Credit-Card Issuers Scramble for Profits

http://online.wsj.com/article/SB10001424052748704913704575453572340768654.html#articleTabs%3Darticle

The golden age of credit cards may be over.

Faced with a raft of new regulations and customers who are spending less on their cards, executives at the nation's biggest issuers of plastic such as J.P. Morgan Chase & Co. and Citigroup Inc. are bracing for a less profitable future. As a result, they are scrambling to figure out how to make money in a business that is shrinking while getting more costly to operate.


"As you look out into the future, we think the business will be smaller, but how much smaller remains to be seen," said Chip Rossi, who oversees credit for Bank of America Corp.'s credit-card business. "It's a product that is important to the consumer, so we have got to figure out a value proposition that makes sense."

Card companies are struggling to recover from $1 billion in losses racked up last year as a result of the financial crisis. Auriemma Consulting Group, a New York firm that specializes in the payments industry, estimates that card companies could earn about $4 billion this year. That is less than a quarter of the record $18 billion earned in both 2006 and 2007, according to Auriemma, which doesn't include financial results from American Express Co. or Discover Financial Services Inc.

"We will all have to get used to lower profits, lower credit lines and higher interest rates. There's no precedent for this," said Megan Bramlette, a director at Auriemma.

Data show that the pace of delinquencies and defaults slowed in July, which is expected to help stem industry losses and even help banks post profits because they no longer need to set aside as much cash to cover future losses.
[cards1] Bloomberg News

Credit-card companies are struggling to recover from $1 billion in losses racked up last year as a result of the financial crisis.

But the slowdown of delinquencies isn't expected to help the bottom line as long as unemployment stays high and purse strings remain tightened. Those conditions don't help growth. The amount of outstanding credit-card loans shrank 10% last year, to $772.19 billion, due to tighter lending standards and a drop in consumer spending, according to the Nilson Report, a Carpinteria, Calif., industry newsletter.

Those loan portfolios are continuing to shrink. Chase, one of the largest issuers, has shaved more than $20 billion from its $127 billion portfolio. Over the past year, the bank has pulled back credit from its riskiest and least profitable customers.

Regulators also are squeezing growth. New federal card rules are expected to drain $11 billion a year from the industry over the next five years, said Robert Hammer, who runs a credit-card-consulting firm in Thousand Oaks, Calif. Those losses represent lost fee and interest revenue from charges that the law, enacted this year, bans. The losses also include higher costs of compliance with the law.

Issuers are trying to offset those costs by raising other interest rates and imposing new types of fees, but Mr. Hammer estimates that they will be able to recoup only 25% of that lost revenue.

"The industry is healing slowly, but there's a long way to go," said Gordon Smith, who runs the credit-card business at J.P. Morgan Chase. The bank's card unit squeezed out a $343 million profit in the second quarter after six consecutive quarters of losses totaling more than $3 billion.
[Cards]

"At its very root, there is strong consumer demand for our products. We are in a difficult environment, but I view it optimistically," Mr. Smith said.

But consumers, like regulators, also are vigilant. They are showing less loyalty and more skepticism about the cards in their wallets.

A survey released last week by J.D. Power and Associates found that only 22% of customers said they definitely wouldn't switch their primary card in the next 12 months, down from 25% in 2009 and 30% in 2008. More customers also said they had seen the interest rates on their cards rise.

To bolster themselves against such head winds, banks are grasping for the most profitable strategy, no two of them alike.

"The lack of loan growth makes it tough to say where the profitability drivers will come from," said Jeffrey Harte, an analyst at Sandler O'Neill & Partners, LP in Chicago.

Chase, which is running ads set in upscale ski resorts and Hawaiian retreats, has focused on affluent consumers with good credit histories. Citigroup, meanwhile, is going in the opposite direction.

"We are bringing to market services for people who are disenfranchised and are now building back their credit-worthiness," said Paul Galant, who runs the bank's card business.

Bank of America is focused on offering cards to its retail-banking customers and other mass-market consumers. It once pitched 5,000 affinity cards tied to colleges and professional organizations. The bank has pared back those cards to 3,500.

While Bank of America is exiting such specialized cards, Capital One Financial Corp. is doubling down on them. This month, Capital One acquired 20 million new accounts when it signed a deal with Kohl's Corp. to offer store-branded credit cards to its customers.

"The credit-card industry will still be an attractive business in the future, but right now it is adjusting to a new regulatory environment and what appears to be new consumer attitudes on debt," Mr. Harte said.

Potash Corp. Could See Chinese Offer

Dundee Capital Markets
http://online.barrons.com/article/SB50001424052970203914204575453614060768600.html?mod=googlenews_barrons
BHP BILLITON'S acquisition of Potash Corp. of Saskatchewan would all but certainly mean the end to the potash export consortium Canpotex given BHP's preference for selling through their own sales channels and directly to customers.

Potash (ticker: POT) (not rated) accounts for over half of the group's sales and the loss of Potash's substantial volumes would render other members Agrium (AGU) (rated at Buy) and Mosaic (MOS) (not rated) unable to exert the same level of influence as it would with Potash.

The Saskatchewan government is reviewing the full implications of a Saskatchewan without Canpotex with financial and political advisors but generally views the consortium as one of the province's strengths. The government's potash tax revenues are based on pricing, not volumes, and therefore a BHP (ticker: BHP, not rated) takeover could mean a decrease in tax revenue for the government given BHP's strategy to sell as much volume as it can at market prices.

While BHP is busy trying to win approval of its bid with Potash shareholders, there comes a point in the valuation when BHP management has to turn around and ask their own shareholders for approval. An acquisition valued at more than 25% of BHP's market cap would need to be brought before shareholders and works out to about $153 per share based on BHP's market cap of $184 billion.

We've mentioned in our notes dated Aug. 19 and 20 that a rival bid from a large mining conglomerate would be unlikely and even more so for a competing fertilizer producer.

We maintain that that scenario is definitely a possibility, but it would probably not be for the entire company. A Chinese company may seek to form a partnership with another large player, perhaps in the form of an off-take agreement in order to secure supplies for domestic needs at favorable rates. The Chinese are the largest consumers of fertilizer, and we expect them to import an additional five million tons in the next 12 months so they would be rightly served to go out and secure some product.

Rio Tinto (RTP) is the latest miner to enter the rumor mill as a possible bidder, but the Alcan acquisition might have left a bad taste in the company's mouth after admittedly paying too rich a premium for the company.

We continue to believe that, in order to win approval from shareholders, a bid of about $170 per share would be needed, and we still see this as unlikely. Speculation of rival bids and "white knight" saviors has quickly run up Potash's share price, and we would expect continued volatility in the stock. News of Chinese involvement has lifted the stock, but it could come back down quickly if BHP gets cold feet thinking that the Chinese are going to bid over C$170 [Canadian], or the Saskatchewan government opposes a Chinese buyout.

Firm Makes Bold Bet on Falling Prices

http://online.wsj.com/article/SB10001424052748704540904575451910642552160.html?mod=mktw

A Canadian insurer is turning to a seldom-used strategy to make a big wager on falling prices over the next decade.

As more investors worry about the possibility of deflation—or a sustained period of falling prices that could cripple stocks—Fairfax Financial Holdings Ltd. has spent nearly $200 million to buy derivative contracts wagering on a decline in the consumer-price index, an inflation indicator. The trade could lead to huge profits if deflation occurs.

Fairfax purchased some of the derivative investments in the first three months of the year, when few fretted about deflation and the cost of the contracts was cheap. It added more in the second quarter.

The derivatives now are catching the attention of some on Wall Street. They have gained more than 50% in value since Fairfax made its original purchases from a number of banks, generating paper profits of more than $100 million.

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FAIRFAX
Bloomberg News

Prem Watsa's Fairfax Financial has already made a $100 million paper profit by wagering on deflation.
FAIRFAX
FAIRFAX

The Fairfax bet, which aims to protect $22 billion of Fairfax's investment portfolio, comes as investors grapple with a particularly challenging environment, with the economy fragile and stock indexes struggling. Few investors are willing to make big wagers on deflation, despite its potential, with many skeptical any deflationary period would last long. The U.S. hasn't experienced an extended bout of deflation since the Great Depression.

Still, Fairfax isn't selling its deflation protection, despite its recent run-up in value. It thinks bigger gains could be ahead if the U.S. experiences a painful bout of deflation.

"We are extremely concerned about a double dip in the economy and about a deflationary environment," says Paul Rivett, chief operating officer for Fairfax's investing department.

Derivative bets on inflation aren't new. Some companies and investors pay small premiums to buy inflation "caps" or "floors" that pay off if inflation rises above or falls below a certain level. Others buy derivatives betting on moves in economic indicators like the CPI, the inflation indicator that is now running at an annual rate of about 1%.

But interest is growing among some larger investors for deflation derivatives like those Fairfax bought. Today it would cost about $330 million to protect the same $22 billion, dealers say.

Traders can sell these contracts to others in the "interdealer market," where banks trade with each other, something that was rare for such contracts six months ago. About $4.5 billion worth of these contracts have been trading each month in the interdealer market, up from $2.5 billion a month last year, according to traders.

Fairfax was founded in 1985 by Prem Watsa, who has made a series of acquisitions; its name derives from the phrase "fair, friendly acquisitions." Mr. Watsa's investments for Fairfax have led some to dub him Canada's Warren Buffett.

But in the U.S., Fairfax also has drawn attention for heated battles with short sellers; it has claimed these bearish investors helped drive down the insurer's shares several years ago before they turned higher in 2006. Fairfax shares have soared to more than 400 Canadian dollars (US$377) a share from about C$100 four years ago.

The insurer has a solid track record anticipating bad economic times. In 2003, Fairfax bought credit derivatives wagering on weakness among lenders including Countrywide Financial, scoring several billion dollars of profits when the housing market cracked in 2007.

Lately, the company has been studying bouts of deflation suffered in the U.S. and, more recently, in Japan, and it is getting worried.

"People say they understand deflation, but they don't understand how corrosive it is," Mr. Rivett says.

The Fairfax team believes U.S. households have only begun reducing borrowing and increasing savings, a trend it expects will lead to less spending, higher unemployment and deflation.

Fairfax paid $174 million in upfront fees to protect $22 billion of its investment portfolio against the possibility of deflation over the next decade. In exchange, Fairfax will receive a payment amounting to the drop in CPI below 2%—the level of inflation when Fairfax bought its contracts—multiplied by the $22 billion.

If deflation averages 2% annually over the next 10 years, Fairfax's contracts would rise in value the equivalent of 4% of $22 billion, or $880 million, each year over the next decade, according to traders familiar with Fairfax's trades.

In that scenario, if Fairfax holds on to its investments during the 10-year period, it would reap nearly $9 billion from its $174 million investment.

The company wouldn't get anything for its bet if inflation turns out to be higher than 2% over the next 10 years.

Fairfax wouldn't comment on potential returns or how the trades were structured.

Some banks selling these derivatives say they are skeptical of deflation. Prices for the derivative insurance suggest a 20% chance of deflation over the next 10 years, traders say. The banks say they have hedged their exposure, or reduced their risk, by finding other investors skeptical of deflation to take the other side of the trades or by purchasing their own insurance.

But traders say there are no perfect hedges when selling these derivatives. Some could be on the hook in the event of steep deflation.

Sawiris Pushes Vimpelcom Deal as Debt Mounts, Options Wane

http://www.bloomberg.com/news/2010-08-23/sawiris-pushes-25-billion-vimpelcom-deal-as-debt-mounts-options-dwindle.html

Egyptian billionaire Naguib Sawiris, chairman of the Middle East’s biggest mobile-phone operator Orascom Telecom Holding SAE, says nothing drives him more than being told something’s impossible.

“When I go anywhere and someone says ‘impossible,’ I laugh,” he told a gathering of young businessmen in Cairo last month. “In 90 percent of the cases, the impossible happens. A key feature in an entrepreneur is self-confidence. He must believe he’s Superman.”

The 56-year-old is trying to practice what he preaches. Undaunted by his failure to forge a deal with South Africa’s MTN Group Ltd. in June, Sawiris is now in talks to merge his phone business with Russia’s OAO VimpelCom, two people familiar with the matter said on Aug. 20. The transaction would create an entity valued at more than $25 billion, the people said.

Finding a partner is critical for Sawiris’s ambition of building an emerging markets telecoms behemoth, while at the same time shrinking about $15 billion in debt. The VimpelCom transaction would form a company with more than 200 million mobile-phone subscribers in Africa, the Middle East and the former republics of the Soviet Union.

“He has always wanted to grow, regardless of the leverage,” said Amr Elalfy, a director at CI Capital Research in Cairo. His company also needs “cash to pay a big chunk of debt maturing in 2013,” he said, adding that “Sawiris wants to capitalize on his assets now before he reaches a situation where he must sell.”

Near Collapse

Sawiris’s expansion in the past decade has taken him to Robert Mugabe’s Zimbabwe, Kim Jong-Il’s North Korea, and post- Saddam Hussein Iraq. Naguib, the oldest of three brothers who control some of Egypt’s biggest companies, made forays into markets shunned by others. Sawiris has said his goal is to make Orascom one of the biggest telecoms companies in the world.

His appetite for risk pushed him close to collapse in 2002 after his buying spree the previous year boosted debt to $2.2 billion. Sawiris paid $737 million in 2001 for an Algerian license, $315 million more than his closest rival. He then paid $454 million for a license in Tunisia.

Investors began to question whether he might default, said CI Capital’s Elalfy. Sawiris survived by selling his Jordanian unit that year and several of his sub-Saharan units. He also sold half of his Tunisian unit to Kuwait’s National Mobile Telecommunication Co.

VimpelCom Talks

Sawiris has largely proved his skeptics wrong. Orascom Telecom’s net income almost tripled to $2.02 billion in 2007 from 2006, according to Bloomberg data. Profit fell 23 percent to $332.4 million in 2009, hurt by a tax dispute with Algeria. Shares of Orascom Telecom more than tripled in value from 2005 until the start of the financial crisis in 2008. In the past year, the shares have gained 8.2 percent.

A deal with VimpelCom would allow Sawiris to prevent forced asset sales. He would become a significant minority investor in the new company, which would include his Weather Investments SpA’s 51 percent stake in Orascom Telecom and Italian mobile operator Wind Telecomunicazioni SpA, said the people familiar with the talks, declining to be identified because the discussions are private. The structure of a deal hasn’t been decided and an agreement may not be reached, the people said.

Lazard Ltd. and EFG-Hermes Holding SAE are advising Sawiris, while VimpelCom is being advised by UBS AG.

Sawiris didn’t respond to calls seeking comment. Orascom Telecom said in a statement this month it wasn’t party to any discussions with the Russian company.

Debt Burden

Among the hurdles would be the increased indebtedness at New York-listed VimpelCom, Russia’s No. 2 mobile-phone operator. Debt at VimpelCom and its units would rise to 2.5 times earnings before interest, taxes, depreciation and amortization, said Maxim Raskosnov, a banking analyst at Moscow-based Renaissance Capital. That’s up from 1.45 times Ebitda in 2009.

Sawiris’s Wind had net debt of 8.29 billion euros ($10.5 billion) as of June 30, while Orascom Telecom had $4.61 billion in borrowings. About $1.8 billion of Orascom’s debt matures in 2013, said Sally Gerges, an analyst at Cairo-based investment bank Beltone Financial.

“Orascom has tried all these different things to cope with its leverage and talked to strategic counterparts,” said Dalibor Vavruska, an analyst at ING Groep NV. “Given the specifics of Orascom, not every company would look at it, and the ones who would, have already spoken to them.”

Algerian Obstacle

Sawiris’s efforts to dispose of some of his African assets to MTN in a transaction that analysts and bankers had valued at $10 billion were halted after Algeria blocked the sale of a local unit.

Algeria, which said it would buy the unit, known as Djezzy, has yet to act on its pledge, prompting some analysts to question how Sawiris is going to extricate himself from the situation. Algeria has also handed Orascom a $596.6 million tax bill that the company is contesting.

The dispute with Algeria pits Sawiris against a government emboldened by coffers enriched on high oil prices, said Edward Bell, a London-based analyst at the Economist Intelligence Unit.

Aborting MTN’s purchase of Djezzy was probably because the government felt that it was not “getting a fair deal from Orascom. That said, there has been a fair bit of cooperation between Algeria and the Russians, particularly in defense.”

A solution for the Algerian unit, Orascom’s biggest by revenue, is key, said Marise Ananian, a Cairo-based analyst at Egyptian investment bank EFG-Hermes Holding SAE.

Sawiris Empire

“Algeria is Orascom’s biggest challenge,” she said. “If the Algerian government doesn’t buy Djezzy or doesn’t allow any other party to buy it, Orascom will have to sort out their regulatory and tax issues.”

Born in 1954 into a family of Egyptian Coptic Christians, Naguib started Orascom Telecom in 1997 with $60 million from the family. He teamed up with France Telecom SA to set up the Egyptian Co. for Mobile Services, or Mobinil.

His brother Nassef heads Orascom Construction Industries, Egypt’s largest publicly traded builder, and Samih chairs Orascom Development Holding AG, which develops resorts and real estate projects in Egypt, Europe and the Middle East.

The Sawiris empire was built in the 1950s, when their father, Onsi, worked for Egypt’s Irrigation Ministry, building canals and ditches that collected overflow from the Nile River.

Orascom’s operations now span from Canada to North Korea. At the end of the first half this year, its subscribers exceeded 99 million compared with 4.3 million in 2002.

Sawiris, a devout Coptic Christian, says faith that God is on his side keeps him optimistic in the face of challenges.

“To believe in God is to have courage,” he said in his speech last month. “It gives you an extraordinary power that, pardon my language, an atheist won’t have.”

Potash Corp Analyst Reaction

http://blogs.wsj.com/deals/2010/08/17/analysts-react-bhp-makes-a-move-for-potash/

“The Big Australian” is on the prowl, again.

Potash Corp. of Saskatchewan said it has received and rejected an unsolicited $38.56 billion takeover bid from BHP Billiton. Potash called the proposal from the cash-rich mining company “grossly inadequate” and not in shareholders’ interests. This for an offer that was a 16% premium to the company’s Monday closing price and for a stock that was up 23% for the year when the bid was revealed.

Below is roundup of analyst reactions to the offer:

Vincent Andrews, Morgan Stanley: “We are not surprised by such an offer given the confluence of the significant global interest in the potash industry (i.e., there are 8+ number of companies at present interested in greenfielding potash mines [developing new mines]) and that fact that equity valuations across the industry remain well below replacement cost [the cost of replacing an asset]. Given current equity valuations, we have long been skeptical that global players would want to: 1) Enter the industry through greenfielding when that action would increase the amount of production capacity in place; 2) Incur the cost of significant cost greenfield production when existing assets were available below replacement cost; and 3) Wait 5-7+ years to generate cash flow. This is not to mention that fertilizer fundamentals have materially (and we believe structurally) improved in the last two months as grain prices have rallied substantially.

“We are not surprised by Potash Corp.’s rejection of this unsolicited offer given that the offer is ~18% below what we believe is our conservative estimate of Potash Corp.’s replacement cost.”

P.J. Juvekar, Citigroup: “Given POT’s unanimous rejection of BHP’s offer, we believe this could be a long battle with a higher offer likely to emerge. A theoretical 30% premium to last night’s close (in line with average M&A premiums paid in the sector over the last 5 years) would place POT shares at $146/share. Our Metals & Mining team estimates BHP would be able to fund this out of debt and potentially also do a buy-back.” Juvekar adds that Vale is unlikely to make competing offer because the miner would not be able to finance “a bid of $40B+ without a huge equity component.”

Mark Gulley, Soleil Securities: He expects higher bids to materialize. He predicts that Vale and Rio TInto will join the fray. “The initial offer is way too low for change of control of the global leader, just a 16% premium over yesterday’s closing price, and we view the board’s rejection as appropriate. The shares are already trading at $140 pre-market.”

Ackman on Path to Own NYC's Stuyvesant Town

http://abcnews.go.com/Business/wirestory?id=11358591&page=2

But the grand plans collapsed after the market's decline and a court decision that ruled the apartments were illegally brought out of rent stabilization.

Most real estate experts have said that any new owner would likely partner with the politically well-organized tenants and convert many of the units to tenant-owned co-operative apartments.

"No future owner can or will be successful without the support and participation of the tenant community," New York City Council Member Dan Garodnick, a life-long resident of the complexes who represents Stuyvesant Town and Peter Cooper Village, said in a statement on Monday.

Ackman, in a statement, said his plans include tenant ownership.

"We share the Tenants' Association objective to complete a non-eviction, affordable, co-op conversion of the property, which will require the restructuring of the property's first mortgage debt," Ackman said.

Should a bidder offer $3 billion or more, the winner would be required to pay off the $300 million mezzanine loan.

However, many experts have said they believe the property today is worth far less than that amount, and unless someone steps up to bid $3 billion to cover the first mortgage, Ackman's joint venture will become the new owner and assume the mortgage.

HEM Q2 CC

Remainder of the year
backlog 70% higher than 2009
unusual high back half revenue
very optimistic
canada down significantly in Q2. lost opportunity for 2010 western canada
double digit growth for the year

china market, OEM, similar growth rate as first half.
minimum breakeven for the back half of the year
ebidta positive for the year...too challenging

record back half of the year more than 2008

cash balance

m&a activity
we have been actively exploring
not active in this market just some dealer consolidation

brazil best growth

china early stage...guidance system

restructuring cost
last 6 months---severance charge
building less products

Q3 Q4

some seasonality stronger Q3 than last year,
Q4 stronger than Q3, potentially best quarter in 2010

distribution channel
australia better revenue generation

still expects 50% plus gross margin
seasonality

2011---record revenue level

less reliant on north america

China July Trade Surplus Widens On Import Slowdown

http://online.wsj.com/article/BT-CO-20100810-706876.html

BEIJING (Dow Jones)--China recorded its biggest trade surplus in a year and a half for July, government data showed Tuesday, likely adding to the pressure on Beijing to allow faster yuan appreciation.

A sharp slowdown in import growth meant that China's trade surplus widened to $28.7 billion in July from $20.02 billion in June, surpassing expectations of a $19.6 billion surplus in a poll of economists. July's surplus was the biggest since January 2009's $39.11 billion.

The data come ahead of U.S. trade figures for June, due out on Wednesday and which are likely to show a trade deficit of more than $40 billion.

"This contrast in the trade position of the two most important economies in the world will likely increase the pressure from Washington for Beijing to allow further currency appreciation, particularly in the lead-up to mid-term elections in November," Royal Bank of Canada economist Brian Jackson wrote in a note.

July's slower imports growth is the latest sign that economic activity in China is easing as the impact of stimulus spending, which created a construction boom resulting in massive demand for imports of raw materials and equipment, has faded. Government measures to cool property-market speculation and crack down on polluting, energy-intensive industries have also contributed to the slowdown.

Property market figures also out on Tuesday illustrate the slowing construction activity, which is leading to lower demand for imported raw materials. China's National Bureau of Statistics said investment in real-estate development, one of the main forms of private investment in China, rose 33.0% in July from a year earlier to CNY411.8 billion ($60.82 billion), but slowed from June's year-on-year 46.3% increase to CNY583.0 billion. Analysts expect a further slowdown in property investment in the coming months.

Nationwide property sales fell 15.4% to 64.7 million square meters in July from the same period a year earlier. July's sales were down 29.4% from 91.6 million square meters in June.

Despite the decline in sales, urban property prices in 70 Chinese cities were unchanged in July from June, and 10.3% higher than a year earlier, according to government data, highlighting the challenges Beijing faces in keeping asset-price inflation in check and dashing any hopes of a potential easing in the sector's tightening measures.

Analysts said the resilience of property prices indicates Beijing won't be eager to loosen its measures to cool the sector, which include higher mortgage downpayment requirements for second and third homes. They see prices and sales dropping further in the coming months.

Exports grew 38.1% in July from a year earlier, China's Bureau of Customs said, slowing from June's 43.9% rise, but beating economists' expectations of a 36.3% increase.

The data showed no signs that exports to the European Union have been weakening, as some analysts had expected. Exports to the EU rose 5.4% to $28.67 billion in July from $27.2 billion in June, and were up 38.3% from July 2009.

Zheng Yuesheng, director of the statistics department of the General Administration of Customs, said the effect of the European sovereign debt crisis on China's exports will likely appear in the fourth quarter, China state radio reported Tuesday, suggesting exports growth may slow more obviously later this year.

July imports rose 22.7%, down sharply from June's 34.1% increase and well below expectations of a 30.2% rise.

The weak import growth affected stock markets around Asia on Tuesday, raising concerns that softening Chinese consumption could have negative implications for the global recovery. The Shanghai Composite Index ended down 2.9% at 2595.27, reversing early-morning gains.

Analysts said the larger trade surplus makes yuan appreciation more likely in the coming months.

"China says it will allow market supply and demand to determine the exchange rate. Well, the balance of payments is the most important factor in the market supply and demand picture," said Morgan Stanley economist Wang Qing.

The yuan has risen 0.77% against the dollar since Beijing's June 19 announcement that it would increase the exchange rate's flexibility, effectively ending a two-year peg to the dollar.

Decision Time Looms for Wheat Farmers

http://online.wsj.com/article/SB10001424052748704268004575417672972922474.html#articleTabs%3Darticle

Wheat farmers in the U.S. and elsewhere are gearing up to make a crucial bet on the health of the world's grain supplies.

Many farmers must decide within the next few weeks whether to plant more wheat to take advantage of rising prices triggered by the crippling drought in Russia and the nation's export ban.

Earl Kleeman, left, and his son-in-law, Gary Millershaski, are deciding whether to ratchet up wheat production.

At the same time, Russian farmers are facing a rapidly closing window. The fate of their 2011 crop rests on whether rain finally falls in time for new plantings to take hold.

The weather and decisions made by farmers throughout the world will have ramifications for the price of wheat and many other commodities. Worries about a shortage already have sent grain prices soaring, threatening a potentially damaging bout of food inflation. But if waves of farmers decide to plant added wheat to take advantage of that threat—and if next year's Russian crop is strong—the balance could quickly tip to a glut, driving prices down and hurting rural economies.

On Monday, an Australian commission warned that a hatching of a huge locust plague with the potential to devastate winter crops, including wheat, in eastern Australia could start as early as next week. Australia usually is a major global supplier of wheat and barley.

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Egypt, the world's top importer, said over the weekend that the recent rise in prices could cost it an additional four billion Egyptian pounds, or about $705 million. Cairo also moved to secure other supplies after Russia imposed an export ban, buying 240,000 tons from France on Saturday.

Indonesia, Thailand and other nations already face higher costs for various food items, including sugar and pork, heightening concerns about a return of the civil unrest that accompanied rising food costs in 2008.

Much depends on decisions made by farmers such as Gary Millershaski, who has a 6,000-acre farm in southwestern Kansas, typically the top-producing state in the U.S., which is the world's largest wheat exporter.

"I'm an opportunist," says Mr. Millershaski, who is deciding whether to ratchet up wheat production. He estimates he could generate almost 1,000 extra bushels by planting land he had planned to keep fallow, which could generate thousands of dollars in extra income.

Similar calculations are being made around the state, the country and the world. Dean Stoskopf, another Kansas farmer, in Hoisington, guessed that about 10% more acres will be planted with wheat in the state than last year.

Russia's crop next year is dependent on the drought breaking. Seeds in the Black Sea region that includes Russia and Ukraine need at least an inch or two of rain in coming weeks, said David Streit, founder of Commodity Weather Group in Bethesda, Md.

But there is little rain in the near-term forecast.

"If you're playing the odds, you've got a tough uphill struggle," Mr. Streit said.

The unfolding global reaction to Russia's export ban makes it hard to predict whether the market for wheat will face a shortage or a surplus. In the short-term, in particular, it isn't clear what governments will do with their existing stocks.

"I'm an opportunist," says Kansas farmer Gary Millershaski, shown holding a handful of this summer's wheat.

Russia's Deputy Prime Minister Igor Shuvalov has said the government may revise the ban—currently set to run from Aug. 15 until Dec. 31—later this year, depending on the harvest. Meanwhile, the influential grain union is pressing the government to delay the start of the ban until Sept. 1.

And D.P. Singh, president of the All India Grains Exporters Association, estimates that India has around 47 million to 50 million tons of wheat in storage across the country. Mr. Singh sees a good chance that the government will open up to wheat exports in the near future, taking advantage of its stocks and a likely increase in wheat prices.

The high stakes in coming weeks show how thin the margin for error is in the global food supply. The appetites of many nations are growing, and they rely on international trade to sate it.

The world got a taste of the consequences with the 2008 food riots, and many governments took steps to increase stockpiles and increase production as a result. The current wheat-market seizure could mark the start of a major test of those fixes.

Russia is facing discontent over its handling of the disaster, and in Malaysia and Thailand there already are rumblings over food prices.

In Thailand, many consumers have been complaining about an unexpected jump in the price of sugar after the country ran low on supplies and had to import the commodity for the first time in 30 years.

"Prices of food are higher in every category" since the beginning of this year, says Porntip Uthaichan, a 30-year-old coffee vendor in Bangkok. The cost of sugar, which she uses in the coffee she sells, has shot up about 45% to roughly 29 Thai baht (91 U.S. cents) a kilogram this year, she says, while the pork she buys is about 20% more expensive than earlier this year.

Also, the Muslim holy month of Ramadan is set to begin this week, a time of daily fasting and feasting when families increase their normal food purchases by upward of 25%. That could increase pressure on governments to check price increases. The oil-rich Gulf countries import an estimated 85% to 90% of all basic food goods, according to a recent report by the Arab Organization for Agricultural Development.

The world's farmers must choose with incomplete information about forces that could drive future price swings. Wheat stocks are high, but it isn't clear if key nations will share the bounty. Moreover, if Russia's drought eases by fall, it could produce a strong crop next year, which could turn fears of a shortage into a sudden glut.

"A titanic 2011 U.S. acreage battle is brewing," said Rich Feltes, senior vice president for research at MF Global, a commodities brokerage firm.

In recent years, a move toward ethanol has boosted demand for corn.

U.S. farmers have pulled back from wheat, and the size of the crop shrank 11% in the past two years, to 2.2 billion bushels, according to U.S. Department of Agriculture data.

The number of harvested acres world-wide has also stagnated and was forecast to decline in the coming crop.

Futures prices fell sharply in the financial crisis, from nearly $13 a bushel in early 2008 to around $4.50 a bushel less than 10 months later. In early June, they were trading around $4.28 due to an apparent glut. Prices surged above $7 last week.

On Wednesday, when wheat rose 7%, Mr. Millershaski in Kansas was taking a break from field work to refill the machine that he uses to spread fertilizer, when his father-in-law brought up the idea of planting more wheat than usual this fall.

"We're doing the math," he said.

—Jacob Gronholt-Pedersen contributed to this article.

CFSG Q2 CC

increasing demand in iron and metal retrofitting
customers want to preserve cash first
special AR plan to collect payment
sensitive to steel product price

implement
July 12th, anshan iron steel group
only a short term challenge
long term 2 billion dollar retrofit project has not changed
share buyback

http://www.reuters.com/article/idCNSGE6780EZ20100809?rpc=44

Fire safety products maker China Fire & Security Group Inc (CFSG.O) posted lower-than-expected quarterly results, and cut its 2010 outlook, hurt by a slowdown in China's iron and steel industry, sending its shares down to a 52-week low.

The company said it suffered a slowdown in execution of projects from the iron and steel industry, which was hurt by lower steel selling prices and rising costs of iron ore.

The company's major clients in the iron and steel industry are facing a difficult time due to the weakness in the housing and household industries, the company said on a conference call with analysts.

China Fire & Security, which is being cautious in the short run due to slower payment from its customers, said it is deliberately slowing ongoing projects to control expenses.

The company cut its 2010 earnings forecast to a range of $1.20 to $1.26 a share, from $1.65 per share to $1.70 per share.

It now expects 2010 revenue of $118 million to $125 million, down from its previous forecast of $135 million to $145 million.

Q2 RESULTS MISS STREET

For the second quarter, the company posted net income of $6.3 million, or 22 cents a share, compared with $8.3 million, or 29 cents a share, a year ago.

Excluding items, the company earned 26 cents a share.

Revenue almost remained flat at $22.8 million.

Analysts on average were expecting earnings of 28 cents a share on revenue of $27.9 million, according to Thomson Reuters I./B/E/S.

Gross margin contraction to 54.3 percent from 63.8 percent was mainly driven by lower revenue contribution from the system contracting projects. The segment contributed about 80 percent of revenue.

Shares of the company, which touched a low of $8.11, were trading down 9 percent at $8.30 Monday morning on Nasdaq. (Reporting by Megha Mandavia in Bangalore; Editing by Jarshad Kakkrakandy)

Gross Margin
between 50 and 60%

new marketing campaign with importance of retrofitting

Nuclear, petrochemical, international expansion

compliant with the new firecode

nuclear vertical: installation capacity for nuclear power plant
Government highly encourage self-reliant technology renovation
further expand market share.
establish a solid footprint in this market. well positioned for this business opportunity.

power generation and transmission
Q2 2. 9 million

regional transformer
thermo hydro,

transportation vertical:
7.9 % year over year
railway
2 small contract in this quarter
bidding for larger contract

International market
1. direct bidding international market
2. bid for project with chinese company

Joint venture, merger acquisition

Wuhan iron and steel hurt more than

Aug 2nd 2010

BEIJING, Aug. 2 /PRNewswire-Asia/ -- China Fire & Security Group, Inc. (Nasdaq:CFSG - News) ("China Fire" or "the Company"), a leading industrial fire protection product and solution provider in China, today announced that Mr. Weigang Li, the chairman of the Company, was selected as an executive director of the fifth council of the China Fire Protection Association (the "CFPA") on July 8, 2010.

The CFPA is a nationwide fire protection organization composed of researchers, experts and industry professionals who specialize in the fire protection field. The mission of the CFPA is to maximize the effectiveness of fire prevention and protection technology and to foster advanced nationwide fire safety codes and standards. Every four years, the CFPA nominates distinguished intellectuals, scientists and industry experts from various backgrounds in the fire protection field to become the executive directors of its council.

Mr. Weigang Li was selected as an executive director of the CFPA in recognition of his outstanding commitment and contributions to the fire protection industry. Mr. Li has over 15 years of hands-on experience in management, marketing, and project management and implementation within the industry. In addition to actively leading China Fire, Li is also devoted to advance industrial fire protection technology and fire safety standards throughout China.

Mr. Li commented, "I am thrilled to be recognized by the CFPA and along with other notable researchers and officers from the Ministry of Public Security to be chosen as one of its executive directors. To be honored by such a respected industry association further motivates me to promote fire protection technology development as well as nationwide safety codes and standards enforcement. I am looking forward to leveraging China Fire's technical leadership and deep industry experience to improve and increase knowledge exchange and technology transfer within the fire prevention and protection industry."

WEW Q2 conference

Good Initiative

Renewal and extension with AT&T

Bell network supported by Quadrant. decent sized contracts.


Sales Pushed to Q3

1. Government services in US

2. License extension with existing client

3. Quadrant multinational medium truck

Annual Investor lunch late september

cost reduction
terminate contractor relationship in brazil.
cost of sales, attrition, combine different roles in different department

Fedex.
Software revenue only.
more like channel,

eg. de-icing

last year 1 million software, 7 million hardward

Fedex no subscriber revenue



Salesforce

Q3 better than Q1.

Q4 pipeline strong

quarter by quarter performance review with sales force

pretty confident with sales target

1. Insurance
2. OEM opportunity
3. Selling opportunity is there


no guidance on revenue
Guidance: expect to be profitable for the year, positive cashflow result for the year
1. hardware order pipeline. pipeline smaller than January, but more qualified.
less than 4000 for verilocation
GNP 7000 units deployed, only 3000 left. takes another couple of months, probably another order before end of the year.

Bottom line
Invest in strategic opportunity.OEM, international opportunity.

USAA insurance

insurance early stage,

webtech 2.0, market continues to grow,

9.6 million Revenue 60% non-hardware sales, recurring.
brazil operation closed

lower opex

At&t
Fedex by the end of Q3 sales.
significant number

4.8 million