take on a company facing several multi-million dollars lawsuits and the challenge of rebuilding a computer network that has been so badly infiltrated.

Bankers told Reuters last month – before the massive disclosure of its customers’ information – that a full data dump would create a ‘doomsday scenario’ for the company, and kill any IPO plan.

Several messages show that Biderman was trying to secure a meeting with executives at media mogul Barry Diller’s IAC/InterActive Corp, whose biggest online dating assets, including Match.com and Tinder, are being prepared for a public market spinoff. Biderman’s goal was to start acquisition talks with the much larger rival.

“They would be CRAZY not to speak with us,” wrote Biderman in February this year. And in May: “If there was ever a moment to have a ‘private’ meeting with Diller, it is now.”

But in an email message later forwarded to Biderman by an intermediary, one IAC director, Bryan Lourd, was blunt about the chances IAC might buy Ashley Madison: “They don’t want it.”

IAC declined to comment “on rumors and speculation about transactions.”

Avid Life in April said it was considering an initial public offering in London, at a $1 billion valuation, with company executives expressing hope in media interviews that European investors would prove more understanding of the controversial business than those in North America.

The emails show that Biderman received an informal approach in May from Cliff Lerner, the CEO of Snap Interactive Inc (STVI.PK), which owns the online dating site AYI.com. Lerner suggested a reverse takeover and a Nasdaq listing.

A spokesman for Snap said Lerner had a short back and forth email conversation with Avid Life representatives, but ultimately decided a deal wouldn’t work.

By June, Biderman called the IPO a “long shot” in one email. He told an acquaintance, who helped put other companies’ financing deals together, that he was looking to raise between $50 million and $75 million in debt.

Similar efforts had fallen through before. Avid Life had a letter of intent from Fortress Credit Corp, part of Fortress Investment Group LLC (FIG.N), to borrow $43 million in September 2013, the documents the hackers released show, but the deal never went through.

“I can confirm that the proposed loan you referenced did not close,” Gordon Runté, head of investor and media relations at Fortress, said in response to queries, declining to comment further on the reasons.

Avid Life had intended to use some of that cash to pay a dividend to its shareholders, the proposal, dated September 6, 2013, showed.

It also received a term sheet for a $40 million three-year loan from GMP Securities, a Canadian investment bank, in 2012.

GMP said the deal was not completed and it has never loaned Avid Life any money. It declined to specify why.    

The emails also show that Avid Life came close to selling itself at least three times in 2012.

In one instance, a deal with Canadian billionaire Alex Shnaider and frozen yogurt mogul Michael Serruya fell apart because of CEO Biderman’s “difficult and very demanding” personality, according to an email from the potential buyers. Two other attempted deals, with a boutique investment bank and a private equity firm, also fell apart.

Shnaider confirmed that he and Serruya wanted to strike a deal to acquire Avid Life and had agreement in principle to buy it. “We didn’t feel comfortable, at the end of the day, going through with the deal,” he said.

A spokesperson for Serruya did not immediately return calls.

(Editing by Amran Abocar and Martin Howell)

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IMF’s Lagarde says restructuring should suffice for Greek debt


ZURICH A form of debt restructuring rather than outright forgiveness should enable Greece to handle its “unviable” debt burden, the head of the International Monetary Fund was quoted as telling a Swiss newspaper.

The IMF has yet to make clear if it will participate in the third 86-billion-euro ($96 billion) international bailout that Greece signed up to in early August, having argued in favor of a partial writedown of a debt burden it considers unsustainable in its current form.

Greece’s euro zone creditors, notably Germany, have ruled out a writedown but are willing to consider other forms of restructuring such as a lengthening maturities.

Asked about those differences, IMF Managing Director Christine Lagarde told Saturday’s edition of Le Temps: “The debate on cancelling the debt has never been open I don’t think it is necessary to open it if things go well…

“We are talking about extending maturities, reducing rates, (making) exemptions for a certain period of time. We are not speaking about cancelling debt.”

The interview made no mention of whether the IMF will take part in the new bailout, which Lagarde has previously said it will make a decision on by October.

NO CHINESE HARD LANDING?

Turning to China, Lagarde said she expected the country’s economic growth rate to remain close to previous estimates even if some sort of slowdown was inevitable after its rapid expansion.

China devalued its yuan currency this month after exports tumbled in July, spooking global markets worried that a main driver of growth was running out of steam.

“The slowdown was predictable, predicted, unavoidable,” Lagarde was quoted as saying.

“We expect that China will have a growth rate of 6.8 percent. It may be a little less.” The IMF did not believe growth would fall to 4 or 4.5 percent, as some foresaw.

Noting that a drop in commodity prices had hit many emerging markets, she said those economies were “at the center of our attention.”

($1 = 0.8946 euros)

(Reporting by Michael Shields and Shadia Nasralla; editing by John Stonestreet)

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Myanmar sets $2.80 daily minimum wage in bid to boost investment


YANGON Myanmar has set a minimum wage of 3,600 kyat ($2.80) for an eight-hour work day, a move likely to boost investment in the fast-growing country’s garment industry.

The decision on a minimum wage, which follows two years of often acrimonious debate between garment factory owners and labor unions, was announced on Saturday.

Myanmar’s government has targeted garments for rapid growth, and Saturday’s statement may help spur this, as it gives clarity on the law and labor costs to global apparel brands buying clothes from Myanmar.

Companies that have pushed for creation of a minimum wage include giant Swedish retailer Hennes Mauritz (HMb.ST), which works with 13 factories in Myanmar, and U.S. retailer Gap Inc (GPS.N), which buys from two.

Once a thriving industry, Myanmar’s garment sector was hit hard by sanctions imposed by the United States, stripped of trade benefits and abandoned by brands who feared the reputational risk associated with the former junta.

In a bid to change this, Myanmar lawmakers passed a minimum wage law in 2013, but negotiations between employers, trade unions and the government were delayed by garment workers’ strikes and threats from garment factory owners – many from China and South Korea – to close if the minimum wage was set too high.

COMPETITIVE ADVANTAGE

Under the newly-established level, Myanmar’s minimum monthly pay would be around $67 a month, based on a six-day work week, giving it a competitive advantage over thriving garment makers such as Vietnam and Cambodia where the monthly minimum wage ranges from $90 to $128, according to the International Labor Organization.

Myanmar’s announcement only stated the wage-rule for a “standard eight-hour work day”. It did not mention overtime compensation.

Saturday’s statement comes less than three months before Myanmar’s first free elections in 25 years. Nobel laureate Aung San Suu Kyi’s National League for Democracy is widely expected to comfortably win the poll.

The approved wage would apply to workers across all sectors, but exclude small and family-run businesses that employ fewer than 15 people, National Minimum Wage Committee, a forum comprising all negotiating parties, said in state-run Myanma Ahlin newspaper.

The wage will come into effect on Sept. 1.

Myanmar exported $1.5 billion of clothes and materials in 2014, up from $1.2 billion the previous year and $947 million in 2012, according to the Global Trade Atlas.

The World Bank has projected that Myanmar’s economy will expand about 8 percent in the current fiscal year.

(Reporting by Timothy Mclaughlin and Aung Hla Tun; Editing by Richard Borsuk)

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Focus turns to U.S. data as China slowdown looms


NEW YORK After a dizzying two weeks that saw a rapid plunge and rebound in equity prices, investors are looking forward to a week of economic data that may provide clarity on the likelihood of a near-term U.S. interest rate hike and help tamp down the market’s recent wild swings.

The economic figures will culminate in Friday’s jobs report that should reveal more about the strength of the U.S. economy. Car sales, construction spending, the Federal Reserve’s “beige book” and jobs growth may show the economy is strong enough to withstand the first rate hike in nearly a decade from the Federal Reserve, despite worries about a hard landing for China’s economy.

Global stock markets were stung by severe swings in recent weeks, stoked by concerns that a slowdown in China’s economy may be more harsh than anticipated.

But after confirming a move into correction territory, the SP 500 rebounded to score its best two-day percentage gain in over six years this week, as comments from Fed officials led some investors to believe the market turmoil and global growth concerns had diminished the possibility of a rate hike at the central bank’s September meeting.

A September rate increase hasn’t been ruled out, however. Fed Vice President Stanley Fischer told CNBC during the Fed’s annual conference in Jackson Hole, Wyoming, that the committee was “heading in the direction” of higher rates. Traders in futures markets that bet on rate increases boosted September’s odds after his words.

“There is a narrative out there that Yellen’s Fed is looking for a reason to delay the rate hike; I don’t think that is necessarily the case,” said Brad McMillan, chief investment officer for Commonwealth Financial in Waltham, Massachusetts.

“If we continue this run of strong data and if the market keeps coming back or at least doesn’t keep dropping, that makes September more likely.”

After a stronger-than-expected revision to second quarter gross domestic product and solid durable goods figures, another run of strong data next week could bolster the case for a rate increase next month. As of early August, most U.S. primary dealers polled expected a September rate increase.

But traders also are also mindful of the fact that the Chinese slowdown could hit U.S. companies and their shares disproportionately in the second half of the year, with luxury goods companies and industrials among the groups paying a price.

Thomson Reuters data shows third-quarter earnings expectations have dropped 6.4 percent for the industrial sector and 8.8 percent for the materials sector since July 1.

Should analysts continue to downgrade their expectations for third- and fourth-quarter earnings in those sectors or more broadly, that could make stocks more expensive, even after the recent selloff.

“It is more important to the U.S. whether or not GM and Ford can sell cars there,” said Kim Forrest, senior equity research analyst, Fort Pitt Capital Group in Pittsburgh.

“That is probably what a softening of the Chinese economy could affect and it factors into the earnings of these companies.”

Should next week’s data show the U.S. economy continues to slowly improve, market volatility is likely to remain as investors grapple with the possibility of a September hike and its ramifications for risk assets.

“Markets and investors were nervous anyway about this normalization anyway after years without a raise,” said Peter Kenny, chief market strategist at Clearpool Group in New York.

“If we were not in a position where markets are as jittery as they are as a result of the China deceleration story, it would be fair to say a rate move of 25 basis points would be able to be managed by the world’s largest economy.”

(Reporting by Chuck Mikolajczak; Editing by Meredith Mazzilli)

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