Finance Blog number 1

Treasuries fell for a second day on speculation record-low yields will curb demand when the U.S. auctions $99 billion of coupon-bearing debt beginning tomorrow.

The government plans to start the sales with $35 billion of two-year notes, followed by the same amount of five-year debt on May 23 and $29 billion of seven-year securities on May 24. Seven-year yields slid to 1.135 percent May 18, the least ever, raising concern U.S. bonds are becoming too costly. German and French finance ministers plan to meet today on the euro, after Europe

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Iraq’s oil ministry said Thursday that the U.S. oil giant Exxon Mobil Corp. is not allowed to bid in the May energy auction because of its oil deals with the northern self-ruled Kurdish region in Iraq.

The Texas-based Exxon signed six deals with the Kurds last October to search for oil in six areas, bypassing the Baghdad government, which maintains that it must ratify all deals. Some of the deals cover areas located in a land claimed by both Kurds and Arabs.

Deputy head of the Oil Ministry’s Licensing and Petroleum Contracts Department, Sabah al-Saidi, told The Associated Press that the reason for the move was Exxon’s refusal to abandon its controversial deals with Kurds.

“Exxon has been removed from the list of qualified companies because it refused to abandon the deals with the Kurdish region as requested by the Ministry of Oil,” al-Saidi said.

The Kurds and Arab-led government in Baghdad have been at loggerheads over who has the final say in resources development. They have unilaterally signed scores of oil deals, mostly with mid-sized companies which Baghdad considers illegal and has blacklisted the companies involved.

Baghdad recently said that Exxon sent two letters, assuring that it would freeze the deals until the central government and the Kurds resolve their differences. But the Kurds have maintained the deals are still valid and that Exxon is committed to them.

Thursday’s announcement came as the Oil Ministry published the final list of 47 oil companies that are qualified to bid in the May 30-31 bidding round for 12 exploration blocs nationwide.

Nearly 70 percent of the blocs on offer hold natural gas blocs and the rest a combination of oil and gas. They are expected to add about 29 trillion cubic feet of natural gas to the current 126.7 trillion cubic feet in reserves, and about 10 billion barrels of oil to the current 143.1 billion barrels of oil.

Since 2008, Iraq has awarded 15 oil and gas deals to international energy companies, the first major investments in the country’s energy industry in more than three decades.

Under a previous deal with Baghdad, Exxon and Shell are developing one of Iraq’s biggest oil fields, the 8.6 billion-barrel West Qurna Stage 1 field in southern Basra province.

Baghdad aims to raise the daily output to 12 million barrels by 2017 _ a level that would put it nearly on par with Saudi Arabia’s current production capacity.

Many analysts say that target is unrealistic, because of the degraded state of the industry’s infrastructure after wars and an international embargo that lasted more than a decade.

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Illumina urged its shareholders Monday to reject a sweetened buyout offer from the Swiss drugmaker Roche, saying that the $6.5 billion deal still undervalues the California maker of genetic analysis instruments.

Roche raised its proposed price for Illumina last week, but Illumina CEO Jay Flatley says the offer is still not good enough. He calls the deal “opportunistic” and says his San Diego-based company is poised to deliver better returns through higher sales and profits.

Roche Holding AG did not immediately provide comment on Illumina’s statement.

Illumina shares fell 88 cents, or 1.7 percent, to $51.73 after word of the latest rejection.

Swiss drug company Roche Holding AG proposed to buy Illumina in January for $44.50 per share, or about $5.7 billion. Roche said the deal would strengthen Roche’s position in life sciences diagnostics because its technologies are complementary with Illumina’s.

Illumina’s board unanimously turned down Roche’s offer, saying it was “grossly inadequate” and that shareholders should not tender their stock to Roche.

Last week, Roche raised its offer to $51 per share, or about $6.5 billion, an increase of almost 15 percent.

Earlier Monday, Illumina said that its first-quarter revenue will be about $270 million on strong demand for its research instruments. The estimate tops current Wall Street expectations.

The company also said that it expects its adjusted earnings for the quarter will match of beat current Wall Street expectations. Analysts expect earnings of 31 cents per share on revenue of $258 million, according to a survey by FactSet.

Illumina said the numbers could change by the time it reports its final earnings results later this month.

Illumina makes equipment that biotechnology researchers can use to sequence genes or do other tasks.

Flatley said that during the first quarter, the company’s “book-to-bill” ratio showed that customer orders were outpacing deliveries for the third consecutive quarter. He said more customers are “getting back to work,” and boosting demand.

Illumina’s shares rose sharply after Roche made its initial offer for the company, and the stock is up about 65 percent for the year.

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JetBlue says the crew of Las Vegas-bound flight 191 _ which had to make an emergency landing in Texas because of the strange and frightening behavior of its pilot _ will remain quiet about the incident.

“We understand and appreciate everyone’s desire to hear directly from the crew regarding their experience, but the crew has decided to decline all media opportunities in order to spend time with their families,” JetBlue Airways Corp. said in a statement Friday.

The flight Tuesday that started in New York proceeded normally for most of the trip. But pilot Clayton Osbon became increasingly incoherent, left the cockpit and later sprinted down the cabin yelling jumbled remarks about Sept. 11 and Iran, documents and witnesses say. Co-pilot Jason Dowd brought an off-duty JetBlue captain who was flying as a passenger into the cockpit to assist and locked the door.

When Osbon tried to re-enter by banging on the door, the co-pilot gave an order through the intercom to restrain Osbon, according to the documents, which don’t mention Dowd by name. Passengers wrestled Osbon to the ground, and Dowd diverted the flight from New York to Amarillo, Texas. No one onboard was seriously injured.

Dowd’s quick thinking and calm management of the emergency landing brought comparisons to `Miracle on the Hudson’ Capt. Chesley Sullenberger. The pilot’s bizarre behavior also drew references to another crewmember’s behavior that JetBlue likely would like to forget.

In 2010, JetBlue flight attendant Steven Slater pulled the emergency chute on a flight after it landed at John F. Kennedy International Airport. He went on the public-address system, swore at a passenger, grabbed a beer and slid down onto the tarmac. He was sentenced to probation, counseling and substance abuse treatment for attempted criminal mischief.

JetBlue is encouraging the public to send messages to the crew of Flight 191 through its blog at http://blog.jetblue.com.

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The bailouts of Bear Stearns and AIG were "distasteful" but still necessary, Federal Reserve Chairman Ben Bernanke told students at George Washington University on Tuesday.

Meanwhile, the Fed was "helpless" when it came to saving Lehman Brothers, he said.

"Lehman Brothers was in itself probably too big to fail, in the sense that its failure had enormous negative impacts on the global financial system," Bernanke said. "But there we were helpless, because it was essentially an insolvent firm."

In a lecture about the Fed’s emergency efforts during the financial crisis, Bernanke explained that the central bank was willing to bail out AIG (, Fortune 500) and Bear Stearns because it expected both firms would eventually be able to pay back their loans. Bear Stearns was ultimately acquired by JPMorgan Chase (, Fortune 500).

Lehman Brothers, on the other hand, had no collateral to put up in exchange for the Fed’s assistance.

"It was very difficult and in many ways distasteful intervention that we had to do on the grounds that we needed to do that to prevent the system from collapsing," Bernanke said. " But clearly, it is something fundamentally wrong with a system in which some companies are ‘too big to fail.’"

Bernanke also told students that without the Fed’s emergency efforts, the U.S. economy could have tanked even deeper.

"I think the view is increasingly gaining acceptance that without the forceful policy response that stabilized the financial system in 2008 and early 2009, we could have had a much worse outcome in the economy," he said.

The lecture was the third section of a four-part series at George Washington University, to be continued on Thursday. The Federal Reserve posts Bernanke’s slides and full videos online. 

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International Monetary Fund official Zhu Min said China will avoid an economic hard-landing even as government data showed property prices falling in most of the nation

BlackRock president Robert Kapito is walking the firm’s talk.

Kapito, who helped found the world’s largest asset management firm, now has about 70% of his investment assets in dividend-paying global companies, and 30% in high-yield corporate bonds.

Those are both cornerstones of BlackRock’s new "Investing in a New World" initiative, which encourages investors to get out of idle cash and find assets that generate income in a slow-growth, low-rate environment.

Americans had a record $10 trillion deposited in their bank accounts at the end of 2011, noted Kapito. And with the Federal Reserve holding interest rates near historic lows, that cash is earning virtually nothing.

"People need to rethink the cost of cash, and think about income," said Kapito. "They’re worried they don’t earn enough and won’t have enough to retire on, but the longer they sit in cash, the longer they’ll have to work and they won’t be able to retire when they want to."

Century-old IBM hits fresh all-time high

Kapito said investors are much better off investing in dividend-paying stocks, which return between 3% and 5% a year, and so-called junk bonds, which yield between 5% and 6%. Both offer better returns than Treasuries, he added. The 10-year government note currently pays only about 2%.

High-yield bonds have been extremely popular among income-hungry investors this year. BlackRock’s iShares iBoxx High Yield Corporate Bond ETF () has raked in more than $3 billion so far in 2012, almost as much at the total amount of assets it brought in during all of 2011.

For dividend-paying stocks, Kapito said investors can gain exposure through individual companies, like AT&T (, Fortune 500), Pfizer (, Fortune 500), Verizon (, Fortune 500) and Johnson & Johnson (, Fortune 500), or buy shares of an ETF like the iShares High Dividend Equity Fund (), which launched last year and includes all of those companies and others like Procter & Gamble (, Fortune 500), Merck (, Fortune 500) and Intel (, Fortune 500).

Kapito said he also likes to invest in municipal bonds, particularly those issued in his current hometown of New York City, since those yield about 4% and are exempt from income taxes.  

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Purchases of new homes in the U.S. probably rose in January to a nine-month high, more evidence the housing market is improving, economists said before a report today.

Sales, tabulated when contracts are signed, climbed 2.6 percent to a 315,000 annual pace, according to the median estimate in a Bloomberg News survey of 77 economists. Consumer confidence declined in February from a month earlier, separate data may show.

Beazer Homes USA Inc. (BZH) and D.R. Horton Inc. (DHI) are among builders benefiting from job gains as well as cheaper properties and lower mortgage rates that have driven affordability to a record high. At the same time, foreclosures that depress prices are a risk, one reason policy makers including Federal Reserve officials are seeking ways to bolster the industry.

Consumer prices rose modestly in January on higher costs for food, gas, rent and clothing.

But economists downplayed the increase, saying inflation will likely ease in the coming months as prices for raw materials level off.

Separately, a gauge of future economic activity rose in January for the fourth straight month, adding to evidence that the economy has strengthened in the new year.

The consumer price index increased 0.2 percent last month, after a flat reading in December, the Labor Department said Friday.

Excluding volatile food and energy, so-called core prices ticked up 0.2 percent. A big reason for the increase was that clothing prices jumped 0.9 percent. Medical care, rent and tobacco prices also increased.

Car prices were unchanged, and airfares fell.

Core inflation over the past 12 months moved up to 2.3 percent — its highest point in more than three years. A steady rise in core prices could limit the Federal Reserve’s ability to take steps to boost the economy.

Still, economists said inflation is likely leveling off. For example, clothing prices are higher because of a spike last year in the cost of cotton. When the impact of the cotton hike fades, clothing costs should ease.

Guy LeBas, fixed income strategist at Janney Montgomery Scott, said the rise in the core reflected a delayed response to those soaring commodity prices.

The report “points to a benign path for inflation for 2012,” LeBas said. “Consumer demand is fairly anemic right now … firms can’t raise prices when nobody’s buying.”

Separately, the Conference Board said its index of leading economic indicators rose 0.4 percent last month to its highest point since July 2008. The steady rise has coincided with other positive data that suggest the recovery is picking up.

The unemployment rate fell to 8.3 percent, the lowest in nearly three years, after employers added 243,000 net jobs — the most in nine months. Auto sales are up, unemployment aid applications are down and factories are cranking out goods at a healthy pace.

The Fed is forecasting that inflation will remain in check this year. It expects that the inflation gauge it follows will increase by about 1.6 percent in 2012. That’s below the Fed’s target for inflation of 2 percent. Low inflation was one of the reasons the Fed last month said it plans to hold its benchmark interest rate at a record low near zero until late 2014.

Falling energy and food costs kept wholesale prices in check last month, the Labor Department said Thursday. The producer price index rose 0.1 percent in January, after dropping the same amount the previous month.

Wholesale gas costs rose, but that was more than offset by steep drops in natural gas, home heating oil and electricity prices.

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