Oil Futures Rally Above $120
Latest Nymex High Puts Price Up 27% For the Year to Date
By GREGORY MEYER May 7, 2008; Page C10
Crude-oil futures closed above $120 a barrel for the first time Tuesday as the market showed conviction that record prices won't necessarily trip up global demand.
Light, sweet crude for June delivery settled up $1.87, or 1.6%, at $121.84 a barrel on the New York Mercantile Exchange, after rising as high as $122.73.
The Energy Information Administration on Tuesday projected triple-digit prices for months to come, issuing its latest monthly outlook that forecast crude prices averaging $114 a barrel in the second half of the year. While the agency anticipates U.S. demand will slip by 190,000 barrels a day this year to its lowest annual level since 2003, it expects emerging economies to keep world demand expanding 1.4%, to 86.6 million barrels a day.
Associated Press
A worker of state oil company Pertamina cycled past barrels filled with fuel in Jakarta Tuesday.
"We've had a doubling in crude prices in the past 14 months, and they're still looking at a 1.4% increase in global demand across the year," said Jim Ritterbusch, president of energy-trading advisory service Ritterbusch and Associates in Galena, Ill.
Further agitating buyers, equity analysts at Goldman Sachs issued a report saying prices of $150 to $200 a barrel seem "increasingly likely" six months to two years from now. The same group of analysts made waves three years ago when they identified a "super-spike" lifting prices as high as $105 a barrel, then considered to be an outlandish notion.
Crude oil has risen 27% so far this year and is up 97% from a year ago on a combination of irrepressible global demand growth and supply troubles. The Organization of Petroleum Exporting Countries' oil production slumped 0.5% in April amid problems in member states Nigeria and Iraq, according to a Dow Jones Newswires survey.
Flows from investment funds into commodities have also ignited crude prices as people seek protection from inflation and a weaker dollar. This helps explain why crude-oil prices can remain strong in spite of faltering demand in the U.S., said Sarah Emerson, managing director at Energy Security Analysis Inc. in Wakefield, Mass.
"Oil prices are driven by two different markets," Ms. Emerson said. "I don't think the physical market warrants a price collapse, though it probably warrants a weaker market. But you have this other market, which is a desire to hold crude oil, and that's really in the drivers' seat at the moment."
Crude, which is priced in dollars, has drawn investors seeking a hedge against the greenback's decline. The dollar's weakness has also softened the impact of higher prices for buyers using other currencies.
CORN: Futures rose on weather concerns as rainy weather has left soils in the Midwest soggy and farmers idle. Outside market strength also supported corn. May corn at the Chicago Board of Trade gained 12.75 cents to $5.9475 a bushel.
SOYBEANS: Prices fell after a mostly firmer session, as selling pressure emerged on ideas the Argentine government and farmers would work out their differences and farmers would call off their strike. However, after the markets close, Argentine officials said the farm talks were suspended until Wednesday. May CBOT soybeans dropped 8.50 cents to $12.6450 a bushel.
Wednesday, May 7, 2008
Tuesday, May 6, 2008
Cyclone Death Toll Rises Above 22,000
Cyclone Death Toll Rises Above 22,000
Food Worries Emerge As Rice-Growing Area In Myanmar Was Hit
By JAMES HOOKWAYMay 6, 2008 4:57 p.m.
BANGKOK, Thailand -- The death toll from the cyclone that hit Myanmar climbed to more than 22,000 and could go far higher.
Myanmar's military government, which has often tried to isolate the country, has welcomed international help -- and many nations have pledged it. But so far few supplies are getting in, and international aid agencies are worried the toll could mount in the devastated Irrawaddy River delta region if relief doesn't reach victims quickly. Myanmar state radio said more than 41,000 people are missing, nearly all in them in the delta.
Reuters
People traveled in a boat past destroyed wharves at a port on a swollen river in Yangon Tuesday.
For the aid agencies, the calamity is causing big worries about food, as the cyclone hit a major rice-growing area. There are worries first about food for Myanmar and then about how the disaster could drive up the cost of bringing food to other crisis-afflicted parts of the world.
With world grain stocks at their lowest since the 1970s and the cost of rice nearly tripling since the beginning of this year, providing emergency food aid to disaster-struck countries has become much more expensive.
United Nations relief officials said Tuesday that getting food and water to hard-hit areas is a challenge because of widespread flooding. Richard Horsey, a spokesman for the U.N. Office for the Coordination of Humanitarian Affairs, said much of the damage was caused by a violent storm surge that flowed in from the sea and submerged much of the delta region.
Mac Pieczowski, who heads the International Organization for Migration office in Yangon, said in a prepared statement that "from the reports we are getting, entire villages have been flattened and the final death toll could be huge."
Myanmar is in desperate need of aid after a cyclone hit the country over the weekend. The United Nations, U.S. and Australia have already agreed to contribute.
It isn't immediately clear how much food aid Myanmar might need. The U.N. World Food Program has this year appealed to donor countries for an additional $756 million in funding to help it cover the soaring cost of providing food to needy countries, which historically have struggled to adequately feed themselves.
But a disaster like the cyclone that slammed into the swampy, rice-growing delta region of southern Myanmar exacerbates the funding problem because some poor nations, including Sri Lanka and Bangladesh, had been hoping to supplement their own supplies with imports from Myanmar.
Now, these countries -- and Myanmar -- may have to approach other sellers to make up shortfalls in their own domestic production at a time when many larger rice producers such as Vietnam and India are curbing exports to ensure their own supply of the staple grain.
Thailand, the world's largest exporter, is among the few big producers not to curtail rice sales. It is taking on the lion's share of supplying rice to other developing countries. Thai rice prices are now at $920 a metric ton, down 10% from last week, but still almost three times higher than at the beginning of 2008.
Rice traders say the international market hasn't fully priced in the cost of a significant natural disaster afflicting a large, rice-growing country such as Myanmar. Parts of Asia are prone to highly damaging storms. The Philippines is regularly battered by typhoons. Bangladesh, like Myanmar, is a low-lying delta plain vulnerable to cyclones; in November, a cyclone barreled into the country, destroying at least 600,000 tons of rice and killing more than 3,000 people. India depends on a good monsoon to ensure its 1.1 billion people are adequately fed without dipping into its stockpiles.
So the Myanmar cyclone could send prices higher, some rice traders suggest.
Associated Press
Locals in Yangon make their way past a fallen tree after the cyclone.
"At the moment, the market is pricing in what it knows -- the impact of the biofuel phenomenon, increasing demand from China and India and high oil prices," says Vichai Sriprasert, president of one of Thailand's largest exporters, Riceland International Co. "The situation is already dangerous without other factors such as natural disasters which haven't happened yet."
"The cyclone certainly complicates matters," says Paul Risley, a spokesman with the World Food Program in Bangkok. "It blew through the critical rice-growing areas of the country and it seems the harvest was only partially completed. This could represent a substantial loss to the country's rice output."
Before gaining independence from Britain in 1948, Myanmar -- which is also known as Burma -- was one of the world's biggest rice exporters. Since a military government took control in 1962 and introduced a socialist-style economy, production has slumped. However, Myanmar analysts say the country has managed to improve its rice production in recent years. Officials at the Food and Agriculture Organization of the U.N. say it produces about 30 million metric tons of rice a year, compared with Thailand's 30.5 million tons.
Most of this crop is consumed domestically, or lost to wastage or substandard milling, but in recent years Myanmar has begun to export some rice. Before the cyclone, the FAO forecast the country would sell 600,000 tons overseas -- mostly to Bangladesh and Sri Lanka. State-run media said Myanmar's leaders were confident of producing enough rice this year to feed the country's 52 million people.
But with many rice mills destroyed, distribution networks in tatters and large tracts of rice-growing land in the muddy, flat delta of the Irrawaddy still under water, traders in Bangkok say Myanmar may have to resort to importing rice.
Information on the ground in Myanmar is still sketchy, compounded by the country's secretive military government and poor infrastructure. A magazine run by Myanmar dissidents in Thailand, called Irrawaddy, said prices of gasoline, cooking oil and rice have doubled since the cyclone struck.
State-run radio announced that in badly hit areas, Myanmar's rulers are postponing a referendum Saturday on a new constitution. Political uncertainty pervades in the country eight months after soldiers brutally suppressed pro-democracy demonstrations in the main city, Yangon.
The opposition National League for Democracy said in a prepared statement that proceeding with the referendum, which critics describe as an attempt to legitimize military rule, is "unacceptable."
Food Worries Emerge As Rice-Growing Area In Myanmar Was Hit
By JAMES HOOKWAYMay 6, 2008 4:57 p.m.
BANGKOK, Thailand -- The death toll from the cyclone that hit Myanmar climbed to more than 22,000 and could go far higher.
Myanmar's military government, which has often tried to isolate the country, has welcomed international help -- and many nations have pledged it. But so far few supplies are getting in, and international aid agencies are worried the toll could mount in the devastated Irrawaddy River delta region if relief doesn't reach victims quickly. Myanmar state radio said more than 41,000 people are missing, nearly all in them in the delta.
Reuters
People traveled in a boat past destroyed wharves at a port on a swollen river in Yangon Tuesday.
For the aid agencies, the calamity is causing big worries about food, as the cyclone hit a major rice-growing area. There are worries first about food for Myanmar and then about how the disaster could drive up the cost of bringing food to other crisis-afflicted parts of the world.
With world grain stocks at their lowest since the 1970s and the cost of rice nearly tripling since the beginning of this year, providing emergency food aid to disaster-struck countries has become much more expensive.
United Nations relief officials said Tuesday that getting food and water to hard-hit areas is a challenge because of widespread flooding. Richard Horsey, a spokesman for the U.N. Office for the Coordination of Humanitarian Affairs, said much of the damage was caused by a violent storm surge that flowed in from the sea and submerged much of the delta region.
Mac Pieczowski, who heads the International Organization for Migration office in Yangon, said in a prepared statement that "from the reports we are getting, entire villages have been flattened and the final death toll could be huge."
Myanmar is in desperate need of aid after a cyclone hit the country over the weekend. The United Nations, U.S. and Australia have already agreed to contribute.
It isn't immediately clear how much food aid Myanmar might need. The U.N. World Food Program has this year appealed to donor countries for an additional $756 million in funding to help it cover the soaring cost of providing food to needy countries, which historically have struggled to adequately feed themselves.
But a disaster like the cyclone that slammed into the swampy, rice-growing delta region of southern Myanmar exacerbates the funding problem because some poor nations, including Sri Lanka and Bangladesh, had been hoping to supplement their own supplies with imports from Myanmar.
Now, these countries -- and Myanmar -- may have to approach other sellers to make up shortfalls in their own domestic production at a time when many larger rice producers such as Vietnam and India are curbing exports to ensure their own supply of the staple grain.
Thailand, the world's largest exporter, is among the few big producers not to curtail rice sales. It is taking on the lion's share of supplying rice to other developing countries. Thai rice prices are now at $920 a metric ton, down 10% from last week, but still almost three times higher than at the beginning of 2008.
Rice traders say the international market hasn't fully priced in the cost of a significant natural disaster afflicting a large, rice-growing country such as Myanmar. Parts of Asia are prone to highly damaging storms. The Philippines is regularly battered by typhoons. Bangladesh, like Myanmar, is a low-lying delta plain vulnerable to cyclones; in November, a cyclone barreled into the country, destroying at least 600,000 tons of rice and killing more than 3,000 people. India depends on a good monsoon to ensure its 1.1 billion people are adequately fed without dipping into its stockpiles.
So the Myanmar cyclone could send prices higher, some rice traders suggest.
Associated Press
Locals in Yangon make their way past a fallen tree after the cyclone.
"At the moment, the market is pricing in what it knows -- the impact of the biofuel phenomenon, increasing demand from China and India and high oil prices," says Vichai Sriprasert, president of one of Thailand's largest exporters, Riceland International Co. "The situation is already dangerous without other factors such as natural disasters which haven't happened yet."
"The cyclone certainly complicates matters," says Paul Risley, a spokesman with the World Food Program in Bangkok. "It blew through the critical rice-growing areas of the country and it seems the harvest was only partially completed. This could represent a substantial loss to the country's rice output."
Before gaining independence from Britain in 1948, Myanmar -- which is also known as Burma -- was one of the world's biggest rice exporters. Since a military government took control in 1962 and introduced a socialist-style economy, production has slumped. However, Myanmar analysts say the country has managed to improve its rice production in recent years. Officials at the Food and Agriculture Organization of the U.N. say it produces about 30 million metric tons of rice a year, compared with Thailand's 30.5 million tons.
Most of this crop is consumed domestically, or lost to wastage or substandard milling, but in recent years Myanmar has begun to export some rice. Before the cyclone, the FAO forecast the country would sell 600,000 tons overseas -- mostly to Bangladesh and Sri Lanka. State-run media said Myanmar's leaders were confident of producing enough rice this year to feed the country's 52 million people.
But with many rice mills destroyed, distribution networks in tatters and large tracts of rice-growing land in the muddy, flat delta of the Irrawaddy still under water, traders in Bangkok say Myanmar may have to resort to importing rice.
Information on the ground in Myanmar is still sketchy, compounded by the country's secretive military government and poor infrastructure. A magazine run by Myanmar dissidents in Thailand, called Irrawaddy, said prices of gasoline, cooking oil and rice have doubled since the cyclone struck.
State-run radio announced that in badly hit areas, Myanmar's rulers are postponing a referendum Saturday on a new constitution. Political uncertainty pervades in the country eight months after soldiers brutally suppressed pro-democracy demonstrations in the main city, Yangon.
The opposition National League for Democracy said in a prepared statement that proceeding with the referendum, which critics describe as an attempt to legitimize military rule, is "unacceptable."
Monday, May 5, 2008
UBS To Slash 5,500 Jobs; Records $11 Billion Loss
UBS To Slash 5,500 Jobs; Records $11 Billion Loss
By KATHARINA BART
May 6, 2008 1:41 a.m.
ZURICH -- UBS AG said Tuesday it plans to cut 5,500 jobs by the middle of next year, an effort meant to restructure the Swiss giant's troubled investment bank.
The Zurich-based bank will axe 2,600 investment banking jobs mainly in London and New York after massive write-downs on dud mortgage securities, totaling over $37 billion. The remainder will be cut through natural attrition across the across the
bank's units, UBS said. Alongside the job cuts, UBS said it swung to a first-quarter net loss of 11.54 billion Swiss Francs ($10.99 billion), from a 3.03 billion francs net profit in the year-ago period.
In its outlook, UBS, which is reportedly in talks over the mortgage positions it still holds, cautioned that market conditions remain tough.
The major losses and subprime write-downs have led UBS to rethink its investment bank, clamping down on risk, shrinking its balance sheet, and abandoning some of the high-stakes areas such as proprietary trading.
The losses have forced UBS to seek two massive injections of fresh capital this year, one from major investors and one as a capital increase from shareholders to help cover the losses.
The bank, which has swept its management ranks in recent months because of the losses, has also come under fire from activist shareholder Olivant Advisers Ltd. Olivant, a 1.1% shareholder, is urging UBS to consider asset disposals or a split-up to protect its flagship private bank.
At the private bank, which caters to the financial needs of wealthy individuals, inflows of fresh funds slowed dramatically. While the private bank garnered CHF5.6 billion in fresh funds -- a closely-watched gauge of future business -- the bank overall posted outflows of CHF12.8 billion, as money left both the asset management and business bank units.
UBS shares have slid 26% thus far this year, underperforming by far the Dow Jones Stoxx 600 bank index, which has edged 8.3% lower in the same period.
UBS shares closed at 36.88 francs Monday.
By KATHARINA BART
May 6, 2008 1:41 a.m.
ZURICH -- UBS AG said Tuesday it plans to cut 5,500 jobs by the middle of next year, an effort meant to restructure the Swiss giant's troubled investment bank.
The Zurich-based bank will axe 2,600 investment banking jobs mainly in London and New York after massive write-downs on dud mortgage securities, totaling over $37 billion. The remainder will be cut through natural attrition across the across the
bank's units, UBS said. Alongside the job cuts, UBS said it swung to a first-quarter net loss of 11.54 billion Swiss Francs ($10.99 billion), from a 3.03 billion francs net profit in the year-ago period.
In its outlook, UBS, which is reportedly in talks over the mortgage positions it still holds, cautioned that market conditions remain tough.
The major losses and subprime write-downs have led UBS to rethink its investment bank, clamping down on risk, shrinking its balance sheet, and abandoning some of the high-stakes areas such as proprietary trading.
The losses have forced UBS to seek two massive injections of fresh capital this year, one from major investors and one as a capital increase from shareholders to help cover the losses.
The bank, which has swept its management ranks in recent months because of the losses, has also come under fire from activist shareholder Olivant Advisers Ltd. Olivant, a 1.1% shareholder, is urging UBS to consider asset disposals or a split-up to protect its flagship private bank.
At the private bank, which caters to the financial needs of wealthy individuals, inflows of fresh funds slowed dramatically. While the private bank garnered CHF5.6 billion in fresh funds -- a closely-watched gauge of future business -- the bank overall posted outflows of CHF12.8 billion, as money left both the asset management and business bank units.
UBS shares have slid 26% thus far this year, underperforming by far the Dow Jones Stoxx 600 bank index, which has edged 8.3% lower in the same period.
UBS shares closed at 36.88 francs Monday.
Sears Braces for Spending Slump
Sears Braces for Spending Slump
By GARY MCWILLIAMSMay 5, 2008 5:44 p.m.
HOFFMAN ESTATES, Ill. -- Sears Holdings Corp. Chairman Edward S. Lampert said the retailer is taking a conservative stance to weak consumer spending, cutting its work force and paring budgets in response to an uncertain outlook.
Sears, with $53 billion in 2007 revenue, is expected to report weaker sales and a sharp decline in profits for its fiscal first-quarter, ended Saturday. It earned $216 million on sales of $11.7 billion in the year-earlier quarter.
Addressing shareholders about the company's outlook at its annual meeting here Monday, Mr. Lampert said the economy "certainly hasn't gotten better" since the fourth quarter, and that it is unclear whether consumers are "pausing" after years of steadily increasing spending, or are "done for a while." In recent months Sears has cut several hundred jobs at its headquarters and U.S. distribution centers to reduce costs, and is shunning capital spending on new stores as part of its more conservative financial tack.
Mr. Lampert, a billionaire hedge fund manager whose funds own nearly 48% of Sears stock, noted consumers are changing their shopping habits, turning online for music, movies and other goods that once drew them into its stores. He said an ongoing restructuring of the company into dozens of semi-autonomous business units would eventually allow the company to develop more nimble and profitable operations. But in the near term, competition could get tougher as rivals continue to use debt to finance store expansion and share buybacks.
"Our strategy ensures we have the financial strength to weather any financial storm that comes our way," he said.
Sears has used its cash flow to reduce debt and buyback shares. Mr. Lampert conceded that $2.9 billion spent to re-purchase shares last year, at as much as $150 apiece, would have been better "deferred." The stock has tumbled since reaching a peak of $183 last spring and was off 3% at $100.08 in 4 p.m. trading on the Nasdaq Stock Market.
Among other organizational changes, Mr. Lampert recently consolidated the company's major brands -- including Kenmore, Craftsman and Diehard -- into a single operation that can decide to license or distribute the brands through other retail outlets. He also created separate operations to oversee Sears's real estate, online operations, retail operations and support.
Under the traditional department store structure that Sears had followed, "it didn't feel like we were getting enough traction in some of these businesses," he said. The new structure, he said, already has helped the company attract more experienced executives, including John W. Froman, the recently named head of its tools, lawn and garden businesses, who had been chief operating officer at Circuit City Stores Inc. Mr. Lampert said he is continuing to search for a new chief executive for the holding company, to replace Aylwin B. Lewis, who was ousted in January, and for an executive to oversee a business unit for Sears brands.
While its shares have tumbled 44% in the last year, Mr. Lampert's strategy got a vote of confidence from fellow hedge fund executive William Ackman, president of Pershing Square Capital. In comments at the annual meeting, Mr. Ackman, who acquired five million Sears shares last year, called the stock "undervalued."
Mr. Lampert dismissed calls for Sears Holdings, which has seen same-store sales fall for more than eight consecutive quarters, to make major new acquisitions or format pushes, saying it must finish improving store operations and merchandising. "We've not been able to develop the big ideas to put our capital behind," he told shareholders.
By GARY MCWILLIAMSMay 5, 2008 5:44 p.m.
HOFFMAN ESTATES, Ill. -- Sears Holdings Corp. Chairman Edward S. Lampert said the retailer is taking a conservative stance to weak consumer spending, cutting its work force and paring budgets in response to an uncertain outlook.
Sears, with $53 billion in 2007 revenue, is expected to report weaker sales and a sharp decline in profits for its fiscal first-quarter, ended Saturday. It earned $216 million on sales of $11.7 billion in the year-earlier quarter.
Addressing shareholders about the company's outlook at its annual meeting here Monday, Mr. Lampert said the economy "certainly hasn't gotten better" since the fourth quarter, and that it is unclear whether consumers are "pausing" after years of steadily increasing spending, or are "done for a while." In recent months Sears has cut several hundred jobs at its headquarters and U.S. distribution centers to reduce costs, and is shunning capital spending on new stores as part of its more conservative financial tack.
Mr. Lampert, a billionaire hedge fund manager whose funds own nearly 48% of Sears stock, noted consumers are changing their shopping habits, turning online for music, movies and other goods that once drew them into its stores. He said an ongoing restructuring of the company into dozens of semi-autonomous business units would eventually allow the company to develop more nimble and profitable operations. But in the near term, competition could get tougher as rivals continue to use debt to finance store expansion and share buybacks.
"Our strategy ensures we have the financial strength to weather any financial storm that comes our way," he said.
Sears has used its cash flow to reduce debt and buyback shares. Mr. Lampert conceded that $2.9 billion spent to re-purchase shares last year, at as much as $150 apiece, would have been better "deferred." The stock has tumbled since reaching a peak of $183 last spring and was off 3% at $100.08 in 4 p.m. trading on the Nasdaq Stock Market.
Among other organizational changes, Mr. Lampert recently consolidated the company's major brands -- including Kenmore, Craftsman and Diehard -- into a single operation that can decide to license or distribute the brands through other retail outlets. He also created separate operations to oversee Sears's real estate, online operations, retail operations and support.
Under the traditional department store structure that Sears had followed, "it didn't feel like we were getting enough traction in some of these businesses," he said. The new structure, he said, already has helped the company attract more experienced executives, including John W. Froman, the recently named head of its tools, lawn and garden businesses, who had been chief operating officer at Circuit City Stores Inc. Mr. Lampert said he is continuing to search for a new chief executive for the holding company, to replace Aylwin B. Lewis, who was ousted in January, and for an executive to oversee a business unit for Sears brands.
While its shares have tumbled 44% in the last year, Mr. Lampert's strategy got a vote of confidence from fellow hedge fund executive William Ackman, president of Pershing Square Capital. In comments at the annual meeting, Mr. Ackman, who acquired five million Sears shares last year, called the stock "undervalued."
Mr. Lampert dismissed calls for Sears Holdings, which has seen same-store sales fall for more than eight consecutive quarters, to make major new acquisitions or format pushes, saying it must finish improving store operations and merchandising. "We've not been able to develop the big ideas to put our capital behind," he told shareholders.
Taiwan Real Estate Heats Up
Taiwan Real Estate Heats Up
Nationalists to Open Market to Mainland Investors
By JONATHAN CHENG
May 5, 2008; Page C6
Anticipation that a wave of cash from mainland China will eventually reach Taiwan is helping to turn its real estate into a hot property.
Markets in Taiwan, one of Asia's worst laggards as an investment destination in recent years, were livened up by the Nationalist Party's victory in the March 22 presidential election. On May 20, winner Ma Ying-jeou will be inaugurated, succeeding Chen Shui-bian of the Democratic Progressive Party.
During Mr. Chen's eight-year tenure, Taiwan's benchmark stock index barely budged, even as Hong Kong's shot up 75% and Shanghai's doubled. Right after Mr. Ma's victory, Taiwan's index shot up nearly 10% above where it was shortly before the vote, but after some cooling it is now 4.6% higher than on election day.
That is nothing compared with property prices.
Billy Yen, general manager for property brokerage DTZ Taiwan, estimates that home prices have risen as much as 30% since the voting. And he thinks that by the end of 2008, prices could be 60% higher than they were March 22.
Hong Van, managing director of Taiwan for CB Richard Ellis, says high-end apartments in the Taipei suburbs have risen more than 50% since before the election, to more than 1.5 million New Taiwan dollars (US$49,259) per "ping," or about US$1,369 a square foot. (A ping is equal to roughly 36 square feet.)
The sharp change in sentiment is rooted in Mr. Ma's pledge to open Taiwan's property market to Chinese investors as part of a broader effort to more closely tie the economies of the mainland and Taiwan. Under Mr. Chen, Taiwan adopted an isolationist stance that sent the Taiwanese property market into a slumber.
Since Mr. Ma's victory, DTZ's Mr. Yen has been meeting potential investors in Beijing, Shanghai and Hong Kong, who, like him, read it as a turning point for Taiwan's economy. In the highest-profile reflection of the new optimism, nine mainland tycoons -- including power couple Pan Shiyi and Zhang Xin of Soho China Ltd. and Li Silian of Guangzhou R&F Properties Co. -- were trailed by camera teams as they visited sites in Taipei and Taichung.
Sentiment had been "pretty negative" on the domestic residential market, and now it's "very strong and positive," says Daniel Hsiao, a Taipei-based property analyst with Taiwan Ratings Corp. He expects large numbers of Taiwanese businessmen who have moved to mainland China in recent years to seek luxury residences back home.
During Mr. Chen's tenure, some investors stayed out of Taiwan property, fearing money would be difficult to pull out. Now, Mr. Ma is pledging to allow free capital flows.
The timing could be tailor-made for cash-rich mainland Chinese eager to diversify their assets amid a continuing campaign by Beijing to tamp down its domestic property market. "There is an overflow of investment dollars in China, and it's happening just as Taiwan is opening up," DTZ's Mr. Yen says.
Local Taiwanese families that have hoarded cash in recent years while avoiding the investment market are another potentially big source of funds. Sharon Lam, an economist with Morgan Stanley, estimated last month that Taiwan's "household cash position" -- money in bank deposits plus household cash -- is almost 200% of gross domestic product. That is the highest percentage in Asia, she noted.
Taiwan's property markets have underperformed the rest of the region for the better part of a decade. High-end home prices per square foot in Taipei now cost one-third to one-half the price of those in Hong Kong.
Shares of many Taiwan developers have jumped this year and -- in some recent cases -- have then fallen. Citi Investment Research changed property giant Cathay Real Estate Development Co. to a "sell" from a "buy" last month, arguing that the stock had surged too much too quickly. It said the company's swift sales of flats in the first quarter, ahead of the election, also leaves Cathay needing more land, which will be costly in the "current hot environment."
On April 14, the stock was at NT$30 (99 U.S. cents), compared with NT$15.10 at the end of 2007. On Friday, it closed at NT$24.60, still 63% higher for the year.
Another giant, Chong Hong Construction Co., which focuses on higher-end homebuyers, saw its shares soar to NT$110 April 17 from NT$53.90 at the start of the year. On Friday, the stock closed at NT$98.
If roadblocks scuttle some of President-elect Ma's proposed policies, particularly those requiring a breakthrough in Beijing-Taipei relations, Taiwan's current property-price boom could resemble a bubble. The mainland and Taiwan still lack a banking treaty, for instance, making credit checks and collateral enforcement nearly impossible.
Some market observers are already warning of post-election overexuberance. Andre Chang, a property analyst with Citi Investment Research in Taipei, warns of a potential bubble forming as mass-market buyers, who need homes to remain affordable, begin to "reach a stretched level."
In the medium term, top-grade office space in Taipei might be an attractive sector for property investors. Office rentals in central Taipei fell after Mr. Chen became president in 2000, as business sentiment waned. During his tenure, rents have risen about one-third, most of that in the past year or two, according to CBRE's Mr. Van.
Now, as Taiwanese businesses expand and Taipei becomes a more attractive home for multinational corporations, office space is expected to be in bigger demand. Vacancies have now dropped to a five-year low of 4% in the city center, when office space in the Taipei 101 tower, currently the world's tallest building, is excluded.
Over the next one to two years, Mr. Van says, office rentals should go up as more companies need space. Rates for some high-end offices, he says, could "easily by Christmas" reach NT$4,000 per ping -- about US$3.60 per square foot -- "which is not anything we've ever seen in the history of this market."
With office rents likely to rise, real-estate investment trusts could be good options, some analysts say.
Write to Jonathan Cheng at jonathan.cheng@wsj.com
Nationalists to Open Market to Mainland Investors
By JONATHAN CHENG
May 5, 2008; Page C6
Anticipation that a wave of cash from mainland China will eventually reach Taiwan is helping to turn its real estate into a hot property.
Markets in Taiwan, one of Asia's worst laggards as an investment destination in recent years, were livened up by the Nationalist Party's victory in the March 22 presidential election. On May 20, winner Ma Ying-jeou will be inaugurated, succeeding Chen Shui-bian of the Democratic Progressive Party.
During Mr. Chen's eight-year tenure, Taiwan's benchmark stock index barely budged, even as Hong Kong's shot up 75% and Shanghai's doubled. Right after Mr. Ma's victory, Taiwan's index shot up nearly 10% above where it was shortly before the vote, but after some cooling it is now 4.6% higher than on election day.
That is nothing compared with property prices.
Billy Yen, general manager for property brokerage DTZ Taiwan, estimates that home prices have risen as much as 30% since the voting. And he thinks that by the end of 2008, prices could be 60% higher than they were March 22.
Hong Van, managing director of Taiwan for CB Richard Ellis, says high-end apartments in the Taipei suburbs have risen more than 50% since before the election, to more than 1.5 million New Taiwan dollars (US$49,259) per "ping," or about US$1,369 a square foot. (A ping is equal to roughly 36 square feet.)
The sharp change in sentiment is rooted in Mr. Ma's pledge to open Taiwan's property market to Chinese investors as part of a broader effort to more closely tie the economies of the mainland and Taiwan. Under Mr. Chen, Taiwan adopted an isolationist stance that sent the Taiwanese property market into a slumber.
Since Mr. Ma's victory, DTZ's Mr. Yen has been meeting potential investors in Beijing, Shanghai and Hong Kong, who, like him, read it as a turning point for Taiwan's economy. In the highest-profile reflection of the new optimism, nine mainland tycoons -- including power couple Pan Shiyi and Zhang Xin of Soho China Ltd. and Li Silian of Guangzhou R&F Properties Co. -- were trailed by camera teams as they visited sites in Taipei and Taichung.
Sentiment had been "pretty negative" on the domestic residential market, and now it's "very strong and positive," says Daniel Hsiao, a Taipei-based property analyst with Taiwan Ratings Corp. He expects large numbers of Taiwanese businessmen who have moved to mainland China in recent years to seek luxury residences back home.
During Mr. Chen's tenure, some investors stayed out of Taiwan property, fearing money would be difficult to pull out. Now, Mr. Ma is pledging to allow free capital flows.
The timing could be tailor-made for cash-rich mainland Chinese eager to diversify their assets amid a continuing campaign by Beijing to tamp down its domestic property market. "There is an overflow of investment dollars in China, and it's happening just as Taiwan is opening up," DTZ's Mr. Yen says.
Local Taiwanese families that have hoarded cash in recent years while avoiding the investment market are another potentially big source of funds. Sharon Lam, an economist with Morgan Stanley, estimated last month that Taiwan's "household cash position" -- money in bank deposits plus household cash -- is almost 200% of gross domestic product. That is the highest percentage in Asia, she noted.
Taiwan's property markets have underperformed the rest of the region for the better part of a decade. High-end home prices per square foot in Taipei now cost one-third to one-half the price of those in Hong Kong.
Shares of many Taiwan developers have jumped this year and -- in some recent cases -- have then fallen. Citi Investment Research changed property giant Cathay Real Estate Development Co. to a "sell" from a "buy" last month, arguing that the stock had surged too much too quickly. It said the company's swift sales of flats in the first quarter, ahead of the election, also leaves Cathay needing more land, which will be costly in the "current hot environment."
On April 14, the stock was at NT$30 (99 U.S. cents), compared with NT$15.10 at the end of 2007. On Friday, it closed at NT$24.60, still 63% higher for the year.
Another giant, Chong Hong Construction Co., which focuses on higher-end homebuyers, saw its shares soar to NT$110 April 17 from NT$53.90 at the start of the year. On Friday, the stock closed at NT$98.
If roadblocks scuttle some of President-elect Ma's proposed policies, particularly those requiring a breakthrough in Beijing-Taipei relations, Taiwan's current property-price boom could resemble a bubble. The mainland and Taiwan still lack a banking treaty, for instance, making credit checks and collateral enforcement nearly impossible.
Some market observers are already warning of post-election overexuberance. Andre Chang, a property analyst with Citi Investment Research in Taipei, warns of a potential bubble forming as mass-market buyers, who need homes to remain affordable, begin to "reach a stretched level."
In the medium term, top-grade office space in Taipei might be an attractive sector for property investors. Office rentals in central Taipei fell after Mr. Chen became president in 2000, as business sentiment waned. During his tenure, rents have risen about one-third, most of that in the past year or two, according to CBRE's Mr. Van.
Now, as Taiwanese businesses expand and Taipei becomes a more attractive home for multinational corporations, office space is expected to be in bigger demand. Vacancies have now dropped to a five-year low of 4% in the city center, when office space in the Taipei 101 tower, currently the world's tallest building, is excluded.
Over the next one to two years, Mr. Van says, office rentals should go up as more companies need space. Rates for some high-end offices, he says, could "easily by Christmas" reach NT$4,000 per ping -- about US$3.60 per square foot -- "which is not anything we've ever seen in the history of this market."
With office rents likely to rise, real-estate investment trusts could be good options, some analysts say.
Write to Jonathan Cheng at jonathan.cheng@wsj.com
Sunday, May 4, 2008
Economy May Face Prolonged Pain, History Suggests
Economy May Face Prolonged Pain, History Suggests
By GREG IPMay 5, 2008; Page A2
The worst of the financial pain may have passed, but the economic pain could be just starting.
The nation's financial markets have rallied since early March, with stocks up and yields on risky corporate and mortgage-backed bonds falling relative to safe U.S. Treasurys. Optimists got an added boost Friday from a government report that U.S. unemployment fell in April.
But history suggests celebration may be premature. It's common in a crisis for markets to hit bottom long before the economy does. That's because markets are forward-looking and because economic weakness is the way the underlying imbalances that produced a crisis are corrected.
"The financial crisis is usually an expression of broader problems in the economy," says Harvard University economist Kenneth Rogoff, who along with Carmen Reinhart of the University of Maryland, recently wrote a history of financial crises back to the 1300s. "It's a mechanism that exacerbates and deepens the recession, but it's seldom the trigger."
The economic fallout from a crisis depends on how much underlying economic factors -- such as consumption, investment and asset prices -- are out of whack with their fundamental determinants. The 1987 stock-market crash and the near-collapse of hedge fund Long Term Capital Management in 1998 threatened the heart of the financial system. But the underlying imbalances were largely limited to the financial markets themselves: stocks overvalued relative to earnings in 1987, and excessive hedge-fund borrowing in 1998. Thus, once the Federal Reserve's rescue operations had mitigated the threat to the financial system, the economic fallout was limited.
The current crisis is different. For several years, U.S. home prices and home construction kept climbing past levels considered sustainable. Homes became collateral for trillions of dollars in borrowing. That depressed savings, inflated consumption, fueled rapid lending and loosened loan standards.
When home prices stopped rising, the diciest mortgages began to default, triggering the crisis. But even now, prices are above most estimates of sustainable levels, and household saving has barely picked up. Even if the Fed's bailout of Bear Stearns Cos. in mid-March proves the apex of the crisis, as some think, the economy could still contract as consumers adjust to lost wealth and reduced access to credit.
FORUM
Which is in better shape today, Wall Street or Main Street? Discuss
For a parallel, the U.S. might look to South Korea. Its financial crisis peaked on Dec. 24, 1997, when its currency, the won, hit a record low against the dollar. The International Monetary Fund and the U.S. Treasury orchestrated a rescue and persuaded foreign banks to roll over their loans to Korea. Over the ensuing year, the won rose 63%. But the Korean economy sank into a deep recession. In 13 months, the jobless rate soared to 7.9% from 3%. The economy shrank 6% in 1998, a huge shock to a country accustomed to 8% growth.
Korea's economy had been bolstered for years by overinvestment by its chaebols, or industrial conglomerates. They financed extensive capital investment by borrowing heavily from banks on preferential terms, says Kihwan Kim, then a key Korean government official managing the crisis and now an adviser to Goldman Sachs. The banks, in turn, borrowed in dollars from overseas.
But in early 1997, several chaebols, which had been losing competitiveness, began to experience difficulties. When Korean banks lost their ability to borrow overseas, many failed; those that survived severely cut back lending. The chaebols slashed investment and laid off thousands. Many went bankrupt. Layoffs and recession were a shock to Koreans who "were so used to high growth and very low levels of unemployment," Mr. Kim says.
Ted Truman, a scholar at the Peterson Institute for International Economics who worked on the Korean rescue as a Fed official, says the overexpansion and excessive borrowing of Korea's corporate sector in the run-up to its crisis are analogous to the overexpansion of housing and consumption in the U.S. in its crisis. In each case, a collapse in the affected sector severely wounded the financial system. Korea's recovery was led by exports, much as exports are proving a cushion to the U.S. now.
Korea's recovery began in 1999. Mr. Kim says that capital investment never fully recovered and that economic growth, while a healthy 4% to 5%, hasn't returned to the precrisis pace. Unemployment is deceptively low, he says, because of hidden unemployment, such as students who can't find jobs staying in school. Korea's lesson to the U.S., he says, is that "imbalances must be corrected." A recovery doesn't need a full resolution of those imbalances, he says, only a "convincing sign that change is taking place."
The risk for the U.S. is that weakness goes beyond the correction of housing excesses and begins to feed back into the financial system and then, again, hurts the wider economy.
By contrast, says Nouriel Roubini, an economist who heads RGE Monitor, a financial- and economic-forecasting service, the U.S. financial system has adjusted only to the losses on mortgage loans. He predicts that a wave of defaults on industrial loans, municipal bonds and consumer credit is coming, which will trigger another wave of financial-system distress.
Fed Chairman Ben Bernanke believes such feedback effects are what made the Great Depression great. Mr. Bernanke's awareness of such risks is why he cut rates last week and, despite signaling a pause, is still focused on the risks that the U.S. economy may deteriorate further.
By GREG IPMay 5, 2008; Page A2
The worst of the financial pain may have passed, but the economic pain could be just starting.
The nation's financial markets have rallied since early March, with stocks up and yields on risky corporate and mortgage-backed bonds falling relative to safe U.S. Treasurys. Optimists got an added boost Friday from a government report that U.S. unemployment fell in April.
But history suggests celebration may be premature. It's common in a crisis for markets to hit bottom long before the economy does. That's because markets are forward-looking and because economic weakness is the way the underlying imbalances that produced a crisis are corrected.
"The financial crisis is usually an expression of broader problems in the economy," says Harvard University economist Kenneth Rogoff, who along with Carmen Reinhart of the University of Maryland, recently wrote a history of financial crises back to the 1300s. "It's a mechanism that exacerbates and deepens the recession, but it's seldom the trigger."
The economic fallout from a crisis depends on how much underlying economic factors -- such as consumption, investment and asset prices -- are out of whack with their fundamental determinants. The 1987 stock-market crash and the near-collapse of hedge fund Long Term Capital Management in 1998 threatened the heart of the financial system. But the underlying imbalances were largely limited to the financial markets themselves: stocks overvalued relative to earnings in 1987, and excessive hedge-fund borrowing in 1998. Thus, once the Federal Reserve's rescue operations had mitigated the threat to the financial system, the economic fallout was limited.
The current crisis is different. For several years, U.S. home prices and home construction kept climbing past levels considered sustainable. Homes became collateral for trillions of dollars in borrowing. That depressed savings, inflated consumption, fueled rapid lending and loosened loan standards.
When home prices stopped rising, the diciest mortgages began to default, triggering the crisis. But even now, prices are above most estimates of sustainable levels, and household saving has barely picked up. Even if the Fed's bailout of Bear Stearns Cos. in mid-March proves the apex of the crisis, as some think, the economy could still contract as consumers adjust to lost wealth and reduced access to credit.
FORUM
Which is in better shape today, Wall Street or Main Street? Discuss
For a parallel, the U.S. might look to South Korea. Its financial crisis peaked on Dec. 24, 1997, when its currency, the won, hit a record low against the dollar. The International Monetary Fund and the U.S. Treasury orchestrated a rescue and persuaded foreign banks to roll over their loans to Korea. Over the ensuing year, the won rose 63%. But the Korean economy sank into a deep recession. In 13 months, the jobless rate soared to 7.9% from 3%. The economy shrank 6% in 1998, a huge shock to a country accustomed to 8% growth.
Korea's economy had been bolstered for years by overinvestment by its chaebols, or industrial conglomerates. They financed extensive capital investment by borrowing heavily from banks on preferential terms, says Kihwan Kim, then a key Korean government official managing the crisis and now an adviser to Goldman Sachs. The banks, in turn, borrowed in dollars from overseas.
But in early 1997, several chaebols, which had been losing competitiveness, began to experience difficulties. When Korean banks lost their ability to borrow overseas, many failed; those that survived severely cut back lending. The chaebols slashed investment and laid off thousands. Many went bankrupt. Layoffs and recession were a shock to Koreans who "were so used to high growth and very low levels of unemployment," Mr. Kim says.
Ted Truman, a scholar at the Peterson Institute for International Economics who worked on the Korean rescue as a Fed official, says the overexpansion and excessive borrowing of Korea's corporate sector in the run-up to its crisis are analogous to the overexpansion of housing and consumption in the U.S. in its crisis. In each case, a collapse in the affected sector severely wounded the financial system. Korea's recovery was led by exports, much as exports are proving a cushion to the U.S. now.
Korea's recovery began in 1999. Mr. Kim says that capital investment never fully recovered and that economic growth, while a healthy 4% to 5%, hasn't returned to the precrisis pace. Unemployment is deceptively low, he says, because of hidden unemployment, such as students who can't find jobs staying in school. Korea's lesson to the U.S., he says, is that "imbalances must be corrected." A recovery doesn't need a full resolution of those imbalances, he says, only a "convincing sign that change is taking place."
The risk for the U.S. is that weakness goes beyond the correction of housing excesses and begins to feed back into the financial system and then, again, hurts the wider economy.
By contrast, says Nouriel Roubini, an economist who heads RGE Monitor, a financial- and economic-forecasting service, the U.S. financial system has adjusted only to the losses on mortgage loans. He predicts that a wave of defaults on industrial loans, municipal bonds and consumer credit is coming, which will trigger another wave of financial-system distress.
Fed Chairman Ben Bernanke believes such feedback effects are what made the Great Depression great. Mr. Bernanke's awareness of such risks is why he cut rates last week and, despite signaling a pause, is still focused on the risks that the U.S. economy may deteriorate further.
Buffett and Munger reassure shareholders about succession
Buffett and Munger reassure shareholders about successionSunday May 4, 3:21 am ET By Josh Funk, AP Business Writer
Berkshire shareholders get reassurances as they worry about company future after Buffett goes
OMAHA, Neb. (AP) -- Warren Buffett tried to reassure his shareholders Saturday that Berkshire Hathaway will be fine once he is gone, but the 77-year-old billionaire offered few new details of the company's succession plan.
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Berkshire vice chairman Charlie Munger may have done more to reassure the roughly 31,000 shareholders at the company's annual meeting.
"Well, we still have a rising young man here named Warren Buffett," Munger said, to which Buffett joked that everyone seems young to the 84-year-old Munger.
Munger continued: "I think we want to encourage this rising young man to reach his full potential."
Several shareholders still asked about the succession plan and Berkshire's future.
Part of the reason why Michel Paquet and Lorie Armstrong made their second trip to the annual meeting from Calgary, Alberta, is that they're not sure how many more meetings will feature both Buffett and Munger.
"I will expect some volatility on the transition, but I'm ready for that," said Paquet, who plans to hold his Berkshire stock for many years to come.
To replace Buffett, Berkshire plans to split his job into three parts -- chief investment officer, chief executive officer and chairman.
In his letter to shareholders, Buffett said the company's board has three internal candidates for CEO and four external candidates who could take over managing the company's $75 billion stock portfolio and $35.6 billion cash.
Buffett said any one of the three CEO candidates and any one of the four CIO candidates could step in and do some things better than he does. "There will be no gap after my death in terms of having someone managing the money," he said.
Buffett has refused to publicly identify the candidates, but he has said previously that after he dies his son will take over as chairman to ensure Berkshire's culture is preserved. Howard Buffett already serves on the board.
Buffett plans to visit Europe this month as part of an effort to make sure business owners there know about Berkshire, so they think about calling the American giant when they consider selling their companies.
"We want to get on their radar screen," Buffett said.
Buffett said Berkshire would also consider buying businesses in India and China, but laws in those countries would make such a purchase difficult. Berkshire faces limits on how large a stake it can buy in Indian or Chinese companies, making such deals less attractive, Buffett said.
He told shareholders Saturday that the company's new business insuring municipal bonds generated more than $400 million in premiums during the first quarter. Berkshire Hathaway Assurance was launched to take advantage of credit problems other bond insurers have been having. Buffett said most of the bond insurance policies Berkshire has sold are on bonds that already were insured by other companies, with Berkshire charging a higher fee than the original insurer.
Berkshire's book value -- assets minus liabilities -- per share has grown from $19 -- 43 years ago -- to $78,008 under Buffett and Munger's leadership. But Buffett warned shareholders that they shouldn't expect that growth to continue at the same rate.
"Anyone who expects us to come close to what we've done in the past should sell their stock," Buffett said.
With Berkshire's current size, huge acquisitions would be needed to fuel significant growth, and it's hard to predict when those opportunities will come up.
Buffett said that until a few weeks ago he didn't know Berkshire would have an opportunity to help finance candymaker Mars Inc.'s $23 billion purchase of confectioner Wm. Wrigley Jr. Co.
"The Mars people only wanted to deal with Berkshire," he said.
Berkshire will supply $4.4 billion of subordinated debt to help fund the deal, which was announced Monday. And Buffett's company will invest $2.1 billion in a minority equity interest in the new Wrigley subsidiary once the deal closes.
In Berkshire's annual cartoon, part of a humorous movie at the start of the meeting, Buffett and Munger spoofed the presidential campaign. The cartoon depicted Munger running for president as a write-in candidate for a fictional "Financial Independence Party."
At a campaign event, the cartoon Munger delivered real change -- by offering a boy two dimes for a quarter.
Munger also had an answer for all the nation's ills, all involving products made by Berkshire subsidiaries:
Global warming? Munger recommended eating a Dairy Queen Blizzard a day. Health care? Eat more See's Candy. Economic problems? Munger promised to put Buffett in charge of the Federal Reserve, the Treasury Department and the Commerce Department.
An animated Hillary Rodham Clinton laughed at the notion of Munger's candidacy, while Barack Obama lamented that he thought he was the candidate of change. The cartoon of Republican John McCain celebrated Munger's candidacy: "Excellent! A candidate older than I am."
Berkshire shareholders get reassurances as they worry about company future after Buffett goes
OMAHA, Neb. (AP) -- Warren Buffett tried to reassure his shareholders Saturday that Berkshire Hathaway will be fine once he is gone, but the 77-year-old billionaire offered few new details of the company's succession plan.
ADVERTISEMENT
if(window.yzq_d==null)window.yzq_d=new Object();
window.yzq_d['dxZgBkJe5tg-']='&U=13bmldf89%2fN%3ddxZgBkJe5tg-%2fC%3d628474.12634496.12960149.1383221%2fD%3dLREC%2fB%3d5140298';
Berkshire vice chairman Charlie Munger may have done more to reassure the roughly 31,000 shareholders at the company's annual meeting.
"Well, we still have a rising young man here named Warren Buffett," Munger said, to which Buffett joked that everyone seems young to the 84-year-old Munger.
Munger continued: "I think we want to encourage this rising young man to reach his full potential."
Several shareholders still asked about the succession plan and Berkshire's future.
Part of the reason why Michel Paquet and Lorie Armstrong made their second trip to the annual meeting from Calgary, Alberta, is that they're not sure how many more meetings will feature both Buffett and Munger.
"I will expect some volatility on the transition, but I'm ready for that," said Paquet, who plans to hold his Berkshire stock for many years to come.
To replace Buffett, Berkshire plans to split his job into three parts -- chief investment officer, chief executive officer and chairman.
In his letter to shareholders, Buffett said the company's board has three internal candidates for CEO and four external candidates who could take over managing the company's $75 billion stock portfolio and $35.6 billion cash.
Buffett said any one of the three CEO candidates and any one of the four CIO candidates could step in and do some things better than he does. "There will be no gap after my death in terms of having someone managing the money," he said.
Buffett has refused to publicly identify the candidates, but he has said previously that after he dies his son will take over as chairman to ensure Berkshire's culture is preserved. Howard Buffett already serves on the board.
Buffett plans to visit Europe this month as part of an effort to make sure business owners there know about Berkshire, so they think about calling the American giant when they consider selling their companies.
"We want to get on their radar screen," Buffett said.
Buffett said Berkshire would also consider buying businesses in India and China, but laws in those countries would make such a purchase difficult. Berkshire faces limits on how large a stake it can buy in Indian or Chinese companies, making such deals less attractive, Buffett said.
He told shareholders Saturday that the company's new business insuring municipal bonds generated more than $400 million in premiums during the first quarter. Berkshire Hathaway Assurance was launched to take advantage of credit problems other bond insurers have been having. Buffett said most of the bond insurance policies Berkshire has sold are on bonds that already were insured by other companies, with Berkshire charging a higher fee than the original insurer.
Berkshire's book value -- assets minus liabilities -- per share has grown from $19 -- 43 years ago -- to $78,008 under Buffett and Munger's leadership. But Buffett warned shareholders that they shouldn't expect that growth to continue at the same rate.
"Anyone who expects us to come close to what we've done in the past should sell their stock," Buffett said.
With Berkshire's current size, huge acquisitions would be needed to fuel significant growth, and it's hard to predict when those opportunities will come up.
Buffett said that until a few weeks ago he didn't know Berkshire would have an opportunity to help finance candymaker Mars Inc.'s $23 billion purchase of confectioner Wm. Wrigley Jr. Co.
"The Mars people only wanted to deal with Berkshire," he said.
Berkshire will supply $4.4 billion of subordinated debt to help fund the deal, which was announced Monday. And Buffett's company will invest $2.1 billion in a minority equity interest in the new Wrigley subsidiary once the deal closes.
In Berkshire's annual cartoon, part of a humorous movie at the start of the meeting, Buffett and Munger spoofed the presidential campaign. The cartoon depicted Munger running for president as a write-in candidate for a fictional "Financial Independence Party."
At a campaign event, the cartoon Munger delivered real change -- by offering a boy two dimes for a quarter.
Munger also had an answer for all the nation's ills, all involving products made by Berkshire subsidiaries:
Global warming? Munger recommended eating a Dairy Queen Blizzard a day. Health care? Eat more See's Candy. Economic problems? Munger promised to put Buffett in charge of the Federal Reserve, the Treasury Department and the Commerce Department.
An animated Hillary Rodham Clinton laughed at the notion of Munger's candidacy, while Barack Obama lamented that he thought he was the candidate of change. The cartoon of Republican John McCain celebrated Munger's candidacy: "Excellent! A candidate older than I am."
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