Gold shoots past $1,750 ahead of Fed meet

Latest rally comes amid global equity sell-off, before Fed meeting
By Claudia Assis and V. Phani Kumar, MarketWatch

SAN FRANCISCO (MarketWatch) — Gold prices traded at a record Tuesday, slicing through the $1,750-an-ounce milestone as a massive sell-off in global equity markets drew safety-seeking investors to the metal.

Gold futures for delivery in December added $24.50, or 1.5%, to $1,738.90 an ounce on the Comex division of the New York Mercantile Exchange.

The contract traded as high as $1,782.50 an ounce earlier. Gold has gained more than 20% so far this year, including a gain of 5% this week.

“The U.S. credit downgrade, coming so close on the heels of the debt-ceiling crisis, has left investors searching for a safe haven and choosing gold,” HSBC analyst James Steel wrote in a report, referring to Standard & Poor’s decision to downgrade U.S. debt late last week to AA+ from AAA.

“There may also be an element of concern among investors that the [Federal Reserve] may monetize the debt. The inflationary consequences of such action are supportive of gold. Even if this is not policy, the fear among some investors that this might occur should keep gold well bid,” he said.

The U.S. Federal Open Market Committee is scheduled to meet Tuesday to decide on its monetary policy, amid a debate over whether weakening economic indicators will force its hand in launching a fresh round of monetary easing.

The day’s surge in gold prices have come as most other asset classes got pummeled on mounting worries about U.S. and euro-zone sovereign-debt issues.

The broader suite of metals futures tracked gold higher, with silver the lone exception. September silver declined $1.59, or 4%, to $37.85 an ounce.

Copper for September delivery added 4 cents, or 1.1%, to trade at $4 a pound.

Claudia Assis is a San Francisco-based reporter for MarketWatch. Varahabhotla Phani Kumar is a reporter in MarketWatch's Hong Kong bureau.

Volatile Markets Look For Direction After Upbeat Jobs Report

By Stephen L. Bernard
Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Markets retreated from an early rally as investors remained unconvinced that a single promising jobs report signaled a turnaround in the U.S. economy's declining fortunes.

The jobs data showed employers added 117,000 jobs last month, topping forecasts for a 75,000 increase. The report provided a brief respite for traders who had been bombarded by disappointing economic data in recent weeks.

But in most markets, steep post-data gains evaporated almost as quickly. The Dow Jones Industrial Average was recently down 0.1% at 11369 after jumping to 11555 after the opening. Oil prices were down 30 cents at $86.33 a barrel, down from an intraday peak of $88.32 hit immediately after the jobs data.

Still, the employment report helped steady markets that had seen some of their biggest declines since the 2008 financial crisis on Thursday. With investors fearing a second recession, the Dow index had tumbled 512 points in the last session, its biggest point drop since Dec. 1, 2008 and plunging into the red for the year. But one report doesn't lift the worries the world's largest economy could be stalling at a time when Europe is still facing major debt problems and growth concerns of its own.

"The July payroll employment report may temper some of the panic that set in earlier this week," said Sophia Koropeckyj, managing director and senior economist at Moody's Analytics. "The report suggests a rocky recovery is still occurring."

The dollar gained against safe havens and fell against riskier currencies immediately following the report, but those moves have been unable to hold.

The dollar hit a fresh record low against the Swiss franc, falling as low as CHF0.7578. It had been as high as CHF0.7720 after the jobs data.

The greenback was at Y78.45 from Y78.31 just after the report was released. It had jumped above Y79 following the report.

"The market is trying to figure out which way to go," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. Esiner said that while the jobs report topped modest forecasts, it still wasn't particularly strong.

Safe-haven assets saw a slight bump, with December gold futures up 0.4% at $1,666 a troy ounce.

"All the long term problems that droves us down here are not going away anytime soon," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, N.J.

-By Stephen L. Bernard, Dow Jones Newswires; 212-416-4528; stephen.bernard@dowjones.com

--Brendan Conway, Min Zeng, Cynthia Lin, Steven Russolillo, Dan Strumpf, Tatyana Shumsky and Katy Burne contributed to this report.

SNB cuts rates to counter soaring Swiss franc

By Katie Reid and Martin Desapinto
ZURICH | Wed Aug 3, 2011 11:19am EDT

(Reuters) - The Swiss National Bank announced a shock cut in interest rates and threatened more action to cap a soaring Swiss franc, but the impact was expected to be short-lived given the currency's safe-haven appeal amid mounting concerns about global growth.

The SNB said on Wednesday it would cut its target rate to "as close to zero as possible" from an already rock-bottom 0.25 percent, and said it would very significantly increase the supply of francs to the money market over the next few days.

It said it would not tolerate the effective tightening of monetary conditions imposed by what it called a "massively overvalued" franc which was threatening economic growth and increasing downside risks to price stability.

"The SNB is keeping a close watch on developments on the foreign exchange market and will take further measures against the strength of the Swiss franc if necessary," the bank said.

The euro jumped 2.5 percent versus its Swiss counterpart after hitting a new record low before the SNB news. The dollar also rose sharply. But the franc recouped most of its losses later in the day.

"These measures will probably not bring a halt to the Swiss franc's appreciation," said Neil Mellor, currency strategist at Bank of New York Mellon. "It will be a hard fought battle for the SNB and at most this will slow the pace of appreciation."

With low-debt Switzerland seen as a safe haven from an escalating euro zone debt crisis and fears of a U.S. rating downgrade, the franc has surged 18 percent against the euro and 22 percent against the dollar in recent months.

The SNB is the first central bank to cut rates since the global economic outlook deteriorated with expectations for higher rates from the European Central Bank and U.S. Federal Reserve pushed back since signs emerged of a new slowdown.

"It's a very difficult situation for them with the ongoing issues in the periphery in Europe. The Swiss franc is a sort of default option here," said Henrik Gullberg of Deutsche Bank. "That is unlikely to go away as long as we have these issues in Europe."

SWISS EXPORTERS SQUEEZED

Swiss exporters have called on both the SNB and the government to take action against the currency's steep rise although the bank has also been criticized for the heavy losses it incurred in its post-crisis interventions in 2009 and 2010.

Nick Hayek, chief executive of watch maker Swatch, who has been one of the most outspoken about the impact of the strong franc, welcomed the SNB move. "This is wonderful. Speculators should brace themselves," he told Reuters.

The SNB said in a statement the global economic outlook had worsened since its last monetary policy meeting in June, while the sharp rise in the franc meant the outlook for the Swiss economy had "deteriorated substantially."

The euro was up 0.6 percent to 1.0907 at 1436 GMT after hitting a record low of 1.0794 on trading platform EBS before the SNB comments. The dollar gave up earlier gains to trade flat at 0.7643 per franc.

After the Swiss franc rose about 12 percent against the euro in July alone, economists began to warn that a recession could be looming in Switzerland with forward-looking indicators such as the KOF economic barometer pointing to a slowdown.

The strong franc has also begun to hit the manufacturing sector, data for July showed on Tuesday.

Analysts said the SNB could resume the foreign exchange interventions it stopped in June 2010, even though its previous attempts were seen by many as an expensive failure.

"Maybe the threat of intervention will force people to look for other potential safe havens," said Lloyds Banking Group currency strategist Adrian Schmidt.

The SNB announced last week it suffered a 9.9 billion Swiss franc ($12.8 billion) first-half loss on its foreign exchange holdings due to the surging franc, increasing criticism of Chairman Philipp Hildebrand and making interventions politically more difficult.

Christoph Blocher, a leading figure in the right-wing Swiss People's Party, who has already called on Hildebrand to quit, launched a new attack on Sunday, saying the SNB boss behaved like a speculator and was not qualified for the job.

Before the big franc jump, Swiss interest rate futures had priced in the possibility of a first post-crisis rate hike for September, but Wednesday's news pushed back expectations for a rise in the rate target to 0.5 percent to June 2013.

To increase liquidity to the franc money market, the SNB also said it would expand banks' sight deposits at the SNB and would no longer renew repos and SNB bills that fall due and will repurchase outstanding SNB bills.

(Writing by Emma Thomasson and Catherine Bosley; editing by Mike Peacock)

Soros serves as warning to mutual-fund investors

By Chuck Jaffe, MarketWatch

July 31, 2011, 12:01 a.m. EDT

BOSTON (MarketWatch) — There was a lot of speculation this week about the reasons why legendary money manager George Soros is shutting down his hedge fund and sending investors their money back.

Some said the 80-year-old Soros — who has run the Quantum hedge funds since the late 1960s — doesn’t want to face the heightened regulation of hedge funds that’s part of the Dodd-Frank legislation. Others suggest he wants to focus on his philanthropic and political causes, and still others suggest he is protecting his investment legacy, because Soros’s record is no better than average in highly turbulent market conditions.
Whatever the reason, Soros’s decision — his firm will return outside investors’ money but continue to operate like a family business — should not go unnoticed by ordinary fund investors.

If one of the most successful hedge-fund managers of all time is hanging it up in current market conditions, what does that say for the future of all of the open-end mutual funds and exchange-traded funds that have “alternative” or hedge-like characteristics?

It’s particularly worth answering that question in light of a sentiment survey of hedge-fund managers released by Infovest21, published by Investment News this week, which showed that many managers expect other hedge-fund operators to follow suit and start returning client money to run a family operation, just like Soros. (Clearly, since those other managers aren’t all octogenarians, avoiding additional regulation and transparency is a key motivating factor.)
The wrong kind of volatility

Hedge-like mutual funds have been a booming part of the fund business for more than a decade now, but that trend has corresponded with a big macro-economic cycle that favored commodities investing, a cornerstone of many hedge/alternative strategies. For anyone who believes in looking at the biggest possible picture, the stretch of time that favored those investments is getting long in the tooth. That would suggest that some alternative strategies that have been popular and successful — the kind that cemented Soros’ legacy — may be in for rough times.

Even if you don’t subscribe to that biggest-picture view, there is no denying that many hedging strategies do best when the market is volatile, but with a strong sense of direction. Many market-neutral and long-short strategies — hedge strategies designed to profit no matter which way the market moves — struggle when the market lacks a trend.

“There is a growing, yet subliminal, sense of expected overall lower volatility moving forward,” said Stephen L. McKee of Investment Selections & Timing Inc. in Dallas. “For some, it doesn’t matter the direction as long as the direction is severe; that might be disappearing... Tighter circuit breakers, a more intertwined, cooperative world financial system, greater regulation of those on the edges will all contribute.”

For the rest of us, McKee noted, lower volatility would be a positive, but for many hedged strategies it’s a problem. Just as hedge funds have high costs — typically 2% of assets plus 20% of profits — mutual funds with hedge-like strategies tend to have above-average costs. Even the exchange-traded funds following alternative strategies are pricey compared to peers pursuing more mainstream tactics.

It’s fine to pay for performance, so long as you actually get it. That hasn’t happened for most hedge/alternative funds; instead, they’ve been all sizzle and no steak.

Russel Kinnel, director of mutual-fund research at Morningstar Inc., said investors should be less concerned with Soros’s departure than with all of the famous guys who enter and exit the business without fanfare.

“The hedge funds and hedge-like mutual funds that flop are the ones that should be of concern to investors,” Kinnel said. “The fact that so many have not succeeded despite the fact that the managers sound like brilliant rocket scientists is a concern. But Soros seems to me more to represent the promise of them. He and others show that there are hedge funds that can do well.”
Don’t wait for another Soros

That doesn’t mean average investors should hold out hope for the “next Soros” to show up in the fund game at a time when the first Soros is leaving the biz.

Industry consultant Geoff Bobroff of East Greenwich, R.I., noted that many of the biggest, best-known fund firms have no offerings in the hedge-like or alternative space. “Maybe you could say they missed the boat or are behind the curve,” he said, “but you can’t say their investors are missing out, because you can reach your goals with mainstream funds that have solid track records and understandable strategies.”

And that’s why Soros’s departure reminds ordinary investors not to fall in love with the idea of investing like the wealthy in a hedge-fund style. Hedge-fund tactics don’t always work in mutual funds, and if the market is entering a time when those strategies don’t even work for hedge funds, average folks should steer clear.

“Investors should stick with what they know and can understand; not based on someone they think they know or whom their friends claim to know, not based on claims of a better mousetrap without a few furry grey skins thumb-tacked above the trap to prove it, not based on what they think will make them the most money quickly,” said Jim Lowell, chief investment officer at Adviser Investments in Boston. “The biggest risk to investors is assuming the like of Soros know more about the markets than they do; leaving them prone to all kinds of spellbinding claims.”

Chuck Jaffe is a senior MarketWatch columnist. His work appears in many U.S. newspapers.

Apple holding more cash than USA

Apple now has more cash to spend than the United States government.

Latest figures from the US Treasury Department show that the country has an operating cash balance of $73.7bn (£45.3bn).

Apple's most recent financial results put its reserves at $76.4bn (£46.9bn).

The US House of Representatives is due to vote on a bill to raise the country's debt ceiling, allowing it to borrow more money to cover spending commitments.

US President Barack Obama is known to be an iPad owner, along with 28 million other people

If it fails to extend the current limit of $14.3 trillion (£8.7tn) dollars, the federal government could find itself struggling to make payments, and risks the loss of its AAA credit rating.

The United States is currently spending around $200bn (£122bn) more than it collects in revenue every month.

Apple, on the other hand, is making money hand over fist, according to its financial results.

In the three months ending 25 June, net income was 125% higher than a year earlier at $7.31bn (£4.6bn).
Spending spree

With more than $75bn (£35.8bn) either sitting in the bank or in easily accessible assets, there has been enormous speculation about what the company will do with the money.

"Apple keeps its cards close to its chest," said Daniel Ashdown, an analyst at Juniper Research.

Industry watchers believe that it is building up a war chest to be used for strategic acquisitions of other businesses, and to secure technology patents.

Bookstore Barnes and Noble and the online movie site Netflix have both been tipped as possible targets, said Mr Ashdown.

The company may also have its eye on smaller firms that develop systems Apple might want to add to its devices, such as voice recognition.

Apple dipped into some of its reserves recently when it teamed-up with Microsoft to buy a batch of patents from defunct Canadian firm Nortel.

The bidding consortium shelled out $4.5bn (£2.8bn) for more than 6,000 patents.

AT&T's T-Mobile plan gets boost from states

AT&T Inc. CEO Randall Stephenson, (C) joined by Jim Cicconi, senior executive vice president-external and legislative affairs for AT&T and Wayne Watts, (R) Senior Executive Vice President and ATT&T General Counsel, speaks at a news conference to announce the company's proposal to buy T-Mobile USA from Deutsche Telekom in New York, March 21, 2011.


By Jasmin Melvin

WASHINGTON | Thu Jul 28, 2011 12:21am BST

WASHINGTON (Reuters) - AT&T Inc's (T.N) $39 billion plan to acquire Deutsche Telekom AG's (DTEGn.DE) T-Mobile unit got support from a Louisiana regulator and 11 state attorneys general on Wednesday.


The Louisiana Public Service Commission, which regulates public utilities and transportation in the state, said it voted 4-1 to approve the merger, after staff found nothing to suggest the wireless deal was contrary to the public interest.


Separately, 11 state attorneys general wrote to the U.S. Justice Department and the Federal Communications Commission in support of the transaction that would vault the combined companies ahead of current market leader Verizon Wireless.


Attorneys general from Arkansas, Utah, Alabama, Georgia, Kentucky, Michigan, Mississippi, North Dakota, South Dakota, West Virginia and Wyoming said they believed the merger would bring better service and faster data speeds.


They asked for merger-specific conditions to protect competition and the public interest without delaying the merger, according to a news release from the Arkansas AG's office.


A statement by the Utah attorney general said the merger may raise competitive concerns in some discrete local markets and the AGs asked for targeted remedies in those cases.


The ultimate decision on the deal rests with the Justice Department, that is conducting an antitrust review, and the FCC, which is weighing whether the transaction is in the public interest.


The merger would concentrate 80 percent of the U.S. wireless market in just two companies -- AT&T/T-Mobile and Verizon Wireless, a venture of Verizon Communications (VZ.N) and Vodafone Group Plc (VOD.L).


AT&T argues that the purchase of T-Mobile will help it expand faster service to more customers.


Critics charge that less competition will increase prices and limit consumer choice.


AT&T's top lawyer welcomed the position of the 11 state attorneys general.


"Their call for federal regulators to expeditiously review and approve the merger further builds on our unprecedented nationwide support from federal, state and local elected officials, national unions, non-profit organizations, and high-tech and venture capital firms," said Wayne Watts, AT&T's senior executive vice president and general counsel.


But some prominent U.S. lawmakers and competitors have come out against the deal, including Senator Herb Kohl, chairman of the U.S. Senate's antitrust subcommittee.


Third-ranked U.S. wireless carrier Sprint Nextel (S.N) has said AT&T should use the money it plans to pay for T-Mobile to improve its network without removing a national competitor.


Sprint spokesman John Taylor said the Louisiana commission's decision was simply not to oppose AT&T's takeover and to instead defer to the FCC -- "far from the ringing endorsement AT&T sought."

(Reporting by Jasmin Melvin; Editing by Tim Dobbyn)

‘Great Recession’ even deeper than thought

Greg Robb

WASHINGTON (MarketWatch) — The U.S. recession was even deeper than previously thought, a new government report showed on Friday.

As part of an annual revision of data on U.S. gross domestic product, the Commerce Department said that the economy contracted by 5.1% between the fourth quarter of 2007 and the second quarter of 2009, more than the 4.1% previously estimated.

It ranks as the most severe recession in the post-World War II era.

As a result of the revision, GDP is now still below the pre-recession peak, economists said.

Nigel Gault, chief economist at IHS Global Insight, said the revised data helps explain the weak labor market.

Before the revision, it was hard to square an unemployment rate above 9% with the economy’s growth rate.

The data about the depth of the recession were included in the government’s preliminary estimate of GDP growth for the three months through June.

The government reported that growth accelerated to a 1.3% rate in the second quarter, from a sharply -downwardly-revised 0.4% increase in the first quarter.

Weaker consumer spending and business investment were the main drivers of the downward revisions, according to government analysts.

The revisions incorporate updated data including retail sales from the Census Bureau.

Under the revised data, the U.S. economy declined 0.3% in 2008, weaker than the prior estimate of a flat reading.

The contraction in GDP for 2009 was revised to 3.5%, much weaker than the previous estimate of a 2.6% decline.

The economy grew a little faster in 2010 than previously estimated, rising 3% compared with the prior estimate of 2.9%.

The data show that President Barack Obama won the 2008 election as the economy was in a freefall.

The economy declined at an 8.9% annual rate in the three months around the election. This was following by a drop of 6.7% in the first quarter of 2009.

Greg Robb is a senior reporter for MarketWatch in Washington.

Amazon expected to show earnings drop

By Dan Gallagher, MarketWatch

SAN FRANCISCO (MarketWatch) — Amazon.com is expected to report strong sales growth but a decline in earnings for the second quarter as the company continues to invest in its distribution network as well the development of new products — including, according to analysts, a widely expected tablet device.
Amazon AMZN -0.72% is slated to issue its second-quarter report after Tuesday’s closing bell.

Wall Street currently expects strong top-line growth, with sales surging more than 42% to $9.37 billion, according to consensus estimates from FactSet Research.

Earnings are expected to fall to 35 cents a share from 45 cents a share in the same period last year. Operating income is expected to slide to about $196 million from $270 million last year.
Earnings are likely to be “constrained by continued investments” in order-fulfillment centers, technology and content, as well as a “step-up in marketing spend,” wrote Dan Geiman of McAdams Wright Ragen in a note to clients Monday.

Amazon’s operating margins are a closely watched metric. The company guided to a wide range during its last earnings report in April, predicting a margin range of 1% to 2.5% for the period. Wall Street is predicting a strong improvement for the third quarter, with consensus estimates baking in an operating margin of about 4%.

The margin forecast could be a catalyst for the stock, which is up more than 18% from the first of the year, though Amazon’s valuation remains pricey at more than 75 times estimated earnings for the next four quarters.

While Amazon rarely delves into upcoming products and services during its earnings announcements, Ben Schachter of MacQuarie said he expects analysts to inquire about the company’s much-rumored tablet device, which is expected to launch within the next couple of months.

“Tablets will clearly be a focus area for the call, and we expect a lot of questions and few answers from the company,” Schachter wrote in a note to clients.

A tablet would add to the company’s Kindle line of e-readers as a branded device designed to showcase the company’s growing library of digital content.

Along with e-books, Amazon has been building out its online music, movie and videogame stores, along with its “Cloud Drive,” which is a cloud-based digital locker service that can store media files and allow users to play them from any Internet-connected PC.

One risk to the tablet strategy is the low prices the company will likely have to carry in order to effectively compete with the popular iPad from Apple Inc. AAPL +1.20% . Collin Gillis of BGC Partners said such a move is likely to weigh even heavier on Amazon margins.

“It is also very reasonable that the company produces a tablet product to complement its recent music-locker service and movie-streaming service — and we expect that the company maintains aggressive pricing that could result in the hardware being sold for no profit,” Gillis wrote Monday.

Anthony DiClemente of Barclays countered that an Amazon tablet could drive adoption of the company’s digital content, writing that “a tablet should help offset future declines in the physical media business as media shifts from physical to digital.”

Media, he noted, represented 40% of Amazon’s sales in the first quarter of this year.

Dan Gallagher is MarketWatch's technology editor, based in San Francisco.