LISBON — Portugal’s request for an international bailout puts European leaders in the difficult position of drafting a package of austerity measures and financial aid that will survive the country’s caretaker government.
European officials are hoping to avoid a repeat of the volatility that occurred in Ireland, where a new Irish government is now seeking to reopen its aid deal and alter the terms.
Financial markets had anticipated Portugal’s need for assistance as its costs of financing had risen to unsustainable levels, and investors generally shrugged off the news on Thursday. The European Central Bank, meanwhile, raised its benchmark interest rate for the first time since 2008, suggesting it was unworried about further economic deterioration and contagion among Europe’s peripheral economies, including Spain.
The latest European call for assistance, which is the third after the rescues of Greece and Ireland last year, comes amid a leadership vacuum in Portugal. The Socialist prime minister who requested the bailout, José Sócrates, is leading a caretaker government until the general election on June 5. He resigned last month after center-right opposition lawmakers, led by the Social Democratic Party, rejected his austerity package.
Although opposition leaders agree on the need for a bailout, reaching consensus will not be easy. Tough austerity measures similar to those recently rejected will almost certainly be demanded by European lenders and, most likely, the International Monetary Fund. Portugal is already struggling with record unemployment and an economy that is expected to contract 1.3 percent this year, according to its central bank.
“From the point of view of being able to negotiate good terms for the Portuguese economy and display a firm commitment that might make the European Commission and the I.M.F. less demanding, this could not have happened at a worse time,” said Pedro C. Magalhães, a professor of politics at the University of Lisbon.
Lisbon’s request for aid also puts additional pressure on other ailing European economies, in particular Spain, which has undertaken austerity measures, a pension overhaul and a cleanup of its banking sector to stay out of danger. Any rescue request from Spain — with an economy larger than that of Greece, Ireland and Portugal combined — could put the European common currency project at risk.
On Thursday, Spain held a successful bond auction, raising 4.1 billion euros ($5.8 billion) at a yield that was little changed from three months ago. Separately, France sold 9.49 billion euros in bonds Thursday, drawing strong demand.
The Spanish sale “confirms that there are no signs of a contagion spreading to Spain at present,” said Chiara Cremonesi, a fixed-income strategist in London for UniCredit. “Spain continues to be perceived by investors as part of the safer periphery countries group.”
In Lisbon, politicians from both sides are expected to meet in the coming days to work out details of their bailout package request. One estimate by a European official put Portugal’s needs at approximately 75 billion euros, but some analysts have suggested that the amount could be as much as 110 billion euros.
Last year, Greece secured a rescue package worth 110 billion euros. Ireland received 85 billion euros.
The cabinet minister in the caretaker government, Pedro Silva Pereira, confirmed the formal rescue request, but would not comment on the amount of aid requested, saying that the next steps would be defined by the European Commission. Jean-Claude Trichet, president of the European Central Bank, said the bank had “encouraged Portuguese authorities to ask for support.”
If the pattern of previous bailouts is repeated, it could take several weeks for a team of Brussels officials to discuss the conditions of a bailout with Lisbon, which will ultimately need the approval of European finance ministers.
The negotiations will occur in the midst of an election campaign that will probably be dominated by the question of who is to blame for Portugal’s predicament. The Social Democratic leader, Pedro Passos Coelho, supported the decision to seek outside help, but he and Mr. Sócrates are blaming each other for putting Portugal in a desperate situation.
“What the election campaign is now about is who should assume the responsibility for inviting international creditors into Portugal,” said Diogo Ortigão Ramos, a partner at the law firm Cuatrecasas, Gonçalves Pereira. Mr. Silva Pereira said Portugal’s caretaker government had asked President Aníbal Cavaco Silva to talk to the opposition parties. On Thursday, Mr. Cavaco Silva, in a Facebook message, called for “responsible cooperation” on the part of the opposition parties to help negotiate an acceptable deal.
António Nogueira Leite, an economic adviser to the Social Democratic Party and a professor at the Nova School of Economics and Business in Lisbon, said, “We have to learn from the mistakes in Greece and Ireland and be able to argue for a different treatment, but obviously our room to maneuver has been diminished because we have postponed our call for help for much longer than we should have.”
Portugal’s muddled political situation also raises “problems of legal uncertainty,” notably over whether a dissolved Parliament could approve a rescue agreement, Mr. Magalhães, the politics professor, said. A new government is unlikely to take office before the end of June, with Portugal’s most recent opinion polls suggesting that the June vote could result in a hung Parliament.
Short-term needs must also be resolved. Portugal faces a bond redemption of 4.3 billion euros on April 15.
Some officials suspect Portugal might need to seek bilateral loans from other countries to tide it over. Others say the announcement of the aid request on Wednesday might drive down the cost of short-term borrowing for Portugal and avert a problem.
Portugal is now embarking on what will be its third international bailout since returning to democracy in the 1970s, with previous interventions by the I.M.F. in 1978 and 1983. This time, however, “the sense of punishment will be much stronger because the expectations of citizens are much higher than three decades ago, when Portugal was not even in the E.U.,” said António Vitorino, who was in the Portuguese government that negotiated the 1983 rescue and a former European commissioner.
In 1983, Mr. Vitorino noted, Portugal was able to revive an export-led recovery by significantly devaluing its currency — no longer an option under euro membership. “The money injection that we received had a much stronger short-term effect on our economy than it could have this time,” he said.
Raphael Minder reported from Lisbon and Stephen Castle from Brussels. Jack Ewing contributed reporting from Frankfurt.
Thursday, April 7, 2011
Asian Energy Producers Rise on Oil; Japan Manufacturers Drop on Aftershock
Asian stocks swung between gains and losses as energy producers advanced on higher oil prices and manufacturers in Japan fell after a magnitude 7.1 earthquake hit the country less than a month following the nation’s worst temblor on record.
Woodside Petroleum Ltd. (WPL), Australia’s No. 2 oil and gas producer rose 0.9 percent as oil topped $110 a barrel. Fast Retailing Co., operator of the Uniqlo chain of casual clothing, surged 5.4 percent in Tokyo after raising its full-year profit forecast. Nintendo Co., the maker of the Wii game consoles, declined 3.7 percent in Osaka. Nissan Motor Co., Japan’s third- largest carmaker, slipped 1.1 percent.
The MSCI Asia Pacific Index was little changed to 135.35 as of 10:10 a.m. in Tokyo, having lost as much as 0.3 percent earlier. About the same number of stocks advanced as fell in the index. The gauge rose for the past two weeks as Japanese companies resumed production after last month’s quake and Chinese firms posted profits that beat analyst estimates.
“The concern is further disruptions to the economic base of Japan,” said Martin Schulz, who manages $360 million of international equities as a senior portfolio manager at PNC Capital Advisors LLC in Cleveland. The March 11 quake “not only affected the local economy, but also the supply chain of some of the companies that are leaders in the technology industry. The concern is how it would further affect those companies.”
Japan’s Nikkei 225 (NKY) Stock Average was little changed, erasing losses of as much as 0.6 percent earlier. South Korea’s Kospi Index increased 0.3 percent and Australia’s S&P/ASX 200 Index both added 0.4 percent.
March 11 Quake
The Nikkei 225 posted its biggest two-day plunge since the 1987 crash on March 14 and March 15 after the quake and tsunami on March 11 killed or left missing more than 27,000 people and prompted radiation leaks at Tokyo Electric Power Co.’s Fukushima nuclear power plant. The benchmark gauge has fallen 8.1 percent since March 10.
The 7.1-magnitude earthquake before midnight yesterday spared the Fukushima plant, although workers struggling to cool radioactive fuel were evacuated, Tokyo Electric said. The aftershock was the second-strongest since the record quake. No unusual conditions were observed at the plant afterward, the utility and Japan’s Nuclear and Industrial Safety Agency said in statements.
“Even though it appears there wasn’t that much damage from last night’s aftershock, it’ll lead to investors holding back,” said Juichi Wako, a senior strategist at Tokyo-based Nomura Holdings Inc. “Exporters are likely to be sold as there seems to be a pause in the weakening yen.”
Tokyo Electric gained 2.7 percent, paring its plunge this year to 82 percent.
Budget Dispute
Futures on the Standard & Poor’s 500 Index gained 0.1 percent today. The gauge lost 0.2 percent in New York yesterday and the Dow Jones Industrial Average retreated from an almost three-year high as a dispute over the federal budget threatened to shut down the American government.
The MSCI Asia Pacific Index lost 1.7 percent this year through yesterday, compared with gains of 6 percent by the S&P 500 and 1.8 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.2 times estimated earnings on average, compared with 13.7 times for the S&P 500 and 11.3 times for the Stoxx 600.
Woodside Petroleum Ltd. (WPL), Australia’s No. 2 oil and gas producer rose 0.9 percent as oil topped $110 a barrel. Fast Retailing Co., operator of the Uniqlo chain of casual clothing, surged 5.4 percent in Tokyo after raising its full-year profit forecast. Nintendo Co., the maker of the Wii game consoles, declined 3.7 percent in Osaka. Nissan Motor Co., Japan’s third- largest carmaker, slipped 1.1 percent.
The MSCI Asia Pacific Index was little changed to 135.35 as of 10:10 a.m. in Tokyo, having lost as much as 0.3 percent earlier. About the same number of stocks advanced as fell in the index. The gauge rose for the past two weeks as Japanese companies resumed production after last month’s quake and Chinese firms posted profits that beat analyst estimates.
“The concern is further disruptions to the economic base of Japan,” said Martin Schulz, who manages $360 million of international equities as a senior portfolio manager at PNC Capital Advisors LLC in Cleveland. The March 11 quake “not only affected the local economy, but also the supply chain of some of the companies that are leaders in the technology industry. The concern is how it would further affect those companies.”
Japan’s Nikkei 225 (NKY) Stock Average was little changed, erasing losses of as much as 0.6 percent earlier. South Korea’s Kospi Index increased 0.3 percent and Australia’s S&P/ASX 200 Index both added 0.4 percent.
March 11 Quake
The Nikkei 225 posted its biggest two-day plunge since the 1987 crash on March 14 and March 15 after the quake and tsunami on March 11 killed or left missing more than 27,000 people and prompted radiation leaks at Tokyo Electric Power Co.’s Fukushima nuclear power plant. The benchmark gauge has fallen 8.1 percent since March 10.
The 7.1-magnitude earthquake before midnight yesterday spared the Fukushima plant, although workers struggling to cool radioactive fuel were evacuated, Tokyo Electric said. The aftershock was the second-strongest since the record quake. No unusual conditions were observed at the plant afterward, the utility and Japan’s Nuclear and Industrial Safety Agency said in statements.
“Even though it appears there wasn’t that much damage from last night’s aftershock, it’ll lead to investors holding back,” said Juichi Wako, a senior strategist at Tokyo-based Nomura Holdings Inc. “Exporters are likely to be sold as there seems to be a pause in the weakening yen.”
Tokyo Electric gained 2.7 percent, paring its plunge this year to 82 percent.
Budget Dispute
Futures on the Standard & Poor’s 500 Index gained 0.1 percent today. The gauge lost 0.2 percent in New York yesterday and the Dow Jones Industrial Average retreated from an almost three-year high as a dispute over the federal budget threatened to shut down the American government.
The MSCI Asia Pacific Index lost 1.7 percent this year through yesterday, compared with gains of 6 percent by the S&P 500 and 1.8 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.2 times estimated earnings on average, compared with 13.7 times for the S&P 500 and 11.3 times for the Stoxx 600.
Locking in Rates Rises Most in Two Months as Factories Boom: India Credit
The cost of fixing five-year borrowing costs in India rose the most in two months this week on speculation companies are expanding production and improving earnings even after eight interest-rate increases.
The five-year swap contract jumped as high as 18 basis points this week to touch 8.10 percent yesterday, the most since early February. Factory output probably climbed 5 percent in February from a year earlier after January’s 3.7 percent gain, according to the median of 23 estimates in a Bloomberg News survey before an April 11 report.
Earnings of India’s biggest businesses for last quarter may add to signs that the central bank has failed to cool the economy and curb prices with 200 basis points of rate increases since March 2010, the most among BRIC nations. Reliance Industries Ltd. (RIL), the nation’s largest listed company, may report a 13 percent jump in net income, while that of Tata Motors Ltd. (TTMT) may triple, separate analyst surveys show.
“Consumer demand is pretty strong and that is keeping inflation high,” said Rajeev Malik, a senior economist at CLSA Asia Pacific Markets in Singapore. “The RBI will stay with its anti-inflation bias and I don’t think anyone can say that May will not see a rate hike.”
Malik expects the Reserve Bank of India to raise its benchmark repurchase rate by a quarter of a percentage point to 7 percent in the May 3 policy announcement. That would be the ninth move in 15 months.
Capacity Expansion
Maruti Suzuki India Ltd. (MSIL), the nation’s biggest carmaker, plans to boost capacity by 21 percent in the year started April 1 as part of investment plans totaling as much as 40 billion rupees ($905 million), Chief Financial Officer Ajay Seth said in an interview on April 6. The company’s sales climbed to a record in March.
The yield on India’s 7.8 percent bond due May 2020 has climbed four basis points to 7.97 percent in the past month. Malik expects the yield to touch 8.3 percent by the end of September.
The industrial production data show consumer demand is holding up, threatening to stoke India’s inflation, the quickest after Russia among the so-called BRIC nations. Benchmark wholesale-price inflation rate may accelerate to 8.40 percent in March from 8.31 percent in the previous month, a Bloomberg News survey of 19 economists showed before an April 15 report.
‘Monetary Response’
Reserve Bank Governor Duvvuri Subbarao predicted last month the price gauge would reach 8 percent by March 31, 2011, compared with 7 percent estimated on Jan. 25.
“In the absence of a strong supply response, increasing demand will inevitably lead to higher prices,” Reserve Bank Deputy Governor Subir Gokarn said April 5. He said a “monetary response is warranted” if demand exceeds supply and stokes inflation.
India’s $1.3 trillion economy may expand by as much as 9.25 percent in the year ending March 31, 2012, the finance ministry forecast in February.
Salaries in India in 2011 may rise the most in the Asia- Pacific region, a survey by Aon Hewitt LLC showed March 8. Spending under the government’s National Rural Employment Guarantee Act of 2005 has surged almost fourfold to 399 billion rupees.
Indian bonds have returned 2.1 percent this year, the second-best performance in Asia after Indonesia, according to 10 Asian local-currency debt indexes tracked by HSBC Holdings Plc. The difference in yields between India’s 10-year bonds and similar-maturity U.S. Treasuries rose to 441 basis points from 393 points a year ago.
Consumer Demand
“Inflation will remain high on the back of strong consumer demand,” said Ganti N. Murthy, who manages about $1.1 billion of assets as head of fixed income at Peerless Mutual Fund in Mumbai. “Uncomfortably high inflation will keep the RBI in tightening mode this year.”
Murthy expects the central bank to raise rates by as much as 50 basis points by the end of September and the yield on the 10-year bond to rise to 8 percent by the middle of May.
Rising oil and commodity costs and sustained economic growth are escalating pressure on Asian central banks to boost borrowing costs even as Japan’s disaster and Europe’s sovereign- debt woes cloud the global outlook. China on April 5 raised rates for the fourth time in less than six months. Vietnam, Taiwan, South Korea and Thailand increased their benchmark rates in March or April to curb inflation.
Rising Rupee
The rupee strengthened 1.5 percent against the dollar in March, the second-best performance among Asia’s 10 most-traded currencies, as India’s higher interest rates attracted inflows.
The nation’s policy rate of 6.75 percent, which matches Indonesia’s, is the highest among the region’s 10 biggest economies. The currency weakened 0.1 percent to 44.21 a dollar yesterday, according to data compiled by Bloomberg.
Credit Suisse Group AG said this week India’s central bank may stop raising rates by the end of 2011 to protect growth.
“Sticky inflation should see the central bank raise rates another couple of times by July, before growth concerns begin to emerge,” said Robert Prior-Wandesforde, an economist at Credit Suisse in Singapore. “We would not rule out the possibility of RBI switching from a tightening to an easing mode toward early 2012.”
India’s economy may grow 7.5 percent in the fiscal year through March 2012, Prior-Wandesforde said April 5, reducing his growth forecast from an earlier estimate of 7.7 percent.
The cost of protecting the debt of government-owned State Bank of India, which some investors perceive as a proxy for the nation, fell 7 basis points to 158 basis points on April 6, according to CMA prices.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
The five-year swap contract jumped as high as 18 basis points this week to touch 8.10 percent yesterday, the most since early February. Factory output probably climbed 5 percent in February from a year earlier after January’s 3.7 percent gain, according to the median of 23 estimates in a Bloomberg News survey before an April 11 report.
Earnings of India’s biggest businesses for last quarter may add to signs that the central bank has failed to cool the economy and curb prices with 200 basis points of rate increases since March 2010, the most among BRIC nations. Reliance Industries Ltd. (RIL), the nation’s largest listed company, may report a 13 percent jump in net income, while that of Tata Motors Ltd. (TTMT) may triple, separate analyst surveys show.
“Consumer demand is pretty strong and that is keeping inflation high,” said Rajeev Malik, a senior economist at CLSA Asia Pacific Markets in Singapore. “The RBI will stay with its anti-inflation bias and I don’t think anyone can say that May will not see a rate hike.”
Malik expects the Reserve Bank of India to raise its benchmark repurchase rate by a quarter of a percentage point to 7 percent in the May 3 policy announcement. That would be the ninth move in 15 months.
Capacity Expansion
Maruti Suzuki India Ltd. (MSIL), the nation’s biggest carmaker, plans to boost capacity by 21 percent in the year started April 1 as part of investment plans totaling as much as 40 billion rupees ($905 million), Chief Financial Officer Ajay Seth said in an interview on April 6. The company’s sales climbed to a record in March.
The yield on India’s 7.8 percent bond due May 2020 has climbed four basis points to 7.97 percent in the past month. Malik expects the yield to touch 8.3 percent by the end of September.
The industrial production data show consumer demand is holding up, threatening to stoke India’s inflation, the quickest after Russia among the so-called BRIC nations. Benchmark wholesale-price inflation rate may accelerate to 8.40 percent in March from 8.31 percent in the previous month, a Bloomberg News survey of 19 economists showed before an April 15 report.
‘Monetary Response’
Reserve Bank Governor Duvvuri Subbarao predicted last month the price gauge would reach 8 percent by March 31, 2011, compared with 7 percent estimated on Jan. 25.
“In the absence of a strong supply response, increasing demand will inevitably lead to higher prices,” Reserve Bank Deputy Governor Subir Gokarn said April 5. He said a “monetary response is warranted” if demand exceeds supply and stokes inflation.
India’s $1.3 trillion economy may expand by as much as 9.25 percent in the year ending March 31, 2012, the finance ministry forecast in February.
Salaries in India in 2011 may rise the most in the Asia- Pacific region, a survey by Aon Hewitt LLC showed March 8. Spending under the government’s National Rural Employment Guarantee Act of 2005 has surged almost fourfold to 399 billion rupees.
Indian bonds have returned 2.1 percent this year, the second-best performance in Asia after Indonesia, according to 10 Asian local-currency debt indexes tracked by HSBC Holdings Plc. The difference in yields between India’s 10-year bonds and similar-maturity U.S. Treasuries rose to 441 basis points from 393 points a year ago.
Consumer Demand
“Inflation will remain high on the back of strong consumer demand,” said Ganti N. Murthy, who manages about $1.1 billion of assets as head of fixed income at Peerless Mutual Fund in Mumbai. “Uncomfortably high inflation will keep the RBI in tightening mode this year.”
Murthy expects the central bank to raise rates by as much as 50 basis points by the end of September and the yield on the 10-year bond to rise to 8 percent by the middle of May.
Rising oil and commodity costs and sustained economic growth are escalating pressure on Asian central banks to boost borrowing costs even as Japan’s disaster and Europe’s sovereign- debt woes cloud the global outlook. China on April 5 raised rates for the fourth time in less than six months. Vietnam, Taiwan, South Korea and Thailand increased their benchmark rates in March or April to curb inflation.
Rising Rupee
The rupee strengthened 1.5 percent against the dollar in March, the second-best performance among Asia’s 10 most-traded currencies, as India’s higher interest rates attracted inflows.
The nation’s policy rate of 6.75 percent, which matches Indonesia’s, is the highest among the region’s 10 biggest economies. The currency weakened 0.1 percent to 44.21 a dollar yesterday, according to data compiled by Bloomberg.
Credit Suisse Group AG said this week India’s central bank may stop raising rates by the end of 2011 to protect growth.
“Sticky inflation should see the central bank raise rates another couple of times by July, before growth concerns begin to emerge,” said Robert Prior-Wandesforde, an economist at Credit Suisse in Singapore. “We would not rule out the possibility of RBI switching from a tightening to an easing mode toward early 2012.”
India’s economy may grow 7.5 percent in the fiscal year through March 2012, Prior-Wandesforde said April 5, reducing his growth forecast from an earlier estimate of 7.7 percent.
The cost of protecting the debt of government-owned State Bank of India, which some investors perceive as a proxy for the nation, fell 7 basis points to 158 basis points on April 6, according to CMA prices.
Credit-default swaps pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
Wednesday, April 6, 2011
Disabled, but Looking for Work
BATESVILLE, Ark. — Christopher Howard suffers from herniated discs in his back, knee problems and hepatitis C. As a result, Social Security sends him $574 every month and will until he reaches retirement age — unless he can find a job.
Though he has been collecting disability checks for three years, Mr. Howard, who is just 36, desperately wants to work, recalling dredging for gravel rather fondly and repairing cell towers less fondly.
“It makes me feel like I am doing something,” said Mr. Howard, a burly man with a honey-colored goatee. “Instead of just being a bum, pretty much.”
Programs intended to steer people with more moderate disabilities back into jobs have managed to take only a small sliver of beneficiaries off the Social Security rolls.
Yet, at a time when employers are struggling to create spots for the 13.5 million people actively looking for jobs, helping people like Mr. Howard find employment — or keeping them working in the first place — is becoming increasingly important to the nation’s fiscal health.
For the last five years, Social Security has paid out more in benefits to disabled workers than it has taken in from payroll taxes. Government actuaries forecast that the disability trust fund will run out of money by 2018.
About 8.2 million people collected disabled worker benefits totaling $115 billion last year, up from 5 million a decade earlier. About one in 21 Americans from age 25 to 64 receive the benefit, according to an analysis of Social Security data by Prof. Mark G. Duggan, an economist at the University of Maryland, compared with one in 30 a little over a decade ago. In Mr. Howard’s home state of Arkansas, the figure is one in 12, among the highest in the nation.
Along with monthly checks that are based on the worker’s earnings history, beneficiaries generally qualify for Medicare — otherwise reserved for those over 65 — two years after being admitted to the disability rolls.
There are several reasons for the increase in beneficiaries. Baby boomers are hitting the age when health starts to deteriorate, and more people are claiming back and other muscular-skeletal ailments and mental illnesses than claimed those as disabilities a generation ago. Lawyers who solicit clients on television and on the Internet probably play a role. And administrative law judges say pressure to process cases sometimes leads to more disability claims being accepted.
But given the difficult job market, some economists say they believe that an increasing number of people rely on disability benefits as a kind of shadow safety net.
The program was designed to help workers who are “permanently and totally disabled,” and administration officials say that it is an important lifeline for many people who simply cannot work at all.
But Social Security officials can take into consideration a claimant’s age, skills and ability to retrain when determining eligibility. So one question is: How many of these beneficiaries could work, given the right services and workplace accommodations? Social Security officials say relatively few.
Nicole Maestas, an economist at the Rand Corporation, has examined Social Security data with fellow economist Kathleen J. Mullen, and concluded that in the absence of benefits, about 18 percent of recipients could work and earn at least $12,000 a year, the threshold at which benefits are suspended.
Other economists say that even among those denied benefits, a majority fail to go back to work, in part because of medical problems and a lack of marketable skills.
“In an atmosphere in which there is a concern about fiscal problems, it’s always easy to point the finger at groups and say, ‘These people should be working,’ ” said Prof. John Bound, an economist at the University of Michigan, “exaggerating the degree to which the disability insurance program is broken.”
Even if claimants have more ambiguous medical cases, once they are granted disability benefits, they generally continue to collect. Of the 567,395 medical reviews conducted on beneficiaries in 2009, Social Security expects less than 1 percent to leave because of improved health.
The benefits have no expiration date, like the current 99-week limit for collecting unemployment. And because many people spend years appealing denials and building their medical case before being granted benefits, their skills often atrophy and gaps open on their résumés, making it more difficult for them to get back to work.
Beneficiaries, who also fear losing health care coverage, may view their checks as birds in the hand. “Even if you’re taking just $800 or $900 a month, that’s better than nothing,” said Bruce Growick, an associate professor of rehabilitation services at Ohio State University.
Shortly after Mr. Howard’s benefit checks started arriving, he received a four-by-six-inch card from Social Security informing him of services to help him return to work. Confused by the bureaucratic language and fearing the loss of medical coverage, he discarded it. When he called the local office, he said a staff member did not seem to know what his rights were or what help was available.
“I thought it is just better to get what we are getting,” he said.
Though he has been collecting disability checks for three years, Mr. Howard, who is just 36, desperately wants to work, recalling dredging for gravel rather fondly and repairing cell towers less fondly.
“It makes me feel like I am doing something,” said Mr. Howard, a burly man with a honey-colored goatee. “Instead of just being a bum, pretty much.”
Programs intended to steer people with more moderate disabilities back into jobs have managed to take only a small sliver of beneficiaries off the Social Security rolls.
Yet, at a time when employers are struggling to create spots for the 13.5 million people actively looking for jobs, helping people like Mr. Howard find employment — or keeping them working in the first place — is becoming increasingly important to the nation’s fiscal health.
For the last five years, Social Security has paid out more in benefits to disabled workers than it has taken in from payroll taxes. Government actuaries forecast that the disability trust fund will run out of money by 2018.
About 8.2 million people collected disabled worker benefits totaling $115 billion last year, up from 5 million a decade earlier. About one in 21 Americans from age 25 to 64 receive the benefit, according to an analysis of Social Security data by Prof. Mark G. Duggan, an economist at the University of Maryland, compared with one in 30 a little over a decade ago. In Mr. Howard’s home state of Arkansas, the figure is one in 12, among the highest in the nation.
Along with monthly checks that are based on the worker’s earnings history, beneficiaries generally qualify for Medicare — otherwise reserved for those over 65 — two years after being admitted to the disability rolls.
There are several reasons for the increase in beneficiaries. Baby boomers are hitting the age when health starts to deteriorate, and more people are claiming back and other muscular-skeletal ailments and mental illnesses than claimed those as disabilities a generation ago. Lawyers who solicit clients on television and on the Internet probably play a role. And administrative law judges say pressure to process cases sometimes leads to more disability claims being accepted.
But given the difficult job market, some economists say they believe that an increasing number of people rely on disability benefits as a kind of shadow safety net.
The program was designed to help workers who are “permanently and totally disabled,” and administration officials say that it is an important lifeline for many people who simply cannot work at all.
But Social Security officials can take into consideration a claimant’s age, skills and ability to retrain when determining eligibility. So one question is: How many of these beneficiaries could work, given the right services and workplace accommodations? Social Security officials say relatively few.
Nicole Maestas, an economist at the Rand Corporation, has examined Social Security data with fellow economist Kathleen J. Mullen, and concluded that in the absence of benefits, about 18 percent of recipients could work and earn at least $12,000 a year, the threshold at which benefits are suspended.
Other economists say that even among those denied benefits, a majority fail to go back to work, in part because of medical problems and a lack of marketable skills.
“In an atmosphere in which there is a concern about fiscal problems, it’s always easy to point the finger at groups and say, ‘These people should be working,’ ” said Prof. John Bound, an economist at the University of Michigan, “exaggerating the degree to which the disability insurance program is broken.”
Even if claimants have more ambiguous medical cases, once they are granted disability benefits, they generally continue to collect. Of the 567,395 medical reviews conducted on beneficiaries in 2009, Social Security expects less than 1 percent to leave because of improved health.
The benefits have no expiration date, like the current 99-week limit for collecting unemployment. And because many people spend years appealing denials and building their medical case before being granted benefits, their skills often atrophy and gaps open on their résumés, making it more difficult for them to get back to work.
Beneficiaries, who also fear losing health care coverage, may view their checks as birds in the hand. “Even if you’re taking just $800 or $900 a month, that’s better than nothing,” said Bruce Growick, an associate professor of rehabilitation services at Ohio State University.
Shortly after Mr. Howard’s benefit checks started arriving, he received a four-by-six-inch card from Social Security informing him of services to help him return to work. Confused by the bureaucratic language and fearing the loss of medical coverage, he discarded it. When he called the local office, he said a staff member did not seem to know what his rights were or what help was available.
“I thought it is just better to get what we are getting,” he said.
Gold May Drop as Rally to Record, Interest-Rate Rise Spurs Investor Sales
Gold may decline on speculation that investors are locking in gains after the price rose to a record earlier, and as central bank efforts to combat inflation curbed demand for precious metals.
Immediate-delivery bullion decreased as much as 0.3 percent to $1,455.47 an ounce before trading at $1,457.72 at 9:45 a.m. in Singapore. The price gained to a record $1,462.35 earlier. Gold for June delivery in New York were little changed at $1,459.10 an ounce after reaching an all-time high of $1,463.70 yesterday.
“Some traders are taking profits after the recent rally to record prices,” said Park Jong Beom, Seoul-based trader with Tongyang Futures Co. “Policies to raise interest rates are also weighing on sentiment a bit.”
Gold climbed to a record this week as fighting in Libya, Japan’s nuclear crisis and concerns about European debt boosted demand for the metal as a protector of wealth. Bullion is up 2.5 percent this year, after jumping 30 percent in 2010 as investors sought sanctuary from currency debasement and accelerating inflation.
China raised interest rates this week for the fourth time since mid-October before a report that may show consumer prices climbed last month at the fastest pace since 2008. Federal Reserve Chairman Ben S. Bernanke this week said inflation must be watched “extremely closely.” Minutes from the Fed’s March 15 meeting, released yesterday, show dissent on maintaining programs intended to stimulate growth.
The U.S. has kept its benchmark interest rate at a record low since December 2008. Rising interest rates tend to increase the cost of holding non-interest-bearing commodities.
Cash silver fell 0.5 percent to $39.3763 an ounce after climbing to a 31-year peak of $39.7625 an ounce yesterday. Palladium for immediate delivery lost 0.2 percent to $785 an ounce, while platinum was little changed at $1,791.75 an ounce.
Immediate-delivery bullion decreased as much as 0.3 percent to $1,455.47 an ounce before trading at $1,457.72 at 9:45 a.m. in Singapore. The price gained to a record $1,462.35 earlier. Gold for June delivery in New York were little changed at $1,459.10 an ounce after reaching an all-time high of $1,463.70 yesterday.
“Some traders are taking profits after the recent rally to record prices,” said Park Jong Beom, Seoul-based trader with Tongyang Futures Co. “Policies to raise interest rates are also weighing on sentiment a bit.”
Gold climbed to a record this week as fighting in Libya, Japan’s nuclear crisis and concerns about European debt boosted demand for the metal as a protector of wealth. Bullion is up 2.5 percent this year, after jumping 30 percent in 2010 as investors sought sanctuary from currency debasement and accelerating inflation.
China raised interest rates this week for the fourth time since mid-October before a report that may show consumer prices climbed last month at the fastest pace since 2008. Federal Reserve Chairman Ben S. Bernanke this week said inflation must be watched “extremely closely.” Minutes from the Fed’s March 15 meeting, released yesterday, show dissent on maintaining programs intended to stimulate growth.
The U.S. has kept its benchmark interest rate at a record low since December 2008. Rising interest rates tend to increase the cost of holding non-interest-bearing commodities.
Cash silver fell 0.5 percent to $39.3763 an ounce after climbing to a 31-year peak of $39.7625 an ounce yesterday. Palladium for immediate delivery lost 0.2 percent to $785 an ounce, while platinum was little changed at $1,791.75 an ounce.
Asian Stocks Rise on Recent Yen Decline, Record Gold Prices; Canon Gains
Asian stocks rose, driven by exporters, on speculation Japan will unveil more measures to stimulate its economy in the aftermath of the nation’s worst earthquake.
Canon Inc. (7751), a camera maker that counts Europe and the Americas as its biggest markets, rose 1.5 percent in Tokyo, while Elpida Memory Inc. surged 5.6 percent. St. Barbara Ltd., an Australian gold producer, added 1.3 percent after gold increased to a record for a second day in New York yesterday on demand as a hedge against inflation. Dart Energy Ltd., a gas explorer, surged 5 percent in Sydney after announcing a “significant resource” at its projects.
The MSCI Asia Pacific Index gained 0.3 percent to 135.36 as of 11:15 a.m. in Tokyo. About six stocks advanced for each five that fell in the index. The Asia-Pacific gauge rose for the past two weeks as Japanese companies began resuming production after the nation’s worst earthquake on record last month and as Chinese firms posted profits that beat analyst estimates.
“The biggest reason for the gains in Japanese exporters is because of the yen weakening,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees about $104 billion. “There are expectations that there will be more monetary-easing measures taken in Japan. Global inflation is something that we have to remain cautious about.”
Japan’s Nikkei 225 (NKY) Stock Average rallied 0.6 percent amid speculation the Bank of Japan will keep interest rates low as the nation recovers from the earthquake and tsunami while borrowing costs in other developed nations rise.
U.S. Futures
South Korea’s Kopsi Index declined 0.4 percent. Australia’s S&P/ASX 200 Index dropped 0.1, even as a report showed Australian employers added more workers than economists forecast in March.
Futures on the Standard & Poor’s 500 Index fell 0.1 percent today. The index rose 0.2 percent yesterday as Cisco Systems Inc. spurred a technology rally and plans by European lenders to raise capital boosted financial shares.
The Bank of Japan is considering offering a credit program to spur banks to lend to companies with cash-flow shortages in the wake of a magnitude-9 quake on March 11, people familiar with the matter told Bloomberg News. The plan may be presented as early this month, they said this week, speaking on condition of anonymity because the discussions weren’t public.
The yen tumbled yesterday against all of its most-traded counterparts tracked by Bloomberg on bets the Bank of Japan will expand economic stimulus as the nation recovers from its worst earthquake on record, and on speculation the European Central Bank will increase borrowing costs.
Following U.S.
The yen weakened to as low as 85.50 per dollar today, compared with 85.27 at the close of stock trading in Tokyo yesterday. Against the euro, the yen traded at 122.22 today, from 121.66 yesterday. A weaker yen versus the dollar and euro boosts the value of U.S. and European income at Japanese companies when repatriated.
“The yen is likely to continue to weaken,” said Mitsushige Akino, who oversees about $450 million in Tokyo at Ichiyoshi Investment Management Co. “Within the exporters, the electronic companies and precision-equipment makers are likely to be bought following high-tech stocks that were bought in the U.S.”
Stronger economic growth in Germany and accelerating inflation has boosted expectations European nations will need to raise interest rates, even as countries including Ireland and Portugal struggle to contain debt. European Central Bank President Jean-Claude Trichet signaled on March 3 that policy makers may raise the benchmark rate at their next meeting to curb inflation, which reached a two-year high of 2.6 percent last month.
Gold Jumps
Gold rose to as high as $1,463.70 an ounce yesterday on speculation the U.S. will struggle to contain consumer prices. Federal Reserve Chairman Ben S. Bernanke this week said inflation must be watched “extremely closely.”
The MSCI Asia Pacific Index lost 1.9 percent this year through yesterday, compared with gains of 6.2 percent by the S&P 500 and 2.1 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.1 times estimated earnings on average, compared with 13.7 times for the S&P 500 and 11.3 times for the Stoxx 600.
Australian employers added 37,800 workers in March from the previous month, the statistics bureau said in Sydney today. That compares with the median estimate for a 24,000 increase in a Bloomberg News survey of 25 economists. The jobless rate was 4.9 percent.
Canon Inc. (7751), a camera maker that counts Europe and the Americas as its biggest markets, rose 1.5 percent in Tokyo, while Elpida Memory Inc. surged 5.6 percent. St. Barbara Ltd., an Australian gold producer, added 1.3 percent after gold increased to a record for a second day in New York yesterday on demand as a hedge against inflation. Dart Energy Ltd., a gas explorer, surged 5 percent in Sydney after announcing a “significant resource” at its projects.
The MSCI Asia Pacific Index gained 0.3 percent to 135.36 as of 11:15 a.m. in Tokyo. About six stocks advanced for each five that fell in the index. The Asia-Pacific gauge rose for the past two weeks as Japanese companies began resuming production after the nation’s worst earthquake on record last month and as Chinese firms posted profits that beat analyst estimates.
“The biggest reason for the gains in Japanese exporters is because of the yen weakening,” said Yoshinori Nagano, a senior strategist in Tokyo at Daiwa Asset Management Co., which oversees about $104 billion. “There are expectations that there will be more monetary-easing measures taken in Japan. Global inflation is something that we have to remain cautious about.”
Japan’s Nikkei 225 (NKY) Stock Average rallied 0.6 percent amid speculation the Bank of Japan will keep interest rates low as the nation recovers from the earthquake and tsunami while borrowing costs in other developed nations rise.
U.S. Futures
South Korea’s Kopsi Index declined 0.4 percent. Australia’s S&P/ASX 200 Index dropped 0.1, even as a report showed Australian employers added more workers than economists forecast in March.
Futures on the Standard & Poor’s 500 Index fell 0.1 percent today. The index rose 0.2 percent yesterday as Cisco Systems Inc. spurred a technology rally and plans by European lenders to raise capital boosted financial shares.
The Bank of Japan is considering offering a credit program to spur banks to lend to companies with cash-flow shortages in the wake of a magnitude-9 quake on March 11, people familiar with the matter told Bloomberg News. The plan may be presented as early this month, they said this week, speaking on condition of anonymity because the discussions weren’t public.
The yen tumbled yesterday against all of its most-traded counterparts tracked by Bloomberg on bets the Bank of Japan will expand economic stimulus as the nation recovers from its worst earthquake on record, and on speculation the European Central Bank will increase borrowing costs.
Following U.S.
The yen weakened to as low as 85.50 per dollar today, compared with 85.27 at the close of stock trading in Tokyo yesterday. Against the euro, the yen traded at 122.22 today, from 121.66 yesterday. A weaker yen versus the dollar and euro boosts the value of U.S. and European income at Japanese companies when repatriated.
“The yen is likely to continue to weaken,” said Mitsushige Akino, who oversees about $450 million in Tokyo at Ichiyoshi Investment Management Co. “Within the exporters, the electronic companies and precision-equipment makers are likely to be bought following high-tech stocks that were bought in the U.S.”
Stronger economic growth in Germany and accelerating inflation has boosted expectations European nations will need to raise interest rates, even as countries including Ireland and Portugal struggle to contain debt. European Central Bank President Jean-Claude Trichet signaled on March 3 that policy makers may raise the benchmark rate at their next meeting to curb inflation, which reached a two-year high of 2.6 percent last month.
Gold Jumps
Gold rose to as high as $1,463.70 an ounce yesterday on speculation the U.S. will struggle to contain consumer prices. Federal Reserve Chairman Ben S. Bernanke this week said inflation must be watched “extremely closely.”
The MSCI Asia Pacific Index lost 1.9 percent this year through yesterday, compared with gains of 6.2 percent by the S&P 500 and 2.1 percent by the Stoxx Europe 600 Index. Stocks in the Asian benchmark are valued at 13.1 times estimated earnings on average, compared with 13.7 times for the S&P 500 and 11.3 times for the Stoxx 600.
Australian employers added 37,800 workers in March from the previous month, the statistics bureau said in Sydney today. That compares with the median estimate for a 24,000 increase in a Bloomberg News survey of 25 economists. The jobless rate was 4.9 percent.
Tuesday, April 5, 2011
Vedanta Wins Regulatory Approval to Buy Part of Cairn India in Open Offer
By Abhishek Shanker and Rakteem Katakey - Apr 5, 2011
Vedanta Resources Plc (VED)’s unit won regulatory approval to buy part of Cairn India Ltd. (CAIR) in an open offer as the mining company plans to spend $9.6 billion on assets including the nation’s biggest inland oil deposit.
Sesa Goa Ltd. (SESA)’s proposal to minority shareholders for 20 percent of Cairn India was cleared by the Securities and Exchange Board of India, and the offer will open subscription next week, Vedanta Chairman Anil Agarwal said in Mumbai today. N. Hariharan, spokesman for the regulator, declined to comment through a mobile-phone text message.
Vedanta, a mining company with no previous experience in producing oil or gas, said on Aug. 16 it aims to buy as much as 60 percent of Cairn India, including Sesa’s open offer. The transaction, which has yet to receive approval from the Cabinet, may be cleared shortly, Oil Secretary S. Sundareshan, the top bureaucrat in the oil ministry, said yesterday.
“There was uncertainty over the deal till today and now with this approval, the conclusion is one step closer,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd. in Kochi. “Cairn India can now start to benefit from high oil prices. Sesa Goa will actually end up buying the shares at a discount to current market prices.”
Cairn India declined as much as 1.1 percent to 363.50 rupees and traded at 366.55 rupees as of 1:19 p.m. in Mumbai. The benchmark Sensitive Index of the Bombay Stock Exchange fell 0.7 percent. Sesa Goa rose as much as 4 percent to 305.95 rupees and traded at 302.55 rupees.
Purchase Cost
Crude oil in New York trading increased 18 percent this year and climbed 44 percent since Vedanta and Cairn Energy Plc (CNE) announced the transaction on Aug. 16. Crude for May delivery fell as much as 0.5 percent to $107.92 a barrel in electronic trading on the New York Mercantile Exchange, and was at $108.05 at 8:56 a.m. London time.
While Vedanta Resources offered Cairn Energy 405 rupees a share, including a non-compete fee of 50 rupees a share, Cairn India’s minority shareholders are being offered a lower price. Sesa Goa has offered 355 rupees a share, according to a statement to the Bombay Stock Exchange on Aug. 18.
The final number of shares sold by Cairn Energy to Vedanta will depend on the result of the open offer.
Vedanta has raised $6 billion in debt to fund the acquisition, Agarwal said today. He expects the nation’s Cabinet to approve the transaction before April 15.
The money will be borrowed from Barclays Capital, Citigroup Inc., Credit Suisse Group AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley, Royal Bank of Scotland Group Plc and Standard Chartered Plc, Vedanta said in a Nov. 19 statement.
Sesa Goa plans to fund the purchase of Cairn India shares with its own cash, Managing Director P.K. Mukherjee said on Aug. 16. The company estimates it will have a cash balance of 120 billion rupees ($2.7 billion) by the end of March next year that will help to fund the purchase, he said.
State-run Oil & Natural Gas Corp., Cairn India’s partner in the Rajasthan oil block, is seeking to change a contract that makes it liable to pay royalty on all the crude oil produced from the area even though it owns 30 percent stake.
To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net
To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
Vedanta Resources Plc (VED)’s unit won regulatory approval to buy part of Cairn India Ltd. (CAIR) in an open offer as the mining company plans to spend $9.6 billion on assets including the nation’s biggest inland oil deposit.
Sesa Goa Ltd. (SESA)’s proposal to minority shareholders for 20 percent of Cairn India was cleared by the Securities and Exchange Board of India, and the offer will open subscription next week, Vedanta Chairman Anil Agarwal said in Mumbai today. N. Hariharan, spokesman for the regulator, declined to comment through a mobile-phone text message.
Vedanta, a mining company with no previous experience in producing oil or gas, said on Aug. 16 it aims to buy as much as 60 percent of Cairn India, including Sesa’s open offer. The transaction, which has yet to receive approval from the Cabinet, may be cleared shortly, Oil Secretary S. Sundareshan, the top bureaucrat in the oil ministry, said yesterday.
“There was uncertainty over the deal till today and now with this approval, the conclusion is one step closer,” said Alex Mathews, head of research at Geojit BNP Paribas Financial Services Ltd. in Kochi. “Cairn India can now start to benefit from high oil prices. Sesa Goa will actually end up buying the shares at a discount to current market prices.”
Cairn India declined as much as 1.1 percent to 363.50 rupees and traded at 366.55 rupees as of 1:19 p.m. in Mumbai. The benchmark Sensitive Index of the Bombay Stock Exchange fell 0.7 percent. Sesa Goa rose as much as 4 percent to 305.95 rupees and traded at 302.55 rupees.
Purchase Cost
Crude oil in New York trading increased 18 percent this year and climbed 44 percent since Vedanta and Cairn Energy Plc (CNE) announced the transaction on Aug. 16. Crude for May delivery fell as much as 0.5 percent to $107.92 a barrel in electronic trading on the New York Mercantile Exchange, and was at $108.05 at 8:56 a.m. London time.
While Vedanta Resources offered Cairn Energy 405 rupees a share, including a non-compete fee of 50 rupees a share, Cairn India’s minority shareholders are being offered a lower price. Sesa Goa has offered 355 rupees a share, according to a statement to the Bombay Stock Exchange on Aug. 18.
The final number of shares sold by Cairn Energy to Vedanta will depend on the result of the open offer.
Vedanta has raised $6 billion in debt to fund the acquisition, Agarwal said today. He expects the nation’s Cabinet to approve the transaction before April 15.
The money will be borrowed from Barclays Capital, Citigroup Inc., Credit Suisse Group AG, Goldman Sachs Group Inc., JPMorgan Chase & Co., Morgan Stanley, Royal Bank of Scotland Group Plc and Standard Chartered Plc, Vedanta said in a Nov. 19 statement.
Sesa Goa plans to fund the purchase of Cairn India shares with its own cash, Managing Director P.K. Mukherjee said on Aug. 16. The company estimates it will have a cash balance of 120 billion rupees ($2.7 billion) by the end of March next year that will help to fund the purchase, he said.
State-run Oil & Natural Gas Corp., Cairn India’s partner in the Rajasthan oil block, is seeking to change a contract that makes it liable to pay royalty on all the crude oil produced from the area even though it owns 30 percent stake.
To contact the reporter on this story: Rakteem Katakey in New Delhi at rkatakey@bloomberg.net
To contact the editor responsible for this story: Amit Prakash at aprakash1@bloomberg.net.
®2011 BLOOMBERG L.P. ALL RIGHTS RESERVED.
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