Quants pick mining winners

Quants pick mining winners

Posted: March 31, 2009, by Peter Koven

Bring on the quants! Macquarie analysts Javed Jussa, Yin Luo and Rochester Cahan used quant factors to rank mining stocks based on a combination of their ability to perform well in a rebounding market, but still hold up if the market deteriorates again.

They studied all the Canadian metals and mining stocks over the past three weeks (when they had a major upswing) and over the past three years (when the market went from bull to bear). They figured out which quant factors had the most predictive power for the miners during both periods, and screened all the companies against the combined list.

The most important factors turned out to be upward analyst revisions, strong five-year earnings growth, improved liquidity, positive earnings surprises, and high return on assets.

The rankings turned up plenty of surprises, to say the least. The analysts found that the company most likely to perform well in a rebounding market, and still hold up if the market deteriorates, is Silvercorp Metals Inc., a silver miner working in China. Debt-laden giant Teck Cominco Ltd. also cracked the top three following its big rebound in March. Here is the entire top 10:

1. Silvercorp
2. Inmet Mining Corp.
3. Teck
4. Quadra Mining Ltd.
5. Corriente Resources Inc.
6. First Uranium Corp.
7. Taseko Mines Ltd.
8. First Quantum Minerals Ltd.
9. HudBay Minerals Inc.
10. Thompson Creek Metals Company Inc.

Globe and Pescod say...

Windows get dressed

RTGAM

North American stocks on Tuesday recovered some of the ground they lost during Monday's selloff  - but failed to hold on to their highs for the day after a substantial dip in the final hour of trading.


The Dow Jones industrial average closed at 7608.92, up 86.90 points, or 1.2 per cent. The index fell about 116 points toward the close. The broader S&P 500 closed at 797.87, up 10.34 points, or 1.3 per cent, similarly surrendering more than half of its gains in the final hour of trading.


So, is the glass half full or half empty? Skeptics can certainly point out that there appeared to be more at work here than a shifting assessment of the global economy or corporate earnings. The latest glimpse of U.S. house prices, courtesy of the S&P Case-Shiller index, showed a drop of about 19 per cent year over year in January, slightly worse than expected. As well, the Conference Board's confidence index showed that consumers remain in the dumps.


Indeed, as some observers pointed out, the rebound in stocks may be due to nothing more than "window dressing" - that the final day of trading in the first quarter may have attracted mutual fund managers ditching their losing stocks and piling into recent winners to impress clients with their know-how.


If so, then a lot of mutual fund investors will discover that they are now the proud owners of U.S. financial stocks, many of which soared on Tuesday. Bank of America Corp. rose 13.1 per cent, Citigroup Inc. rose 9.5 per cent and JPMorgan Chase & Co. rose 7 per cent. In other moves, Alcoa Inc. rose 9.7 per cent and Microsoft Corp. rose 5.1 per cent.


Still, despite a volatile rebound since early March, results for the first quarter were dismal. The Dow fell 13.3 per cent and the S&P 500 fell 11.7 per cent. The technology-heavy Nasdaq composite index fared better, though, falling just 3.1 per cent.


In Canada, the S&P/TSX composite index closed at 8720.39, up 124.17 points, or 1.4 per cent - and ended the quarter down about 3 per cent, making one of the world's best-performing major indexes.


For Tuesday's rebound, financials were the biggest movers - hey, could Prime Minister Stephen Harper's upbeat assessment of Canada's financial system be paying off? Toronto-Dominion Bank rose 3.5 per cent, Bank of Montreal rose 4.6 per cent and Sun Life Financial Inc. rose 7.8 per cent.


Energy stocks were also generally higher after the price of crude oil rebounded toward $50 (U.S.) a barrel, up $1.25. Canadian Oil Sands Trust rose 4.8 per cent and Canadian Natural Resources Ltd. rose 0.3 per cent.

Copyright 2001 The Globe and Mail

Talisman Energy Announces First Oil From the Northern Fields Development

13:17 EDT Tuesday, March 31, 2009

CALGARY, ALBERTA--(Marketwire - March 31, 2009) - Talisman Malaysia Limited ("Talisman Malaysia"), a wholly-owned subsidiary of Talisman Energy Inc. (TSX:TLM) (NYSE:TLM), has commenced oil production from the Northern Fields development on schedule. The development is located in the PM-3 commercial arrangement area ("CAA") offshore Malaysia and Vietnam. Production is expected to reach 40,000-50,000 boe/d (gross sales) by early 2010 with the commissioning of dry gas facilities mid-year. Talisman expects to drill a total of 16 development wells in the Northern Fields in 2009, with an additional 13 expected in 2010.

"This marks the achievement of another strategic milestone," said John A. Manzoni, President & CEO. "Southeast Asia continues to be a key area of opportunity and growth for Talisman. We have doubled our production in Asia over the past five years and are positioned to grow at 10% annually over the next few years."

Talisman announced first gas production from the Northern Fields in July 2008, with sales of 75 mmcf/d (gross), which has been ramping up since then. Sales gas from the development is piped to Malaysia and Vietnam via the Talisman operated Southern Fields development (also in PM-3 CAA). Talisman's net production in Malaysia/Vietnam averaged 31,000 boe/d in 2008.

This project is the culmination of several years of commitment and cooperation between Talisman, Petronas, PetroVietnam, and numerous fabricators in Malaysia and Vietnam. The project is comprised of over 70 reservoirs, 50 wells, three wellhead riser platforms, a central processing platform, a floating storage and offloading tanker and over 100 kilometres of subsea pipelines.

Talisman Malaysia operates Block PM-3 CAA and, together with its affiliate Talisman Malaysia (PM3) Limited, holds a 41.44% interest. Petronas Carigali Sdn. Bhd. holds a 46.06% interest and PetroVietnam Exploration Production Corporation Limited holds a 12.5% interest.

Talisman Energy Inc. is an independent upstream oil and gas company headquartered in Calgary, Alberta, Canada. The Company and its subsidiaries have operations in North America, the North Sea, Southeast Asia and North Africa. Talisman's subsidiaries are also active in a number of other international areas. Talisman is committed to conducting its business in an ethically, socially and environmentally responsible manner. The Company is a participant in the United Nations Global Compact and included in the Dow Jones Sustainability (North America) Index. Talisman's shares are listed on the Toronto Stock Exchange in Canada and the New York Stock Exchange in the United States under the symbol TLM.

Advisories

This news release contains statements that constitute "forward-looking information" or "forward-looking statements" (collectively "forward-looking information") within the meaning of applicable securities legislation. This forward-looking information includes, among others, statements regarding:

- estimated production, production growth and timing;

- business plans for drilling, exploration, development and estimated timing;

- business strategy and plans; and

- other expectations, beliefs, plans, goals, objectives, assumptions, information and statements about possible future events, conditions, results of operations or performance.

The forward-looking information listed in this news release is based on Talisman's 2009 capital spending program as announced on January 13, 2009. The material assumptions supporting the 2009 capital spending program are: (1) 2009 annual production of approximately 430,000 boe/d; (2) a US$40/bbl WTI oil price for 2009; and (3) a US$5/mmbtu NYMEX natural gas price for 2009.

Undue reliance should not be placed on forward-looking information. Forward-looking information is based on current expectations, estimates and projections that involve a number of risks, which could cause actual results to vary and in some instances to differ materially from those anticipated by Talisman and described in the forward-looking information contained in this news release. The material risk factors include, but are not limited to:

- the risks of the oil and gas industry, such as operational risks in exploring for, developing and producing crude oil and natural gas, market demand and unpredictable facilities outages;

- risks and uncertainties involving geology of oil and gas deposits;

- potential delays or changes in plans with respect to exploration or development projects or capital expenditures;

- fluctuations in oil and gas prices, foreign currency exchange rates and interest rates;

- risks in conducting foreign operations (for example, political and fiscal instability or the possibility of civil unrest or military action);

- changes in general economic and business conditions;

- the possibility that government policies or laws may change or governmental approvals may be delayed or withheld; and

- uncertainties as to the availability and cost of financing and changes in capital markets.

Readers are cautioned that the foregoing list of risks and uncertainties is not exhaustive. Additional information on these and other factors, which could affect the Company's operations or financial results are included in the Company's most recent Annual Information Form and Annual Financial Report. In addition, information is available in the Company's other reports on file with Canadian securities regulatory authorities and the United States Securities and Exchange Commission.

Forward-looking information is based on the estimates and opinions of the Company's management at the time the information is released. The Company assumes no obligation to update forward-looking information should circumstances or management's estimates or opinions change, except as required by law.

Gross Production

In this news release, Talisman makes reference to production volumes. Such production volumes are stated on a gross basis, which means they are stated prior to the deduction of royalties and similar payments. In the US, net production volumes are reported after the deduction of these amounts. US readers may refer to the table headed "Continuity of Proved Net Reserves" in Talisman's most recent Annual Information Form for a statement of Talisman's net production volumes by reporting segment that are comparable to those made by US companies subject to SEC reporting and disclosure requirements.

Boe conversion

In this news release, the calculation of barrels of oil equivalent (boe) is calculated at a conversion rate of six thousand cubic feet (mcf) of natural gas for one barrel of oil and is based on an energy equivalence conversion method. Boes may be misleading, particularly if used in isolation. A boe conversion ratio of 6 mcf:1 bbl is based on an energy equivalence conversion method primarily applicable at the burner tip and does not represent a value equivalence at the wellhead.

FOR FURTHER INFORMATION PLEASE CONTACT:

Talisman Energy Inc. - Media and General Inquiries
David Mann, Vice-President,
Corporate & Investor Communications
(403) 237-1196
(403) 237-1210 (FAX)
Email: tlm@talisman-energy.com
Website: www.talisman-energy.com

Recession strikes again

Tuesday, March 31, 2009

The numbers are in....and Canada's economy is in big trouble. It shrank 0.7 per cent in January, in line with expectations from economists and a slight improvement over December, when economic output plunged a full 1 per cent.

No one is celebrating: The decline marks the sixth consecutive monthly contraction in the economy, with gross domestic product down 2.4 per cent over the past 12 months and showing signs of getting a lot worse based on recent performance.

Benjamin Reitzes, economist, BMO Nesbitt Burns: “The December/January declines mark the worst two-month performance for GDP in at least 11 years. If GDP manages to stand pat in February and March (which might be wishful thinking), the economy would still be on pace to contract at a more than 6 per cent annualized rate, a record back to 1961. The global recession hit home in the first quarter.”

Millan Mulraine, economics strategist, TD Securities: “There is no getting away from the fact that the Canadian economy is in the depths of a rather profound economic recession, and from the evidence so far this year, it clearly appears that the economy may have taken a dramatic turn for the worse. ... In the final analysis, this report will provide further ammunition for the Bank of Canada to reduce the policy rate even further when they meet late April with a real likelihood that they may engage in quantitative easing as they attempt to provide further monetary stimulus to the Canadian economy.”

[amp]nbsp;

© Copyright The Globe and Mail

Scam Alert National Home Services At Your Door Next?

Geoff Daye
Sales Scammer
National Home Services

Whitby, Ontario,
Canada
This is the piano player by night sales con man by day

This is a public service message,
and this guy should think twice about decieving prospects
with internet search available

MySpaceForThieves

Just tonight, an agent from National Home Service - Water Heater Division came by to check my water heater. He said since it is 10 years old, I should probably change it. So then he explains how National will replace mine with a high efficiency model with $0 installation fee but a slight increase to my monthly rental charge (to $24.25). They will also return my existing one to Enbridge and there will be no charge to me. Now here is the problem...

This agreement is for a 15 year term which he never even mentioned.
Its in the fine print.

1. Which he doesn`t give you a chance to read.
2. Hustles you on the point of when can we install the new unit.
3. He leads you to believe that this is an Enbridge program all heaters are being replaced,
4. He has to come in and check the heater for installation of the new one.
5. Enters under a completely false pretense and costume
6. Dresses like a blue collar meter reader , construction type with orange vest and clipboard.

Its all a con, he asks you to get your enbridge bill since he needs that to get your account number to complete the scam.

He says whats a good day to do the installation
then he says sign here to authorize our installers to do the work.

What you are signing is a 15 year rental contract for more money then Enbridge charges and that is never mentioned by design.

He may look like blue collar enbridge installers, but they talk like vacuum cleaner sales people ready to steal your money for huge commissions. Beware and Don`t get sucked in.


They are thieves and you are their next prey. I showed them the door, they would NOT allow me to read the contract and they would not leave the contract. 24.25 x 15 year = $4365.00

Warning! DON'T LET THEM STEP INTO YOUR HOUSE AND DON'T SIGN ANYTHING

Nothing about them on Enbridge
http://www.nationalhomeservices.ca/

SCAM ALERT DO NOT BUY FROM
http://www.nationalhomeservices.ca/

Canaccord Capital cutting 20% of its brokers

Monday, March 30, 2009

Canaccord Capital cutting 20% of its brokers

Barbara Shecter and Barry Critchley,  Financial Post 

 Malcolm Taylor for National Post

Canada's largest independent broker Canaccord Capital Inc. is shedding a substantial chunk of its staff for the second time in less than six months, this time cutting deep into its pool of brokers.

Canaccord is getting rid of about 20% of its broker contingent by targeting "under-performing" brokers over the next couple of days, said Scott Davidson, managing director and global head of marketing and communications.

"We are in the process of reducing our broker count by about 75," said Mr. Davidson, adding that the firm hopes to retain the bulk of the business through a program that provides bridge financing to remaining brokers who want to buy books of business from those who are departing from the firm.

"This is a decision based on strategy, not market conditions," Mr. Davidson said.

Last October, Vancouver-based Canaccord blamed the market meltdown when it cut 170 jobs, or 10% of global workforce, and reduced executive salaries by as much as 20%. Many of those jobs were administrative, as Canaccord along with other broker-dealers attempted to weather the growing financial and economic downturn without losing their big money-producing employees.

October proved to be a brutal month in the business, with sales and commission trading drying up and investment banking activity languishing at fellow independents such as GMP Capital Trust. Last month, GMP said the worst carnage in the fourth quarter took place in October in its capital markets businesses.

Gyrating global stock markets have added to the pain at broker-dealers.

Canaccord had private client assets under administration of $9-billion at the end of December, down 39% from $13-billion a year earlier.

Since November, Canaccord's private client business has been run by John Rothwell, a 30-year financial services veteran with firms including Midland Walwyn Capital and Fidelity Investments.

A company statement when he was hired described his mandate as "focused on talent acquisition, product and service development, and enhanced revenue and asset growth."

In February, Canaccord began to lay out plans for a retention bonus to reward top performers that insiders say will rival the packages at some of Canada's bank-owned broker-dealers.

The bonus plan, which is understood to increase substantially for brokers who generate $1-million in revenue, was promised when Mr. Rothwell joined the firm.

Analysts say tough market conditions have increased competition between independent dealers and bank-owned dealers in Canada as the overall business pie has shrunk.

Monday, MF Global Ltd., a broker of exchange-traded futures and options contracts, shuttered offices in Vancouver, Calgary and Winnipeg that housed 26 brokers.

The brokerage also has offices in Toronto, Montreal and Markham, Ontario. MF Global, the former brokerage unit of hedge fund manager Man Group Plc, lost 94% of its market value last year.

© 2009 The National Post Company. All rights reserved. 

1. GM, Chrysler rocked by hardline from Washington

   Monday, Mar 30, 2009
   The Obama administration pledged only to fund GM's operations for the next 60 days while it develops a sweeping restructuring plan, instead of granting GM's request for up to a further US$16-billion in loans.

2. Tough times require tough bosses

   Monday, Mar 23, 2009
   When there is a high sense of urgency around getting things done, a more structured leadership style is appropriate

3. Automakers have 'limited' time to improve plans

   Monday, Mar 30, 2009
   U.S. President Barack Obama on Monday said survival plans put forward so far by automakers General Motors and Chrysler didn't go far enough and they have a "limited time" to improve them if they are to receive more government aid.

4. Bankers to get keys to kingdom

   Monday, Mar 30, 2009
   Senior policymakers from the Group of 20 nations, led by those in Washington, are likely to agree this week to give their central bankers more power to ensure there's no return of the type of credit crisis that has rocked the global financial system.

5. TSX tumbles as markets do 'reality check'

   Monday, Mar 30, 2009
   North American markets were back in negative territory on Monday, as concerns about U.S. banks and the auto industry took centre stage once again.

6. Ottawa gives automakers $4-billion bridge loan

   Monday, Mar 30, 2009
   Ottawa has given the Canadian arms of General Motors Corp. and Chrysler LLC additional time to come up with a “believable” restructuring plan that incorporates further cost savings and contain more reasonable assumptions about auto sales.

7. GM CEO Rick Wagoner to step down: source

   Sunday, Mar 29, 2009
   General Motors Corp Chief Executive Rick Wagoner will resign from the top job at the struggling automaker, a person familiar with the matter said Sunday

8. Blame it on the followers of Keynes

   Friday, Mar 27, 2009
   As the United States, Canada and other countries unleash trillions of dollars of economic stimulus packages on the world’s teetering financial system, it may be helpful to recall that the last time governments tried to "fix" the economy with mountains of borrowed money, it ended up making the problem worse.

9. Chrysler Canada talks await Obama statement

   Sunday, Mar 29, 2009
   More than 3,000 Canadian Auto Workers members turned out to a Chrysler membership meeting in Windsor, Ont. Sunday and voted to support their leadership’s use of a recent General Motors Corp. agreement as leverage in their negotiations with Chrysler LLC.

10. Edible Arrangements blooms with fresh idea

    Sunday, Mar 29, 2009
    Call it resilient franchising: While some large franchise chains have been busy closing stores, cutting staff and otherwise suffering the effects of a drop in sales, there are others who are quietly doubling sales and expanding franchise locations by 15% or more.

Pescod says...

Where's the bull?:Contemplating oil which dropped today...$4-billion in aid for Canadian car makers

Where's the bull?

RTGAM



Any confidence that had come creeping back into the stock market over the past few weeks was shredded on Monday, after renewed concerns about the financial sector and the rising possibility of bankruptcy in the auto sector sent investors scrambling for cover.


The Dow Jones industrial average closed at 7522.02, down 254.16 points, or 3.3 per cent. The broader S&P 500 closed at 787.53, down 28.41 points or 3.5 per cent. Both declines were the biggest one-day setbacks for the indexes since they began a three-week rebound that sent the S&P 500 up as much as 24.7 per cent from its intraday low - the steepest rise since the 1930s.


General Motors Corp. fell 25.4 per cent after the Obama administration rejected the auto maker's plan to stay viable, sacked its chief executive over the weekend and then floated the idea that it prefers a bankruptcy filing to reorganize the ailing company.


Although GM has withered to a relatively minor part of the stock market, given that it trades at just $2.70 (U.S.) a share, investors are clearly concerned about widespread layoffs, not to mention the impact on parts suppliers. Still, despite the threat of bankruptcy hanging over the stock, it is still trading more than 110 per cent above its low point in early March.


Financials were also weak on Monday, after the U.S. Treasury Secretary said in a weekend interview that, despite some optimism in the sector, some banks are going to need considerable government assistance. At the same time, a draft communique from the G20 dashed hopes for a recovery in the second half of this year, instead suggesting that the global economic slowdown could persist until the end of 2010.


Citigroup Inc. fell 11.8 per cent and Bank of America Corp. fell 17.9 per cent. General Electric Co., which has a large and struggling financial arm, fell 7.9 per cent - taking the stock back below $10, to $9.93.


In Canada, the S&P/TSX composite index closed at 8596.22, down 224.84 points, or 2.6 per cent. The index, which had poked into positive territory last week for the year to date, has now fallen 4.4 per cent in 2009.


Among financials, Manulife Financial Corp. fell 8.5 per cent, Royal Bank of Canada fell 3.2 per cent and Toronto-Dominion Bank fell 4.2 per cent.


Energy stocks were down after the price of crude oil fell below the threshold of $50 a barrel again, to $48.41, down $3.97. Suncor Energy Inc. fell 3.8 per cent, Talisman Energy Inc. fell 1.5 per cent and Canadian Natural Resources Ltd. fell 5.3 per cent.


Gold producers were among the few winners, even though the price of gold fell to about $915 an ounce, down nearly $8. Barrick Gold Corp. rose 3 per cent and Goldcorp Inc. rose 2 per cent.

Copyright 2001 The Globe and Mail

Contemplating oil

Monday, March 30, 2009

The price of crude oil is well off its lows of $32.40 (U.S.) a barrel in mid-December, which has investors wondering whether there's more room to run.

Dina Cover of TD Securities noted that the rally in the price of crude oil to a high of $54 a barrel last week was based on increased optimism of a global economic recovery and data suggesting that fuel consumption rose during the previous week.

“However, crude oil fundamentals do not support a price in the mid-$50s, and this morning, prices have fallen back below $51 per barrel as renewed economic concerns filtered into the market,” she said in a note.

Patricia Mohr, an economist at Bank of Nova Scotia, remains more upbeat. She[amp]nbsp;argued that recent production cuts implemented by the Organization of Petroleum Exporting Countries have taken out 3.3 million barrels a day – and additional pledges for production cuts could bring that total to 4.2 million barrels a day. That is far greater than the 2.4 million barrels a day decline in year-over-year oil consumption in 2009, suggesting that supply is not out of whack with demand.

“While oil demand could retreat further in the second quarter of 2009, OPEC's cuts will go a long way towards rebalancing world markets, particularly if world demand levels out in the second half of 2009,” she said in a note, adding that non-OPEC supplies are declining. She believes that oil prices will rally to $65 a barrel in 2010 and over $75 in the medium term.[amp]nbsp;

$4-billion in aid for Canadian car makers

Shawn McCarthy and Greg Keenan

Monday, March 30, 2009

Ottawa, Toronto — The federal and Ontario governments have committed to provide $4-billion in short-term loans to General Motors of Canada Ltd. and Chrysler LLC, but the two companies must negotiate deeper savings from their workers and suppliers before the governments agree to a long-term restructuring plan.

The governments are forcing General Motors to negotiate further reductions in retiree pension and benefit costs with its Canadian Auto Workers union, just weeks after the company and union agreed to a deal that GM said would make it competitive with foreign-owned car makers in North America.

On Monday afternoon, CAW chief Ken Lewenza said the union will not reopen talks with GM Canada.

“We have determined that further fundamental changes for both companies are needed,” Federal Industry Minister Tony Clement said in Ottawa on Monday.

Chrysler must achieve deep cost reductions in its now-stalled negotiations with the CAW and also conclude a strategic alliance with Italian auto maker Fiat SpA.

Following the lead of the U.S. administration, Ottawa has given General Motors two months to conclude its viability plan, and will lend it $3-billion until then.

Chrysler has one month to conclude its work, and can borrow $1-billion; the company was expected to draw down $250-million of that amount Monday.

The companies eventually hope to borrow $11.5-billion from the Canadian governments to finance their long-term restructuring plans.

Ottawa is also demanding that the companies restrict the compensation of their top Canadian executives, including no performance bonuses for 2008, no raises in 2009 and no “golden parachutes” for executives who leave the firms.

Mr. Clement and Finance Minister Jim Flaherty, along with Ontario Economic Development Minister Michael Bryant, announced the decision at a news conference in Ottawa Monday.

In a television interview Sunday, Prime Minister Stephen Harper said his government had “no choice” but to provide some assistance to see whether it could rescue the struggling car companies.

“If we're going to put taxpayer money in this, we have to make sure it works,” Mr. Harper told Fox News. “And I think, given the scope and the size of this industry, we have no choice.”

General Motors – which employs 15,000 people in Canada – has asked the federal and Ontario government to provide up to $7.5-billion in long-term funding to maintain its 20-per-cent share of North American production in Canada.

Chrysler – with 9,400 workers in Canada – has asked for $4-billion to maintain a 25-per-cent share of production here.

Mr. Clement has stressed the aid would not only save direct production jobs but protect the vast web of domestic suppliers that feed the Canadian plants.

The two Detroit companies reached this point because of “a failure of leadership from Washington to Detroit,” President Barack Obama said Monday in outlining the U.S. government's response.

“These companies and this industry must ultimately stand on their own and not as wards of the state,” Mr. Obama said.

The President raised the possibility that one or both Chrysler and GM may have to go into bankruptcy protection to win the concessions needed from stakeholders.

In fact, “given the magnitude of the concessions needed, the most effective way for Chrysler to emerge from this restructuring with a fresh start may be by using an expedited bankruptcy process as a tool to extinguish liabilities,” the U.S. government said in a document outlining ways that the two companies might repair themselves.

After consultations with U.S. officials, the Canadian governments determined GM was not viable under the restructuring plan it submitted in February, and needed to make a more realistic assessment of future car sales and its share of the market, and find deeper cost savings from workers, management, dealers and suppliers.

Chrysler is seen as not viable as a stand-alone company and needs to conclude a strategic alliance with Fiat to qualify for further taxpayer assistance.

Ottawa insists that, while the short-term loans are not “risk-free,” they are well secured by the Canadian assets of both companies. As well, the Canadian governments will receive warrants that can be converted to GM shares, and additional guarantees from Detroit-based, privately owned Chrysler.

Chrysler, which is battling the Canada Revenue Agency over $1-billion in back taxes, cannot use the loan proceeds to pay back taxes.

Chrysler president Tom LaSorda told a parliamentary committee that, in order to close its alliance with Fiat, the company needs a letter from Canada Revenue that the government will not seek more security on the tax liability. Government officials won't say whether Canada Revenue has agreed to provide that letter.

The U.S. government wants Chrysler to wring more concessions out of the United Auto Workers at its U.S. operations, a demand that is likely to further complicate the stalled talks between the auto maker and its Canadian workers.

“Chrysler, Fiat and the UAW need to reach an agreement that entails greater concessions than those outlined in the existing loan agreements,” the U.S. government's task force on the auto industry said in its analysis of the Chrysler viability plan released early Monday.

Chrysler and the CAW are at loggerheads over a cut of $19 in the auto maker's $76 hourly labour costs in Canada. The company insists it needs concessions that will generate a savings of that amount, while the CAW has countered that it will not provide more concessions to Chrysler than it gave to GM Canada in an earlier agreement.

Talks between the union and Chrysler were put on hold over the weekend while the two sides awaited the U.S. administration's verdict on whether Chrysler is viable.

© Copyright The Globe and Mail

Last chance for GM, Chrysler?

John Crawley, Helen Massy-Beresford
Reuters

Mar 30, 2009

WASHINGTON/PARIS – The Obama administration seized the wheel of the failing U.S. auto industry on Monday, forcing out General Motors Corp's CEO, pushing Chrysler LLC toward a merger and threatening bankruptcy for both.

GM shares plunged around 20 per cent in Frankfurt after steps outlined by the White House autos panel marked a stunning reversal for management at both GM and private equity-owned Chrysler.

The moves came after Europe's second-biggest carmaker by sales – PSA Peugeot Citroen – ousted CEO Christian Streiff, replacing him with former Corus head Philippe Varin from June 1.

The Obama administration pledged only to fund GM's operations for the next 60 days while it develops a sweeping restructuring plan, instead of granting GM's request for up to a further $16 billion (dollar figures U.S.) in loans.

GM CEO Rick Wagoner, who had presided over the company's rapid decline in the past five years and had run the automaker since 2000, was forced out at the request of the autos panel headed by former investment banker Steve Rattner. A majority of GM's board will also be replaced.

"We are left to look back and say that Wagoner's appointment as both chairman and CEO in 2003 was little more than an act to ensure the dynasty of GM boardroom arrogance and failure continued," said Howard Wheeldon, senior strategist at brokerage BGC Partners.

Wheeldon said Wagoner's departure had been all but inevitable since the automaker sought government funds and said he was disappointed the authorities had not insisted on an external replacement.

UNDER FIRE

Wagoner protégé and GM President and Chief Operating Officer Fritz Henderson was named as new CEO. Wagoner's departure came as the Obama administration came under fire for not blocking bonuses to executives at American International Group Inc.

The senior labour leader of GM's German brand Opel, being spun off with the UK's Vauxhall and seeking investors and government support, said the move was overdue.

In Europe, auto stocks fell on concerns about the broader industry impact of the failure of a major U.S. producer. The DJ Stoxx European autos index fell 6.4 per cent by mid morning, while PSA Peugeot Citroen fell 7.7 per cent.

In France PSA Chairman Thierry Peugeot said in a statement the exceptional difficulties faced by the industry warranted a change in management, but Streiff defended himself saying his policies had equipped the group to weather the storm.

Some analysts viewed the appointment of Philippe Varin as positive.

"It brings somebody in that can look at the problem with fresh eyes. The hope will be that he will have a similar impact here to the impact (Sergio) Marchionne had at Fiat, and indeed Varin had at Corus," said Credit Suisse analyst Stuart Pearson.

Elsewhere, Russia's Avtovaz bucked the trend, its shares surging after Prime Minister Vladimir Putin pledged 20 billion roubles in aid, while Spain's plan to grant subsidies for green cars won approval from the European Commission.

Chrysler, controlled by Cerberus Capital Management, was given 30 days to complete an alliance with Italy's Fiat or face a cut-off of its government funding that could force its liquidation.

Fiat was not immediately available for comment.

The autos panel rejected a claim by Cerberus that Chrysler could be viable on its own, citing its relatively small size, weak product line-up and declining U.S. market share.

AGGRESSIVE RESTRUCTURING

If Chrysler can complete a tie-up with Fiat and cost-saving deals with creditors and its major union, the Treasury would consider investing up to another $6 billion, officials said.

U.S. officials said there had been progress in recent negotiations involving the task force. Fiat had agreed to take less than the 35 per cent stake in Chrysler the two companies had first negotiated, the senior official said.

Meanwhile, Henderson, a key architect of GM's now-rejected turnaround plan, was charged with working with U.S. officials and advisers to develop a more aggressive restructuring.

"We believe our approach to GM is starting with a clean sheet of paper," the senior official said.

GM bondholders, the official said, could have to take less than the 33-cent-on-the-dollar payout they have been offered and should abandon hope of a government guarantee.

The Obama administration had also not ruled out a quick bankruptcy process for either GM or Chrysler, he said.

Wagoner had been outspoken in his opposition to a Chapter 11 reorganization, saying it would drive away consumers and probably lead to GM's liquidation.

GM had asked for more than $16 billion in new government loans, while Chrysler wanted $5 billion to ride out the weakest market for new cars in almost 30 years.

GM has lost about $82 billion since 2005 when its problems began to mount in the U.S. market. GM stock has also lost about 95 per cent of its value since Wagoner took over as CEO. Although he inherited many of the company's deeper problems, his critics say he failed to act fast enough to resolve them.

Count me in on this golden stock buying opportunity

"There hasn't been a recession yet that hasn't ended."

Abby Joseph Cohen, a partner and chief U.S. investment strategist at Goldman, Sachs & Co. during the Squawk Financial Summit aired on CNBC March 24.

I was delighted to hear a practical observation from an economist because as a personal rule, I usually tune out the economists and their forecasts.

I find their little graphs displaying changes in retail sales, initial jobless claims, CPI, GDP, housing starts and so on to have no relevance to the stock market.

Cohen began her career as an economist in 1973 at the Federal Reserve Board in Washington, D.C., serving until 1977.

She worked as an economist and quantitative research director for T. Rowe Price Associates.

She crossed over to the money management side, obtaining her chartered financial analyst charterholder designation in 1980.

She joined Goldman Sachs Group Inc. in New York City as a vice-president and co-chair of the firm's investment policy committee in 1990 and was named a managing director in 1996.

Cohen developed a reputation as a so-called "perpetual bull" and was ridiculed for her bullish predictions.

Her reputation was further damaged when she failed to foresee the great crash of 2008.

Aside from the bad calls, Cohen's "visionary" style is admirable. When Cohen says there is $4 trillion (U.S.) in sideline cash and this is "the investment opportunity for a generation," I am all ears.

Now before I find myself being drawn into another compelling story spun by a very clever personality on business television I have to understand that my investments are my sole decision and responsibility.

The reality is that followers of any business media program must understand the host, the guest and the network do not guarantee any specific profit or loss outcome of any recommendation.

Viewers should be aware of the real risk of loss in following any advice you hear on any business media show.

Clearly, we must do our homework before acting because we need to know if the great bear of 2007-2008 has run its course. There are two basic tests to be satisfied in order to determine if the time is right to invest.

We know that bear markets are the result of falling stock prices. Falling stock prices are technically in a down trend as set out in a series of lower highs and lower lows. We also know that new bull markets need leadership from the important sectors such as financial, energy and technology

I have never seen a new bull market get underway without leadership from at least two of these important stock groups.

Let us assume the lows of October through November 2008 to be significant because every stock sector (including the gold index) posted new 52-week lows during that period.

Let us also assume lows of March to be significant because many stock sectors such as consumer staples, energy, materials and technology did not violate their October through November lows.

Our chart this week is that of the daily closes of the iShares CDN S&P/TSX Energy Index Fund (TSX-XEG) plotted above the SPDR Technology Select Sector Fund (NYSE-XLK).

Note both of these important leaders have so far not violated their important October—November lows. Both the U.S. and Canadian financial indices are trading above their respective October — November lows.

Most bear markets post a new low about every 12 to 16 weeks – and so far all of the important stock sectors and major indices are trading above their lows of 20-plus weeks ago.

This is clearly a base building process which satisfies the condition required to make a technical call for the end of the bear market in global equities.

Abby you got me, count me in on "the investment opportunity for a generation."

Bill Carrigan is an independent stock-market analyst.

Pescod says...

Holy bull!

Holy bull!

RTGAM


Investors who believe that the North American stocks are merely caught up in a bear market rally, taking a temporary breather from their long-term decline, must have felt a peculiar pain in their stomachs on Thursday: For the second day running, major indexes shrugged off midday jitters to post sizable gains in the afternoon, raising eyebrows as they blew past technical hurdles.


The Dow Jones industrial average closed at 7924.56, up 174.75 points, or 2.3 per cent. The broader S&P 500 closed at 832.86, up 18.98 points, or 2.3 per cent. The index has now risen nearly 25 per cent from its intraday low in early March, hinting at a new bull market. As well, the index has risen well above its 50-day moving average, once seen as a point of resistance. Meanwhile, the technology-heavy Nasdaq composite index surged 3.8 per cent, putting it up for the year by 0.6 per cent.


The latest moves came as investors grew increasingly confident that the U.S. economy is showing tentative signs of bottoming out, despite yet another nasty report on weekly jobless claims.


On Thursday, better-than-expected quarterly results from Best Buy Co. Inc. added to the impression that consumer spending isn't dead. As well, a government bond auction went according to plan, easing concerns that arose on Wednesday when bonds were sold at higher-than-expected yields, suggesting that the market's appetite for government debt was waning.


The rally was widespread: 28 of the 30 stocks in the Dow rose, as did 87 per cent of the stocks in the S&P 500.


Bank of America Corp. and Citigroup Inc., which had enjoyed outsized gains in much of the recent trading activity, were left on the sidelines on Thursday, falling 1.6 per cent and 4.8 per cent, respectively.


Still, many of the big movers appeared to signify more confidence in companies that stand to benefit from an improving economy. General Motors Corp. rose 14.1 per cent, American Express Co. rose 7.2 per cent, Hewlett-Packard Co. rose 7.1 per cent and Caterpillar Inc. rose 6.5 per cent.


The S&P/TSX composite index closed at 8995.50, up 198.06 points, or 2.3 per cent - putting the benchmark index up for the year, by about 0.1 per cent, after being under water since January. Financials did okay, with Canadian Imperial Bank of Commerce up 1.2 per cent and Toronto-Dominion Bank up 0.8 per cent.


However, the real stars of the day were companies that tend to be more economically cyclical. Potash Corp. of Saskatchewan Inc. led the way, rising 7.3 per cent. Canadian National Railway Co. rose 7 per cent, Research In Motion Ltd. rose 5.9 per cent and Suncor Energy Inc. rose 5.2 per cent.

Copyright 2001 The Globe and Mail

Interesting Day

Another day, another whipsaw

TLM After Hours HUGE Trades Ready To Run Thru $14.00 on the way to $18.00

What an hour

RTGAM






Another day, another whipsaw.


U.S. stocks emerged in positive territory on Wednesday after a remarkable retreat in afternoon trading sent major indexes down 4 per cent from their intraday highs before recovering in the final hour of trading. The Dow Jones industrial average closed at 7749.81, up 89.84 points, or 1.2 per cent. The broader S&P 500 closed at 813.88, up 7.63 points, or 1 per cent.


Both indexes began the day strongly, with investors feeling upbeat about the better-than-expected rise in new-home sales and durable goods orders for February - interpreting both moves as early signs that the deterioration in the U.S. economy could be bottoming out.


However, investors were taken aback by a disappointing Treasuries auction, which saw five-year notes sold at lower prices - or higher yields - than expected, which fed doubts about the U.S. Federal Reserve's determination to bring down borrowing costs using so-called quantitative easing.


Those concerns eased in the late afternoon, sending stocks up again but nowhere near their highs earlier in the day. U.S. home building stocks surged nearly 14 per cent in the morning, after a report showed that new-homes sales rose 4.7 per cent, month-over-month, in February even as they remained near record lows. However, the stocks surrendered most of those gains by the afternoon, ending the day up 3.1 per cent.


Among financials, Bank of America Corp. rose 6.7 per cent, despite receiving a credit downgrade on its preferred shares to junk status. JPMorgan rose 8.2 per cent but Citigroup Inc. fell 2 per cent.


In other moves, McDonald's Corp. rose 2.7 per cent and Boeing Co. rose 2.7 per cent. General Motors Corp. fell 6.6 per cent.


In Canada, the benchmark index never fully recovered from its afternoon selloff. The S&P/TSX composite index closed at 8797.44, down 51.95 points, or 0.6 per cent - down 185 points from its intraday high.


Research In Motion Ltd. fell 4.4 per cent after the BlackBerry maker was downgraded to an "underweight" recommendation by an analyst at JPMorgan Chase & Co., who argued that the recession will slow subscriber growth over the next 18 months.


Financials were mixed. Manulife Financial Corp. fell 3.6 per cent and Royal Bank of Canada fell 0.8 per cent, but Toronto-Dominion Bank rose 0.3 per cent.


Energy stocks fell after the price of crude oil dipped to $52.77 (U.S.) a barrel, down $1.21. Suncor Energy Inc. fell 0.3 per cent and EnCana Corp. fell 2.5 per cent. Gold producers were strong, after the price of gold rose to $935.80 an ounce, up $12. Goldcorp Inc. rose 3.2 per cent and Barrick Gold Corp. rose 2.4 per cent.

Copyright 2001 The Globe and Mail

Pescod says...

BNK and More

MARKET TALK: Don't Underestimate NAL Oil's Dealmaking Ability

MARKET TALK: Don't Underestimate NAL Oil's Dealmaking Ability 10:53 EDT Tuesday, March 24, 2009

   Edited by John Shipman    Of DOW JONES NEWSWIRES     

10:53 (Dow Jones) NAL Oil (NAE.UN.T) is stronger than its bigger rivals might think when it comes to making acquisitions. Take for example, NAL's pact to acquire Alberta Clipper Energy (ACN.T). The deal calls for NAL's strategic partner Manulife (MFC) to buy a 50% working interest in ACN.T's assets and NAL will use these proceeds to reduce debt. CIBC says MFC's "financial flexibility and focused interest in direct ownership of oil and gas assets allows NAE.UN.T to fight above its weight" when targeting acquisition opportunities. In Toronto, NAE.UN.T recently down 3.8% at C$6.51. (BED)

10:44 (Dow Jones) T-3 Energy (TTES) shares tumble after the oilfield company says Chairman, CEO Gus Halas leaves "to pursue other interests." Pritchard Cap's Brian Uhlmer says investors are probably unhappy with lack of transition period for Halas, who's being replaced by former TTES director and Natl Oilwell Varco ( NOV) CFO Steven Krablin. Uhlmer says there could be uncertainty over direction since Krablin is known for being more aggressive than Halas in terms of acquisitions. TTES down 27% to $10.82. (JHT)

10:33 (Dow Jones) Kynikos Associates president Jim Chanos -- pivoting from his op-ed in today's WSJ urging preservation of mark-to-market or another "honest accounting" model -- tells CNBC his short-centric firm won't be party to Treasury's now-detailed plan for toxic-asset cleanup, though he likes its prospects. "We have thought about looking at it, but ... I think there are better opportunities elsewhere -- not because we don't think we could possibly make money, we just think the political risks are too high," says Chanos, who's wary of complaints about his ilk, even though hedgies bucked the finance industry trend of taking taxpayer bucks. "My God, if short-sellers made money doing this, think about the hue and outcry." (JB)

10:28 (Dow Jones) Yesterday's rally, a "big, big rally," pushed the S&P 500 above its 50-day moving average, an important marker, UBS' Art Cashin notes. But it has just as quickly produced a heavily overbought market, so some pullback is in order, he says. But the bulls must take care to keep it orderly. "Back at the beginning of the year, we had a rally that took the S&P above the 50 DMA," he says. "That lasted a week." He sees resistance around 840-845, and support at 804. DJIA off 75; S&P 500 down 9. (PJV)

10:25 (Dow Jones) Goldman Sachs upgrades CBS to neutral from sell, saying its current valuation overestimates risk of financial distress at the media company. The firm remains cautious on the advertising-heavy company's prospects in the recession, lowering 2009, 2010 and 2011 EPS estimates 6%-25%. But Goldman notes CBS is the only network growing its ratings this year. Firm says "while the near-term dollar impact of likely share gains in network ads is small relative to declines in the local TV station ad market, the success fortifies the longer- term syndication pipeline." CBS up 0.9% at $4.46. (NAT)

10:21 (Dow Jones) Dundee Securities sees some irony after its analysis of CF Industries' (CF) rationale for rejecting Agrium's (AGU) takeover bid. CF makes the point that the timing of the offer is "opportunistic" because of the recent decline in valuations across the fertilizer sector. Analyst Richard Kelertas says it's hard to argue with that, but CF's own bid for Terra (TRA) isn't any different in that respect. "We believe that both companies are attempting to purchase at a cyclical low in the industry which, in our opinion, makes perfect business sense," Kelertas says. CF off a fraction; AGU down 0.9%. (AMG)

10:17 (Dow Jones) Existing home sales data show one bright spot: housing seems to be falling at a decelerating level, FusionIQ CEO Barry Ritholtz writes on his blog. Even though year-over-year prices are still dropping at a double-digit pace, unit sales are falling at a slower pace, he says. "The second derivative improvement suggests that we may be nearing a point where the unit sales may stop dropping," Ritholtz writes. "But that does not mean we are at a bottom yet, and it certainly does not imply a turnaround is at hand." (SMR) (http:// www.ritholtz.com/blog/2009/03/annual-existing-home-sales-errata/)

10:08 (Dow Jones) Banks open lower -- as could be expected after huge rally yesterday sparked by Treasury's plan to clean up toxic assets -- but recently paring declines. RBC says the program is a positive "but no silver bullet for weak bank fundamentals," and warns clients of continued credit deterioration led by commercial real estate and construction loans. Bank of America slides 3.5% to $7.52; Citi drops 3%; to $3.03; JPMorgan off 1.4% to $28.46; Wells Fargo loses 3.8% to $16.66. (DMK)

10:01 (Dow Jones) Williams-Sonoma (WSM) managed 4Q expenses and inventory well in a dismal environment for discretionary home furnishings, pushing EPS ex items to 31c vs 16c Street view. But unlike many retailers, its sales outlook suggests the 1Q hasn't seen a pickup in trend, and WSM has a long road ahead, JPMorgan says. "Given the recent move and the fact that earnings are not expected to be positive until 4Q, we think it will be difficult for the stock to hold current levels," firm says. WSM up 7.1% at $11.98 ahead of 10:00am conference call. ( MEL)

9:57 (Dow Jones) Closure of Outback Steakhouse Canada's locations in Ontario gives comfort to Octagon Capital's outlook for competitor Keg Royalties Income Fund (KEG.UN.T). "This eliminates another competitor and proves the theory put forward by Keg management that 'concept or fad restaurants' don't work in the long run," firm says; keeps buy rating for Keg and C$12.50 target price. (AMG)

9:55 (Dow Jones) Emerging-market stocks pull back after yesterday's rally. BoNY's EM ADR index retreats 2.4% at 194; Latin America index down 2.8%, while Asia index declines 2.6%. Brazil miner Vale (RIO) down 4% to $14.32, while Peru's Buenaventura (BVN) declines 4.7% to $22.76 as gold under pressure in New York. (CSS) 

Markets: Sober Tuesday

 Sober Tuesday

Tuesday, March 24, 2009

North American stocks took a breather on Tuesday morning – a deep breather – following the stunning rally on Monday.

The Dow Jones industrial average fell 77 points, or 1 per cent, to 7,699. Boeing Co. and Johnson [amp]amp; Johnson were up marginally but all other stocks in the 30-member index were down at the start of trading.

Financials, which enjoyed by far the biggest gains during Monday's rally, slumped the most. Bank of America Corp. fell 7 per cent, American Express Co. fell 6 per cent and Citigroup Inc. fell 5 per cent. General Electric, which was downgraded by Moody's Investors Services, fell 2.5 per cent.

In Canada, the S[amp]amp;P/TSX composite index fell 151 points, or 1.7 per cent, to 8,808. Energy stocks were down, following euphoria on Tuesday when Suncor Energy Inc. announced a takeover deal with Petro-Canada. Suncor fell 3 per cent, Petro-Canada fell 2.2 per cent and Canadian Natural Resources Ltd. fell 2.4 per cent.

Financials were down marginally. Bank of Montreal fell 1 per cent, Bank of Nova Scotia fell 0.8 per cent and Manulife Financial Corp. fell 2.7 per cent.

[amp]nbsp;

© Copyright The Globe and Mail

Suncor buys PetroCan for $18B

OTTAWA – Suncor Energy is in advanced talks to acquire Petro-Canada in a stock-based deal worth $18 billion, people familiar with the talks said yesterday.

If successful, the merger would combine two of the largest operators in the Canadian oil sands, which have high production costs and have become a target of environmental groups. The deal could be announced as early as today.

Like many in the energy business, both companies have had to deal with falling prices and sagging demand for their oil.

The end of Petro-Canada as an independent company would eliminate the last vestige of an ambitious and highly controversial program, begun by prime minister Pierre Elliott Trudeau during the 1970s to assert Canadian control over the country's energy resources.

The $18 billion price would represent about a 30 per cent premium for Petro-Canada, which operates conventional and oil sands production sites, refineries and a nationwide chain of service stations.

A Petro-Canada spokesperson declined to comment. "I'm afraid we don't speculate on rumours," Victoria Barrington told the Star.

Suncor did not return calls.

A takeover of Petro-Canada, a former federal Crown corporation, could be tricky because of legislation barring any one investor from owning more than 20 per cent of the company.

The Petro-Canada Public Participation Act also forbids the company from "selling, transferring or otherwise disposing of all or substantially all of its assets in one transaction, or several related transactions, to any one person or group of associated persons, or to non-residents, other than by way of security only in connection with the financing of Petro-Canada,"

In a securities filing last month, the Ontario Teachers' Pension Plan, which owns about 3.3 per cent of the company, said it had "held discussions with the management and board of Petro-Canada regarding the creation of shareholder value. Other investors have called on the firm to narrow its focus.

Oil Oil Oil Banks Banks Banks Rally Rally Rally

U.S. Plan for Mortgage Debt Gets Initial Support From Investors

U.S. Plan for Mortgage Debt Gets Initial Support From Investors


By Jason Kelly

March 23 (Bloomberg) -- The U.S. plan to relieve banks of real estate debt won initial support from investors, who set aside for now questions about asset pricing and whether they will be demonized for profiting from the financial crisis.

“This is not a panacea; it is not a silver bullet,” Laurence Fink, chairman of BlackRock Inc., the largest publicly traded U.S. asset manager, said today in an interview. “But this will take some of the overhang out of the marketplace. It is incrementally a really good thing.”

The Obama administration said today it’s counting on investors such as New York-based BlackRock, hedge funds and private-equity firms to buy devalued real estate loans and mortgage-backed securities from banks so they can raise capital and resume lending. The government aims to spur as much as $1 trillion in purchases by providing $100 billion in capital, as well as financing from the Federal Reserve and Federal Deposit Insurance Corp.

Financial markets rose on speculation the plan will help end the first global recession since World War II. Blackstone Group LP and Fortress Investment Group LLC, New York-based private-equity firms that have said they are interested in increasing their holdings of distressed debt, jumped 28 percent and 35 percent, respectively, in New York Stock Exchange composite trading. BlackRock gained 10 percent.

“This ambitious program is structured in a way to attract private capital and help banks sell distressed or toxic assets,” said David Marchick, head of government and regulatory affairs at Washington-based Carlyle Group, a closely held private-equity firm.

The Standard & Poor’s 500 Stock Index rose 3.9 percent to 802.43 at 1:51 p.m. in New York, and the S&P 500 Financials Index climbed 9.8 percent.

Enthusiasm Tempered

The initial enthusiasm was tempered by concern that the plan detailed today by Treasury Secretary Timothy Geithner still doesn’t address whether banks will be willing or able to unload securities at a loss.

“The big issue is whether the financial institutions will sell securities at below the current marks,” said Richard King, who oversees about $40 billion as head of U.S. fixed-income investments at Invesco Ltd., an Atlanta-based fund manager.

Banks could face another round of writedowns if assets are sold for less than the current value on their books. If that occurs some could need to raise more capital to absorb those losses.

Paulson’s Dilemma

“This is one of the details that sunk the plan initially, and it’s still an issue,” said Steven Persky, chief executive officer of Dalton Investments LLC, a Los Angeles-based hedge- fund manager that invests in mortgages. He was referring to former Treasury Secretary Henry Paulson’s reversal last October on using federal bailout money to buy troubled assets from banks.

“The structural issue is a real problem that they have to resolve,” he said.

Half of the $75 billion to $100 billion in Treasury’s funds will go to a “Legacy Loans Program” that will be overseen by the FDIC. The Treasury would provide half of the capital going to purchase a pool of mortgages from banks, with private fund managers putting up the rest. The FDIC will then guarantee financing for the investors, up to a maximum of six times the equity provided.

The FDIC will hold auctions for the pools of loans, which will be controlled and managed by the private investors with oversight by the FDIC.

Market Will Work

The second half of the Treasury’s contribution will go to the “Legacy Securities Program.” The objective of the initiative is to generate prices for securities backed by mortgages that are no longer traded because investors have little confidence about the underlying value of the home loans.

“The market will find a way to price these assets,” said Edward Gainor, a partner at law firm McKee Nelson LLP in Washington who advises funds on distressed investments.

BlackRock’s Fink said his company will raise money from investors such as pension funds and endowments for the new Treasury programs. The company might consider creating mutual funds so that individual investors can also participate.

Bill Gross, co-chief investment officer for bond manager Pacific Investment Management Co., said his Newport Beach, California-based firm also would participate in the bailout programs.

‘Win/Win/Win’

“This is perhaps the first win/win/win policy to be put on the table,” Gross said.

Other fund managers that may jump in include Legg Mason Inc. and State Street Corp.

Legg Mason’s Western Asset Management unit, which manages about $550 billion in bonds and money funds, will benefit from participating in government bailout programs, analysts at Jeffries & Co. in San Francisco wrote in a report earlier this month. Mary Athridge, a spokeswoman for Baltimore-based Legg Mason, declined to comment.

State Street spokeswoman Carolyn Cichon said the Boston- based firm is evaluating “what, if any opportunities” will come out of today’s plan. State Street manages about $1.4 trillion through its investment unit.

Lawrence Summers, the White House National Economic Council Director, said in a Bloomberg Television interview today that investors in the new debt plan wouldn’t be subject to compensation restrictions applied to banks rescued by the government.

AIG Factor

Still, questions remain over whether Congress and the administration will keep that promise in the face of mounting public pressure over bonuses paid to employees of American International Group Inc. and Merrill Lynch & Co.

“The biggest obstacle is whether the government is going to set limits on executive compensation at these funds,” said Steven Nadel, partner at Seward & Kissel LLP, a New York-based law firm whose clients include hedge funds. “If the government can give assurances that there won’t be limits, then the terms could potentially work out for all involved and create liquidity in these markets.”

The level of participation ultimately lies in the details, an area where the Obama administration has disappointed investors in previous attempts.

“We think there’s a fair amount of money on the sidelines that would be enticed back into the market,” said Andrew McCormick, head of securitized products at T. Rowe Price Group Inc., a Baltimore-based fund manager. “We would expect the program to provide clarity. We wouldn’t want to put our best investors into something where the rules are open to debate later.”

Why Not Nationalize?

Kenneth Windheim, chief investment officer of Strategic Fixed Income LLC in Arlington, Virginia, questioned the underlying premise of the Treasury’s plan: that getting private investors involved is the only way to set asset prices and unclog bank balance sheets.

“It would possibly be cheaper to nationalize the banks, get new management and sell the assets off, rather than heavily subsidize or bribe asset managers into taking part in this program,” said Windheim, whose firm manages $1.7 billion in assets. “It’s the same managers who got us into the financial mess who are now going to benefit.”

U.S. seeks to unfreeze credit markets

WASHINGTON – The Obama administration launched a new effort Monday to end a paralysis in lending, saying it will team with investors to initially buy up to a trillion dollars of bad assets from banks that have been reluctant to make loans to consumers and companies.

In announcing the program, Treasury Secretary Timothy Geithner pleaded for patience, saying that work to rehabilitate an industry with such systemic problems must go forward despite "deep anger and outrage" over executive bonus payments.

Geithner's performance in President Barack Obama's cabinet has come under heavy criticism from some in Congress. The secretary announced the initiative in a Treasury Department room with no cameras allowed. He was with Obama later in the morning, however, when the president spoke briefly, saying he was "very confident" the latest plan will succeed.

Obama called it "one more critical element" in a multi-pronged effort to revive the economy and said the depressed housing market is beginning to show glimmers of hope.

Geithner said the new program will initially seek to harness government and private resources to purchase a half-trillion dollars of bad assets off the balance sheets of banks and said he expects that purchases eventually could grow to $1 trillion.

Wall Street seemed to feel rejuvenated, at least at the opening. In late morning, the Dow Jones industrial average was up 221 at 7,500. Reaction to an earlier administration bank rescue program on Feb. 10 was anything but enthusiastic, with dispirited investors sending the Dow Jones plummeting by 380 points.

The administration's newest toxic-asset repellent was another in a string of banking initiatives that have included efforts to deal directly with mortgage foreclosures, boost lending to small businesses and thaw out the credit markets for many types of consumer loans.

Administration officials said the plan put forth Monday will deploy $75 billion to $100 billion from the government's existing $700 billion bailout program for the purchase of bad assets – resources that will be supported by loans from the Federal Deposit Insurance Corp. and a loan facility being operated by the Federal Reserve.

Under a typical transaction, for every $100 in soured mortgages being purchased from banks, the private sector would put up $7 and that would be matched by $7 from the government. The remaining $86 would be covered by a government loan provided in many cases by the Federal Deposit Insurance Corp.

Whereas Geithner suggested there was no alternative to the plan, Republicans said otherwise. House GOP Whip Eric Cantor said he hoped the administration would consider instead an earlier GOP proposal to set up a government-sponsored insurance program for mortgage-related securities.

Cantor called Obama's plan a "shell game" that hid the true cost.

"As described, the plan seems to offer little incentive for private investors to participate unless the subsidy is made so rich that it comes at the expense of the taxpayer," Cantor said in a statement.

Geithner was scheduled to testify on Tuesday before the House Financial Services Committee.

The secretary defended the decision to have the government carry so much of the risk. He said the alternative would have been to do nothing and risk a more prolonged recession or have the government carry all of the risk.

Geithner also said there would be significant advantages from having private market participants bidding against each other to set prices for which the bad assets will be purchased.

"There is no doubt the government is taking risks," he told reporters. "You can't solve a financial crisis without the government taking risks."

Devising bailout plans has never been easy work, and the brouhaha surrounding millions in executive retention bonuses paid out by financially strapped American Insurance Group, Inc., hasn't improved the political atmosphere.

Officials said they expect participation by a broad array of investors ranging from pension funds and insurance companies to hedge funds. To achieve that goal, the program would be set up to entice private investors with low-cost loans provided by the Federal Deposit Insurance Corporation and the Federal Reserve. The government itself would shoulder the bulk of the risk.

Geithner has said that the country cannot afford to simply wait for banks to work off these bad assets over time.

Christina Romer, who heads the White House Council of Economic Advisers, said: "It's absolutely about helping a system so that people can get their student loans, and that families can buy their house and buy their cars, and small businesses can get their loans."

The government has been struggling since the credit crisis hit last fall to figure out a way to sop up the bad assets, many of them involving home loans. Former Treasury Secretary Henry Paulson never did come up with a solution and the Obama team has been wrestling with the same thorny problems of how to price the assets and make sure the government's resources are up to the task.

The program surfaced after a week of Wall Street-bashing in Congress, where lawmakers were outraged with the action by troubled insurance company American International Group Inc. to distribute $165 million in bonuses after obtaining more than $170 billion in government bailouts to remain in business.

Some hedge funds and other investors have expressed reluctance to participate in the new program for fear that Congress will subject them to what they view as onerous restrictions on executive compensation.

But administration officials insisted that they believe they have found the right mix to attract private investors and make a dent in what, by some estimates, could be more than $2 trillion in troubled assets on banks' books.

They said the program has the capacity to purchase $500 billion and possibly as much as $1 trillion in troubled loans, which go back to the collapse of the housing boom and the subsequent tidal wave of foreclosures.

But private analysts believe that with the $700 billion bailout fund nearly tapped out by capital disbursements to banks and lifelines provided the auto companies and AIG, there are only enough resources left to get the asset purchase program launched.

Mark Zandi, an economist with Moody's Economy.com, estimated the government will need another $400 billion to make a sufficient dent in the bad asset problem.

Administration officials said they want to get the new program launched and see how successful it is before deciding whether to ask Congress for more resources.

The administration included a placeholder in its budget request to Congress last month for an additional $750 billion, more than doubling the financial rescue effort, but many lawmakers have said the current bailout fatigue among voters dims the prospect of getting further resources.

According to administration officials, the toxic asset program will include a public-private partnership to back private investors' purchases of bad assets, with government support coming from the $700 billion bailout fund. The government would match private investors dollar for dollar and share any profits equally.