Monday, 26 September 2011

Seven reasons why you should invest in global mega-caps

You may not remember the "nifty 50" – it's 40 years since this group of giant US multi-nationals carried all before them on Wall Street – but in a week in which Ben Bernanke reprised a 50-year-old approach to monetary stimulus, they are worth another look.

By Tom Stevenson

8:30PM BST 24 Sep 2011

The reason I'm casting my memory back to a list of companies from the high watermark of American corporate dominance is because I think investors could do worse than start thinking about a portfolio of "neo-nifties". For a handful of reasons, I think global mega-caps might be set to enjoy another moment in the sun.

Looking at the original nifty stocks, some evocative names have fallen off the corporate radar – whatever happened to Simplicity Pattern and International Telephone and Telegraph, for example? But others have stood the test of time: Coca-Cola, Philip Morris and Halliburton are still very much at the top table of American corporate life.

Back in the late 1960s and early 1970s investors were drawn to this list of large-cap stocks with powerful brands, dominant market positions and a history of paying growing dividends. They were considered classic buy and hold stocks, and because so many investors did just that their valuations rose and rose to levels at which inevitably they turned from being excellent investments to, in some cases, dreadful ones.

For those who went along for the ride, however, they provided excellent returns. So why do I think this kind of share might be the place for investors to look in today's challenging markets? Here are seven reasons.

The first advantage of today's international corporate titans is that they provide the kind of safe haven that until the financial crisis was the preserve of government bonds. Even if you disregard the obvious basketcases on the European periphery, the downgrade of US and Italian sovereign debt this summer shows that the idea of risk has been turned on its head in recent years. Add to that the risk of capital loss on government bonds which have risen so far they now yield less than 2pc and the shares of the largest companies look like a better harbour in the storm.

Big, international companies often have better pricing power than their smaller counterparts, too. This will be particularly important in a stagflationary environment in which sluggish economic growth is coupled with a rising cost of living.

This kind of company tends to also benefit from a stronger balance sheet and, therefore, better access to credit than smaller companies which are more dependent on bank finance. As banks look at each other with rising distrust, the ability to raise debt finance (in some cases to retire undervalued and so expensive equity capital) will be key.

That balance sheet strength underpins another important advantage of the new nifties – the ability to pay a sustainable and rising dividend stream to income-hungry investors. If one thing is clear from the string of gloomy assessments last week from Bernanke, the IMF and others, it is that interest rates will stay close to zero for the foreseeable future.

Parts of the fixed-income market will be able to satisfy the consequent desire for yield, but many investors – pension funds and individuals alike – will be prepared to go further up the risk scale to get the income they need.

Geographic reach – another feature of the largest companies – also looks like a major advantage in a two-speed world in which the best opportunities are to be found in the emerging markets of Asia and Latin America. Smaller companies are usually more dependent on their domestic market, which for investors in the UK, US and Europe looks like being a comparative disadvantage for the foreseeable future.

As well as this greater geographic spread, the biggest companies are also usually more diversified. In a rapidly-changing world, having your eggs in more than one basket represents a big reduction in investment risk.

The final and arguably biggest reason to look at today's nifty 50 is that large companies look cheaper versus smaller stocks - after 11 years of under-performance - than they have for at least 20 years. As the most important pre-condition for a satisfactory investment return is starting valuation that represents a huge edge.

Of course, the original nifty 50 was a purely American phenomenon. In today's global market there's probably a case for a broader portfolio. The "weighty 80"? You read it here first.

Tom Stevenson is an investment director at Fidelity Worldwide Investment. The views expressed are his own. He tweets at @tomstevenson63.

Friday, 23 September 2011

Gold dips to 1-month low in commodities sell-off

By Jane Lee and Rujun Shen

SINGAPORE | Fri Sep 23, 2011 3:27am EDT

(Reuters) - Gold prices dipped 1 percent on Friday, headed for their sharpest weekly loss since May, amid a sell-off in commodities sparked by fears the global economy could plunge back into a recession.
The base metals complex suffered most from investors' rush to exit, spearheaded by a 14 percent loss in London tin prices. Asian stock markets also slid and emerging market currencies fell amid fears the developed world was stumbling back into recession.

The world's major economies pledged to prevent Europe's debt crisis from undermining banks and financial markets, and said the euro zone's rescue fund would be bolstered.

The news came a day after U.S. Federal Reserve Chairman Ben Bernanke warned of significant downside risks for economic growth, which triggered a sell-off in equities and commodities.

Spot gold fell as much as 0.9 percent to a one-month low of $1,719.8 an ounce, but quickly recovered to trade up 0.4 percent to $1,742.79 by 0708 GMT.

U.S. gold shed more than 1 percent to $1,722.3, its lowest since August 25. It stood at $1,746.20, headed for a 3.8 percent loss from a week earlier, its sharpest weekly loss since May.

Traders blamed the earlier trough to distress selling of investors who have grown increasingly uncomfortable with the turmoil on the credit market.

"More and more it seems that the commodity market is dependent on cash being free and easy," said a Singapore-based trader, "And cash isn't free and easy."

"There's a lot of concern over holding exposure to very volatile assets, when funding is so difficult and people generally are more inclined to be in cash."

The next immediate support for gold would be $1,700, and $1,650 if that was breached, traders and analysts said. Lower prices could potentially attract bargain hunters and physical buying interest.

Spot gold is expected to consolidate between $1,680 and $1,920 per ounce over the next three months before resuming its long-term uptrend, Reuters technical analyst Wang Tao said.

Silver prices tracked losses in industrial metals. Spot silver fell more than 4 percent to $34.22, its lowest since July 5, and trimmed losses to $35.25

U.S. silver tumbled more than 6 percent to $34.32, headed for a weekly loss of 15 percent -- its sharpest weekly decline since early May.

The dollar index edged down 0.4 percent on Friday, but was holding close to a seven-month high hit in the previous session, after investors fled commodities to the perceived safety of Treasuries.

"The dollar has strengthened in all of this and everyone is de-risking and putting money into the dollar because of the deteriorating economic outlook," said Soozhana Choi, head of commodity research in Asia at Deutsche Bank in Singapore.

"We saw massive de-risking across the board, and gold as well as other commodities weren't unscathed."

Thursday, 22 September 2011

AT&T, T-Mobile hire legal all-stars to save deal

By Jeremy Pelofsky

WASHINGTON | Thu Sep 22, 2011 10:39am EDT

WASHINGTON (Reuters) - AT&T Inc, Deutsche Telekom AG and T-Mobile USA have amassed an army of former senior government antitrust officials to try to save their $39 billion deal to combine wireless businesses.

Questions abound for all sides: How strong is existing antitrust law? Can competition survive with the combination of two big wireless carriers? Or if the Justice Department succeeds in blocking it, will AT&T have to pay $6 billion in cash and wireless airwaves as a breakup fee to T-Mobile?

"Under the circumstances, I think they need the very best team they can put together," said Bert Foer, president of the American Antitrust Institute. "It seems to me they have an uphill battle, and they need people who are capable of negotiating, but also capable of going to the mat if there is a trial."

Several of the lawyers who make up the legal dream team for the wireless companies previously worked in top roles at either the U.S. Justice Department's antitrust division or the Federal Trade Commission's competition bureau.

Among those hired are longtime antitrust negotiators who have worked on scores of acquisitions, as well as tough litigators such as Richard Parker. At least one lawyer, Richard Rosen, has been before Judge Ellen Huvelle, who is overseeing this case.

Last month the Justice Department sued to block the acquisition of Deutsche Telekom's T-Mobile USA unit, the No. 4 U.S. wireless carrier, by AT&T, which ranks second in that market. The companies hope to settle so the deal can close.

The companies can afford to hire the best of the best for the case, said Howard University School of Law professor Andrew Gavil, a longtime antitrust expert.

"Rich (Parker) is particularly known for being a really fine trial lawyer," Gavil said. "That shows that they wanted to make sure if they have to go to trial they have a really good person who's familiar with trying cases, not just thinking about them."

Deutsche Telekom and T-Mobile hired Parker, who had worked at the FTC during the Clinton administration. Now a partner at O'Melveny & Myers LLP, he helped Triton Coal Co in its 2004 sale to Arch Coal, which the FTC tried unsuccessfully to block.


As is often the case in Washington, many of the lawyers worked for the government before switching sides to use that experience on behalf of private clients -- typically for more money.

"It's the revolving door of Washington," Gavil said. "One of the things that attracts lawyers to public service is the ability to sell their expertise when they leave."

During an 80-minute hearing on Wednesday to set the trial date, a parade of lawyers for all the parties filled the well of the largest courtroom in the federal courthouse and several benches in the audience.

Among them was AT&T's longtime outside attorney, Richard Rosen of Arnold & Porter LLP. He represented the carrier and its predecessors in many deals, including a consent decree with the Justice Department for AT&T to buy Dobson Communications. Judge Huvelle approved the settlement.

Also in the courtroom was Deutsche Telekom and T-Mobile lawyer George Cary of Cleary Gottlieb Steen & Hamilton LLP, who before that worked at the FTC in the Clinton administration. He was lead counsel in the agency's successful challenge to Staples and Office Depot's merger deal.

After leaving the FTC, he guided major deals, including AOL's (AOL.N) purchase of Time Warner, through antitrust approvals.

AT&T's lead lawyer during the scheduling hearing on Wednesday was a former federal prosecutor, Mark Hansen. He works for a smaller Washington law firm that focuses on litigation, including big telecommunications cases.

Sprint Nextel, which has filed a separate lawsuit against the deal, hired its own star lawyer -- Greg Craig, former White House counsel under President Barack Obama and now at Skadden, Arps, Slate, Meagher & Flom LLP.


In recent years, the government has filed only a handful of antitrust lawsuits to block big mergers. One of the pending cases includes H&R Block's bid for 2SS Holdings Inc, developer of the TaxACT digital tax preparation business.

Lawyers for AT&T have been spotted at some of those proceedings, according to one source familiar with the matter.

The Justice Department has its own group of high-powered lawyers on the case. It has tapped the lead litigator in the H&R Block case, Joseph Wayland, to handle the AT&T and T-Mobile trial as well.

Before joining the Obama administration about a year ago, Wayland was at a private law firm. There he worked on a variety of cases, including antitrust matters, as well as serving as lead counsel for defendants in civil litigation involving the September 11, 2001, attacks.

With him is Claude Scott, who worked on the government's failed lawsuit to block Oracle Corp from buying PeopleSoft in 2004.

While not part of the government's litigation team, the Justice Department antitrust division's chief counsel for competition policy, Gene Kimmelman, signed the complaint. The longtime Washington lawyer has worked for Congress as well as for consumer advocacy groups opposed to massive mergers.

During the scheduling hearing in federal court on Wednesday, Kimmelman took a seat toward the back of the courtroom, drawing a few grins and greetings from some of the other lawyers.

(Editing by Howard Goller and Lisa Von Ahn)

Friday, 16 September 2011

Recent Gold Sell-Off Overblown?

Fri, Sep 16 2011, 15:48 GMT
by Michael Conlon -

Gold has pulled back from its all-time nominal high of $1920 and is now trading close to $1790. This retreat despite the heightened risk in the marketplace shows how versatile gold is and how it can trade differently based on different market conditions.

As seen on the chart below, gold has esentially bounced off of its daily pivot S1 support level at $1765 and looks to be moving higher. But what has changed in the marketplace? Frankly, not much.

There is still increased risk coming from the Euro debt crisis, so yesterday’s move to strengthen the European banks pushed gold lower, though today’s risk aversion has gold moving higher. But one of the interesting properties of gold is that it has historically been used as a hedge against inflation. And yet with yesterday’s move to increase US dollars in the system (provide liquidity), gold sold off.

So the market believes that inflation is not a problem at this point despite the added liquidity which means that gold is trading more as a safe-haven currency. And it also means that there could be bigger problems for the Euro.

Manchester United get approval for Singapore share sale

Manchester United have received approval to float the company on the Singapore Stock Exchange.

The club wants to raise $1bn (£635m) to pay off some of its debts by selling about 25% of the parent company's shares.
United want to complete the process, which is known as an initial public offering (IPO), by the end of the year.
They will spend the next few weeks speaking to investors ahead of a road show to market the offer.
But analysts said the club might decide that it was not a good time to list.
"Volatile markets and weakening sentiment would be a major drawback for anyone who wants to list," said Vishnu Varathan from Capital Economic in Singapore.
"It's not the most ideal time to list, it's not a bull market. Tapping new sources of funds could be a challenge and pricing could come under pressure."
Manchester United is currently profitable, having reported a record annual operating profit of £110.9m for the year to the end of June 2011.
Headline pre-tax profit came in at £29.7m, compared with a loss the previous year.
The club is reported to be considering creating different classes of shares, some of which have lower voting rights but carry higher dividends.
The idea of that would be to maintain control of the club by the Glazer family, which bought Manchester United in 2005.

Tuesday, 6 September 2011

Euro jumps, stocks retreat after Swiss move

By Jeremy Gaunt, European Investment Correspondent

LONDON | Tue Sep 6, 2011 5:13am EDT

(Reuters) - Switzerland's central bank stepped in to stop investors driving up the franc on Tuesday, sending the euro up nearly 9 percent and stifling a tentative European stock recovery from sharp losses a day earlier.

Core German debt yields, however, stayed near historic lows, well below 2 percent, signaling a frenzied search for safety was continue.

European banking stocks, battered by fears of exposure to both euro zone peripheral debt and a U.S. lawsuit over mortgage-backed securities, added to Monday's losses.

The Swiss National Bank whipped up the markets, saying it was setting a minimum exchange rate target of 1.20 francs to the euro that it will enforce by buying foreign currency in unlimited quantities.

The franc has soared against the euro and the dollar in recent months as investors have bought the currency as a safe place for their money given the U.S. and euro zone debt crises.

This has threatened the Swiss economy, the bank said.

Soon after the announcement, the euro was trading at just above the 1.20 Swiss franc target after earlier being at around 1.10 francs.

The euro also rose against the dollar and was trading at $1.4173

"One will think twice about speculating against this target because the SNB is with its back against the wall," said Alessandro Bee, economist at Bank Sarasin.

The Swiss move, however, undermined what had been a tentative European stock rally.


World stocks as measured by MSCI were up 0.2 percent, mainly held back by a catch-up fall of 2.2 percent on Japan's Nikkei.

The pan-European FTSEurofirst 300 was up a quarter of a percent, while the banking sector remained under stress, falling 0.1 percent.

European stocks fell more than 4 percent on Monday on renewed worries about the euro zone's ability to solve its debt problems.

"These persistent euro zone worries are back in play once again amidst signs that austerity measures may be faltering, whilst last Friday's disappointing (U.S.) non-farm payrolls (data) continue to leave the markets with something of a hangover," said Cameron Peacock, analyst at IG Markets.

At a banking conference in Frankfurt, the chief executives of both Societe Generale and Commerzbank said bank earnings would be less in the future, partly as a result of the euro zone crisis.

"There is a direct link between state balance sheets and bank balance sheets," Commerzbank's Martin Blessing said, adding that about 50 percent of sovereign bonds are held by local banks in most countries.

Market reaction to the euro zone crisis is being exaggerated by global concern about the state of the U.S. economy, which is in danger of slipping back into recession.

Europe's own economy is also weak.

Japanese, Chinese and South Korean financial regulators discussed the global threats in a conference call.

"We are already at stall speed in the U.S. and Europe, which means we are now more likely than not to see a recession," said Tharman Shanmugaratnam, Singapore's finance minister.

(Additional reporting by Atul Prakash, Jonathan Gould and Edward Taylor)

Thursday, 1 September 2011

Court battle looms between U.S. and AT&T, T-Mobile

NEW YORK/WASHINGTON | Thu Sep 1, 2011 11:20am EDT

NEW YORK/WASHINGTON (Reuters) - The Justice Department made a bold move when it sued to block AT&T Inc's $39 billion acquisition of T-Mobile. Now comes the hard part: going to court.

The government is asking a federal judge in Washington, D.C., to stop the deal, and will have to prove that it would mean higher prices and less competition.

"This will be the Obama administration's line in the sand. This will be their signature antitrust event," said University of Baltimore law school professor Robert Lande.

AT&T has said it will fight the case, and its general counsel said it plans to seek an expedited hearing from the judge. Even so, experts say, the company could decide that it is not worth the expense and uncertainty to go to trial.

An AT&T spokeswoman declined to comment.

Two big communications deals, MCI's proposed takeover of Sprint in 1999 and EchoStar Communications Corp's deal to buy Hughes Electronic Corp's DirecTV in 2001 fell apart after the Justice Department challenged the deals.

"A preliminary question is whether AT&T will go to court. It's certainly not uncommon for companies to look at this and decide that the game isn't worth the gamble," said David Smutny, an antitrust lawyer with Orrick, Herrington & Sutcliffe.

The case was assigned to U.S. District Judge Ellen Segal Huvelle, who also oversaw the EchoStar-Hughes antitrust court challenge. Huvelle was appointed to the bench in 1999 by then President Bill Clinton.

In pre-trial proceedings in that case, Huvelle had harsh words for the way both companies responded to regulators' information requests, calling them "sluggish."


Any trial in the AT&T case would be lengthy and complicated, with experts predicting that both sides would put on a parade of witnesses including consumers, economists, and possibly competitors or state regulators.

In its complaint, the Justice Department argued that AT&T has overwhelming power in the national market -- it is one of four major carriers -- and that the market for mobile telecommunications would be highly concentrated in 96 of 100 U.S. cell phone market areas.

AT&T is likely to argue that the deal would create efficiencies in terms of price, quality and innovation -- and maybe even jobs, said Lande, the Baltimore professor.

"Very few efficiency defenses work," said Lande, who praised the Justice Department for bringing the action. "They make promises that these efficiencies could happen, but showing that in court is very difficult."

While most antitrust attorneys declined to say how they thought the case would be decided, Howard University law professor Andy Gavil said he thought the judge would block the deal. "Having read the complaint, I don't see a basis for a negotiated settlement," said Gavil, who testified to Congress on the deal.

Two other veteran Washington antitrust attorneys, who declined to be identified because of potential conflicts involving their law firms and companies in the case, told Reuters they think the deal will be stopped, either because the court blocks it or because AT&T drops its bid.

If the case goes to trial, there may be no quick end. The losing side is likely to appeal.

"You could have a situation here where the combined litigation and regulatory process could extend for several months or years," said Maury Mechanick, a telecommunications attorney at law firm White & Case.

"From a business practicality perspective, is that a delay that AT&T and T-Mobile can tolerate?" said Mechanick. "That's ultimately a judgment that they will have to make."

The case is USA v. AT&T Inc et al, U.S. District Court for the District of Columbia, No. 11-cv-1560.

For the DOJ: Sharis Pozen, Joseph Wayland, Gene Kimmelman, Patricia Brink, Laury Bobbish, Claude Scott and Lawrence Frankel.

For Defendants: Not immediately available.

(Reporting by Carlyn Kolker and Diane Bartz)