Greenspan Warns of Inflation

Arthi Gupta, Mayank Mehta and Sanjay Barot
18 Jun, 2010
New York City

U.S. stocks trade sideways as global markets retain positive bias. Private equity fund controlled by KKR agrees to buy Japanese recruitment firm Intelligence for $356 million.

[R]9:35 AM New York – U.S. stocks trade sideways as global markets retain positive bias. Private equity fund controlled by KKR agrees to buy Japanese recruitment firm Intelligence for $356 million.[/R]

U.S. stocks seek direction after former Federal Reserve Chairman Alan Greenspan warns of rise in borrowing costs. Mixed trading was seen in the Asian markets and European markets traded cautiously although the euro-zone debt worries temporarily eased after Spain completed bond offering.

Former Federal Reserve Chairman Alan Greenspan warned that perceptions that the United States has a large capacity to borrow are misleading and the government may soon face larger borrowing costs. He added that the U.S. needs a ""tectonic shift"" in fiscal policy and that a gradual change will not be enough.

""Despite the surge in federal debt to the public during the past 18 months - to $8.6 trillion from $5.5 trillion - inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued,"" Greenspan said in an opinion piece for the Wall Street Journal.

The former Fed chief said the U.S. should not underestimate the fiscal crisis developing in Europe and should cut back on its own borrowing. Investors have flocked to the U.S. dollar and Treasury bonds as a safe haven after the European sovereign debt crisis broke out. But the rapid rise in gold prices suggested that investors were seeking a safe haven beyond currency holdings, Greenspan said.

The U.S. has a budget deficit of around 10% of its one-year national output. It also runs a large annual current account deficit and has a low national savings rate - meaning that it is a net borrower from the rest of the world.

BP Plc Chief Executive Officer Tony Hayward came under harsh questioning by a Congressional panel investigating the explosion of the Deepwater Horizon rig in the Gulf of Mexico and the subsequent, and ongoing, spill of oil on Thursday.

Kohlberg Kravis Roberts & Co., the private equity firm said it has signed a deal to acquire Japanese recruitment services firm Intelligence Ltd., a unit of Tokyo-based cable broadcaster and media content provider Usen Corp., for 32.5 billion yen or about $356 million. The acquisition is expected to be completed by the end of July.

Intelligence Ltd., established in 1989, focuses on three core business areas - permanent job placement, temporary staffing and outsourcing and job search advertising.

Shusaku Minoda, Managing Director of KKR and Chief Executive Officer of its Japan operations, said, ""Intelligence is a dynamic company with a highly capable and enthusiastic management team. As one of the few recruitment services firms in Japan providing such a comprehensive offering, the company is well positioned to take advantage of an anticipated upturn in economic activity.""

The New York City-based asset manager said further growth of the recruitment sector is expected as a result of the evolving human resource needs of companies, as well as increased mobility of domestic and international labor markets due to growing awareness of career development opportunities.

Kohlberg Kravis Roberts & Co. closed at $10.10 per share in Thursday''s regular trading session.

Commodities, Currencies and Yields

Dollar edged higher against euro to $1.2372 and decreased against the Japanese yen to 90.64.

Crude oil decreased $1.18 to $75.61 a barrel for a front month contract, natural gas edged lower $0.02 cent to $5.15 per mBtu and gasoline decreased 2.320 cents to 214.08 cents.

Gold decreased $1.20 in New York trading to close at $1,247.50 per ounce, silver closed lower $0.006 to $18.77 per ounce and copper for the front month delivery decreased 4.900 cents to $2.87 6 per pound.

Yields on 10-year U.S. bonds increased to 3.18% and on 30-year U.S. bonds traded at 4.10%.

Stock Movers

Adolor Corporation, the biopharmaceutical company plunged 18.0%.

Kaman Corporation, the aerospace company rose 0.04%.

Tutor Perini Corporation advanced 2.9% after the construction company announced that it has won three new contracts totaling approximately $467 million.

Earnings Review

SMART Modular Technologies (WWH), Inc. ((SMOD)), the chipmaker said third quarter sales rose 119.7% to $201.2 million from $91.6 million a year ago. Net income in the quarter was $15.0 million or 23 cents per diluted share compared to net loss of $2.4 million or 4 cents per share a year ago.

Asian Markets Review

The Nikkei 225 Index in Tokyo closed lower 4.38 or 0.04% to 9,995.02, Hang Seng index in Hong Kong increased 148.31 or 0.74% to 20,286.71 and CSI 300 index in China lower 46.57 or 1.70% to 2,696.17. ASX 200 index in Australia increased 24.60 or 0.54% to 4,551.90. The FTSE Bursa KL Composite index in Malaysia closed higher 13.22 or 1.01% to 1,317.69.

The Kospi Index in South Korea increased 4.03 or 0.24% to close at 1,711.95. SET index in Thailand closed higher 2.51 or 0.32% to 791.85 and JSE Index in Indonesia increased 38.49 or 1.33% to 2,929.59. The Sensex index in India decreased 45.87 or 0.26% to 17,570.82.

Europe Markets Review

In London FTSE 100 Index closed lower 5.57 or 0.11% to 5,248.32, in Paris CAC 40 Index decreased 14.25 or 0.39% to 3,668.83 and in Frankfurt DAX index traded lower 20.51 or 0.33% to 6,203.03. In Zurich trading SMI decreased 34.94 or 0.54% to 6,440.31.