2nd UPDATE: Microsoft CEO: Economy Not Through All Issues

By Jon Kamp 
   Of DOW JONES NEWSWIRES 
 

BOSTON (Dow Jones)--Microsoft Corp. (MSFT) Chief Executive Steve Ballmer said Friday that a permanently changed economy will be slow to recover from the recession, but he also cited signs of improvement and issued an upbeat outlook for long-term information-technology opportunities.
"What we see today feels like a new normal," Ballmer said about the economy in an address during a luncheon held by the Boston College Chief Executives' Club of Boston. "I don't think we're through all the issues."
Ballmer also addressed the rationale behind Microsoft's expansion into retail stores, which is expected to start soon with an opening in Scottsdale, Ariz., and provided an update on the company's pending search deal with Yahoo Inc. (YHOO)

San Joaquin Bank shut down by regulators

Calif. bank becomes 99th in US to be shut in 2009

By STEPHEN BERNARD (AP) – 59 minutes ago

NEW YORK — Regulators have shut down San Joaquin Bank in California, marking the 99th failure this year of a federally insured bank.
The Federal Deposit Insurance Corp. was appointed receiver of San Joaquin Bank, based in Bakersfield, Calif. It had $775 million in assets and $631 million in deposits as of Sept. 29.
The FDIC said Friday the bank's deposits will be assumed by Citizens Business Bank, based in Ontario, Calif. Its five branches will reopen Monday as branches of Citizens Business Bank.
San Joaquin Bank's failure is expected to cost the FDIC's insurance fund $103 million.
Depositors' money is not in danger. The FDIC is backed by the government, and deposits are guaranteed up to $250,000 per account. But the deposit insurance fund has fallen into the red. The FDIC board recently proposed to have U.S. banks prepay about $45 billion of their insurance premiums — three years' worth.
That plan isn't a long-term remedy for the depleted fund. But it would spare ailing banks the immediate cost of an alternative idea: paying an emergency fee for the second time this year. And the FDIC still has billions in loss reserves apart from the insurance fund.

CIT amends restructuring plan with bondholders

CHICAGO (Reuters) - Commercial finance company CIT Group Inc and a group representing its bondholders have agreed on changes to the company's proposed restructuring plan as it looks shore up its finances.

The changes, announced by CIT late Friday, include a mechanism to accelerate the repayment of new notes; the shortening of maturities by six months for all new notes and junior credit facilities; and offering more equity to subordinated debt holders.

The changes would include notes maturing after 2018 in the company's exchange offer and increase the interest paid on Series B notes being offered by CIT Delaware Funding to 9 percent from 7 percent. They would also provide preferred stockholders contingent value rights in the reorganization and modify the allocation of common stock in the company's recapitalization after the exchange offers, as part of an agreement with the Treasury Department.

Israel rejects UN council backing for Gaza war crimes report

UN human rights council passes resolution endorsing Goldstone report, which accused Israel and Hamas of war crimes
Israel has angrily rejected what it called a "one-sided" resolution by the UN human rights council today that backed a highly critical report on the Gaza war and opened the way to possible international war crimes investigations.

The council voted to endorse the report by a South African judge, Richard Goldstone, which accused both Israel and Hamas of committing war crimes and possible crimes against humanity during the three-week war in Gaza in January. Goldstone, whose work was hailed by leading international human rights groups, found there may be individual criminal responsibility over the killing of civilians.

BofA Agrees to Give More Details on Merrill

WASHINGTON/NEW YORK (Reuters) - Bank of America Corp agreed to give federal authorities more information about why it refrained from disclosing details about Merrill Lynch's performance before it bought the investment bank, U.S. regulators said on Tuesday.
The pact, still subject to court approval, would allow the U.S. Securities and Exchange Commission to look at details on the bank's failure to disclose information to shareholders about Merrill's $15.8 billion fourth-quarter losses and about bonuses paid to the investment bank's employees.
Bank of America's board voted on Friday to waive its attorney-client privilege that protects the names of those who made decisions on the Merrill merger, according to sources familiar with the matter.

Congressional investigators as well as the New York Attorney General Andrew Cuomo will have access to the protected information, according to a letter the bank sent to Cuomo's office on Monday.

Barack Obama's health care plan could get support from second Republican senator

President Barack Obama's plans to overhaul the American health care system received a boost on Wednesday when a second Republican senator indicated that she may support the legislation.
Susan Collins joined fellow moderate Republican senator Olympia Snowe, in endorsing the goal of far-reaching changes in the US health care system.

The proposals to overhaul of the $2.6 trillion (£1.6 trillion) system were passed by the Senate Finance Committee, setting the stage for a major battle on the Senate floor itself.
My hope is that we can fix the flaws in the bill and come together with a truly bipartisan bill that could garner widespread support," Mrs Collins said.

Pakistan launches all-out assault on Taliban

Pakistani troops maintain a curfew in Bannu on the edge of Waziristan as the army begins a major assault against the Taliban. Photograph: Ijaz Muhammad/AP

More than 30,000 Pakistani soldiers have launched a much-awaited ground offensive in an al-Qaida and Taliban stronghold along the Afghan border.

The offensive in South Waziristan follows months of air strikes intended to soften up militant defences. The bombing has forced tens of thousands of civilians to flee.

Pakistan's full-scale operation comes after two weeks of militant attacks that have killed more than 175 people, increasing the pressure on the army to take on the insurgents.

Forex Top Story Euro Hits 14-Month High Versus Dollar

(RTTNews) - The euro maintained its recent gains versus the dollar and yen as global stocks saw further strength, adding to risk appeal. With the rally, the euro moved to its best level in more than a year versus the dollar.

The Eurostat said in a report today that the Eurozone industrial production decreased 15.4% year-on-year in August, compared to the 15.9% fall in the previous month Economists expected a decrease of 15.5%.

On a monthly basis, industrial production climbed 0.9% in August, faster than the 0.2% growth in July, revised from 0.3% decline reported initially. Economists were looking for an increase of 1.2%.

The euro leveled off against the dollar after reaching a 14-month high of 1.4919. The European currency has been trending higher throughout October.

In the U.S., a Labor Department report showed that retail sales fell 1.5 percent in September following a revised 2.2 percent increase in August. With the monthly decrease, retail sales in September were down 5.7 percent compared to the same month a year ago.

US retail sales dragged down by auto sales

WASHINGTON — US retail sales saw their biggest decline of the year in September as auto sales were dented by the end of government trade-in incentives, official data showed Wednesday.

Sales fell 1.5 percent following a revised 2.2 percent jump in August. The figure was not as weak as a 2.1 percent drop expected by most analysts.

The September contraction, the biggest since December 2008, was attributed to tumbling auto sales after the government ended a rebate program in which car owners swapped old vehicles for new, more fuel-efficient models.

Auto sales fell dramatically by 10.4 percent, reflecting the end in August of the "cash-for-clunkers" program.

But retail sales excluding autos were surprisingly strong, however, up 0.5 percent in September and comfortably higher than expectations of a 0.2 percent rise in core sales, the Commerce Department said.

Analysts said the report was mostly optimistic but wondered whether sales growth -- a key to recovery from recession -- can be sustained.

"Despite the large top-line sales decline, this was a strong retail sales report," said Scott Hoyt, senior director of consumer economics for Moody's Economy.com, pointing out that "very few" segments reported sales declines.

"This suggests that consumers are becoming more optimistic about economic conditions," he said, hastening to add however that the positive numbers may be difficult to sustain.

Hoyt said consumers remained financially constrained and lack the cash to spend aggressively, citing general wage incomes, which were not growing appreciably although declines have ended, and wealth levels that were substantially below previous levels even as equity and house prices rose.

"While sales are up, there is limited confidence that consumers can sustain this pace without jobs," said Stephen Gallagher of Societe Generale.

The US unemployment rate is approaching 10 percent even though data indicated the economy was poised for growth in the third quarter after nearly two years of recession.

"We view the retail sales and consumer data as encouraging and believe that faced with this private demand, order and production increases require employment increases," Gallagher said.

Employment gains are not expected until early 2010.

Some analysts believe the largely positive retail picture can help in US recovery from recession.

Patrick O'Hare of Briefing.com pointed to core retail sales, which excludes autos, gasoline sales, and building materials, which were up 0.5 percent, based on the governmment data.

"That marked the second straight increase for this series, which is noteworthy given that it factors into economists' GDP (gross domestic product) assumptions," he said.

Then US economy is expected by many analysts to chalk up its first growth rate -- of about three percent -- in the third quarter after a year of contractions.

But with credit still tight and consumer caution lingering, US retailers are bracing for a difficult period as the year end holiday shopping season approaches.

Many early projections suggests retail spending in the final two months of 2009 -- a season that accounts for a large proportion of sales and profits -- will be flat or lower

Sept. retail sales fall 1.5 percent post Clunkers

By MARTIN CRUTSINGER (AP) – 2 hours ago

WASHINGTON — Retail sales declined in September by the largest amount this year as car sales plummeted following the end of the government's popular Cash for Clunkers program. But outside of autos, sales were better than expected.

The Commerce Department said Wednesday that retail sales dropped 1.5 percent last month. That's smaller than the 2.1 percent fall economists had expected, but still the biggest setback since sales dropped 3.2 percent in December.

Car sales plunged 10.4 percent, but excluding autos, retail sales rose 0.5 percent. That's better than the 0.2 percent increase analysts expected.

Consumer demand, which accounts for 70 percent of total economic activity, is being watched closely by economists who worry that any recovery from the recession could stall due to the strong headwinds that households still face.

"The increase in sales excluding autos is still fairly modest by normal standards," Paul Dales, an economist at Capital Economics, wrote in a research note. "Moreover, with households' finances likely to remain constrained by falling employment, declining real incomes and tight credit, we doubt that consumption will continue to growth at such rates."

But on Wall Street, the better-than-expected retail sales figures and surprisingly strong earnings reports from Intel Corp. and JPMorgan Chase & Co. pushed the Dow Jones industrials about 35 points away from the 10,000 mark, a level not seen in a year. Major stock indexes all rose about 1 percent in morning trading.

Analysts had expected increases at general merchandise stores following reports last week from the nationwide retailers that sales grew in September at stores open at least a year compared with activity in September 2008. It marked the first year-over-year rise in sales after a year of declines, according to data from the International Council of Shopping Centers and Goldman Sachs.

Shoppers are hungry for markdowns, looking for sales signs at stores, while cashing in on a tax credit for first-time homebuyers and low mortgage rates and home prices. A late Labor Day and delayed school openings also helped retailers last month because consumers purchased some items in September that they would normally have bought in August.

Kohl's Corp. department store chain, Limited Brands Inc., which runs Victoria's Secret and Bath & Body Works, and accessories chain The Buckle Inc. all said their September sales rose at stores open more than a year.

J.C. Penney Co., Cincinnati-based Macy's Inc. and Target Corp. reported their same-store sales fell, but not as much as they had expected.

Also Wednesday, the Commerce Department said businesses slashed their inventories 1.5 percent in August, the 13th straight decline and more than the 0.9 percent fall analysts had expected. Still, many economists say businesses soon may begin rebuilding depleted store shelves after more than a year of cuts. If that occurs, factory production will begin to rise and help bolster a broad recovery from the worst recession since the 1930s.

Analysts believe the overall economy, as measured by the gross domestic product, is growing in the second half of this year at an annual rate of 3 percent or more. But the concern is that growth rate could slip sharply next year if consumer spending falters.

The 1.5 percent drop in retail sales in September followed a 2.2 percent surge in August, which was revised down from an initial estimate of 2.7 percent.

Demand for new cars surged in August as buyers rushed to take advantage of the government's incentives of up to $4,500 to trade in old models for more fuel-efficient cars under the clunkers program that wrapped up at month's end.

Outside of autos, demand at gasoline stations rose 1.1 percent September, partially reflecting higher prices. Excluding gas and auto sales, retail sales rose 0.4 percent in September.

Other areas of strength included demand at furniture stores, which jumped 1.4 percent, reflecting the rebound in the housing industry. Sales at general merchandise stores, a category that includes big retailers such as Wal-Mart and Target, rose 0.9 percent. Sales at department stores edged up 0.4 percent.

Dollar wise

The hand-wringing over the US dollar's fall has been overdone. The greenback is expected to remain weak, but few think declines will accelerate in spite of debates over the dollar's role in the world economy.

Last week the dollar fell to a 14-month low against a basket of six major currencies in part because of concerns about the slow recovery in the US economy.

But the decline in the currency has been orderly and other measures of risk, such as the rally in stocks and low interest rates, suggest a healthy outlook toward US assets and economic growth.

The worries heightened earlier last week when several Asian central banks intervened in the markets to buy dollars to weaken their currencies. Markets were calmed only later after US Federal Reserve chairman Ben Bernanke made comments that supported the greenback.

The dollar is not so very weak from a longer-term perspective, analysts note.

"Everyone thinks the world is ending" because of the drops, said Mike O'Rourke, chief market strategist at BTIG. "But we're still above levels where we spent most of last year."

The dollar index is still more than 7 percent higher against a record low hit in March last year, and more than 8 percent higher than its July 2008 low hit against the euro.

And the action in the forex market has been relatively orderly, with low volatility. One-month realized volatility, a measure of a currency's movements based on underlying prices, was 8.8 on Friday for the dollar index, according to Reuters data, which is 41 percent lower than highs hit in mid- June.

The pattern is the same in the euro's price action versus the dollar. On a three-month rolling basis, realized volatility fell to a 14-month low on Friday. "There's nothing worrisome about the price action to suggest US authorities may need to make a more forceful defense of the currency," said Richard Franulovich, senior currency strategist, at WestPac Securities in New York.


Expectations for future gyrations in the forex market have not spiked either. Implied volatility, which reflects the expectation of discomfort or complacency among investors, has been falling as the dollar dropped. Friday's one-month implied vols in euro/dollar were at 9.9 percent, off their June highs at 16.0 percent.

This suggests that investors expect subdued movements in the euro versus the dollar over the next 30 days.

Still, investors are concerned that sentiment has turned against the dollar. Dollar bearishness has long hovered in the currency market, but that was in part a function of a reversal in the safe-haven bid that made investors flock to the dollar in late 2008 as the financial crisis raged.

Now, after the Reserve Bank of Australia raised benchmark interest rates to 3.25 percent on Tuesday and Canada's employment data on Friday showed a surge in jobs creation for September, concern is developing that other economies are poised to recover more quickly than the United States.

A primary concern for those investing in the United States are growing US deficits. Some see rising interest rates as a threat to the economy because it makes borrowing more expensive, potentially choking off growth.

"The part that's worrying is the rise in Treasury yields. and that US officials are keeping an eye on that," said Steven Englander, head of North American FX strategy at Barclays Capital in New York.

"The last thing they want is for dollar weakness to lead to a Treasury sell-off and premature upward pressure in those rates."

That hasn't happened yet though. Benchmark 10-year Treasury yields on Friday were at a reasonable 3.386 percent compared with about 3.30 at the end of September, and much lower than levels in late June last year when yields hit 4.16 percent.

Worries that investors will shun the world's most liquid government bond market due to a weak economy and growing deficit have not come to fruition. Last week's US Treasury auctions suggested healthy demand for US securities from foreign central banks. The stock market, meanwhile, a less reliable indicator, has been on a tear since March in expectation of renewed demand.

The Obama administration seems to be comfortable with a weaker dollar, analysts said, in spite of repeated rhetoric about the need for a strong US currency.

"It makes sense to let the dollar weaken; it is a global economy so everyone has to see some degree of weakening themselves," said BTIG's O'Rourke.

"If the dollar weakens you get to a more normal trade deficit - some parts of manufacturing come back as it becomes cheaper to produce here and exports would increase."

In the currency market, most are even predicting further declines going forward. Westpac's Franulovich said the dollar's structural flaws - a huge fiscal deficit relative to gross domestic product and record low interest rates - are too overwhelming to ignore.

Bernanke boosts dollar, commodities down

By Dominic Lau

LONDON (Reuters) - The dollar rose on Friday after Federal Reserve Chairman Ben Bernanke indicated U.S. monetary policy could be tightened as a recovery takes hold, sending crude and metal prices lower.

World stocks <.MIWD00000PUS> were steady as retreating commodity prices hurt heavyweight miners, offsetting gains in Asia <.MIASJ0000PUS> and emerging markets.

Shares in emerging markets <.MSCIEF> advanced 0.4 percent, hitting a more than 13-month high for the fourth straight day, after better-than-expected U.S. corporate earnings and economic data soothed fears about the strength of the economic recovery.


In Europe, the FTSEurofirst 300 <.FTEU3> index was up 0.3 percent.

Bernanke said on Thursday that the Fed must continue to prop up the economy for an extended period but can't do so indefinitely for fear of triggering an inflationary surge.

His comments lifted the dollar <.DXY> off 14-month lows against a basket of currencies. The greenback was up 1.1 percent at 89.29 yen, while the euro fell 0.5 percent to $1.4723.

"Explanations by Fed officials have been helpful in clearing the air on what strategy will be taken as the economy recovers," said Ulrich Leuchtmann, currency strategist at Commerzbank in Frankfurt.

But Leuchtmann said that dollar gains on Bernanke's comments would be limited, as Fed was unlikely to raise rates until the second half of 2010.

"The market is not yet ready to jump on the rate rise outlook to aggressively buy the dollar," he said.

Gold prices pulled back to below $1,050 an ounce, snapping a rally that took prices of the precious metal to all-time highs for three days in a row, while oil fell to $71 a barrel.

Governments and central banks around the globe have injected trillions of dollars in the past year or so to pull the world out of a most severe recession since the 1930s Great Depression.

The flood of liquidity has helped boost all investment asset classes from equities to government bonds.

"The longer that the rally lasts -- and the higher that equity prices go -- the greater the likelihood that, in this new world, policymakers will see their new job description as being to take away the punch bowl before the party gets going, not just in the usual sense of the word ... but before asset price pick-ups can become booms," said Michael Dicks, head of research and investment strategy at Barclays Wealth, in a report

"For this reason, we remain circumspect concerning the longevity of any equities rally persisting through 2010."

In another sign that the economy is on the mend, Europe's largest telecom Telefonica offered bigger-than-expected dividends. The Spanish company said it would hike its dividend per share by nearly 22 percent to 1.40 euros ($2.07) per share, far outstepping analyst expectations for 1.27 euros per share.

Yields on benchmark 10-year U.S. Treasuries were up 5 basis points at 3.301 percent, while the 10-year German bund yield, the euro zone's benchmark, was up 3 basis points at 3.171 percent.

(Additional reporting by Naomi Tajitsu in London; Editing by Toby Chopra)

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A Neutral Net Means Battles

FCC chairman Julius Genachowski launched a new proceeding designed to fetter Internet service providers' ability to restrict content. And they would apply equally to wired and wireless connections.


FCC chairman Julius Genachowski made his pitch this morning for network neutrality, and he did it in the most business-friendly language he could muster. But that didn't stop him from arguing that an open Internet must be the rule no matter how one gets on it—wired and wireless connections should both be nondiscriminatory towards content and applications.

Genachowski delivered a major address this morning at the Brookings Institution in Washington, laying out his vision of an open Internet and rehashing the many ways that an open Internet is a spur to innovation of all kinds.

Today, Internet access suffers from three problems, he said. First is the limited competition among Internet service providers, which is "simply a fact about today's marketplace." Second is the perverse economic incentives faced by the major U.S. ISPs, which also sell separate phone and TV service to the same customers who buy Internet access (and can increasingly access such services over the Web). Finally, the growth of Internet traffic can put pressure on ISPs.

The resulting situation isn't about "bad guys" versus "good guys," but about the "inevitable tensions built into our system." That system has already led to ISP blocking of VoIP, degradation of P2P connections, and even a denial of access to certain political content (all examples cited by Genachoswki).

To preserve the Internet's unique innovation engine, where the intelligence exists at the edges and where entrepreneurs don't need permission to build the next Skype or Google, Genachowski promises a fair proceeding that is driven by data and that listens to everyone. But when it's over, he wants the FCC to add two new principles to its existing "four freedoms": nondiscrimination and transparency.

The nondiscrimination principle says that ISPs can't "discriminate against particular Internet content or applications," which means that traffic-throttling of particular apps and protocols would be forbidden, even in cases where an ISP does not block access entirely.

The transparency principle states that ISPs must inform subscribers about their network-management practices. "Why does the FCC need to adopt this principle?" Genachowski asked. "The Internet evolved through open standards. It was conceived as a tool whose user manual would be free and available to all. But new network-management practices and technologies challenge this original understanding. Today, broadband providers have the technical ability to change how the Internet works for millions of users—with profound consequences for those users and content, application, and service providers around the world."

The canonical example, of course, was Comcast's degradation of BitTorrent, which came to light in 2008. The cable ISP used TCP reset packets to disrupt certain P2P connections, changing the purpose and use of reset packets unilaterally.

But when that Comcast case was finally ruled on by the FCC and the company was told to stop its practice, a dispute erupted: Did the FCC even have the authority to act on its "four freedoms"? Those Internet freedoms were explicitly not rules, and Comcast has since gone to court over the issue. Genachowski wants to make all six of his proposed Internet principles into official agency rules to make clear to ISPs exactly what's required of them, and to make sure the FCC has the authority to act if problems arise.

As his speech neared its end, Genachowski turned to the most common criticisms of the plan—that it amounts to "government regulation of the Internet," that it's largely based on overheated conspiracy theories that exist only in the minds of groups like Free Press, and that it's antibusiness and therefore (in the long run) anticonsumer as well.

“This is not about government regulation of the Internet. It’s about fair rules of the road for companies that control access to the Internet. We will do as much as we need to do, and no more, to ensure that the Internet remains an unfettered platform for competition, creativity, and entrepreneurial activity.

“This is not about protecting the Internet against imaginary dangers. We’re seeing the breaks and cracks emerge, and they threaten to change the Internet’s fundamental architecture of openness. This would shrink opportunities for innovators, content creators, and small businesses around the country, and limit the full and free expression the Internet promises. This is about preserving and maintaining something profoundly successful and ensuring that it’s not distorted or undermined. If we wait too long to preserve a free and open Internet, it will be too late.
Defining Moments

Genachowski has picked his battle. The network neutrality fight will consume much of his energy as chairman and won't be resolved anytime soon, but if Genachowski gets his six broad rules and applies them to all forms of Internet access, he will leave a pretty serious stamp on the direction of the Internet in the U.S.

Google has come out in support of the idea, as have groups like Free Press. But Genachowski can't wave his magic "I was in business too!" wand and make resistance disappear. Wireless carriers, especially, despite a new commitment to openness on the part of Verizon Wireless and others, are worried.

Chris Guttman-McCabe, vice president of regulatory affairs for CTIA - The Wireless Association, expressed his concern "about the unintended consequences that Internet neutrality regulation would have on investments from the very industry that's helping to drive the U.S. economy. We believe that this kind of regulation is unnecessary in the competitive wireless space as it would prevent carriers from managing their networks—such as curtailing viruses and other harmful content—to the benefit of their consumers."

The Progress & Freedom Foundation upped the rhetorical ante with this pithy nugget from president Ken Ferree: "I find myself at a loss to understand why the administration wants to start meddling with a sector of the economy that, despite a challenging macroeconomic environment, is performing pretty well by any rational standard. What exactly is the problem they are trying to remedy? It's almost as if they are trying to turn a story of success into one of failure."

But, to Genachowski, the openness of the Internet has been the most crucial factor in its tremendous success, and he's ready to take on all comers in the battle that may define his time as head of the FCC.

Gold slips, taking breather as dollar rebounds

By Frank Tang and Jan Harvey

NEW YORK/LONDON (Reuters) - Gold slipped on Friday as the market took a breather on the dollar's rebound the day after this week's sharp rally pushed gold to a record high above $1,060 an ounce.

On Thursday, Federal Reserve Chairman Ben Bernanke said the U.S. central bank must keep propping up the economy but cannot do so indefinitely for fear of triggering inflation. His comments dampened gold's appeal as an inflation hedge.

Peter Buchanan, commodities analyst at CIBC, said policy makers would not allow the dollar to keep falling.

"We believe that the dollar has overshot to the downside, with a relief rally expected in the next two to three quarters," he said.

Most-active December gold futures settled down $7.70 at $1,048.60 an ounce on the COMEX division of the New York Mercantile Exchange.

Spot gold was at $1,045.60 an ounce at 2:10 p.m. EDT (1810 GMT), against $1,054.00 late in New York on Thursday, a session that saw bullion hit a record $1,061.20.

Gold ended 5 percent higher for the week as dollar weakness pushed gold to a series of record highs. Investors bought the metal as an alternative to paper currencies, and a weaker dollar also makes gold cheaper for non-U.S. investors.

The Bernanke statement lifted the dollar index .DXY, off 14-month lows. The index measures the greenback's performance against a basket of six major currencies.

"Everybody is watching the dollar. It was weak in the last few days but it has clawed back a few losses today after Bernanke spoke yesterday, so that has capped gold for the moment," said Calyon metals analyst Robin Bhar.

Many expect persistent fears over currency market instability will push gold to further records this year as funds buy the metal as an alternative asset.

"It seems people are beginning to realize the real effect of quantitative easing -- not only the threat to inflation, but the threat to fiat currencies," said Nick Bullman, managing partner of hedge fund Bullman Investment Management.

"If you carry on just printing money, eventually people will start to look for another store of value."

WEAK PHYSICAL DEMAND

Physical demand for gold remained weak as high prices deterred jewelers, traditionally the main buyers of gold. Buying in India, the world's largest bullion market last year, has been lackluster despite the onset of the festival season.

Among other precious metals, silver also retreated from the 14-month high at $17.92 an ounce it hit on Thursday. Spot silver was at $17.70 an ounce against $17.72.

Gold Hits Record High: Time to Sell or Time to Buy?

I'm standing at my office bookshelf rummaging in a small box of junk... I mean, treasures. There's a transistor radio I carried on my paper route at 14, a broken watch, some old photos...

Ah, here's what I'm looking for -- my high school ring, class of '69. I don't remember what I paid for it - around $100, I think. But this clunky heirloom that I wore for only a few months is worth its weight in gold. At half an ounce, according to the kitchen scale, that's around $500.

Gold tends to do well in troubled times, and economic worries and the falling dollar have pushed gold over $1,050 an ounce this week, the latest in a string of recent records. Gold's advocates point out it's been in demand throughout history - since before written history, in fact. Unlike currency, it doesn't rely on the full faith and credit of any government. It has value because it's rare, beautiful, eternal and useful.

So, is this troubled time a good time to invest in gold? Its promoters say "yes," though they say that in good times, too, arguing gold is a hedge against a coming crash.

Today, there are lots of ways to invest in gold other than going to the jewelry store or buying coins. Some purveyors will sell you gold but keep it in their vaults. A few exchange-traded funds keep hoards of gold and sell shares that rise and fall with gold prices, just as stock-owning ETFs rise and fall with stock prices. One especially popular approach is to invest in stocks of gold-mining companies.

Lipper, the market-data company, tracks 73 gold-oriented mutual funds, most of them bet on gold-mining stocks. And the results are none too shabby. From Jan. 1 through Oct 1, those funds returned nearly 35 percent, about double the return of the U.S. stock market, measured by the Standard & Poor's 500. And get this: Those gold funds have returned more than 14 percent a year for the past five years, while funds tracking the S&P 500 have returned almost exactly nothing - 0.01 percent a year. During those five years, gold funds have beaten all Lipper fund categories, save those specializing in stocks of China, emerging markets and Latin America.

If you're a speculator - someone willing to take big chances with money that you can afford to lose - I say, have at it. In fact, with an exchange-traded fund you can make money even if you think gold's run is over. You'd do that by "selling short" - selling borrowed shares at today's high price in hopes of someday paying back the loan with shares bought for less.


But what about the typical long-term investor who is preparing for things like college and retirement?

To you, I suggest treading with caution -- or avoiding this path altogether. It's always risky to jump on a bandwagon late in the parade. Most of the gold run-up may be over, and gold's long-term performance is nothing great.

In his bestselling book Stocks for the Long Run, Jeremy J. Siegel, a finance professor at the University of Pennsylvania's Wharton School, reports that from 1802 through 2006, the "real return" on gold -- its gains on top of inflation -- averaged just 0.3 percent a year, compared to 6.8 percent for a basket of stocks representing the entire market. Results are much the same in more recent periods, with gold's real return averaging 0.5 percent a year from 1946 through 2006, versus 6.9 percent for stocks.

There have been exceptions. Gold returned 8.8 percent a year from 1966 through 1981, while stocks lost an average of 0.4 percent a year. But that was a period of very high inflation - about 7 percent a year - and investors do turn to gold when inflation spikes, driving the price up. Today, inflation is extremely low.

So maybe this is a better time to sell gold than to buy it. On a purely financial basis, it might well pay to cash in some unneeded trinket like my high school ring and invest the proceeds on something with better prospects for compounding. You can sell gold at a jewelry store, or through any number of online dealers.

Me? I'm going to keep my ring, at least until my next reunion. I don't want to convert it to grocery money, and at the moment I can't think of anything to buy that would last like gold - forever. In the end, the sentimental value outweighs the monetary one.

Gold price hits new record high

THE price of gold has charged to a new high of nearly US$1,055 (S$1,466) an ounce amid speculation that it could hit US$2,000 in the next decade.
Local investors are joining a global gold rush by pouring cash into the precious metal owing to inflation fears and concern that major currencies such as the US dollar will keep falling in value.

They worry that spending sprees by the United States and other governments to tackle the global recession will undermine currency values and fuel inflation. Gold is regarded as a safe-haven investment, and a hedge against inflation or rising prices.

Mr Wong Weiyi, a research analyst at unit trust distributor Fundsupermart, said gold typically rises in price when the US dollar is falling and vice versa.

The price of gold has soared 19 per cent since the start of this year. At 5pm yesterday, it was 1.1 per cent higher than Wednesday's close of US$1,044.20. Yesterday was the third straight day it hit a record high.

Local investors are charging into gold investments. Fundsupermart's top three funds with gold exposure had averaged a 38 per cent return before fees so far this year, as of Monday. Sales of the three funds last month were 3.7 times that in August.

Gold slips, dollar rises

GOLD, silver and other precious metals, which have been riding high lately, slid back in price on Friday.

This was partly due to a stronger United States dollar. Also, some investors sold metals to lock in gains racked up in the recent surge.

The US dollar got a lift from comments by Federal Reserve chairman Ben Bernanke, who said the central bank was ready to raise interest rates.

'When the economic outlook has improved sufficiently, we will be prepared to tighten,' he said in Washington on Thursday.

Gold fell below US$1,050 an ounce yesterday, snapping a rally of three straight days of record highs. Gold is up about 19per cent so far this year.

Silver retreated from a 14-month high at US$17.92 an ounce on Thursday, as it tracked dollar and gold prices. Platinum inched down slightly to about US$1,336 an ounce.

The Week of the Record Gold Price

As investors in the gold market we have waited patiently for gold prices to break through the old record gold price of $1033.00/oz and set a new record gold price which it did when it briefly touched on $1060.00/oz this week. This record has been along time coming after the previous failed attempts this year to establish a new record gold price.

For the most part the gold producing stocks also took part in this rally as evidenced by the Gold Bugs Index, the HUI, which is currently sitting at 446. The HUI is important to us because it largely represents those precious metals producers that have not hedged their production and therefore offer an investor real exposure to gold prices.

As the inflation/deflation debate continues with much gusto we still lean strongly towards the inflationary scenario based on each and almost every governments action to run the printing presses relentlessly. In our humble opinion gold is a leading indicator for inflation and is telling us that inflation is now in the pipeline and it wont be too long before it raises its ugly head. Why else would Paul Volker have been added to Obama’s team of advisors, wasn’t he the very man who in the late seventies and early eighties was brought in to slay the inflation dragon which he did with a base rate of around 19% if my memory serves me well.

Another action worthy of note is that The Reserve Bank of Australia have actually raised interest rates this week, the first of the G20 to do so. This is one country that has an eye on inflation, acting early in an attempt to prevent it getting a grip of their economy. This move will influence others thinking and those with the stronger economies may well follow suit shortly. The countries with weaker economies will no doubt remain as is not daring to risk a fragile recovery at this stage by raising rates. For home owners now might be the time to lock in mortgage rates before they also head to higher ground, worth a discussion with your financial advisor.

Taking a quick look at the chart we can see that gold prices really took off to set a new record gold price with the MACD experiencing a golden crossover, a rising STO and the RSI breaking into the ‘70′ range. A move this far and this fast usually signals that its time for a breather and a bit of a pull back for gold.

The flip side to that rationale is that the dollar, along with many other currencies, is struggling to retain its value. We can only see paper money losing more and more of its value as debasement continues at a hectic pace, hence the next two months will be explosive for gold as it sets one record gold price after another record gold price.

Finally, a reminder that when we throw in the effects of inflation, gold should be trading at around $2300/oz to equal its historic high of the 1980s, so there is still a lot of ground to make up.

No Change: Bank Keeps Interest Rate On Hold

The Bank of England has once again opted to keep the interest rate unchanged at 0.5%.
had predicted the rate would stay at its current level amid fears a rise would kill hopes of a recovery.

The interest rate has now stayed unchanged since March.

The Bank also decided to leave its quantitative easing (QE) programme to boost the money supply unchanged at £175bn, despite calls from some business leaders to raise it to £200m.

The news comes as the economy continues to be boosted by positive surveys and reports.

GDP is expected to have returned to positive growth for the third quarter when data is released later this month.

But there are concerns over the strength and speed of recovery.

A 1.9% fall in manufacturing output during August after two months of growth surprised economists.
The Sky Money Panel, which consists of economists and business leaders, is urging a cautious approach to fiscal management.

Although the wider economy is expected to return to growth between July and September after five quarters of recession, the Bank's preferred measure of money supply showed sluggish growth during August - casting doubt on whether the QE policy was working.

The MPC will look again at the impact of its QE policy next month with the help of the Bank's latest inflation forecasts.

Alongside its call for a QE increase, the British Chambers of Commerce has pressed the MPC to cut the rate at which financial institutions leave money on deposit at the Bank, to encourage lending in the wider economy.

The MPC is worried that the lingering problems in the financial sector will hamstring a recovery while banks repair their damaged balance sheets.

The minutes of its September meeting said there could be "false dawns" for the
economy.

PM sets optimistic forecast for Britain

LONDON — Prime Minister Gordon Brown said the British economy would emerge from recession with stronger growth than expected as he drew the battle lines for the general election, in an interview out on Saturday.

Brown told The Daily Telegraph newspaper that Britain would return to growth next year, as he spelt out the differences between his governing Labour Party and the main opposition Conservatives, who are 14 percent ahead in the opinion polls with an election due by June.

Brown tried to portray himself as an optimist on the coming years in Britain, saying the Conservatives had painted a pessimistic view of tough times ahead that were "simply not true".

"Britain is capable of coming back to growth at a higher rate next year than people were expecting, and higher rates in the future," the 58-year-old said.

"We've said that the economy will grow by one-and-a-half per cent next year and more people are moving towards our position as a result of what they've seen in the economy over the last few months."

The Conservatives "are pessimists; they're for an age of austerity", he said.

"The choice is between people like me who are optimists for the future of this country and those who think the prospects of this generation are worse than the last."

He said the centre-right Conservatives had wanted a "small election" about "who had the best slogans and sound bites. It's now a big election".

The Scot added: "Do people want a party that has a strategy for getting out of the recession, or do they want a party that's so pessimistic about Britain, they tell you in advance they're going to give you an age of austerity?"

He said he would "of course" welcome support from his predecessor Tony Blair in the election campaign, reiterating that he would back the former premier should he try to become the first European Union president.

Britain has 9,150 troops in Afghanistan fighting Taliban insurgents and the rising British death toll has put the mission there and the resources available to troops in the spotlight.

The Daily Telegraph said Brown was expected to announce some extra troops next week, while the prime minister hinted at an even larger increase, saying he was "prepared to do more" to train Afghan forces.

Meanwhile on the scandal over lawmakers' expenses, which has seen many members of parliament (MPs) pledge to step down, he predicted some cases going before a judge.

"It's right to distinguish between what you might call corruption in some cases, which is for the courts to decide, and honest mistakes.

"Some cases will end up in the courts. Where somebody's done something very wrong, we've got a duty to deal with them most severely."

Blair and Brown listen as Archbishop of Canterbury condemns Iraq war decisions

Solemnity and ritual, ancient words and a mother whose grief at the loss of her son was “the worst pain ever”. As St Paul’s Cathedral filled with the sound of the choir as it sang the anthem — Bible verses honouring the dead; another age, another war — Tracey Hazel stepped forward to light the candle of remembrance, the candle that stood for her son, Ben Leaning, and all the other servicemen and women who lost their lives in the conflict in Iraq.

It was a symbolic moment, but in more ways than the organisers of the service of commemoration ever intended. The congregation may have been led by the Queen and Duke of Edinburgh, the front rows of the cathedral may have been dominated by the military top brass with their medals and braid, but for the bereaved families themselves, the ones who really pay the price of war, there is a respect and sympathy that was unheard of a generation ago.


“I wanted to be here for Ben and all the fallen. I feel so privileged,” said Ms Hazel, whose son was killed in 2007 when his Scimitar was blown up by a roadside bomb. “It was so nice they chose one of the parents to do it, as it’s them that are left suffering when a loved one dies.”

Next to the candle stood a marble plaque that had once been the centrepiece of the Memorial Wall in Basra and bears the biblical inscription: “Honourable age does not depend on length of days, nor is the true number of years a measure of life.”

Lance Corporal Carl Stevens, 23, one of the bricklayers who constructed the wall, told the congregation how they built it, how they took it down again when the Army left Iraq, and how it is being constructed once more at the National Memorial Arboretum in Staffordshire. He spoke in halting, unsure tones, the authentic voice of an ordinary soldier amid the grandeur and ceremony of St Paul’s.

He may not have been used to speaking amid such exalted surroundings, but the Archbishop of Canterbury is, and he chose to use the occasion to deliver a message that, for all that it was delivered in moderate and well-tempered language, carried a sharp critique of the way in which Britain went to war with Iraq.

On no fewer than three occasions in his address the Archbishop, who has previously described the decisions that led to the war as flawed, questioned the decision-making process that led to a conflict in which 179 Britons lost their lives.

And there, in the second row, was Tony Blair, who was reponsible for that decision, and his expression — gaunt, solemn, unchanging — gave no indication of what he felt.

If the Archbishop devoted most of his energy to questioning how Britain ended up at war in Iraq, he also praised the troops on the ground for their patient and consistent efforts, and thanked “those who have taught us through their sacrifice the sheer worth of justice and who have shouldered some of the responsibility”.

While the Archbishop chose to question the war, the rest of the congregation by their very presence emphasised the sense of national unity. As well as former heads of the Army, Sir Mike Jackson and Sir Richard Dannatt; the former Defence Secretary Geoff Hoon; and President Talalbani of Iraq, no fewer than 12 members of the Royal Family attended the service, including the Prince of Wales, the Duchess of Cornwall and Prince William.

But honouring the dead, and commemorating the efforts of the more than 100,000 members of the Armed Forces and civilian personnel who served in Iraq, does not mean refusing to admit that mistakes were made. After the service Sir Jock Stirrup, the Chief of the Defence Staff, said: “I think it is fair to say a lot of mistakes were made throughout the campaign by the coalition.”

Citigroup sidesteps pay row with Phibro sale

Citigroup has sold its Phibro oil trading business to Occidental Petroleum in a $250m deal that takes the heat out of controversial $100m bonus for trader Andrew Hall
Schloss Dernberg a 1,000 year old castle near hamburg owned by oil trader Andrew Hall. Photograph: Public Domain

A British-born star trader at Citigroup who caused a political furore by earning a bonus of almost $100m (£63m) is to leave the struggling bank as part of a sale of its oil and gas trading division, Phibro, to a Los Angeles-based energy firm, Occidental Petroleum.

Phibro is headed by Andrew Hall, an Oxford-educated modern art enthusiast whose stratospheric earnings have become a public relations fiasco for Citigroup. Hall made $98m in 2008 and is tipped to be due a nine-figure bonus this year following astute bets on the direction of commodity prices.

The division, based in a converted dairy farm in suburban Connecticut, has been highly profitable for Citigroup, generating average annual profits of $371m over the last five years to provide a useful contribution to the bank's battered finances. Occidental said its net investment in the acquisition was likely to be about $250m.

Citigroup described the sale as "the outcome of an evaluation of a variety of alternatives" and said it was "consistent with Citi's core strategy of a client-centered business model".

There have been rumours on Wall Street for months that Hall was seeking a 'quiet divorce' from Citigroup, alarmed by a deluge of criticism over his remuneration. Hall is understood to have examined the possibility of leading a buyout of Phibro and Citigroup reportedly sounded out the billionaire Warren Buffett as a possible buyer.

Experts on Wall Street say that Citigroup's sale of Phibro is largely to shake off the pay row, rather than for any commercial reason. Tom Bentz, a commodities analyst at BNP Paribas in New York, said: "I think most people expected it to happen at some point. Andy Hall is due a huge payout and with Citigroup under government scrutiny right now, it was going to be difficult to go forward with Phibro. I'm sure Phibro wanted out."

The US Treasury owns 34% of Citigroup, having pumped billions of dollars of taxpayers' funds into the bank to keep it afloat, and a so-called 'compensation czar' appointed by the White House, Kenneth Feinberg, has been reviewing the bank's pay arrangements. President Obama has repeatedly condemned runaway Wall Street bonuses, describing them as "the height of irresponsibility" and a White House spokesman has described Hall's pay as "out of whack".

Even Citigroup's chief executive, Vikram Pandit, has expressed unease about Hall's earnings. Pandit was asked at a speaker meeting in New York last month whether he believed $100m was an excessive amount to pay a single individual. He simply replied: "Yes".

Hall's defenders say that his division has been consistently successful and that, under a contract written well before the financial crisis, he is entitled to a slice of its profits.

Although born in the UK, Hall is a naturalised US citizen. A chemistry graduate, he worked for BP before joining Phibro, which was then owned by Salomon Brothers, in 1982. Hall lives in Connecticut but he also owns a 1,000-year-old castle near Hamburg called Schloss Dernberg. A keen collector of modern art, Hall has works by the likes of Andy Warhol, Bruce Nauman and Julian Schnabel.

Wall Street ends week on high

The Nasdaq Composite was up 15.35 points or 0.72% at 2,139.28.
U.S. stocks closed the week higher Friday with strong gainn across the board.

It was the best weekly performce for the American markets in three weeks, and the first week in three to finish the week in positive territory.

The Dow Jones Industrials index gained 78.07 points or 0.80% to 9,864.94, its highest level of the year.

The Nasdaq Composite was up 15.35 points or 0.72% at 2,139.28.

The Standard and Poor's 500 added 6.01 points or 0.56% to 1,071.49.

At its closing level the Dow was up 4% over the week, with the Nasdaq and Standard and Poor's 500 each adding 4.50%.

Gold at fresh record, equities buoyant

LONDON -- Gold hit a fresh record high on Thursday as the dollar struggled, while emerging market stocks climbed to their highest level this year.

European shares opened more than 1% higher ahead of interest rate decisions from the Bank of England and European Central Bank.

Neither was expected to change rates.

Market sentiment was also given a boost after aluminum giant Alcoa posted a surprise profit on Wednesday after three consecutive quarterly losses.

The company is the first major report in the U.S. third-quarter earnings season.

Spot gold topped US$1,058 per ounce to mark a record high for the third session in a row. It has primarily been driven higher by the weakening dollar, which makes the dollar-denominated metal more attractive to investors.

In some currencies -- the high-flying Australian dollar, for example -- gold has actually fallen in price this year.

"Investors are turning toward gold as a hedge in dollar weakness," said Adrian Koh, an analyst at Phillip Futures in Singapore.

The dollar was down 0.7% against a basket of major currencies, close to its year lows.

The currency has been hit by a combination of expectations that U.S. interest rates will stay low for some time and a belief that the global economy is on the mend, easing the motivation behind last year's flight to dollar safety.

The euro was up 0.6% at US$1.4773 and the dollar lost a third of a% to 88.32 yen.

The Australian dollar gained 1.4%, still benefiting from this week's rate hike. It has now gained nearly 28% against the U.S. dollar this year.

STOCKS BUOYANT

World stocks were putting in another positive performance, with MSCI's all-country world index up 0.8% on the day. Its emerging market counterpart was up the same amount at a new high for the year.

The two indexes have gained around 27% and 65%, respectively, this year.

The pan-European FTSEurofirst 300 was up 1.1%, boosted in part by commodity related stocks and bullish sentiment over the Alcoa earnings.

"Alcoa had better than anticipated results, which is good. It is now all about anticipating quarter-three earnings. There is a general sense that quarter-three earnings are going to be more positive than expectations," said Bernard McAlinden, market strategist at NCB Stockbrokers.

Read more: http://www.financialpost.com/news-sectors/story.html?id=2081227#ixzz0TWFBVJNS
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U.S. Markets Wrap: Stocks, Dollar, Oil Rise as Treasuries Fall
By Rita Nazareth and Mark Shenk

Oct. 9 (Bloomberg) -- U.S. stocks rose, sending the Dow Jones Industrial Average to a one-year high, as analyst recommendations spurred gains in technology and health-care shares. The dollar and oil rose, while gold and Treasuries fell.

International Business Machines Corp. led gains in the Dow after Barclays Plc upgraded computer hardware companies, saying server and storage demand is picking up. Google Inc. climbed as Credit Suisse Group AG lifted its price estimate and said the search business will benefit from a rebound in advertising. WellPoint Inc. and Humana Inc. rallied at least 3.6 percent after analysts said shares of health insurers are cheap.

“We’re going even higher,” said Jeffrey Saut, chief investment strategist at Raymond James & Associates in St. Petersburg, Florida, which manages $214 billion. “We’ve got a replacement cycle for technology. Earnings comparisons with last year will be damn good. There are new funds coming into the market. We’ll trade above 1,200 on the S&P 500 by year-end.”

The Standard & Poor’s 500 Index added 0.6 percent to 1,071.49 at 4:06 p.m. in New York. The Dow climbed 78.07 points, or 0.8 percent, to 9,864.94, its highest close since Oct. 6, 2008. The Nasdaq Composite Index increased 0.7 percent to 2,139.28.

The S&P 500 rallied 4.5 percent this week, its steepest advance since July, as U.S. service industries grew after 11 months of contraction, jobless claims fell more than forecast and Alcoa Inc. kicked off the third-quarter earnings season with an unexpected profit.

Dollar Climbs

The dollar gained the most against the yen since August on speculation the Bank of Japan will trail other central banks in increasing interest rates as the recession comes to an end.

The six-currency Dollar Index recovered from a 14-month low after Federal Reserve Chairman Ben S. Bernanke said yesterday policy makers are ready to raise borrowing costs once the economy improves. Canada’s dollar was the biggest gainer versus the U.S. currency among major counterparts as employers added more jobs in September than economists forecast.

The U.S. currency climbed as much as 1.7 percent to 89.89 yen, the biggest advance since Aug. 7, before trading at 89.82 at 4:04 p.m. in New York, compared with 88.39 yesterday. The dollar strengthened 0.6 percent to $1.4712 per euro, from $1.4794, paring a decline for the week to 0.9 percent. The euro increased 1.1 percent to 132.14 yen, from 130.76.

Treasuries Decline

Treasuries fell, with two-year notes recording their first weekly loss since September, as Federal Reserve Chairman Ben S. Bernanke said the bank is ready to tighten monetary policy once the economic outlook improves.

Thirty-year bonds declined the most in four months after yesterday’s $12 billion auction of 30-year bonds, the last of four offerings this week totaling $78 billion, drew weaker-than- average demand. The yield on the 30-year bond closed below 4 percent last week for the first time since April as reports showed manufacturing declined and inflation remains subdued.

The yield on the two-year note rose eight basis points, or 0.08 percentage point, to 0.97 percent at 4:19 p.m. in New York, according BGCantor Market Data. The 1 percent security maturing in September 2011 fell 5/32, or $1.56 per $1,000 face amount, to 100 2/32. Yields have climbed 10 basis points since Oct. 2, the first weekly increase since Sept. 18.

Yields on 30-year bonds rose 14 basis points to 4.22 percent. The yield increased as much as 16 basis points, the most since it gained 18 basis points on June 10. For the week the yield has increased 23 basis points, the most since it rose 31 basis points the week ended Aug. 7.

Oil Rally

Crude oil climbed to the highest close in three weeks after the International Energy Agency increased its global consumption forecast for a third month.

Oil demand is likely to average 86.1 million barrels a day next year, 350,000 barrels a day more than the IEA estimated in September, a monthly report showed. Prices fell earlier as the dollar rose after Federal Reserve Chairman Ben S. Bernanke said monetary policy will be tightened once the economy improves.

Crude oil for November delivery gained 8 cents to $71.77 a barrel at 2:45 p.m. on the New York Mercantile Exchange, the highest settlement since Sept. 18. Prices climbed 2.6 percent this week. Futures rose as much as 55 cents and dropped as $1.07 during today’s session.

Natural gas futures fell almost 4 percent, the biggest drop in a week, on speculation supplies will be adequate to meet winter heating demand in the U.S.

U.S. gas stockpiles rose 69 billion cubic feet to 3.658 trillion cubic feet in the week ended Oct. 2, the highest total on record, the Energy Department said yesterday.

Natural gas for November delivery fell 19.3 cents, or 3.9 percent, to settle at $4.77 per million British thermal units at 2:46 p.m. on the New York Mercantile Exchange, the biggest drop since Oct. 1. Gas is down 15 percent this year, lagging behind heating oil, a competing fuel, which is up 32 percent.

Gold Decline

Gold prices dropped, paring the biggest weekly advance since April, as a stronger dollar cut demand and some investors sold the metal to lock in gains from its climb to a record. Gold futures, up 4.4 percent this week, capped the biggest such gain since April 24, while the dollar is down 0.7 percent.

Gold futures for December delivery slipped $7.70, or 0.7 percent, to $1,048.60 an ounce on the New York Mercantile Exchange’s Comex division. Yesterday, the metal climbed to an all-time high of $1,062.70, setting a record for a third straight day.

Orange Juice

Orange-juice prices soared the most in three years after the Department of Agriculture said Florida’s crop will decline 16 percent, more than analysts forecast.

Output will be 136 million boxes of oranges in the harvest that is just starting, down from a revised 162.4 million in the previous season, the USDA said today in its first estimate for the crop. Six analysts in a Bloomberg News survey projected an average 151.2 million. A cold spell and drought earlier this year reduced the amount of fruit on trees, the government said.

Orange juice for November delivery surged by the exchange limit of 10 cents, or 10 percent, to $1.0865 a pound on ICE U.S. Futures in New York, the highest level for a most-active contract since Aug. 14. The percentage gain was the biggest since Oct. 12, 2006. The commodity jumped 17 percent this week and is up 60 percent in 2009.

Citigroup dumps Phibro, avoids showdown with US

NEW YORK—Citigroup Inc. is removing one of the irritants in its relationship with the government, its Phibro commodities trading division that is paying one trader an estimated $100 million this year.
The deal announced Friday carries a tradeoff for Citigroup: While the $250 million sale to Occidental Petroleum Corp. means a bit less government scrutiny, it also means the bank is losing hundreds of millions of dollars in annual income that could help repay $49 billion in bailout money.

Phibro, which makes most of its money through oil and natural gas trades, earned an average $371 million annually during the past five years. Citigroup sold it for about $250 million, which means Occidental could recoup its investment in less than a year.

A Citigroup official with knowledge of the deal said the bank wanted to dispose of Phibro by the end of the year.

The official, who spoke on condition of anonymity because she wasn't authorized to discuss the deal publicly, said Citigroup considered Phibro a "political hot potato" that would hurt the company despite its financial success.

Occidental Petroleum spokesman Richard S. Kline said Citigroup approached Occidental about a month ago, seeking a buyer for Phibro.

"There obviously was some pressure from the government to do this," Kline said. Noting that Citigroup sold Phibro for a relatively small amount, he said, "if they had liquidated the business, they would get about what we're paying."

The income lost to the Phibro sale will have little effect on Citigroup's earnings because the company has bigger problems with losses from failed loans, said Gerard Cassidy, a banking analyst with RBC Capital Markets.

"They're going to miss those earnings," Cassidy said. "But the credit losses are much larger and will have a much bigger impact."

Officials at the Treasury Department declined to comment directly when asked whether the government had pressured Citigroup to dump Phibro, its huge pay packages and the volatility that goes along with trades in the energy market.

The government now has a 34 percent stake in Citigroup, putting the bank under close watch by federal officials. The company came under further scrutiny this year after it agreed to pay Phibro trader Andrew J. Hall an estimated $100 million.

Hall's pay will now be Occidental's responsibility. It's not known whether the Obama administration's pay czar, Kenneth Feinberg, will continue to review Hall's pay package following the sale to Occidental.

Treasury spokeswoman Meg Reilly said in a statement, "We are not going to provide a running commentary on that process, but it's clear that Mr. Feinberg has broad authority to make sure that compensation at those firms strikes an appropriate balance."

While the government has questioned banks' pay practices since the financial crisis that erupted a year ago, it has also taken issue with the companies' trading units. Many banks drove their profits higher by dealing in risky securities and commodities, and they turned to the government for help when they piled up billions of dollars in losses.

Success of Treasury's Foreclosure Prevention Program Questioned

A day after the Obama administration announced it had met the goal of modifying 500,000 mortgage loans three weeks before its self-imposed goal of Nov. 1, a congressional watchdog has raised numerous questions about the program's ultimate success.
The Congressional Oversight Panel found "there is reason to doubt" whether the $50 billion Treasury Department program aimed at modifying mortgages for three to four million homeowners in the next three years "will be possible due to problems with the program's scope, scale and permanence."

"The program is limited to certain mortgage configurations," the panel noted, saying that many adjustable-rate mortgages and interest-only loan resets will be excluded from eligibility. "The foreclosure crisis has moved beyond subprime mortgages and into the prime mortgage market. It increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now."

Citigroup Dumps Phibro, Avoids Showdown With US

Citigroup Inc. is removing one of the irritants in its relationship with the government, its Phibro commodities trading division that is paying one trader an estimated $100 million this year.

The deal announced Friday carries a tradeoff for Citigroup: While the $250 million sale to Occidental Petroleum Corp. means a bit less government scrutiny, it also means the bank is losing hundreds of millions of dollars in annual income that could help repay $49 billion in bailout money.

Phibro, which makes most of its money through oil and natural gas trades, earned an average $371 million annually during the past five years. Citigroup sold it for about $250 million, which means Occidental could recoup its investment in less than a year.

A Citigroup official with knowledge of the deal said the bank wanted to dispose of Phibro by the end of the year.

Wall St. rises on profit optimism

Stock markets in the United States rose yesterday amid signs the global economy was recovering and optimism that corporate earnings reports will beat expectations.

Expectations of a rebound in revenue and earnings for the recently ended third quarter fed the optimism. Quarterly earnings are due to kick off late today, with results from aluminum company Alcoa Inc.

The Dow Jones industrial average was up 131.50 points, or 1.4%, at 9731.25. The S&P 500 was up 14.26 points, or 1.4%, at 1054.72. The Nasdaq was up 35.42 points, or 1.7%, at 2103.57.

It was the market's second day of gains, after marking its second week of losses on Friday. The S&P 500 is now up about 56% since hitting 12-year lows in early March.

Duo of IBM, Intel Propels Dow's Run

he rise capped a 4% advance for the week as earnings from Alcoa fueled optimism that the third-quarter earnings season will be better than many had been expecting.

The new high came on the two-year anniversary of the Dow's October 2007 peak. The Dow closed Friday up 78.07 points, or 0.8%, at 9864.94 -- its highest in a year.

IBM was at the forefront, rising $3.64, or 3%, to $125.93 after bullish comments from a Barclays analyst. Intel (Nasdaq) climbed 29 cents, or 1.5%, to 20.17, and Advanced Micro Devices rose 37 cents, or 6.7%, to 5.88.

All three companies will be posting earnings reports in the coming week as third-quarter earnings season kicks into high gear. Investors have been betting technology companies will produce among the best earnings this quarter as they are benefiting from overseas demand.

In the period's first heavily watched report, Alcoa surprised Wall Street with a third-quarter profit. For the week, Alcoa rose 11%, though it pared some of that rise with a fall of 11 cents, or 0.8%, to 14.24, on Friday.
Investors have moved from a flight to safety to a flight to risk," said Rick Lake, portfolio manager of the Aston/Lake Partners Lasso Alternatives Fund. With money-market funds yielding close to zero, investors are moving into investments that are seen as slightly more risky -- like stocks and corporate bonds. Others are worried about missing out on the rally and are putting more money in stocks.

The Standard & Poor's 500 stock index tacked on 6.01 points, or 0.56%, to 1071.49, closing out the week up 46.28, or 4.51%, less than a point below its 2009 closing high. Despite the broad recent rally, the S&P remains 32% off its record set exactly two years ago. In the past two years, its weakest components were American International Group and MBIA.

On the other end, the more things change the more they stay the same. Its five best components since marking a record high in 2007 -- Southwestern Energy, Tenet Healthcare, Western Digital, DeVry and QLogic -- all finished Friday in the green.

Helped by the strong technology sector, the Nasdaq Composite Index rose 15.35, or 0.72%, on Friday to 2139.28, giving it a gain of 81.99, or 3.99%, for the week.

Newmont Mining fell 51 cents, or 1.1%, to 46.50 on Friday, but still ended up 10% on the week. The mining giant has risen on estimate raises from firms including Credit Suisse Group as metals prices have soared.

Cree (Nasdaq) climbed 1.99, or 5.4%, to 39.09. J.P. Morgan started coverage of the stock at overweight.