Finance Blog number 1

Aryx Therapeutics Inc. lost $6.4 million in the March quarter, down from a loss of $9.8 million a year earlier.

The Fremont drug business (NASDAQ: ARYX), which cut itself down to 17 workers in February, had no revenue during the quarter. It also had no revenue a year ago in the first quarter.

Since it started, Aryx has accumulated a deficit of $193,499,000. Drug companies often run up big deficits while seeking and testing possible treatments.

At quarter’s end, Aryx had $6.3 million in cash and near money. That’s just enough money to operate until September.

Aryx has hired investment bank Cowen to help it figure out its future.

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The vacancy rate for office space in Honolulu rose to 11.4 percent in the first quarter, and tenants are seeing more incentives as landlords negotiate to lease space, according to a new report.

Vacancy rose by 1 percentage point during the quarter, and availability, which includes vacancy plus space offered for sublease, rose to 12.6 percent, according to the first-quarter office market report by CB Richard Ellis.

That pushed occupancy in Class A and B buildings down by 119,605 square feet during the quarter, the report said.

Rents have fallen 2.6 percent in the past year and have leveled off to range between $2.79 and $3.05 per square foot per month, the report said. The average operating expense was $1.32 per square foot per month.

Landlords, meanwhile, are offering more free rent and generous tenant-improvement allowances to attract tenants to their buildings, the report said.

“Deals are better today than at any time in the past four years and should continue to improve somewhat for the balance of 2010,” the report said.

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Home price gains earlier this year flattened out in October, according to a report issued Tuesday.

The S&P/Case Shiller Home Price index, covering 20 of the largest metropolitan areas in the nation, was unchanged in October, after four consecutive months of gains. The index is down 7.3% from 12 months earlier.

"The turnaround in home prices seen in the spring and summer has faded," said David Blitzer, chairman of the Index Committee at Standard & Poor’s, in a statement. "Coming after a series of solid gains, these data are likely to spark worries that home prices are about to take a second dip," he said.

Just seven of the 20 cities recorded gains from a month earlier.

The modest gains earlier this year were in part propped up by government initiatives.

"We’ve seen recent stability because of low interest rates and the impact of the first-time homebuyers tax credit," said Pat Newport, a real estate analyst with IHS Global Insight.

Prices are down from their all-time highs set in 2006 by 29% for the 20-city index.

Among the 20 cities, the worst tumble was taken by Tampa during the month. Prices fell 1.6% from September. Chicago and Atlanta recorded 1% losses.

The biggest gainers were Phoenix, up 1.3%, and San Francisco, up 1.2%.

Las Vegas sellers continued to bleed. Prices there fell just 0.1% but that marked the 38th straight monthly decline. The market in Sin City is off 55.4% from its peak. You can buy a home in Las Vegas for the same price it sold for in October of 2000.

"In most of the hardest-hit markets, price declines are moderating," said Mike Larson, an analyst with Weiss Research.

Los Angeles recorded a rise of 0.3% and San Diego prices gained 0.4%. Miami, however, declined by 0.4%.

According to Larson, falling supplies of homes on the market are helping to stabilize conditions. "Inventories are plunging on the new-home side and going down for existing homes," he said.

Not that he’s ready to break out the champagne, even with the New Year close at hand. "The market is recovering but it will be an anemic recovery," he said. 

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The cities of the mountain West have felt the recession as deeply as any in the nation, although the pain has not been spread evenly, according to a report Tuesday.

Denver emerged as one of the strongest cities in the six-state region on a number of measures, according to the report by Brookings Mountain West, a partnership between the Brookings Institution and the University of Nevada.

“Phoenix, Boise, and Las Vegas… remained three of the most troubled metropolitan areas in the entire nation in the third quarter, with all residing in the weakest quintile of metros on a combined measure of overall economic performance,” researchers wrote. “Still, metros like Colorado Springs, Albuquerque, and Denver have only been moderately affected by the recession and seem poised to renew their upward trajectory as the pace of recovery quickens.”

Denver’s unemployment rate averaged 7 payday loan.1 percent in the third quarter, below the 100-city average of 9.6 percent. It ranked 14th of the 100 cities in terms of unemployment rate — with 1 signifying the strongest-performing metro and 100 the weakest-performing — and ninth in terms of change in the unemployment rate over the 12 months ending in September.

The city also fared well on housing prices: over the 12 months through September, Denver house prices were up 1.6 percent, compared with an average drop of 3 percent.

But foreclosures remained a problem, with the city ranking 76th out of 100 in terms of real-estate-owned properties per 1,000 mortgageable properties.

Denver ranked 70th for gross metropolitan product, and 57th for employment growth.

Click here for the full report.

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Japanese Finance Minister Hirohisa Fujii said the government is watching currencies “very closely” after the yen advanced to a 14-year high against the dollar, threatening the country’s export-led recovery.

“If currencies make abnormal movements, we may need to take appropriate action,” Fujii told reporters in Tokyo today. “Now we’re at the stage where we need to closely monitor movements in currency markets.”

The comments suggest Japan is closer to stepping into currency markets for the first time in more than five years as the rising yen erodes exporters’ profits in the wake of the country’s worst postwar recession. The currency’s more than 8 percent advance over the past three months has also added to Japan’s deflationary pressure by driving import costs lower.

“The possibility of intervention has apparently increased,” said Masafumi Yamamoto, Tokyo-based chief foreign- exchange strategist at Barclays Bank Plc. “Stocks have been falling and the government declared Japan is in a deflationary state. In this environment, there’s no reason for it to tolerate a higher yen.”

The yen rose to 86.91 per dollar at 9:16 a.m. in London, after climbing to 86.30, the highest since July 1995. The Nikkei 225 Stock Average slid 0.6 percent to a four-month low.

Fujii, 77, said yesterday that the dollar’s weakness is spurring the yen’s advance. Today he said “a strong U.S. dollar is in their national interest. There is no change in our support for that.”

‘Huge Risk’

Manufacturers are contemplating shifting operations abroad because the yen’s gains make it costlier to run factories at home. A stronger yen would be a “huge risk” to producing autos in Japan, Nissan Motor Co. Chief Operating Officer Toshiyuki Shiga said this month.

“There is no doubt that the yen’s strength, if it accelerates further, would affect” exporters’ profits and the economy, said Chief Cabinet Secretary Hirofumi Hirano told reporters. “We must carefully assess the impact. If that happens, the government would be asked to respond.”

Hirano said he spoke with Fujii about the currency’s surge today without discussing intervention.

Japanese authorities haven’t stepped into the currency market since the first three months of 2004, when it sold a record 14.8 trillion yen ($171 billion). Fujii had spurred some of the yen’s gains after he took office in September by saying he opposed “easy intervention.” He has since toned down his remarks by saying Japan will act if currency moves are “abnormal or disorderly.”

Fujii’s ‘Discretion’

Vice Finance Minister Yoshihiko Noda said the government isn’t considering stepping into the currency market now, Reuters reported earlier today. He later backed away from the remarks, saying at a news conference that yen policy “is under the minister’s discretion” and declining to comment on the possibility of government action.

“The chances of intervention would increase if the dollar-yen breaks below 85,” Tomoko Fujii, a foreign-exchange strategist at Bank of America-Merrill Lynch in Tokyo, wrote in a report published today. “Intervention backed by a monetary policy change is more effective than intervention without supportive monetary policy action.”

Fujii at Bank of America-Merrill Lynch said it’s unlikely that the U.S. would join Japan in stepping into foreign- exchange markets, barring a “meltdown caused by a dollar crisis.” Expectations for the Bank of Japan to add liquidity to the economy will grow should the yen’s gains “sharply” lower stock prices, hurt business sentiment and exacerbate deflation, she wrote.

Deflation’s Return

The government last week said Japan was in a “mild deflationary phase.” Price declines blighted Japan during its so-called lost decade of stagnation after an asset bubble burst in the early 1990s.

Meanwhile Finance Minister Fujii said yesterday that China’s currency is probably too weak, backing calls from the U.S. and Europe to let the yuan appreciate.

“It can’t be helped that people see the yuan as undervalued given the strength of the Chinese economy,” Fujii said in an interview in Tokyo. “The yuan is pegged to the dollar. I don’t think such a situation is necessarily good.”

The remarks are Fujii’s strongest on the Chinese currency since he took office in September, adding to concerns voiced by officials including European Central Bank President Jean-Claude Trichet this month about the yuan’s flexibility. The yuan’s peg to the dollar has sheltered China from the slide in the U.S. currency that’s making Japanese and European exports more expensive.

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AOL plans to cut one-third of its workforce, or about 2,500 jobs, in an effort to trim some $300 million in annual costs as part of the Internet company’s planned spin-off from Time Warner Inc.

The struggling Web pioneer, which is now focused primarily on advertising-supported content, said on Thursday that it would start with a volunteer buyout program and move on to involuntary layoffs if enough workers do not step up.

AOL said the layoffs would result in restructuring charges of up to $200 million, which it announced last week. It said that substantially all the charges would be incurred from the date of the spin-off through the first half of 2010.

Earlier this week, Time Warner said the spin off will take place on December 9, nine tumultuous years after one of the most disastrous corporate mergers in history.

When AOL’s plan to merge with Time Warner was announced in January 2000, the Internet company was valued at $163 billion.

The combination was meant to herald the future of content distribution via the Internet, but the promised benefits were never achieved.

The December spin-off is expected to effectively value AOL’s market capitalization at around $3 billion .

AOL said that Chief Executive Tim Armstrong told employees of the layoff plan via video and email, and said that he was going to forgo his own bonus for 2009.

Armstrong, formerly at Google Inc, was appointed in March to prepare AOL for becoming an independent entity.

The company, which has been examining its cost structure for the last four months, said the voluntary layoff program will begin on December 4 and run through to December 11, and gives people more choice than if they waited for final cost recommendations.

The layoffs start in the United States, where AOL employs about 4,500 people, and will extend to the company’s global operations, the company said.

Time Warner shares were down $1.12, or 3.4 percent, to $31.70 on the New York Stock Exchange. The overall Dow Jones Industrial Average is down 1.3 percent on the day.

(Reporting by Franklin Paul and Sinead Carew; Editing by Derek Caney)

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British Airways and Spain’s Iberia announced on Thursday a preliminary agreement for a $7 billion merger to create the world’s third-largest airline by revenue.

The deal, which the companies hope to close by the end of 2010, ends the British flag carrier’s long pursuit of Iberia to create an enlarged group, able to cope with the industry’s largest downturn in decades.

BA shareholders will have 55 percent of the combined firm, to be headquartered in London with 419 aircraft flying to 205 destinations, while Iberia shareholders are to get 45 percent.

In a joint statement, BA and Iberia said the merger would provide “enhanced scale to compete with other major airlines and participate in future industry consolidation.”

The new company will combine British Airways’ strong position in Europe-to-North America traffic with Iberia’s Latin American business, and will potentially be reinforced by a planned alliance with AMR Corp’s American Airlines faxless payday loan.

Iberia’s chairman Antonio Vazquez will be chairman of the new company, while BA’s Chief Executive Willie Walsh will be CEO. Each airline will have seven members on the new 14-member board.

The deal will create a new holding company, which will own the two airlines. The two companies will have dual hubs in London and Madrid, and will keep their own licenses, codes and brands for the first five years of the merger.

This mirrors the structure set up by Air France-KLM from the Franco-Dutch merger in 2004, which created a holding company plus two operational units to preserve national identities and bilateral international landing rights.

Ahead of the announcement of a deal, BA shares closed 7.5 percent higher at 206.8 pence, while Iberia shares ended up 11.8 percent at 2.22 euros.

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Former Federal Reserve Chairman Alan Greenspan said he sees the U.S. economy slowing next year as the surge in stocks comes to an end.

“The odds are we flatten out,” Greenspan said today in a Bloomberg television interview, referring to the equity market. “That flattening out will put some sort of dull face on 2010.”

Greenspan said he expects the economy to grow at a 3 percent to 4 percent annual pace in the next sixth months before slowing down. As a result, unemployment isn’t likely to decline much from last month’s 9.7 percent rate, he said. Even so, he doesn’t expect the economy to relapse into recession next year.

The world’s largest economy shrank at a 0.7 percent annual rate from April through June, the best performance in more than a year, the Commerce Department said today. An unexpected decline in a gauge of business activity released today, along with a private report showing employers cut more jobs than forecast, indicate a recovery may be slow to take hold.

The Standard & Poor’s 500 Index has jumped 57 percent since its low for the year on March 9, an ascent that’s had a “very positive” impact on the economy, Greenspan said.

The stock index was down 0.2 percent to 1,059.13 at 1:44 p.m. in New York after falling as much 1.3 percent following the reports from the Institute for Supply Management-Chicago Inc. and ADP Employer Services.

Growth will be boosted in coming months by the inventory cycle as companies bring stockpiles of goods into line with sales, Greenspan said. The former Fed chief said the economic recovery won’t prevent continued downward pressure on consumer prices.

‘Disinflationary Environment’

“We are still by any measure in a disinflationary environment,” said Greenspan, 83.

Consumer prices have fallen for six straight months from year-earlier levels, the longest stretch of declines since a 12- month drop from September 1954 to August 1955, according figures from the Labor Department.

Greenspan said there’s a longer-term risk that inflation will accelerate if the Fed fails to rein in the stimulus it has pumped into the economy, adding that the central bank’s $2 trillion balance sheet is “not sustainable.”

He also voiced concern that political pressure would prevent the Fed from taking actions necessary to keep consumer prices in check.

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Spain will raise value-added tax and levies on savings as the government seeks 11 billion euros ($16.2 billion) to tame one of the euro region’s largest budget deficits even as the economy is still mired in recession.

Value-added tax will rise to 18 percent from 16 percent, and the reduced rate will climb one percentage point to 8 percent on July 1, 2010, Finance Minister Elena Salgado said. The central government’s deficit will be 5.4 percent next year, tighter than a 5.7 percent estimate in June, and the overall deficit will be 8.1 percent, compared with a previous forecast of 8.4 percent.

Tax on income from savings will also increase, to 19 percent on the first 6,000 euros and 21 percent for the rest, and a 400-euro annual rebate for all taxpayers will be scrapped. Of the planned 11 billion euros, 6.5 billion euros will be raised in 2010.

Even as the Spanish economy remains mired in a recession and may take longer to recover than the rest of Europe, Spain’s government is among the first to raise taxes as it seeks to control a ballooning budget deficit that has increased its borrowing costs. The government is boosting welfare benefits at a time when the highest jobless rate in Europe is draining public coffers, and the Organization for Economic Cooperation and Development expects Spain will run the euro region’s second- largest deficit after Ireland this year.

Ireland, Finland

Ireland, which unlike Spain had to bail out its banking sector and faces an even deeper economic contraction, raised taxes in April in an emergency budget. Finland plans to increase value-added tax by 1 percentage point on July 1 next year.

Spain plans to raise 5.7 billion euros by scrapping the 400-euro tax rebate, and 5.2 billion euros from the VAT hikes, the ministry said in a presentation.

European policy makers including EU Economic and Monetary Affairs Commissioner Joaquin Almunia have said it is too early to implement strategies to end extraordinary fiscal and monetary policies no fax cash loans. Spain will continue its stimulus efforts next year.

Standard & Poor’s cut Spain’s top AAA credit rating in January and the extra interest that investors demand to hold Spanish debt rather than German equivalents is 51 basis points, four times more than it was at the start of 2008. The extra interest, or spread, has come down from 128 basis points in February, a record in the euro’s lifetime. Moody’s Investors Service rates Spain Aaa and said Sept. 9 it was unlikely to cut that rating.

Debt Burden Grows

Debt will amount to 62.5 percent of GDP, Salgado said. Spain’s debt burden was 40 percent of GDP in 2008, compared with 69 percent for the euro region overall. This year’s public- sector deficit, forecast at 9.5 percent, will be the widest since at least 1980, according to Finance Ministry data that don’t take into account a change in methodology in 1995.

Salgado maintained forecasts for the economy to shrink 3.6 percent this year and 0.3 percent in 2010.

At 16 percent, the Spanish standard rate of value-added tax was one of the EU’s lowest after Luxembourg and Cyprus, according to the EU statistics office. Spain’s overall tax burden, or revenue as a share of GDP, will rise 1 percentage point, Salgado said, and remains below the EU average, which Eurostat estimates was 39.8 percent in 2007.

The draft budget will be presented to parliament next week, where the government doesn’t have a majority and will have to secure the support of smaller parties to get the bill approved. Parliament has until the end of the year to pass the bill.

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The recovering housing market may be heading for a relapse as President Barack Obama and Federal Reserve Chairman Ben S. Bernanke consider ending support for the source of the global financial crisis.

The Obama administration is studying whether to let a first-time home buyers’ tax credit expire as scheduled at the end of November. Bernanke and his Fed colleagues may continue talking this week about how to wind down purchases of mortgage- backed securities, according to Peter Hooper, chief economist at Deutsche Bank Securities Inc. in New York. The two programs have helped stabilize real-estate demand, with new-house sales rising 9.6 percent in July from the prior month, the most since 2005.

Ending these efforts may stifle the housing rebound by depressing sales and pushing up both mortgage-backed bond yields and interest rates on home loans, even in the face of the record-low zero to 0.25 percent short-term rates the Fed has engineered, said economist Thomas Lawler. A weaker housing market would likely dampen the economic recovery and undercut shares of builders including Fort Worth, Texas-based D.R. Horton Inc. and Miami-based Lennar Corp., that have risen 40 percent this year, based on the Standard and Poor’s Supercomposite Homebuilding Index of 12 companies.

“Things could get ugly,” said Lawler, an independent consultant in Leesburg, Virginia, who spent 22 years at Fannie Mae, a Washington, D.C.-based government-controlled mortgage- finance company. “We could be facing a triple whammy at the end of the year: the expiration of the tax credit, the end of the Fed mortgage-buying program and rising foreclosures.”

Major Test

This is the first major test of policy makers’ ability to coordinate exit strategies as they seek to wean the economy off government support, said Brian Bethune, chief financial economist of IHS Global Insight, a forecasting company in Lexington, Massachusetts.

They have already acted separately, with the administration ending its $3 billion “cash-for-clunkers” automobile trade-in program on Aug. 24 and the Fed starting to wind down its purchases of Treasury debt, which totaled $285.2 billion between March 25, when the initiative began, and Sept. 16.

The 55-year-old Bernanke and his colleagues, who meet tomorrow and Wednesday to map monetary strategy, discussed “tapering” off the Fed’s purchases of mortgage-backed securities and housing-agency debt at their last gathering in August, according to the minutes of that meeting. No decision was made by the central bank’s policy-making Federal Open Market Committee.

Mortgage-Backed Securities

Under the current program, the Fed is scheduled to buy up to $1.25 trillion of mortgage-backed securities and $200 billion of agency debt by the end of the year. So far, it has purchased $862 billion of the former and $125 billion of the latter.

A trio of Fed presidents — Jeffrey Lacker of Richmond, James Bullard of St. Louis and Dennis Lockhart of Atlanta — has publicly raised the possibility the central bank might not spend all the money authorized for the mortgage-backed securities. Lacker questioned whether the economy needs the additional stimulus in an Aug. 27 speech.

New York Fed President William Dudley, who is vice chairman of the FOMC, has sounded more cautious.

“The market expects us to complete these programs,” he said Aug 31. “To contradict that market expectation is a pretty high hurdle.”

Abrupt Stop

An abrupt stop might push up mortgage rates by a half to one percentage point, said Hooper, a former Fed official. Tapering off — by reducing weekly purchases and stretching them beyond the end of the year — would have a more muted effect, pushing rates up by at least a quarter percentage point, he said, adding that the Fed may announce just such a strategy after its meeting this week.

Mortgage rates for 30-year fixed home loans averaged 5.04 percent in the week ended Sept. 17, down from 5.07 percent the previous week, according to McLean, Virginia-based Freddie Mac, a government-controlled mortgage-finance company.

Borrowing costs for home buyers are relatively high based on the historical relationship with the Fed’s target rate for overnight loans between banks, currently at zero to 0.25 percent.

The yield on the benchmark 10-year Treasury note is 3.22 percentage points more than the federal-funds rate, compared with an average of 1.45 percentage points during the past 20 years, according to data compiled by Bloomberg. Thirty-year mortgage rates average 1.69 percentage points more. While that is down from 3.19 percentage points in December, it is still above the average of 1.4 percentage points for this decade before the credit markets seized up in the second half of 2007.

Fed Purchases

The Fed’s purchases of mortgage-backed debt so far this year have dwarfed net issues of such securities by Fannie Mae, Freddie Mac and government-run mortgage-bond insurer Ginnie Mae, which totaled about $440 billion through the end of August, said Walt Schmidt, a mortgage-bond strategist in Chicago at FTN Financial american family insurance.

Once the Fed exits the market, the spread between yields on mortgage-backed debt and Treasury securities will have to rise, perhaps by a half percentage point, in order to attract other buyers, he said. The spread now is about 140 to 145 basis points, down from around 215 at the start of the year.

“One of the key linchpins to the restabilization of our economy is getting housing back,” said Laurence Fink, chairman and chief executive officer of New York-based BlackRock Inc., the largest publicly traded U.S. money manager. “There is a great need” for the Fed to “continue to invest in the mortgage market right now,” added Fink, 56.

Crucial Extension

A number of Washington-based organizations — the National Association of Home Builders, the National Association of Realtors and the Mortgage Bankers Association — say an extension of the buyer’s tax credit is also crucial.

Lawrence Yun, chief economist of the realtors’ group, estimates that about 350,000 home sales through August were directly attributable to the tax credit of up to $8,000 for first-time buyers. People buying their first homes accounted for 43 percent of sales since the credit became law, up from 32 percent in the six weeks prior to its passage, according to Washington-based Campbell Communications Inc.

Treasury Secretary Timothy Geithner, 48, called signs of stabilization in the U.S. housing market “very encouraging” and told reporters on Sept. 17 that the Obama administration will take a “careful look” at extending the credit.

‘Slim’ Chances?

Congress may not pass an extension; the chances “seem slim,” said Mark Calabria, director of financial-regulation studies at the Cato Institute in Washington and a former staffer on the Senate Banking Committee. Public opposition to increasing the federal budget deficit is high, and there’s little appetite on Capitol Hill for finding spending cuts to offset the cost of the tax credit, he said.

The deficit will total $1.6 trillion this year as revenue falls and the government spends at the fastest pace in 57 years, according to the nonpartisan Congressional Budget Office.

In a sign of the public’s concern about the deficit, 62 percent of people surveyed in a Sept. 10-14 Bloomberg News poll said they would be willing to risk a longer-lasting recession to avoid more government spending.

The impact of terminating the tax credit will show up first in the new-home market, said David Crowe, chief economist of the home-builders’ association.

“It takes at least four months to build a house, and you need to buy it before Dec. 1 to qualify,” he said. “If you haven’t started building it by now, it’s too late.”

Housing Starts

Single-family housing starts fell 3 percent in August to a 479,000 annual rate — the first decline since January — according to seasonally adjusted figures in a Sept. 17 report from the Commerce Department.

Residential construction and home sales led the way out of the previous seven recessions going back to 1960, according to David Berson, chief economist of PMI Group, a mortgage insurer in Walnut Creek, California. Real-estate sales fuel consumer spending, which historically accounts for about 70 percent of gross domestic product, he said.

“Housing has been the sector of the economy with the largest multiplier effect,” said Berson, former chief economist at Fannie Mae. “Whether buying new homes or existing homes, people tend to fill them up with things: new furniture, new appliances, new window coverings.”

Recovery Signs

To be sure, some economists are betting the housing recovery is here to stay. The market has “clearly bottomed,” said Dean Maki, chief U.S. economist for Barclays Capital in New York.

Even some of the optimists are hedging their bets given how dependent the market has been on government and central bank support.

“I’m right in there with the rest of the cheerleaders, but there are no historical anecdotes, no historical data points to use for this,” said Lewis Ranieri, the 62-year-old mortgage- bond pioneer who is chairman of New York-based Hyperion Partners LP. The U.S. housing market is “still very fragile.”

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