CIT Says Chief Executive Peek to Resign at Year-End (Update2)

CIT Group Inc., the 101-year-old lender that may file for bankruptcy protection, said Chairman and Chief Executive Officer Jeffrey Peek plans to resign.

Peek, 62, joins Bank of America Corp. chief Kenneth Lewis and Morgan Stanley head John Mack, who have said they will step down in the past month. CIT’s board formed a search committee to find a new CEO, the New York-based company said in a statement today.

The U.S. government rejected a second bailout for CIT after committing $2.33 billion in taxpayer funds in December to keep the lender afloat. The company turned to bondholders in July after it was denied access to the Federal Deposit Insurance Corp.’s program to sell U.S.-backed debt.

“Peek misjudged a major strategic area of the company,” said Sean Egan, president of Haverford, Pennsylvania-based Egan- Jones Ratings Co. “He continued to rely on the capital markets for funding. The lack of stable low-cost funding sources killed him.”

Peek joined CIT in 2003 after being denied the top job at Merrill Lynch & Co. in 2001 and spending 19 months as head of the asset-management unit at Zurich-based Credit Suisse Group AG. CIT lost $5 billion in the last nine quarters as the collapse of the market for subprime mortgages sparked the worst financial crisis since the Great Depression and cut off CIT’s short-term funding.

Swap Prices

CIT has asked bondholders to exchange unsecured obligations for new secured debt maturing in four to eight years and preferred shares. Bond and credit-default-swap prices show that investors are speculating the offer to exchange about $29 billion of debt won’t prevent the company from filing for bankruptcy.

“It’s very telling he left now,” Egan said. “You have to assume there are some problems with the exchange offer.”

CIT fell 16.5 cents, or 16 percent, to 87.5 cents in composite trading on the New York Stock Exchange at 9:38 a.m. The stock has lost 81 percent of its value this year.

CIT, which finances about 1 million businesses from Dunkin’ Brands Inc. to Eddie Bauer Holdings Inc., will seek court protection through a pre-packaged bankruptcy should the debt exchange fail, according to an Oct. 1 filing. The company posted a second-quarter loss of $1.62 billion as more customers defaulted on loans.

CIT bonds have tumbled and the cost to protect the debt climbed on speculation the exchange will fail.

CIT Notes

CIT’s $500 million of 4.125 percent notes due Nov. 3 fell 2.5 cents to 66.5 cents on the dollar as of 9:06 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The notes have fallen 13.5 cents since the exchange was announced on Oct. 1.

Credit-default swaps on five-year CIT debt rose 0.5 percentage point today to a mid-price of 41.2 percent upfront, according to CMA DataVision. That means it would cost $4.12 million initially and $500,000 annually to protect $10 million of CIT debt from default for five years. The swaps have risen from 36.7 percent upfront since Oct. 1, CMA DataVision prices show.

The bond prices “are telling you the distressed debt exchange won’t work and they will need to use the prepackaged bankruptcy” option, Kevin Starke, an analyst at CRT Capital Group LLC in Stamford, Connecticut, said last week in an interview.

Treasuries Rise on Speculation Rates to Stay Low, Dollar Falls

Oct. 13 (Bloomberg) -- Treasuries rose for the first time in three days on speculation the dollar’s decline will spur demand from foreign investors as the Federal Reserve keeps interest rates at a record low through late 2010.

Today’s rally follows the biggest weekly decline in Treasuries in two months and comes as the dollar slid to the weakest level against the euro since before the bankruptcy of Lehman Brothers Holdings Inc. Fed Bank of St. Louis President James Bullard said yesterday that a falling unemployment rate is a precondition for an increase in the target interest rate from near zero.

“A decline in the dollar makes Treasuries cheaper,” said Michael Pond, an interest-rate strategist in New York at Barclays Plc, one of 18 primary dealers that trade with the Fed. “That could encourage some buying. If that trend is expected to continue, then foreign investors should expect a decline in the value of their foreign holdings.”

The yield on the 30-year bond fell seven basis points to 4.16 percent at 11:22 a.m. in New York, according to BGCantor Market Data. The 4.50 security due August 2039 increased 1 9/32, or $12.81 per $1,000 face amount, to 105 25/32. The yield rose 23 basis points last week, the most since it gained 31 basis points over the five days ended Aug. 7.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners, dropped as much as 0.5 percent to 75.738, the lowest level since Aug. 11, 2008.

‘Double-Edged Sword’

“It’s a double-edged sword because the weaker dollar is good for exports and the economy, but as a reserve currency you don’t want people losing faith in the value,” said Thomas Tucci, head of U.S. government bond trading at RBC Capital Markets New York, another primary dealer. “We’ve seen the reinvestment of dollars in the front end of the curve over the course of the last three months. It has helped to keep the curve steeper.”

Trading of Treasuries was closed yesterday in the U.S., Japan and London, because of a public holiday in North America. U.S. 10-year note futures expiring in December rose 0.2 percent yesterday, and were little changed at 118 19/32 today.

‘All Dimensions’

Treasuries fell last week after Fed Chairman Ben S. Bernanke said policy makers will tighten monetary policy once the economic outlook improves. The Fed will hold off raising interest rates until its August 2010 meeting, according to a October survey of 47 economists by Bloomberg News.

“You want to see the economy start to recover in all its dimensions, output and trade” before raising rates, Bullard said in a Bloomberg Radio interview in St. Louis. “We do have some of those turning around now.”

The jobless rate rose to a 26-year high last month of 9.8 percent, the Labor Department said on Oct. 2.

Retail sales in the U.S. probably fell in September as auto showrooms sat empty after the “cash for clunkers” program expired, economists said ahead of the Commerce Department report tomorrow.

Retail Sales

Purchases dropped 2.1 percent after rising 2.7 percent in August, according to the median forecast of 72 economists surveyed by Bloomberg News. Other reports this week may show inflation and factory production cooled last month, according to Bloomberg surveys.

“There is no one data series that will be the ultimate catalyst for the Fed to raise rates or for the removal of monetary policy,” said Barclays’ Pond. “It’s expectations on sustainable growth and how quickly the output gap will close.”

The financial crisis started with the collapse of the U.S. property market in 2007 and has triggered $1.62 trillion of writedowns and credit losses at banks and other institutions, according to data compiled by Bloomberg.

Now investors are preparing for another potential crisis: a surge in the cost of living spurred by the $11.6 trillion the Fed and the government has lent, spent or guaranteed to shore up the economy and the financial system.

Cheap TIPS

BlackRock Inc., Pacific Investment Management Co. and Vanguard Group Inc., which together manage $3.45 trillion, say investors are pouring money into inflation-linked debt even as consumer prices post the longest series of contractions since Dwight D. Eisenhower was president in 1955.

“Investors are really taking the long view and trying to hedge inflation risk,” said Mihir Worah, who oversees the $15.4 billion Real Return Fund for Newport Beach, California-based Pimco, the world’s biggest bond manager. “That’s the biggest reason why we’re seeing the flows.”

Treasury Inflation Protected Securities, or TIPS, have gained 7.9 percent this year, according to Merrill Lynch & Co. indexes, while Treasuries overall lost 2.8 percent. That’s the biggest outperformance since the U.S. first issued TIPS in 1997.

More Bearish

Bernanke said at a Board of Governors conference Oct. 8 in Washington that while “accommodative policies” will be in place for an extended period, the central bank will be prepared to tighten monetary policy “to prevent the emergence of an inflation problem down the road.”

TIPS remain cheap by historical measures. The difference in yield between 10-year TIPS and 10-year notes is 1.85 percentage points, compared with an average of 2.18 over the past five years.

A survey of investors by Ried, Thunberg & Co. shows fund managers turned more bearish on Treasuries. The company’s index measuring the outlook through the end of 2009 fell to 45 for the seven days ended Oct. 9 from 46 the week before. A figure below 50 shows investors expect prices to fall.

The company, based in Jersey City, New Jersey, interviewed 21 fund managers controlling $1.54 trillion.

FDIC Proposes Banks Prepay Deposit Fees Through 2012

Sept. 29 (Bloomberg) -- The Federal Deposit Insurance Corp. is asking lenders to prepay three years of premiums, raising $45 billion, to replenish reserves drained by the fastest pace of bank failures in 17 years.

The insurance fund will have a negative balance as of tomorrow after 120 banks were shut in the past two years, and will be positive by 2012, the staff said. Banks failures may cost $100 billion through 2013 with half the cost already incurred, the FDIC said. The agency today rejected options for a second special fee or borrowing from the Treasury Department.

“What we are proposing to do is to tap the ample liquidity of the banking industry to improve our own liquidity position without borrowing from the Treasury,” FDIC Chairman Sheila Bair said at a Washington board meeting.

The agency is required by law to rebuild the insurance fund when the reserve measured against insured deposits falls below a certain level. The fund, drained by 95 bank failures this year, had $10.4 billion as of June 30 and will return to a positive balance in 2012.

The proposal adopted unanimously by the board requires banks to pay premiums for the fourth quarter and next three years on Dec. 30.

The board backed prepayments over alternatives such as borrowing taxpayer dollars from the Treasury Department, charging the banking industry a special fee in addition to levies they already pay and borrowing directly from the banks.

Dec. 30 Payment

Under the proposal, the FDIC wouldn’t impose another special assessment this year. The agency would raise assessments by 3 basis points in 2011.

The FDIC will seek public comment until Oct. 28.

The banking industry lobbied against a special fee that would be added to the regular annual premium, telling the FDIC and Congress such a levy would hurt their ability to raise capital. The industry welcomed the FDIC’s proposed approach.

“It’s certainly a better solution than taking a large chunk of money out of banks’ income and capital,” James Chessen, chief economist at the American Bankers Association, said after the meeting.

The prepayment approach gives “the FDIC the cash that they need, it will be paid for by the industry and it will not have the severe impact that other options would have had on banking,” Chessen said.

Banks paid a special assessment in the second quarter that raised $5.6 billion for the insurance fund. The agency also has authority to impose fees in the third and fourth quarters.

Banks backed prepayment because the premiums are classified as an asset when the payment is made, becoming an expense during the quarter in which the obligation is due.

G-20 Plans to End ‘Financial Balance of Terror’ After Summit

Sept. 28 (Bloomberg) -- President Barack Obama and fellow Group of 20 leaders are trying to end what Obama adviser Lawrence Summers has called the “financial balance of terror.”

World leaders, meeting in Pittsburgh last week, adopted a framework for more durable economic growth as they sought to prevent a replay of the worst crisis since the Great Depression. They also acknowledged the growing clout of China and other emerging economies by giving them a bigger voice in decision- making.

The aim is to reduce U.S. dependence on overseas capital to finance consumption, while cutting the reliance of China and other creditor nations on American consumers to buy their goods. Summers, head of Obama’s National Economic Council, has singled out the current arrangement as a risk to prosperity since it leaves each major economy a hostage of the other’s policies. “Because our global economy is now fundamentally interconnected, we need to act together to make sure our recovery creates new jobs and industries,” Obama told reporters in Pittsburgh Sept. 25 after hosting his first economic summit.

To help ensure that happens, G-20 countries agreed to give the 186-member International Monetary Fund a role assessing their efforts. The oversight function will be among the topics discussed by policy makers as they head this week to Istanbul for the annual meetings of the IMF and World Bank.

Slower Growth

After expanding at a 4.6 percent annual pace in the five years through 2008, the world economy might be in for a spell of slower growth unless G-20 countries follow complementary policies, said Edwin Truman, a senior fellow at the Peterson Institute for International Economics in Washington.

The U.S. is counting on the crisis and its aftermath to convince countries like China that it’s in their own interest to shift away from exports toward domestic demand as Americans save more and spend less, Truman said. The U.S. savings rate rose to a 14-year high of 6 percent in May before falling to 4.2 percent in July.

“U.S. consumption is all but certain to be very stagnant for the next few years,” said Desmond Lachman, a former IMF official who’s now at the American Enterprise Institute in Washington. “You’ve got to find other sources of demand.”

In the meantime, G-20 leaders acknowledged the recovery remains dependent on emergency government measures, and they pledged to avoid pulling back until the time is right. “We will avoid any premature withdrawal of stimulus,” their communiqué said.

Stocks Decline

That promise may encourage investors to take on more risk after signs of economic weakness prompted the biggest weekly declines in European and U.S. stocks since July, said Sophia Drossos, co-head for global foreign exchange strategy at Morgan Stanley in New York.

“The G-20 outcome could lead to a reversal of the selloff,” she said.

Demand for U.S. durable goods unexpectedly fell in August and loans to households and companies in Europe grew at the slowest pace on record, reports showed last week.

The Standard & Poor’s 500 Index has dropped 2.2 percent since Sept. 18, and Europe’s Dow Jones Stoxx 600 Index slipped 2.4 percent in the same period.

Developing-nation equities suffered their steepest weekly decline in more than two months last week, with the MSCI Emerging Markets Index ending 1.2 percent lower.

Lopsided Trade Flows

G-20 leaders pledged to correct the lopsided flows of trade and investment blamed for contributing to the crisis: U.S. consumers borrowed money to finance purchases of Asian-made cars and flat-screen TVs. Asian exporters, meanwhile, invested their surplus cash in U.S. Treasury notes, pushing down borrowing costs and further fueling the credit binge.

Some economists cast doubt on the pledges by the G-20, since no sanctions will be used to enforce them and a similar push in 2006 by the IMF petered out.

“Unless the major surplus and deficit economies actually decide that they really want to go down this route, it’s hard to imagine anything will happen,” said Kenneth Rogoff, a former IMF chief economist who now teaches at Harvard University.

Obama, Chinese President Hu Jintao and European leaders including German Chancellor Angela Merkel face plenty of hurdles as they seek to place the world economy on a more stable footing.

The U.S. must cut a $1.6 trillion federal budget deficit, while China contends with a record $2.1 trillion in foreign exchange reserves representing years of accumulated trade surpluses.

Central Bankers

Central bankers, who did not attend the summit, may be wary of any suggestion that they sacrifice their independence in the name of worldwide coordination. And global institutions such as the IMF and the Basel, Switzerland-based Financial Stability Board may lack the horsepower to carry out the added responsibilities they’re being given. Chinese officials said they recognize that the country must shift its economic priorities.

“China also understands that its economic-growth model has some flaws,” Ma Xin, director-general of international cooperation at the National Development and Reform Commission, China’s top planning agency, said in Pittsburgh.

Change may take time, Ma suggested. He said that his nation’s “low” consumer spending is something that has “accumulated over many years and it is a structural problem.”

Treasury Secretary Timothy Geithner pointed to the increase in the U.S. savings rate as an “encouraging sign.”

‘Measured Optimism’

After “a long period of time living beyond our means, you see people already changing behavior,” the Treasury chief said in Pittsburgh. “That’s one reason why we can stand here today and express some measured optimism about our capacity to put in place a more sustainable recovery.”

There are other signs that imbalances are shrinking. The U.S. current-account deficit narrowed in the second quarter to $98.8 billion, the least since 2001. Credit Suisse AG predicts Chinese imports may rise 30 percent to $313 billion in the fourth quarter as the government’s stimulus program spurs domestic demand.

“While the global rebalancing to date has been significant and broad-based, it remains to be seen whether this process will continue,” said Bruce Kasman, chief economist at JPMorgan Chase & Co. in New York.

Giving emerging markets such as China, India and Brazil a greater stake in global decision-making may ensure that it does.

Supplants G-8

The broader G-20 will supplant the Group of 8, a club of the most highly developed nations plus Russia, as the guardian of the global economy after last week’s summit. The G-20 accounts for about 85 percent of global gross domestic product. The risk is that the larger group will find it more difficult to make decisions, said Tim Adams, who served as the U.S. Treasury’s top international official in the administration of George W. Bush.

“The bigger the grouping, the harder it is to get consensus,” said Adams, managing director of the Lindsey Group, a Washington-based economic advisory firm. “You can’t have the agenda taken over by the favorite hobby horses of each country.”

The third summit of G-20 leaders in the past year also plotted a road map for revamping the banking industry after the two previous meetings, in Washington and London, focused on fighting market turmoil and reversing the spiral into recession.

Deferred Bonuses

Leaders agreed that banks must avoid “multiyear guaranteed bonuses” and that a “significant portion of variable compensation” must be deferred, paid in stock, tied to performance and subjected to clawbacks if earnings flop. They stopped short of endorsing a French proposal to introduce specific caps on pay.

Awards must also be curbed if they are “inconsistent with the maintenance of a sound capital base,” the G-20 said. Regulators should be allowed to modify the compensation practices of key firms. Banks will also have to increase the quality and quantity of capital they hold by the end of 2012. The regulatory overhaul is “for real, but there will be plenty of argument over the detail of how it’s done,” Leon Brittan, vice chairman of UBS Investment Bank and former European Union trade commissioner, told Bloomberg Television.

U.S. Stocks Climb on Takeovers; Affiliated Computer Surges

(Bloomberg) -- U.S. stocks rose, sending benchmark indexes up the most in five weeks, as takeovers in the drug and technology industries added to evidence that mergers and acquisitions are rebounding from the slowest pace in six years.

Affiliated Computer Services Inc. jumped 14 percent after Xerox Corp. made its biggest purchase by agreeing to buy the company for $6.4 billion. Abbott Laboratories advanced 3.8 percent on plans to purchase Solvay SA’s pharmaceutical unit and gain control of the TriCor cholesterol drug. Cisco Systems Inc., the largest maker of networking equipment, had the steepest gain in two months as Barclays Plc predicted revenue will increase.

The Standard & Poor’s 500 Index added 1.7 percent to 1,062.56 at 11:53 a.m. in New York. The Dow Jones Industrial Average gained 138.68 points, or 1.4 percent, to 9,803.87. About 333 million shares changed hands on the New York Stock Exchange, 27 percent less than at the same time a week ago as trading slowed for the Yom Kippur holiday.

“We’ve seen a pickup in acquisitions and it’s a very big plus,” said Hugh Johnson, who manages more than $1.6 billion as chairman of Albany, New York-based Johnson Illington. “It’s always good news when you see money come into the market.”

All 10 of the S&P 500’s main industries advanced today, trimming the decline in the index to 0.8 percent since it reached an almost one-year high on Sept. 18. The benchmark gauge for U.S. equities has climbed 57 percent in the past six months, pushing valuations on an earnings basis to the highest level since 2004. Companies in the S&P 500 traded at 20.2 times their profits on Sept. 22, data compiled by Bloomberg show.

M&A

Xerox, the world’s largest maker of high-speed color printers, said it’s buying Affiliated Computer for $63.11 in cash and stock for each Affiliated Computer share, 34 percent more than the closing price on Sept. 25. The purchase will extend Xerox’s reach in the services market as sales of its traditional printing equipment decline.

Affiliated Computer jumped 14 percent to $53.73 for the S&P 500’s biggest gain. Xerox posted the biggest loss in the index with a 16 percent slide to $7.49.

Abbott added 3.8 percent to $49.13. The company’s purchase of Solvay’s pharmaceutical unit will also give Abbott a bigger presence in emerging markets and lower its dependence on the arthritis drug Humira.

Cash Flow

As the economy emerges from the worst recession in 70 years, cash flow may rise from the $1.5 trillion reported by the Commerce Department for the year ended in June, according to data compiled by Credit Suisse Group AG and Bloomberg. Cash relative to share prices will climb to the highest in at least two decades next year compared with yields on corporate bonds, the data show.

The previous high in 2005 preceded the two busiest years ever for takeovers.

Europe’s Dow Jones Stoxx 600 Index jumped 1.6 percent. Germany’s DAX Index advanced 2.4 percent after Chancellor Angela Merkel won re-election with enough support to govern with the pro-business Free Democrats.

The MSCI Asia Pacific Index fell 1.5 percent, led by Japanese exporters as the yen strengthened to an eight-month high.

Cisco rose for the first time in five days, jumping 5.2 percent to $23.80. Barclays raised its recommendation on the company to “overweight” from “equal- weight.”

Insurers Rally

A measure of insurers in the S&P 500 rallied 3.2 percent. Insurance Services Offices Inc. said U.S. property and casualty insurers, a group including Allstate Corp. and Travelers Cos., returned to an underwriting profit in the second quarter, making more on premiums than they paid in expenses and claims.

Americans holding $3.5 trillion in cash are giving money managers increasing confidence that the stock market rally under President Barack Obama will continue through the end of the year. Even after reducing money-market accounts by 11 percent this year, investors have cash equal to 73 percent of S&P 500 companies’ net assets, according to data compiled by the Investment Company Institute and Bloomberg. At the peak of the bull market in 2007, the measure of buying power was 62 percent.

MEMC Electronic Materials Inc. lost 2.3 percent to $16.90. The maker of silicon wafers for solar modules and semiconductors was cut to “hold” from “buy” at Citigroup Inc.

Gander Mountain Co. surged 35 percent to $5.15. The sporting-goods retailer said it will go private, buying out stockholders who own fewer than 30,000 shares for $5.15 a share.

Home Sales, Goods Orders Probably Rose: U.S. Economy Preview

(Bloomberg) -- Home sales and orders for long- lasting goods probably rose in August, extending gains that have signaled the U.S. is emerging from the worst recession since the 1930s, economists said before reports this week.

Purchases of new and existing houses climbed to a combined 5.79 million annual pace last month, the most in almost two years, according to the median forecast of economists surveyed by Bloomberg News. Bookings for durable goods likely rose 0.4 percent, the fourth advance in five months, the survey showed.

Housing and manufacturing, two areas that deepened the slump, are stabilizing as stimulus measures such as credits to first-time homebuyers and “cash for clunkers” revive demand. While acknowledging the economy is healing, analysts project Ben S. Bernanke and his colleagues at the Federal Reserve will commit to keeping interest rates low when they meet this week.

“We are coming out of recession and we are in the early stage of a very fragile recovery,” said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh. “It’s an infant recovery that needs a lot of care and nurturing, and that means no rate hikes from the Fed.” Bernanke, the Fed’s chairman, last week said the recession “is very likely over.” The central bank will maintain the benchmark interest

rate near zero at least through the middle of next year, according to the median estimate of economists surveyed earlier this month. The policy-making Federal Open Market Committee’s announcement is due Sept. 23.

Fifth Gain

Existing-home sales, which make up more than 90 percent of the market, probably rose 2.1 percen

t to a 5.35 million unit pace, a fifth consecutive gain, economists forecast before the Sept. 24 report from the National Association of Realtors. As of July, purchases were down 28 percent from the record reached in September 2005. Data on new houses, due the following day from the Commerce Department, will probably show sales rose 1.6 percent to a 440,000 rate, according to the survey m

edian. They reached a record-low rate of 329,000 in January.

The Obama administration’s $8,000 tax credit for first- time buyers, combined with the plunge in prices as foreclosures climbed, have helped lift sales this year, prompting builders such as Toll Brothers Inc. to get back to work. Housing starts rose to a nine-month high in August, the Commerce Department reported last week, indicating residential constriction may soon add to growth after subtracting from g

ross domestic product since 2006.

Builder Shares

The Standard & Poor’s Homebuilder Supercomposite is up 40 percent so far this year, compared with an 18 percent gain for the broader S&P 500. The S&P 500 rose 2.6 percent last week, the best weekly performance in almost two months.

Just as the first-time buyer credit is boosting home demand, the government’s $3 billion

cash-for-clunkers incentive to trade in gas-guzzlers for more fuel-efficient vehicles boosted auto sales and production last month. The projected gain in orders for goods meant to last several years would follow a 5.1 percent surge in July that was the biggest gain in two years. Excluding transportation equipment such as cars and aircraft, orders probably rose 1 percent, economists forecast the Commerce Department will report on Sept. 25. Carmakers including General Motors Co. and Ford Motor Co. are planning to keep boosting output through the second half of 2009 to rebuild depleted invent

ories.

More Production Dealers are “looking for us to take up production,” Mark LaNeve, chief of North America sales at GM, said on a conference call Sept. 1. “We’re continuing to look for ways to squeeze out some more production.” In another sign the economy is recovering, the index of leading economic indicators probably rose in August for a fifth consecutive month, economists forecast the Conference Board will report tomorrow. The increases mark the gauge’s best performance since 2004. Consumers are becoming less pessimistic. The Reuters/University of Michigan index of consumer sentiment probably rose to 70.5 this month from 65.7 in August, according to economists’ forecasts before the Sept. 25 repor

t.

                        Bloomberg Survey

===============================================================
                       Release    Period    Prior     Median
Indicator                 Date               Value    Forecast
===============================================================
LEI  MOM%                 9/21      Aug.      0.6%      0.7%
Initial Claims ,000’s     9/24     19-Sep     545       550
Cont. Claims ,000’s       9/24     12-Sep     6230      6190
Exist Homes Mlns          9/24      Aug.      5.24      5.35
Exist Homes MOM%          9/24      Aug.      7.2%      2.1%
Durables Orders MOM%      9/25      Aug.      5.1%      0.4%
Durables Ex-Trans MOM%    9/25      Aug.      1.1%      1.0%
U of Mich Conf. Index     9/25    Sept. F     65.7      70.5
New Home Sales ,000’s     9/25      Aug.      433       440
New Home Sales MOM%       9/25      Aug.      9.6%      1.6%
===============================================================

Obama Imposes Tariffs of 35% on Chinese Tires, Backing Union

By Mark Drajem

Sept. 12 (Bloomberg) -- President

Barack Obama placed tariffs of 35 percent on $1.8 billion of automobile tires from China, acting on a labor union complaint that surging imports were pushing U.S. factory workers out of their jobs. The additional duties will begin Sept. 26 and last for three years, dropping 5 percentage points a year, according to a White House statement. “These remedies are a necessary response to the harm done to U.S. workers and businesses,” U.S. Trade Representative Ron Kirk said in a st

atement. “Enforcing trade laws is key to maintaining an open and free trading system.”

The case brought by the United Steelworkers is the largest so-called safeguard petition filed to protect U.S. producers from increasing imports from China. Union leaders and Democratic lawmakers portrayed the decision as a gauge of how Obama would balance his campaign pledge to protect workers from imports with his statements as president that he would avoid protectionism.

Democratic Representative Louise Slaughter of New Yo

rk said the decision was “the first big test of whether President Obama was going to side with the interest of big corporations and the U.S. Chamber of Commerce or with workers.”

“I am happy to say that he came down on the right side,” she said in an e-mailed statement.

The decision is a blow to Chinese producers such as GITI Tire Pte Ltd., the largest Chinese tire maker, and U.S. retailers of low-cost imports.

‘Unprecedented Action’

“By taking this unprecedented action, the Obama administration is now at odds with its own public statements about refraining from increasing tariffs,” Vic DeIorio, executive vice president of GITI Tire in the U.S., said in a statement. “This decision will cost many more American jobs than it will create.”

The independent U.S. International Trade Commission recommended that Obama impose duties for three years, starting at 55 percent, to counter a tripling of tire imports from China from 2004 to 2008. The union, which represents 15,000 employees at 13 tire plants in the U.S., said cheap imports were forcing factories to close, eliminating jobs.

“The president sent the message that we expect others to live by the rules, just as we do,” United Steelworkers President Leo Gerard said in a statement. This decision “means China and other countries can no longer assume they can engage in predatory trade practices with impunity.” Hosting Hu Jintao Obama is to speak at a convention of the AFL-CIO, the nation’s largest labor federation, next week. He is also hosting Chinese President Hu Jintao and other world leaders at an economic summit in Pittsburgh later this month. China is the second-largest U.S. trading partner, after Canada. Since the Steelworkers filed their petition in April, tire imports from China rose as importers raced to beat the imposition of tariffs or quotas. The tariffs Obama imposed are in addition to existing 4 percent duties on all Chinese tires for cars and light trucks. All of the U.S. tire makers have operations in China, according to the ITC, and none of them publicly supported the Steelworkers complaint. Goodyear Tire & Rubber Co., the largest U.S. tiremaker, stayed neutral. Cooper Tire & Rubber Co., the second-largest U.S. tiremaker, opposed the relief. The company has a plant in China. ‘Protectionist Spiral’ Chinese officials and a lobbying group for multinational companies such as Caterpillar Inc., Citigroup Inc. and Microsoft Corp. have urged Obama to refrain from curbing imports, saying it could lead to a “downward protectionist spiral.”

Imposing tariffs will have “highly damaging ripple effects throughout the U.S. economy by increasing the cost of imported tires that largely comprise the low-end of the tire market,” the Emergency Committee for American Trade, which represents those companies, wrote in a letter to Obama last month.

Former Preside

nt George W. Bush turned down each of the four requests for such trade safeguards in other industries, saying they would do more harm than good to the U.S. economy. Obama pledged during the election campaign to take a harder line against Chinese trade barriers, and said he would assess these safeguard cases on their merits. Since taking office Obama has vowed to avoid any new protectionist measures. “While it’s tempting to turn inward during this time of economic uncertainty, President Obama and China’s leaders have counseled us to avoid protectionism,” Commerce Secretary Gary Locke said at a dinner hosted by the U.S. Chamber of Commerce Sept. 10 to fete Wu Bangguo, China’s top legislator.