Archive for May, 2009

Fed’s Fisher says recovery will be very slow (Reuters)

Thursday, May 28th, 2009 | Finance News

WASHINGTON (Reuters) –
The U.S. recession is fading but the economy will not recover in a "meaningful" way before the end of this year and deflation remains a risk in this climate, a top Federal Reserve official said on Thursday.

Dallas Federal Reserve Bank President Richard Fisher also said that official foreign holdings of U.S. government bonds had grown and appetite to hold the country's assets remained intact, despite expected record U.S. government deficits.

"There continues to be strong demand for longer duration Treasuries," Fisher told the Washington Association of Money Managers in a speech. A steep sell-off in the U.S. government bond market on Wednesday was blamed in some quarters by a decline in foreign demand for U.S. assets.

Fisher also said he had not detected any evidence that the Chinese wanted to significantly alter their U.S. Treasury holdings during a recent trip he had made to Beijing.

"They have no desire to inflict harm on the financial markets of the United States because they would inflict harm on themselves," he said.

The Fed has promised to buy $300 billion of longer-dated U.S. Treasuries and $1.45 trillion of agency mortgage debt and discussed increasing this program at its last policy meeting on April 28-29.

Fisher declined to say if he favored ramping up the purchases. The gap between 2- and 10-year government bond yields widened to a record 2.75 percent on Wednesday and some economists said this yield curve steepening might dampen the economic recovery and trigger more Fed asset buying.

But Fisher said it was not clear if the curve steepened on worries over upcoming Treasury supply to finance record U.S. fiscal deficits, or because of a brighter economic outlook.

"I think it is probably a little bit of both, discounting the supply of new debt, but I detect...there is a pick up in confidence about the future," Fisher told reporters after the speech. The distinction matters.

Economists say the Fed is much more likely to ramp up the asset purchasing program if it thought the yield curve had steepened due to an increase in the risk premium being charged by investors to buy U.S. assets, because this would make credit more expensive for businesses and households.

But if the yield curve steepened because investors thought the economic recovery was on track, and the Fed would at some point begin to raise its benchmark overnight funds rate from current levels of almost zero, this would be a healthy development that would not warrant more Fed asset buying.

Fisher, who is not a voting member of the Fed's policy-setting committee this year, said that inflation would stay "meek" amid a tepid economic recovery.

However, he also emphasized that the Fed was well aware its aggressive expansion of the central bank's balance sheet through the purchase of assets like Treasuries and mortgage backed securities had long-term inflation implications, and it was focused on getting its exit strategy right.

"Nobody I know on the (Fed's policy) committee wants to maintain our current posture for any longer and to any greater degree than is minimally necessary to restore the efficacy of the credit markets and buttress economic recovery without inflationary consequences," he said in the speech.

"Indeed, as I speak, we are studying ways to unwind our balance sheet in a timely way," Fisher added.

This did not sound like an immediate concern for Fisher, who said he expected the economy to find its footing, but thought it would not post a vigorous rebound, or even a more modest 'U' shaped recovery.

"I would be delighted, but surprised, if meaningful sustained growth gets under way before the end of the year," Fisher said.

Fisher also acknowledged criticism that some of the Fed's robust actions to shelter the U.S. economy had veered onto turf that could be called fiscal policy. This has raised questions of Fed independence, as well as whether U.S. lawmakers might want more say in the running of the central bank.

"There have been suggestions that Congress should be involved in the selection of Federal Reserve Bank presidents," Fisher said, referring to himself and the 11 other heads of the dozen regional Federal Reserve banks.

The U.S. president appoints the seven members of the Fed's Board of Governors in Washington, subject to the approval of the Senate, but the 12 regional Fed chiefs are selected by their local business communities, and approved by the Board.

"I trust that Congress will resist this initiative and not upset the careful federation that has for so long balanced the interests of Main Street with those of Washington, just as we at the Federal Reserve must resist the urgings of some to accommodate the short-term financing needs of the Treasury," he said.

(Reporting by Alister Bull; Editing by Diane Craft)

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Ackman loses in Target proxy contest (Reuters)

Thursday, May 28th, 2009 | Finance News

WAUKESHA, Wisconsin (Reuters) –
Target Corp (TGT.N) shareholders dealt a blow to activist investor William Ackman on Thursday, rejecting his slate of proposed directors and voting instead to keep four incumbents on the retailer's board.

Despite a tearful appeal in which he invoked Martin Luther King Jr.'s famous "I Have a Dream" speech in a final effort to win votes, Ackman did not come close to gaining any seats on the board.

Target, which spent roughly $11 million defending itself during the proxy contest, said that, based on a preliminary total, each of its four nominees received support from more than 70 percent of the shares voted.

Each of the five nominees on Ackman's slate received support ranging from the high-single digits to the low 20s in terms of the percent of votes cast, the retailer said.

Target also said shareholders voted in its favor to set the board size at 12. Ackman wanted it set at 13.

"We're disappointed," said Ackman, whose Pershing Square Capital Management has a 7.8 percent stake in Target, of the results. "We'd love to be on this board, but shareholders voted."

His said a pledge made earlier in the week to remain a Target shareholder for five years was conditioned on winning a seat on Target's board. With no seat on the board, he said he now had more flexibility with his Target holdings, although he expected to be a "long-term holder."

Target shares fell 1.2 percent, or 46 cents, to $39.14 in Thursday's New York Stock Exchange trading.

"The pressure on the stock could be over concerns that Pershing Square will sell some, or all, of its position, but we do not anticipate that will occur given that it would be damaging to Mr. Ackman's credibility," Telsey Group analyst Joseph Feldman said.

The hedge fund director launched his proxy contest in March after Target rejected his proposal to spin off the land under its stores into a real estate investment trust to boost its stock price.

He has since said he was running the proxy contest to add executives to Target's board who have expertise in credit cards, real estate and food retailing.

But Target argued he sought the seats as a way to push through his risky real estate transaction.

"Ackman certainly raised the awareness of corporate governance, and likely helped Target to be more focused than ever on this important issue," Telsey's Feldman said.

UNUSUAL STRUGGLE

The power struggle was unusual because many analysts and investors have praised Target as a best-in-class retailer with a capable management team.

But some investors acknowledged Ackman, who is known for well-researched and often successful proxy battles, could have brought a fresh perspective to Target's board and pushed the retailer to explore new business opportunities.

In his speech, Ackman said the annual meeting was a "great day" for shareholders because the contested election meant they were being given a choice as to who they wanted to vote to have on Target's board.

"Let me end by saying that I have a dream. ... a dream deeply rooted in the American dream," Ackman said. "A dream that one day board members will be selected purely based on character, competency and relevancy of experience."

During the meeting, which held at an unfinished store outside of Milwaukee under overcast skies, Target Chairman and CEO Gregg Steinhafel repeated that its current board was the right one to lead the retailer.

Once the meeting was over and the preliminary results were announced, Steinhafel said he would now be able to refocus on the company's retail and credit operations, and spend more time in its stores.

"It's a challenging environment and there are a lot of retail companies that are struggling and our same-store sales are not where we'd like them to be," he said.

Target shares are up about 15 percent this year, while those of rival discounter Wal-Mart Stores Inc (WMT.N) are down roughly 12 percent.

But Target's shares have fallen 33 percent since April of 2007, when Ackman began accumulating his stake, while Wal-Mart shares have risen 5 percent during that time.

Target's business faltered amid the recession as shoppers pared back purchases of its clothes and home decor, and stuck to buying basics, such as food or medicine -- a trend that favored rival Wal-Mart.

Target is now trying to add more food to its merchandise assortment to lure shoppers into its stores more frequently, a strategy it again highlighted at the meeting.

(Reporting by Nicole Maestri and Lisa Baertlein; Editing by Derek Caney and Andre Grenon)

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Dell profit falls, but beats estimate (Reuters)

Thursday, May 28th, 2009 | Finance News

SEATTLE (Reuters) –
Dell Inc, the world's No. 2 PC maker, narrowly beat analysts' expectations for sharply reduced profit on Thursday, even as the global downturn hit technology spending, helping its shares rise after hours.

The company gave little comfort to investors looking for signs of a quick turnaround, saying there was not enough momentum in the PC market to call a bottom yet. But it held out hope for a surge in sales next year as corporations replace their computer systems.

Dell did not give any detailed financial outlook. Last week, larger rival Hewlett-Packard Co, which also reported lower quarterly profit, forecast a 4 percent to 5 percent dip in fiscal year revenue.

Dell said net income fell to $290 million, or 15 cents a share, in the fiscal first quarter ended May 1, from $784 million, or 38 cents a share, in the year-ago period.

Excluding certain one-time restructuring costs, the company posted a profit of 24 cents a share, just beating analysts' average estimate of 23 cents a share, according to Reuters Estimates.

Revenue fell 23 percent from a year ago to $12.3 billion, versus Wall Street's estimate of $12.7 billion. Dell's global PC shipments fell nearly 17 percent in the first calendar quarter, according to data firm IDC.

Shares of Round Rock, Texas-based Dell rose 1.4 percent in extended trading after closing up 3.2 percent at $11.48 on Nasdaq.

POWERFUL CYCLE AHEAD

Dell is focusing on cutting costs in what it called a "challenging" environment, concentrating more on profitability than growth.

In February, Dell boosted its 2011 cost-reduction target to $4 billion from $3 billion. It cut its overall headcount by more than 9,000 jobs last fiscal year, ending with a total headcount of 78,900. It declined to give a new total for the end of the last quarter.

"We don't believe there's enough momentum to call a bottom yet," Dell Chief Financial Officer Brian Gladden said on a conference call. He added that there was "no real improvement" in business conditions in May.

Chief Executive Michael Dell predicted a rise in PC sales next year, as corporations update their systems, taking advantage of new Intel Corp chips and Microsoft Corp's upcoming Windows 7 operating system.

"We're preparing for what we believe will be a powerful replacement cycle," said Dell on the call. "There's a number of other factors that could ignite a powerful refresh cycle and that's what we're playing for."

(Reporting by Bill Rigby; Editing by Richard Chang and Tim Dobbyn)

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