Oil surges on gasoline shortfall

Crude posts biggest one-day gain in nearly 3 weeks on surprise decline in supplies and Goldman forecast of higher prices.

NEW YORK - Oil prices rallied as much as $5 a barrel Wednesday after a surprise decline in the nation's gasoline stockpile, and a forecast from Goldman Sachs that said crude could hit $149 a barrel by year's end.

Light, sweet crude for September delivery rose $4.58 to settle at $126.77 on the New York Mercantile Exchange, posting its biggest one-day gain since it rose $5.60 on July 10.

A report from the Energy Department showed a 3.5-million barrel decrease in gasoline supplies, and a decline of 100,000 barrels of crude oil in the week ended July 25.

Investors anticipated a drop in crude stocks due to the limited effects of Hurricane Dolly on production in the Gulf of Mexico, but they hadn't expected a draw in gasoline supplies.

"That gasoline data was a positive surprise (for prices)....that is taking crude up," wrote Tom Orr, head of research at Weeden & Co. in an e-mail.

Analysts polled by energy research firm Platts had expected to see a 400,000 barrel increase in gasoline supplies, and a decline of 1.3 million barrels of crude oil.

Gasoline demand: The government's inventory report reinforced a weekly survey released Tuesday from MasterCard Advisors that showed demand for gasoline at the pump had hit its highest level since the beginning of the year, though it still remained significantly lower than the same week a year ago.

"It seems the hard lessons that were learned at $4 a gallon (gasoline) and above have faded," said John Kilduff, energy analyst with MF Global in New York.

Average prices for regular gasoline in the U.S. fell for the 13th straight day Wednesday to $3.926 a gallon after hitting a peak of $4.114 on July 16. Still, prices remain more than 35% higher than they were a year ago, according to motorist group AAA.

$149 a barrel?: A report by Goldman Sachs predicting prices could reach new heights was also feeding the rally.

The falling demand for crude, which had driven down prices more than $25 a barrel over the past two weeks, was only temporary, a Goldman analyst wrote in a report released Wednesday. The report went on to predict that prices would jump back up again to hit $149 a barrel by the end of the year.

"Basically Goldman Sachs hit right at the heart of why the market was going down," said Phil Flynn, senior market analyst at Alaron Trading in Chicago.

Oil's about-face: Just before the report's release, oil was down $1.08 to $121.11 a barrel as the anticipated increase in gasoline stocks would have indicated that demand has fallen in the United States, the world's largest consumer.

Oil investors worried that high prices for fuel made from crude oil have seriously damaged demand.

Despite Wednesday's rise, oil remained down 14% from the trading peak of $147.27 set July 11. Prices remained 65% higher than they were 12 months ago.

Supply: Concerns about supply disruptions from volatile oil producing nations such as Nigeria also gave prices a small boost.

On Tuesday, Royal Dutch Shell (RDS) said it would be unable to fulfill production obligations from Nigeria for three months due to an attack by militants that destroyed two pipelines.

Supply disruption worries have been a major factor in oil's record price increase. But because attacks on oil infrastructure in Nigeria have been relatively common over the past several months, many analysts believe the oil market may have already factored them into the price.

如何写支票

有本事就来捉我！由《铁达尼号（Titanic）》男主角李奥纳多狄卡皮欧 主演的电影《捉智双雄（Catch me if you can）》，讲述一名年轻人如何伪造支票，并藉此致富。虽然这只是一个电影情节，但片中的这名男主角何以如此消遥法外？

即使是科技如此发达的今天，在填写支票方面，还是会出现一些常见的错误或疏漏。

现在就让我们来谈谈有关填写支票的一些细节。

（1）收款人（Payee）——不论收款人是个人或公司，我们填写支票时，都必须填写收款人的全名。举例说，如果支票的收款人是John Tan Chi Min，我们不可填写诸如“John Tan”、“Tan C M”及“Mr J Tan”这类缩写名称。不过，一些常见的缩写名称，例如“Sdn Bhd”（私人有限公司，Sendirian Berhad的缩写），倒是通常会获得银行接受。此外，您在填写收款人的名字时，每个字眼必须紧密相连。如果字体之间的间距太大，收款人姓名将很容易被篡改。比方说，您在支票收款人的空位上填写“John Tan Chi Min”，将很容易被篡改成“John Tang Chin Ming”，结果对方将收不到支票。我还记得一个真实的个案，收款人是一家称为“ABC Limited”的公司，结果支票邮寄途中被一名邮差截获，并把支票的收款人窜改成“ABCD Limited”。这名不道德的邮差做法很简单，就是把所有收款人字体间距太大的支票，加上一个“D”字。

（2）或持票人（or bearer）——通常是印在支票空挡部位的尾端，致给收款人。这意味着，支票持有人可以索取有关数额。因此自然的，如果John Tan不小心遗失了有关支票，捡获该支票者将可领取有关款项。同样的，该支票传递者、邮差等也可以领取。这和开出一张现金支票（Cash Cheque）或没有在支票上填写收款人没有两样。要避免这种情况很简单，只要把“or bearer”这两个字划掉即可。（or bearer）

(3) 划线支票（Crossed Cheques）——在某些情况下，您可能会发现，所接获的支票中端已印上两条直线。一些人则在支票左上角划上两条平行线。通常，此举表示该支票只是发给帐户收款人（account payee only）及不可转让（not negotiable）。这和上述（2）相似，即一张印有“or bearer”或是已经划线的支票，让银行已经完全的表明，有关支票只有一名指定的收款人，即支票收款人一栏的个人或公司收款人。

保护自身财务利益

(4) 支票数额（Amount）——通常，国内支票款额栏目的货币单位，已预先印上“$”或“RM”的字眼。您必须谨记的是，您在支票上所填写的数目字，一定要紧贴在货币单位$或RM的后头。

当您填写数额时，把$及Cents（仙）明确的分开。我个人选择以下的方式：

此外，您必须确保所填写的数额，和填写的英文字母相符。通常，支票已预先印有货币单位，所以您可马上填写数额在后头。您必须写完整个词句，并以“Only”结束。例子如下：“Dollars One Thousand, Two Hundred and Thirty Four, and Cents Twenty Only. ”

(5)窜改，修正（Alternations, Amendments）——大马银行协会多年前已发出一项指南，不允许在支票上作出任何的窜改或修正。当然这是一件好事，因为任何的窜改，都将更轻易的被发现。

(6) 日期（Dating）——避免填写或接受期票（post-dated cheques）.

(7) 截停支票（Stop Cheques）——如果您已开出一张支票，只要还没过帐，仍可截停有关支票，阻止该支票过帐。只要致电银行，就有可能截停银行将该支票过帐。通常这项指示是免费的。然而，随着银行如今非常高效率的处理支票结算与过帐，要截停支票的机会其实已变得非常小。

(8) 将支票存入户头（Banking in a Cheque）——如果您是支票收款人，在把支票存入银行户头之前，必须在支票背面填上您的户头号码，以及您的联络电话。一些人甚至在支票背面填上身份证号码，虽然通常没有必要这样做。

今时今日，填写及开支票几乎是人人都会，没有人会多加留意的事。本文旨在提醒大家填写支票必须注意的事项，以保护大家自身的财务利益。

20高手熊市掘金

美國樓市低迷，全球油價突破100美元大關，但是去年華爾街上最大的贏家卻藉此賺進了190億美元。

過去幾個月間，無力償還的房貸、日益高企的油價和一路走高的食品價格，讓成千上萬美國人的生活質量急劇下降，但對於那些管理大量資本的人來說，卻是另一番天地，他們中很多人因為在去年正確預估到了美國房地產市場的崩盤和商品價格的飛漲，紛紛賺到盆滿缽滿。

20大基金經理‧去年賺187億美元

今年是福布斯第二次對華爾街的對衝基金和私募基金經理的收入情況進行排行，榜上的前20名基金經理去年共賺得187億美元，比2006年多出了46%，上榜的門檻是3.5億美元，比上一年度提高了9000萬美元。這一標準足以讓華爾街傳統投資銀行的首席執行官們望洋興嘆。

鮑爾森33億美元收入稱冠

排在是第一位的是對衝基金經理鮑爾森（John Paulson），他的個人收入達到了33億美元，其中大部份來自賣空與次級房貸市場走勢密切相關的ABX指數；有23億美元來自投資者支付的管理費；另外10億美元則來自他在鮑爾森公司（Paulson & Co）旗下基金的資產增值。

基金經理法爾科恩（Philip Falcone）在榜上排名第3，去年收入為17億美元。他通過做空次級信貸而獲得了3位數的增長率。去年他所管理的先驅資本（Harbinger Capital）基金除去投資者的新增投資外，資產總值的增長達到了110億美元。伯班克（John Burbank）管理位於舊金山的派司資本公司（Passport Capital），去年的收入為3.7億美元，其中大部份也來自於做空次級信貸公司和房貸相關債務。

一些上榜基金經理人─如收入12億美元的皮根斯（Texans T. Boone Pickens）和7億美元的阿諾德（John Arnold），都是靠傳統投資理念致富的，那就是投資能源行業。皮根斯管理的總值27億美元的BP資本凈值基金（BP Capital Equity Fund）在除去管理費用之後仍有24%的增長率。其管理的總值5.9億美元的日用品基金大量持有森高能源公司（Suncor Energy）、埃克森美孚和西方石油公司（Occidental Petroleum）的股票，因而在過去一年中大漲了40%。

索羅斯收入多來自資產增值

和皮根斯一樣，本榜排名第二的索羅斯（收入24億美元）賺到的錢更多地是來自資產增值，而非基金管理費用。索羅斯的個人投資在其管理的基金資產中佔據了很重要的份額。其中，量子基金（Quantum Endowment Fund）的資產總值達到了170億美元，去年的回報率為32%，為索羅斯個人帶來了20億美元的收入增長。

收入不包括售自家股份

為了評選出2007年收入最高的華爾街風雲人物，我們調查了華爾街上所有的對衝基金，私募基金和共同基金的發起人，經紀人，還有投資銀行家，對衝基金和杠杆收購發起人所抽取的報酬相當於基金利潤的20%，基金資產總值的2%，在衡量候選人的收入時，我們採用的是扣除公司運營開支後的稅前淨收入，但不包括拋售自己公司股份的所得。

例如，入選本榜的黑石集團（Black Stone）基金經理施瓦茨曼（Stephen Schwarzman）去年共獲4億美元收入，這裡頭包括了年薪，管理費用提成以及他在黑石旗下各基金的投資所產生的增殖，但他向公眾和中國政府出售股份所得的48億美元卻不在考慮之列。

SEC files insider-trading case over option buys

NEW YORK - U.S. regulators filed insider trading charges on Friday against unknown individuals accused of making suspiciously well-timed purchases of call options in two companies before they announced multibillion-dollar mergers.

The case was brought in U.S. District Court in New York against "one or more unknown purchasers" of call option contracts to buy shares of defense company DRS Technologies Inc and American Power Conversion Corp, a power and cooling services company.

DRS is in a pending deal to be acquired by Italy's Finmeccanica SpA, for $3.94 billion, while American Power was bought by French engineering group Schneider Electric SA for $6.1 billion last year.

Through an account at UBS AG in Zurich, the purchasers made "well-timed purchases" of call options of DRS and American Power that yielded profits of about $3.3 million, the U.S. Securities and Exchange Commission said.

The SEC brings cases against unknown defendants when, for example, the commission staff gets indications of unusual trading in an account at a broker-dealer firm but does not have the name of the account holder. The commission then often tries to freeze the account so that the holder cannot get to the profits.

The lawsuit, which seeks civil penalties and disgorgement of trading profits, says the purchases were made in the days and weeks prior to public announcements about the acquisitions. The activity occurred twice in a period of less than two years, the SEC contends.

In the first instance, the SEC said, Schneider Electric contacted American Power on September 13, 2006 about its interest in acquiring the company and American Power positively responded a week later.

From September 21 to October 20, 2006, the SEC said, the unknown purchasers bought 2,830 American Power call options that were well out of the money. After Schneider publicly announced a buyout offer on October 30, American Power stock jumped 26 percent and the unknown purchaser liquidated the call option holdings for a profit of about $1.7 million, regulators said.

In the other instance, the SEC said, the unknown purchaser bought out-of-the-money DRS call options beginning on April 29, 2008 through May 7, 2008.

The next day, it was publicly reported for the first time that Finmeccanica was in advanced talks to buy DRS, and the unknown purchaser liquidated the entire holding for a profit of about $1.6 million, the SEC contends. Finmeccanica announced May 12 it would acquire DRS.

Bush says Wall Street has hangover, must sober up

WASHINGTON - President Bush, in an unguarded moment, said Wall Street "got drunk and now it's got a hangover."

He made the comment at a political fundraiser in Houston last Friday after asking members of the audience to turn off their video cameras. Someone obviously ignored his request and a snippet wound up on a blog Tuesday by Miya Shay of ABC affiliate KTRK in Houston.

Bush clearly was in a good mood as he addressed a crowd in a private home. Members of the media were barred from the appearance.

"There is no question about it. Wall Street got drunk," the president said. "That's one reason I asked you to turn off your TV cameras."

"The question is, How long will it (take to) sober up and not try to do all these fancy financial instruments?"

He segued to problems in the housing market but said they weren't an issue in Houston. "Evidently not in Dallas because Laura's over there trying to buy a house today." Bush has six months left in office and is expected to return to Texas.

Bush expressed his fondness for Crawford, where he owns a ranch. "Unfortunately, after eight years of asking her to sacrifice I am no longer the decision-maker," he said, amid laughter from the crowd. "She'll be deciding — thanks for the suggestion."

He said he reminded her, "Honey, we've been on government pay now for 14 years. Go slow."

White House spokesman Tony Fratto said Bush simply was describing the stock market the way many observers have.

"The president has made this point before," Fratto said. "Markets were dealing with very complex financial instruments, and it's clear to everyone that the markets didn't fully understand the risk those instruments posed."

庫存增．需求減,棕油供需恐失衡

（吉隆坡25日訊）原棕油出口需求走緩，區域棕油產量日增之際，棕油庫存卻創下歷史新高；分析員指出，棕油供需或出現失衡！

大馬棕油局數據顯示，6月份棕油庫存攀至203萬噸歷史新高。

大馬證券研究指出，棕油產量預計維持揚勢至明年，惟最新棕油庫存水平，已開始反映供應失衡情況。

該行訪問多家業者后，預計棕油庫存明年將持高在220萬噸水平。

亞歐美證券研究分析員王吉騰回應《中國報》提問說，棕油庫存寫下新高，通脹壓力及棕油價格企高，是打擊需求主因。

但他認為，棕油供需尚未達失衡情況。

英特太平洋分析員郭毅全及另一名分析員認為，上半年棕油需求普遍不強，是打擊外銷表現主因。

他們指出，下半年適逢不同國家佳節，棕油需求量一般比上半年高。

分析員說，除了棕油庫存量，也得考量季節因素，這包括下半年棕油產量普遍佔全年產量約55%，且下半年棕油需求量，也佔全年需求量的56%至57%。

“棕油需求未進入高峰期，高庫存及外銷表現欠佳，並不足為奇。”

消耗量仍強勁

郭毅全說，儘管棕油庫存量錄新高，但棕油庫存及使用比重（stock usage ratio）處于偏低水平，顯示消耗量依然強勁。

“相信庫存量只是暫時增加，因為首半年出口一般遜于下半年。”

大馬證券研究報告指出，印尼棕油產量料從今年1880萬噸，增加13%至明年的2130萬噸。

“這是過去兩年以來最快增速，每年平均達8%。”

該行指出，油棕樹鮮果串（FFB）回酬改善，且印尼在2004及2005年大舉重植油棕樹，油棕樹如今已逐漸成熟，預期明顯提高棕油產量。

“我國棕油產量預計從今年1600萬噸預測產量，在明年增長11%至1800萬噸。”

歐美政策不再有利
需求趕不上供應

大馬證券研究指出，棕油需求成長幅度，將追不上供應成長步伐。

棕油需求過去4年平均成長3%，但馬印兩國棕油產量預計將以雙位數成長。

該行指出，中國、印度及歐洲需求放緩，而且歐洲發達國家生化燃料業者面對更多管制危機，棕油實質需求或遠低于預期。

“亞洲國家通脹壓力高築，也可能打擊棕油需求。”

該行引述其中一家業者消息說，中國目前僅購買“剛足夠”的棕油，而不像過去般採辦庫存。

大馬證券研究也指出，歐美國家生化燃油政策不再有利，且出現兩家關鍵發展，皆不利棕油市場。

該行指出，歐洲一家大型生化燃油業者計劃減產，料將衝擊植物油價格。

因為美國出口約67%生化燃油原料至歐洲；而且美國約30%玉米及13%大豆產量，是用作生化燃油原料。

由于棕油和其他植物油例如大豆油間具有替代關係，一旦其他植物油價格下滑，棕油價格或難保揚勢。

種植股或再盤整

種植類股隨國際油價走低陷盤整，大馬證券研究指出，棕油供需存失衡風險，或引發種植類股次輪賣壓！

該行指出，次輪重估料由種植業基本面主導，因而下調評級至“跑輸大市”。

該行更下修IOI集團（IOICORP，1961，主板種植）及森那美（SIME，4197，主板貿易）投資建議至“守住”，種值類股投資評級也被評為“售出”。

王吉騰也指出，種植業者被征收暴利稅，再加通脹壓力、成本漲及需求走軟等影響，種植股短期沒甚看頭。

他維持“中立”評級，但看好棕油價格在其他植物油價格仍高企的情況下，可延續揚勢。

他預測，今年每噸棕油平均價格可達3000令吉，明年料處于2500令吉水平。

短期不樂觀

郭毅全則看好種植業長期表現，但對種植股短期走勢不表樂觀。

“短期棕油需求料追不上供應增速，種植股表現或走低，除非有意長期投資，否則投資者最好先按兵不動。”

但他認為，以現有油價水平估計，棕油價格不會跌破2800令吉水平。

“首半年棕油平均價已介于3400至3500令吉，預計全年棕油價格可達3200令吉。”

不願具名分析員指出，全球植物油供應仍緊張，種植業基本面仍具強勢。

“但基本面強穩，未必反映在股價上。因為市場估值僅11至12倍左右，投資者未必以種植股估值作為投資指南。”

失衡

失衡（Mismatch）泛指錯誤的結合或不協調。

棕油供需失衡是指供應及需求出現不協調情況。

根據經濟市場原理，當某樣產品出現供需不一致情況，例如供應量超過需求量時，這可能推低產品價格。

CFTC charges Optiver with oil-market manipulation

WASHINGTON - The U.S. Commodity Futures Trading Commission on Thursday charged global trading fund Optiver Holding BV with manipulating the NYMEX oil market in March 2007.

The complaint charged that three employees made about $1 million through manipulation of crude oil, gasoline and heating oil futures on the New York Mercantile Exchange.

According to the complaint, the employees carried out a manipulative scheme known as "banging" or "marking"' the close.

"Banging the close" refers to the practice of acquiring a substantial position leading up to the closing period, followed by offsetting the position before the end of trading for the purpose of attempting to manipulate prices.

The agency said the employees in three instances forced futures prices lower and in two instances caused prices to rise.

"Although this alleged energy trading scheme lasted only several days in March 2007, even short-term distortions of prices will not be tolerated by the commission," said CFTC Acting Chairman Walt Lukken.

The CFTC began its nationwide investigation into oil market manipulation last December.

The agency said it still has "dozens and dozens" of energy cases under investigation.

Congress Pursues $80 Oil With Trading Limits, Rules

Congress may outlaw elements of oil futures trading that lawmakers found distorted demand and contributed to the 66 percent surge in prices in the past year.

U.S. legislators are considering limits on the number of oil contracts an investor can hold and may increase disclosure requirements. Speculators such as Goldman Sachs Group Inc. use the practices to bet on price swings, which may drive up prices, though they have no intention of taking delivery of underlying goods, lawmakers say.

Proposals being debated this week in the Senate would bring prices more in line with demand, proponents say. Excluding the effect of speculation, oil would be around $80 a barrel, 38 percent lower than yesterday's price, according to Jesus Reyes Heroles, the chief executive officer of Petroleos Mexicanos. Critics say restrictions may interfere with the functioning of a $4 trillion annual market for crude oil.

``Americans are being taken advantage of not only by OPEC but by speculators right here in our own country,'' says Senator Ted Stevens, an Alaska Republican, referring to the Organization of Petroleum Exporting Countries. ``Historically, this has not been a bad problem. Only recently has speculation reached these unsustainable levels.''

Investor control of contracts to buy crude oil in New York almost doubled in April from five years earlier as prices climbed, according to the Commodity Futures Trading Commission. Increased energy costs have slowed the economy, reduced consumer buying power and angered voters.

Oil, Futures Decline

Crude oil for September delivery fell $3.98, or 3.1 percent, to settle at $124.44 a barrel at 2:59 p.m. on the New York Mercantile Exchange, the lowest close since June 4. The number of outstanding crude oil futures in New York fell to the lowest in 17 months yesterday as the Senate began considering legislation to limit speculation in oil markets.

Republicans in the Senate may allow a vote on limits as soon as tomorrow, according to Alaska Republican Senator Lisa Murkowski. The House plans a vote before members start a monthlong break in August. President George W. Bush has signaled he will consider any resulting legislation.

At least 15 proposals are circulating in Congress. Measures proposed by Democratic Senate Leader Harry Reid of Nevada and his Republican counterpart, Mitch McConnell of Kentucky, would expand the CFTC's enforcement staff and give it access to data for identifying over-the-counter traders and those making U.S.- based transactions on overseas exchanges.

Other proposals would require that oil traders report their holdings, eliminating large, untraceable purchases by individuals. Capping the number of contracts held by an investor would prevent small groups from pushing prices higher or lower, says Representative Bart Stupak, a Michigan Democrat.

Voter Anger

Lawmakers, who normally avoid major initiatives in an election year, are moving to curb oil trading as higher costs anger voters, says Kevin Madden, the former media strategist for one-time Massachusetts Governor Mitt Romney's Republican presidential campaign. Congress got a 14 percent job-approval rating in a Gallup survey last week, the lowest in the poll's 34-year history, partly because of gasoline prices.

``It's one of those issues that is motivating people to vote up or down on their local legislator,'' Madden says. ``Members are looking to go home and give voters some sort of legislative option.''

Goldman Says `Unwarranted'

Goldman Sachs and oil traders say a poorly designed measure won't reduce prices and may remove investment options that serve as a hedge against inflation. Speculators buy contracts to take on price risks that oil producers won't want or aren't allowed to accept. Oil companies use futures to hedge against price drops, says Craig Pirrong, head of the University of Houston's Global Energy Management Institute.

In a June 29 report, Goldman, Wall Street's most profitable bank, argued that the idea higher prices are part of a speculative bubble is ``unwarranted.'' The New York-based firm declined to comment through spokesman Michael Duvally.

The price reflects demand from China and India, not manipulation or excessive speculation, says William Adams, a managing director at JKV Global in Chicago, a trader of energy, grains and metals.

``Thinking that you can legislate a position in the market or that you can legislate a direction of the market would be true manipulation,'' Adams says.

Acting CFTC Chairman Walter Lukken says he has seen no evidence of the type of excessive speculation or manipulation lawmakers are targeting.

Trade Groups

Trade groups are pressing Congress for restrictions. Nineteen organizations, including the Air Transport Association and the Consumer Federation of America, wrote Congress June 11 urging ``meaningful reforms.''

Four signers -- the Associated Builders and Contractors, the Teamsters Union, the Air Line Pilots Association and American Trucking Associations -- gave $4 million combined this year to candidates for federal office. The combined amount would be the second-largest among contributors to federal candidates.

``Sophisticated paper speculators who never intend to use the oil are driving up costs for consumers and making huge profits with little to no risk,'' the groups wrote. On June 6, when oil gained $10.75 a barrel, 22 barrels of oil were bought on paper for every barrel consumed, they said.

Reyes Heroles, the CEO of Mexico City-based Pemex, the third-largest importer to the U.S., said in a July 21 interview that he agreed with analysts who have estimated the price of a barrel of oil would be close to $80 excluding the effect of speculation.

Congressional Probes

The House and Senate have held at least two dozen hearings on speculation since early June, taking testimony from airline and trucking executives, exchange officials and regulators, and conducted at least three oil-price inquiries.

Chief executive officers of 12 U.S. air carriers including Delta Air Lines Inc.'s Richard Anderson, AMR Corp.'s Gerard Arpey and UAL Corp.'s Glenn Tilton said in a letter to customers on July 9 that ``normal market forces are being dangerously amplified by poorly regulated market speculation.''

Lawmakers point to data from the CFTC, the federal commodities regulator, showing that speculators controlled 71 percent of contracts to buy crude oil on the New York Mercantile Exchange in April, up from 37 percent five years earlier. Oil reached a record $147.27 a barrel on July 11.

McCain's `Reckless Speculation'

At least three Republicans -- Stevens and Maine Senators Susan Collins, and Olympia Snowe -- signed on to proposals backed by Democrats to limit speculation. McConnell has proposed meeting Democratic demands partway by increasing oil-market oversight.

Tony Fratto, a spokesman for Bush, won't rule out that the president may sign legislation to curb speculation, while cautioning that Congress should avoid being ``too prescriptive with market regulation.'' Increasing domestic oil production is ``the most important thing we can do'' to signal that supply will rise to meet demand, he says.

Democratic presidential candidate Senator Barack Obama of Illinois on June 22 proposed an increase in government oversight of energy markets, a requirement that oil futures be traded on regulated exchanges, development of rules for overseas markets and federal investigations into any questionable trades.

Republican candidate John McCain, a Senator from Arizona, called June 25 for immediate steps to stop ``reckless speculation'' in oil futures. McCain said he would impose new regulations to assure the integrity of the markets and didn't give details.

Is Mr Fixit breaking Merrill Lynch?

NEW YORK - Say this for John Thain, he's making history at Merrill Lynch & Co. He's presided over the darkest era at the nation's biggest brokerage.

We'll get to who is to blame in a minute, but first, a look at the latest bad news that has come on his watch.

Last week, a market that was fully expecting bad news from Merrill braced for grisly after-market quarterly results. The brokerage Merrill Lynch & Co. was supposed to take a big write-down of $4.5 billion to $6 billion. The loss was supposed to be near $1.91 a share, according to consensus estimates.

When the financials hit the wire Thursday, the results were much, much worse: $9.4 billion in write-downs, trading losses, a loss of $4.65 billion. The final blow was that not only had Merrill agreed to raid part of its rainy day fund -- a 20% stake in data provider Bloomberg L.P., to raise $4.5 billion in capital -- it would sell another subsidiary, Financial Data Services, for $3.5 billion.

When Thain agreed to become chief executive eight months ago, he knew there was going to be trouble, but this much? Though Citigroup Inc. had turned in bigger losses and write-downs by dollar amount in the past, its balance sheet is more than twice the size of Merrill's. In other words, Merrill is arguably the most battered firm in business since the banking crisis took hold.

It has lost $19.2 billion during the last year, and Moody's Investors Service estimates Merrill could be on the hook for another $10 billion pre-tax write-downs. More than 4,000 employees have lost their jobs.

What's gone wrong

Thain, 53, who won kudos as head of the New York Stock Exchange and earned a reputation as "Mr. Fixit," wants to put the blame squarely on his predecessor. Thain has been reminding the market that these problem assets are so-called legacy assets in that they are assets accumulated under former CEO Stanley O'Neal.

"I did not create these CDOs," he said on a conference call.

Thain has also suggested that people are making too big a deal about the asset sales. "We have $1 trillion [on our] balance sheet. There are in fact other options. You guys never heard of FDS, and there are other options on our balance sheet."

He's right. Still, Thain has made a couple of missteps and therefore should accept some of the
responsibility for Merrill's misfortunes.

He's repeatedly misread the market. In January, he said the firm would not consider selling the Bloomberg stake or its 49% stake in institutional money manager BlackRock. In April, Thain said Merrill wasn't planning on raising more capital and didn't need more cash.

OK, Merrill didn't. It sold $8 billion in assets instead.

Thain's biggest mistake may be the promise he made to foreign investors not to dilute their stakes when they pumped $15.5 billion into the balance sheet. Merrill would have to pay them cash or stock, if Merrill sold stock. This has kept Merrill from issuing new stock and looking around the store for things to sell.

The wrong job

Speaking of Citigroup, how is Thain feeling about his decision to bypass the big red umbrella in favor of Mother Merrill? Late last year, Citigroup was struggling to deal with its $58 billion in struggling structured investment vehicles and $20 billion in coming write-downs. When Vikram Pandit was tapped to become chief executive Dec. 11, Citi was the worst performer among the 30 companies that made up the Dow Jones Industrial Average.

Back in December, I wondered if the expectations of Thain and the lack of them of Pandit would influence their legacies

Since he took the job at Merrill, shares have fallen 45.3%; Citi shares have fallen 42.7%. Merrill has six buy, or strong buy, recommendations and three sell recommendations. Citigroup has six buy, or strong buy, recommendations and three sell recommendations, according to ThomsonReuters and FactSet Research

Neither company is getting a pass from analysts. Citigroup, which is mostly a bank, has exposure to a deteriorating consumer credit market, according to a report published Friday by Standard & Poor's Equity Research. Merrill Lynch, which is mostly a brokerage, is facing bear market territory.

"This company's earnings power has been severely compromised," Ladenburg Thalmann analyst Richard Bove wrote Friday. "Even though it now has exemplary management it could take years for the firm to recover."

Maybe by then the Citigroup job will open up again.

Former SEC head wants broader short-selling rules

NEW YORK - Emergency action by regulators to rein in abusive short-selling in some large financial firms should be expanded to include the stocks of all public companies, a former top markets watchdog said on Monday.

Former Securities and Exchange Chairman Harvey Pitt said the SEC's emergency order that went into effect on Monday would help in "restoring legitimacy" to short-selling activity but should go even further.

"It's something that is very good of the SEC to have done," he told Reuters in an interview. "They can't do it across the board without going through formal rule making, but I do believe that they need to expedite that."

The SEC last week announced an emergency measure applying to stocks of 17 Wall Street firms, as well as U.S. housing finance companies Fannie Mae (FNM.N) and Freddie Mac (FRE.N) as a way to curb manipulative short selling. The emergency action can last up to 30 days.

The commission's move has drawn complaints, including from the banking industry, which wants the protections extended to all banking companies. The SEC has said it will consider rules to address short-selling issues across the entire stock market.

"Any cut less than the whole is going to be perceived ultimately as arbitrary," said Pitt, now head of financial consultant Kalorama Partners in Washington. "My own view is they couldn't do all of the public companies in one fell swoop. They made what appears to me to be a reasonable cut, and hopefully they will expand it across the board just as quickly as they are able to do it."

Short sellers borrow shares they think are poised to drop in price and then sell them, hoping the stock will fall and can be repurchased at a profit. A "naked" short occurs when an investor sells stock that has not yet been borrowed.

Under the emergency rule, a short seller must borrow the securities before executing the short sale. It also requires the investor to deliver the securities on the settlement date.

Pitt, who was SEC chairman from 2001 to 2003, said that after the September 11, 2001 attacks roiled financial markets, many companies urged the commission to outlaw short selling entirely. But he said the practice is ultimately helpful to ensuring markets run properly.

"Short selling provides extra liquidity in the market," he said. "The goal isn't to prevent short selling. The goal is to make sure that people who sell short will have the means to settle their trades when they are supposed to be settled."

Chinese broker tried in insider trading

BEIJING - The former president of a major Chinese stock brokerage has gone on trial on insider-trading charges in connection with the company's 2006 stock market debut, a state news agency reported Saturday.

Dong Zhengqing, former president of Guangfa Securities, the country's sixth-largest brokerage, denied any wrongdoing and rejected an earlier confession at the trial Friday in China's southern business capital of Guangzhou, the Xinhua News Agency said.

Dong is accused of tipping off his brother about Guangfa's plans to obtain a stock market listing by acquiring a company that already was publicly traded. Investigators say Dong's brother, Dewei, and a former schoolmate, Zhao Shuya, profited by buying the second company's shares in advance of an announcement.

Chinese regulators are trying to clean up financial markets that are marred by accusations of insider-trading, poor corporate governance and other abuses.

Reinforcing investor trust has become especially urgent for Beijing after the main market index plunged by some 50 percent since hitting a record high in October.

Guangfa debuted on the Shenzhen Stock Exchange in southern China on June 2, 2006, by acquiring Yan Bian Road Ltd. Chinese companies use such "reverse mergers" to obtain a market listing without having to meet government requirements to list on their own.

The government launched an investigation of the merger in June 2007 and Dong was arrested the following month.

Dong Dewei and Zhao Shuya began to amass shares in Yan Bian in February 2006 but denied in court on Friday that they acted on a tip from Dong's brother, Xinhua said. It said they withdrew earlier confessions of wrongdoing.

Yan Bian shares soared by more than 180 percent in value between March and June 2006, Xinhua said. It said Dong Dewei was accused of making 50 million yuan ($7 million at current exchange rates) in improper profits, while Zhao Shuya was accused of making 1 million yuan ($130,000).

Dong Zhengqing said the stock market listing was conducted by two of his partners and he only heard about it in June 2006, the report said. But it said several Guangfa executives testified that Dong played a key role in making decisions about the deal.

Economy not looking so bad, as viewed from the farm

KANSAS CITY, Missouri - The U.S. housing crisis looks pretty distant when viewed from the cornfields of middle America, although land values pushed up by record commodity prices also evoke past booms that ended in bust.

Farm prices in the corn belt jumped an eye-popping 20-plus percent last year. Economists at the Kansas City Federal Reserve say that so far, the gains seem to be based on anticipated profits from future harvests, not speculation.

If prices suddenly turned lower, the sector could suffer, and it would not be the first time. Farm values collapsed 40 percent between 1982-87, squeezed by higher production costs and lower agricultural earnings.

"If prices stay put we're somewhat better, but if they don't, we're somewhat in trouble ... It's not all roses," said Dennis Kvatum, a soybean and wheat farmer in Beardsley, Minnesota.

On the other hand, farmers have far fewer debts than in the 1970s and 1980s, giving them a decent cushion.

"Rising farmland values might be a sign of a bright, new, golden age in agriculture -- but they are not without risks, noted the Kansas City Fed's latest Economic Review.

In the meantime, the rest of the regional economy is benefiting from the sector's strength, albeit with typical Midwestern understatement.

"Our business is really not bad. In fact, it's pretty good," said Mike Haverty, chief executive officer of Kansas City Southern railway, whose trains haul cargo like coal and grain for export to ports in Mexico.

Surging energy costs have not dented the railroad man's enthusiasm because strong demand has helped him to pass along roughly 70 percent of these increases to customers.

A monthly manufacturing survey by the Kansas City Fed of its district declined in June, but it did show that companies' expectations for future activity remained positive and export activity was solid.

The Kansas City Fed's seven-state district spans the farming heartland of Oklahoma, Kansas, Nebraska and western Missouri, as well as the Rocky Mountain states of Colorado, Wyoming and northern New Mexico, where energy and ranching, as well as tourism, are economically dominant.

DOING WELL

"The major food exporters, energy and commodity producers of our district are doing well," Kansas City Fed President Thomas Hoenig told Reuters in an interview earlier this month.

"Our housing industry is under pressure, but by much less than in southern California," he said, referring to a region of the country at the heart of the subprime mortgage meltdown.

U.S. agricultural exports have skyrocketed more than 40 percent this year due to both higher prices and larger volumes, amid soaring demand from markets like India and China, whose massive emerging middle classes want to eat more and better.

The benefits of this boom have been felt broadly, with retail sales taxes up in neighboring Nebraska, for example, in an indication that consumers have continued to spend and buoy a service sector suffering at a national level.

"Record high commodity prices have lifted farm profitability and that has spilled over into capital spending," said Jason Henderson, a rural economist and head of the Omaha branch of the Kansas City Fed.

"We're going to have some solid growth in 2008 and our service sector is holding up well," he said, adding that west Nebraska may be one of the few places in the country where demand for SUVs has defied $4-plus gasoline.

The Kansas City Fed calculates an index of farm incomes and capital spending based on a survey of agricultural banks.

This gauge soared to around 160 during 2007 from a reading near 100 in the fourth quarter of 2006, with capital spending tracing a similar climb. But the pace of gains for both were expected to slow over the coming months.

"Rising input costs are limiting crop profit margins. Livestock producers are posting huge losses due to higher feed costs," it noted in its most recent survey of agricultural credit conditions, which covered the first quarter.

On top of margin pressures, higher commodity prices also up the ante for agricultural businesses that have to buy and store produce at the higher prices, and finance these inventories with bank credit.

"Your county grain elevator used to need a credit line of $10 million and now that is more like $40 million," said Paul DeBruce, chief executive of DeBruce Grain, a huge private grain distributor with $4.6 billion of turnover in fiscal 2008.

Some if his grain elevators customers were negotiating harder on when they would get paid than on price -- an indication of their need for cash -- and order backlogs for agricultural equipment were lean, in a sign of slowing demand.

"The industry is not in trouble, but it is under strain," the Kansas City-based DeBruce said.

Argentina drops disputed farm tax

Argentine President Cristina Fernandez de Kirchner has cancelled controversial tax increases on agricultural exports, which sparked months of protests.

Export levies will return to the fixed rates that existed before March, said cabinet chief Alberto Fernandez.

The Senate had narrowly rejected the government's proposals in a vote following more than 16 hours of debate.

Farmers said the taxes would be crippling, but the government said they were needed to fight poverty.

The tax on farm exports was intended to fund the building of schools, roads and hospitals but strikes by farmers led to food shortages in some parts of the country and a political crisis.

The BBC's Daniel Schweimler in Buenos Aires says that the president had little choice but to scrap the tax increases following the dramatic Senate vote on Thursday.

Senators were tied 36 to 36 after more than 16 hours of debate, until the Vice-President, Julio Cobos, cast the deciding vote to reject his government's proposals.

Our correspondent says it is the first sign of any weakness or backwards step shown by the government, which is often criticised for its intransigence.

Argentina's farmers are delighted by the move, our correspondent adds.

'A hungry world'

Argentina is a major producer of soya, grains and beef, which fetch high prices on international markets.

The dispute between the government and farmers began in March, when President Fernandez's government raised taxes on soya exports from 35% to 45%, and imposed new taxes on other farm exports.

The government argued that they needed to raise taxes on agricultural exports to help build a new Argentina.

It said farmers could afford to pay more, as they were benefiting from high prices.

The authorities also accused farmers and their supporters of undermining democracy by refusing to respect the wishes of the elected government.

However, farmers' leaders said that any profits needed to be reinvested so that Argentina, one of the world's leading agricultural producers, could help to feed a hungry world.

Anti-Energy Speculation Bill Stirs Fear

Financial industry executives are mustering on Capitol Hill to head off a Congressional effort to rewrite the rules for the nation’s energy markets, saying it could unsettle already nervous markets and push more energy trading abroad, beyond the reach of domestic regulators.

The primary focus of Wall Street’s concern is a bill entitled the Stop Excessive Energy Speculation Act of 2008, introduced on Tuesday by a group of Democratic senators led by Harry Reid of Nevada, the majority leader.

The bill would substantially broaden federal regulators’ authority over the vast marketplace for privately negotiated derivatives, called swaps. It also would limit the stakes that speculators and other noncommercial energy traders could take, both in private transactions and in the public futures markets, which allow oil producers and users to hedge their price risks.

And it would require regulators to distinguish between “legitimate” and “nonlegitimate” hedging transactions and subject the latter to increased scrutiny and tighter market limits.

Since the bill’s introduction, lobbyists for the futures industry and other institutional interests in the energy markets have significantly bolstered their efforts in Washington.

But their concerns are colliding with the determination of lawmakers, who have held more than 40 hearings on “excessive speculation” this year, to take some legislative action to address the economic pain being inflicted on consumers by soaring oil and gas prices.

“This issue is so serious,” said Gregory Zerzan, counsel and head of global public policy for the International Swaps and Derivatives Association, “that the senior businesspeople on Wall Street are weighing in to make sure that Congress is fully aware of the potential economic consequences of going too far.”

Supporters of the Reid bill say it will address the runaway speculation they blame for as much as 30 percent of the price of crude oil, which fell Thursday for the third consecutive day to about $129 a barrel. It would also substantially increase staff levels at the Commodity Futures Trading Commission, which regulates these markets.

“Right now, Wall Street traders can raise oil and gas prices simply by logging onto their computers and executing a few trades,” Mr. Reid said at a news conference Thursday.

“We’re not saying that all speculation is bad,” he added. “But without proper market oversight, speculation has gotten out of hand, and that is one reason for record gas prices.”

Privately, both lawmakers and lobbyists agree that the bill is one piece in a complicated Congressional chess game involving offshore drilling, the nation’s federally owned oil reserves and the November election.

A bill supported by Senate Republicans, led by Mitch McConnell of Kentucky, would also increase funds for regulators and require them to gather more information about trading activity.

But it focuses primarily on promoting deep-sea exploration and drilling, oil shale exploration and electric vehicle research.

“No reputable economist thinks speculators alone are the reason for the spike in gas prices,” Mr. McConnell said Thursday.

A focus in Congressional hearings on oil market speculation is the sharp increase in the amount of money that pension funds, endowments and other institutional investors have steered into the commodity markets.

Some of that money — hundreds of billions of dollars, by some estimates — has poured in through trades designed to hedge the obligations of funds that track popular commodity indexes.

That is a form of trading that some critics say should be banished from the commodity futures market entirely. The Reid bill does not do that, but does require that such index-hedging trades be subject to tighter speculative limits.

The difficulties of distinguishing among financial and commercial hedgers would be enormous, several critics of the legislation said. A farmer trying to hedge against a fertilizer price increase, for example, may rely on a natural gas futures contract — but, under these rules, he would be considered a speculator.

And so would the financial institutions trying to facilitate his trading, either on public exchanges or through private transactions in the “over the counter” swaps market.

In an open letter to Congress Thursday, Robert G. Pickel, chief executive of the swaps industry’s trade association, argued that the Reid proposal “could actually make things far worse” for consumers by impairing the effectiveness of the hedging markets.

Of concern to the swaps dealers, Mr. Pickel noted, is a provision in the bill that would allow commodity regulators to order companies to liquidate their swaps transactions if it concludes that a major market disturbance has occurred.

In effect, he said, this would require companies “to break their privately negotiated risk management contracts,” even if the swap complied with trading limits that were in place when it was originally negotiated.

The Futures Industry Association, which represents futures brokers and derivatives exchanges in more than 20 countries, has also expressed its opposition to the bill, saying it “would amount to liquidity-robbing, regulatory overkill.”

The bill also would limit the ability of investors in the United States to trade directly on foreign futures exchanges. Supporters say that most of those provisions codify information-sharing arrangements that regulators have already negotiated with their foreign counterparts. But some exchange officials have warned that foreign countries could retaliate by limiting the international expansion of exchanges based in the United States.

Professor James Angel at Georgetown, a financial markets specialist who testified at one of the many hearings examining the energy markets, had a more temperate view of the Reid bill.

“It’s a not-too-bad response,” he said, noting that it gives regulators enough discretion to avoid some of the most devastating consequences. “How it is implemented will be the test.”

According to several legislative aides, no vote is likely on the legislation until Tuesday, giving ample time for negotiation across the aisle and with sponsors of similar proposals in the House.

A speedy conclusion to the debate would be welcome in the markets, some commodity analysts said. Researchers at Barclays Capital, in their weekly oil market review, complained that “lawmakers are no longer largely neutral bystanders to the oil market but have instead become a source of uncertainty.”

SEC issues emergency rule to curb short sales

WASHINGTON/NEW YORK - U.S. securities regulators issued an emergency rule on Tuesday to limit certain types of short selling in major financial firms, including Fannie Mae (FNM.N) and Freddie Mac (FRE.N).

The rule is the latest effort by the U.S. Securities and Exchange Commission to clamp down on market manipulation that some blame for the sharp declines in financial stocks and the demise of investment bank Bear Stearns in March.

The rule will go into effect on Monday, July 21, and last through July 29, although it could be extended to last up to 30 days. The SEC said it will consider rules to address short selling issues across the entire stock market.

The emergency rule applies to 19 financial firms including Lehman Brothers (LEH.N), Goldman Sachs (GS.N), Merrill Lynch (MER.N), Morgan Stanley (MS.N), JPMorgan Chase & Co (JPM.N) and Citigroup Inc (C.N).

The SEC said that a loss of confidence in markets can lead to panic selling, which may be further exacerbated by certain types of short selling.

"As a result, the prices of securities may artificially and unnecessarily decline well below the price level that would have resulted from the normal price discovery process," the SEC said. "If significant financial institutions are involved, this chain of events can threaten disruption of our markets."

Short sellers arrange to borrow shares they consider overvalued and sell them in hopes of making profit when the price drops.

With financial stocks dropping dramatically over the year, lawmakers have been calling on the SEC to investigate whether short sellers and speculators are behind the move.

Over the weekend, the SEC announced plans to crack down on false rumors and said it is examining whether broker dealers and investment advisers have controls in place to prevent market manipulation.

The agency's rule change would prevent investors from making "naked" short sales of the biggest financial stocks. A "naked" short sale occurs when an investor sells stock that has not yet been borrowed.

Broker-dealers will sometimes accidentally fail to deliver stocks to investors who have arranged to borrow a stock. If it is done intentionally, it is illegal.

"Today's commission action aims to stop unlawful manipulation through naked short selling that threatens the stability of financial institutions," SEC Chairman Christopher Cox said in a statement.

The emergency rule would require a short seller to borrow the securities before executing the sale. It would also require the investor to deliver the securities on the settlement date.

"The new rule will benefit the investment community and help bring more stability to the market," said Dylan Wetherill, president and founder of short interest tracking service ShortSqueeze.com.

"This rule would help relieve the extreme downward pressure on stocks that has helped fuel the market down to these levels," he said.

As of June 30, short sellers held about 14 percent of Fannie's outstanding stock, up from around 3 percent last August. For the same period, shorts held almost 12 percent of Freddie's outstanding stock, up from about 2.7 percent. They also held about 10 percent of Lehman's stock, up from 4.5 percent.

Short sellers say they prevent stocks from becoming overvalued and are an essential feature of the market.

"While no one in Washington did their job, now they are trying to blame short sellers," said William Fleckenstein, president of Fleckenstein Capital, which manages a Seattle-based hedge fund.

"Short sellers don't make stocks go down. If a short seller was trying to push a stock to a price where it didn't belong, it would come back right away," said Fleckenstein, who is not currently short the investment banks or Fannie or Freddie. He had a short position on Fannie, which he covered on Tuesday.

Earlier, Cox told a Senate Banking Committee hearing that the emergency rule would be more effective than the so-called tick test rule, which was repealed June 2007.

The tick test rule only allowed short sales when the last sale price was higher than the previous price. That meant a trader could not short a stock if the movement prior to the short sale was down.

Cox said the SEC is going to look at whether some other kind of a price test might be useful for "circumstances such as those we find ourselves in now."

"We are very open to that," said Cox.

The tick test rule, adopted a decade after the 1929 stock market crash, was designed to prevent short sellers from adding to the downward pressure on a stock that is already falling sharply.

The SEC has already proposed another rule to curb naked short selling abuses and prevent market price manipulation. It is not known when the SEC will adopt this rule.

Biggest oil price drop in 17 years

Crude falls $6.45 a barrel - 2nd largest price drop in dollar terms - as Fed chief indicates inflation and high fuel prices will cut into U.S. demand for oil.

NEW YORK - Oil prices plummeted by the second-largest margin on record Tuesday as investors feared a further decline in U.S. demand after hearing comments from Federal Reserve Chairman Ben Bernanke.

Light, sweet crude fell $6.44 to settle at $138.74 a barrel in trading on the New York Mercantile Exchange.

The drop in oil was the largest single-day slide in dollar terms since Jan. 17, 1991, when oil fell by $10.56. On that day, President George H.W. Bush withdrew oil from the Strategic Petroleum Reserve ahead of the first Gulf War.

But in 1991, oil was trading at just $32 a barrel, so the more than $10 slide in dollar terms represented a record 33% drop. Oil fell 4.4% Tuesday, which does not even crack the top 100 price declines in percentage terms.

On Tuesday morning, Federal Reserve Chairman Ben Bernanke warned that high energy prices have helped to limit the purchasing power of U.S. households. High energy costs will remain a drag on the U.S. economy for the rest of the year, Bernanke told the Senate Banking Committee Tuesday.

That could result in businesses pushing a greater percentage of their high fuel and commodity costs through to consumers, he warned.

Immediately following Bernanke's speech, prices dropped more than $9, sinking below $136 a barrel, before recovering some.

"There's more demand destruction than people first perceived," said Neal Dingman, senior energy analyst at Dahlman Rose & Co.

Inflation: The weakened dollar, which Bernanke named as one of the reasons Americans can't spend as much, has been blamed for much of crude's runup.

Investors have been buying oil and other commodities to hedge against inflation, but that behavior may be changing as many begin to see it weighing on demand.

There's "definitely a reverse of what the rationale was even 2 to 3 weeks ago," said Peter Beutel, oil analyst with Cameron Hanover.

Federal Reserve: The Federal Reserve, which has the power to quell runaway inflation by raising a key interbank lending rate, has its hands tied, since the banks and other institutions that prop up the U.S. economy need the liquidity, according to Tom Orr, head of research at Weeden & Co.

In recent days, the government has unveiled a plan to bolster mortgage financing companies Fannie Mae and Freddie Mac, and has taken control of mortgage lender IndyMac Bank.

"They've got to keep rates as low as they can, though they really should be tightening... They know they need to tighten, but they just can't," said Orr.

"This is starting to feel like Jimmy Carter and the 1970s all over again," he added, describing a time when inflation was high due in large part to soaring energy prices.

OPEC demand: Internationally, the Organization of Petroleum Exporting Countries mirrored Bernanke's concerns. The oil cartel lowered its demand forecast for 2008 to an increase of 1.2% from 1.28%, blaming economic strife and high fuel prices.

Concerns about lower demand even overshadowed the tight supply picture, which has been at the forefront of oil's price surge.

Brazil: The five-day strike by Brazilian oil workers in the Campos basin at 33 offshore rigs operated by state-run oil company Petrobras entered its second day, cutting into supply.

Petrobras stated that only two rigs had been totally shut down, but that production had been reduced by 4%, according to the Associated Press.

Iran: Investors also remained concerned about tensions between Iran, the second-largest exporter in OPEC, and the United States and Israel over its nuclear program.

Iranian president Mahmoud Ahmadinejad blamed high oil prices on threats from the West in an interview with state television, according to reports. However, he said that talks with the United States were possible.

Gas prices: Gasoline prices in the U.S. maintained record highs at $4.109 a gallon Tuesday, according to a daily survey from motorist group AAA.

抗通膨救經濟何者為重？大馬升息左右為難

自2006年4月至今，大馬國行隔夜指標利率一直維持在3.50%不變；不過如今為要遏制通膨“猛虎”，大馬利率走勢終於可能要扭轉，以通過升息緊縮貨幣政策進行調控。

其實，市場已經嗅出升息的味道，反映在銀行同業拆息率揚升走勢，甚至銀行一些貸款利息已自行俏俏調高，所謂春江水暖鴨先知，看來大馬升息將是勢在必行。

大馬經濟目前落入內憂外患，再傳出國內利息蠢蠢欲動，勢必直接影響普羅大眾甚至整體經濟成長表現。升息真的是抑制通膨的萬靈零藥嗎？還是反而會抑制經濟成長，成為毒藥？

如果通膨真的衝得太高，國行勢必升息克制通膨，以防通膨失控，但同時也要兼顧經濟成長不會受到顯著影響，如何取得兩全美結果，得看看今次這趟平衡鋼線之路，該是如何走！

年杪升息至4.00%？

經濟學家認為，國行若要調高利率起息，采取緊縮措施，預料將會是逐進式進行，主要是盡量降低對經濟打擊下，遏止通膨漸增強的壓力。并預料國內利率於今年杪升至4.0%水平。

這次通膨壓力，主要是成本推動，所以調高利率克服效果不彰。國行若要調息，反而是要緩和市場對通膨的預期心理，及縮減實質利率與通膨率之間差距。同時也是要向市場釋放出正確的訊息。

大馬評估機構首席經濟學家姚金龍認為，隨著國內外市場通膨壓力升溫，預料國行會在今年7月25日舉行的貨幣政策會議後宣佈升息，將隔夜指標利率（OPR）調升20或25個基點，從目前的3.50%調升至3.70%或3.75%水平。並且預料年杪最高可調升至4.00%水平。

資深經濟學家白文春表示，國行表示今年6月至8月通膨率會走高至6%至7%，相信很難不升息應對。

他表示，目前國內通膨壓力強勁，為避免它進一步惡化至第二回合效應，包括延伸至薪金報漲，及從成本推動再演變為需求推動，存款利率偏低而刺激游資四處尋找出路。國行調高利率機率很高。

“作為一個傾向保守穩健作風的國家銀行，相信會向市場釋放一個強烈的訊息，通過升息證明國行正在關注及設法控制通膨問題，給予市場信心，避免事情擴大失控。”

為免落後在通膨成長風潮，國行越早調息就越好，以走在通膨成長風潮前頭。調息幅度還是其次，因為任何幅度將還是需要一段時日才出現效果。最重要是市場獲得政府有關注這項重大問題的訊息，以贏取市場信心。

白文春也認同，預料國行會在年杪時，將利率調高50個基點至4.0%水平。升息後，經濟成長料將放緩，從2008年首半年的6.50%，放慢至下半年平均的4.7%。

一旦升息，經濟成長放緩，勢所難免，特別是建築及產業領域受創最重，因成本增長很快；就算政府撥款推動，相信在成本高漲情況下，對推動整體經濟成長的效果不彰，沒有太大幫助。

他認為在利率走高循環期，只有持有充裕現金人士或公司受惠，除了可能賺取更高利息收入，經濟情況欠佳也隱藏很多便宜及高素質投資機會，因這時期是“現金是王”的季節。

升息對經濟影響

經濟學家指出，就算國行升息25個基點，料對整體大馬經濟成長影響不顯著，主要是大馬經濟基本因素仍然穩健。

“目前市場充斥許多負面因素，可說是內憂外患，包括全球原油價格高企、糧食商品價格高漲、使通膨惡魔張爪舞牙。不過，惟幸大馬經濟基本因素仍然強穩，包括經濟多元化、內需保持強勁及市場游資充裕等（美國剛好是資金緊絀），所以就算小幅度起息，大馬經濟應當還挺得住。”

姚金龍認為，除了通膨因素，調升利息的另一項主要考量，就是要顧及經濟成長的影響；並在兩者間作出平衡，最終達到兩全其美雙贏格局。

他認為，隨著政府在今年6月宣布大幅度調高汽油價格及電費，使通膨壓力直飆，若是接下數据顯示經濟遭受重大打擊大幅度放緩的話，政府可能會押後調息，以免進一步加重成本打擊經濟，及進一步衡量利弊後才決定利率走向。

今年6月初調高汽油價格及電費後，它對市場衝擊還有待評估，若是經濟成長大幅度萎縮，不僅不會調高利息，反而可能需要採取貨幣及財務政策刺激經濟成長。

他表示目前市場缺乏一點信心，市場情緒較為低落，若是可通過其他方法克服，政府反而可能不必要采取調息政策。

基金經理張子敏表示，除了升息，若要應付通膨，政府可設法使令吉貨幣增值，從而降低進口貨物成本或是進口通膨壓力。不過問題是，就算進口商成本獲得削減，他們是否會將物價相應降低還是未知數，從而影響政府要降低成本及物價的努力。

調升利率的矛盾

目前市面上對國行應否調高利率克制通膨有兩種說法。

聯昌研究首席經濟學家李興裕認為，應該調息陣營認為，國家銀行的主要責任就是要確保市場價格穩定，特別是在今年6月初宣佈大幅度調高零售汽油價格及電費後，更是通膨壓力升溫，加上區域同儕也紛紛扭轉方向盤調升利率，更使國行擁有調高利率的理由與壓力。

調息派也認為，若國行沒有克制通膨，恐怕較後會進一步惡化打擊經濟成長。

經濟學家認為，目前物價高漲，也使固定收入者受苦，銀行定期存款利率追不上通膨率，或是負存款利率，若不起息，料鼓勵資金外流。

李興裕表示，反對升息克通膨的說法，則認為今次的通膨與以往一般通膨有別。今次是由成本推動通膨，不是一般因市場需求推動，所以，若以傳統升息應付，相信效果不彰，未能克服問題核心。

目前物價全面高漲，汽油價格一次過大幅度調高為禍首，引發連鎖反應，主要是成本增加，而不是市場需求殷切所致。所以，若是在這種情況下再調高利息，意味著進一步向市場添加成本負擔，料是“雪上加霜”。

他說，目前情況是通膨壓力將會緩和經濟成長，不過首當其衝的家庭將開始限制開銷，經濟受影響的當兒，通膨壓力也會隨著走緩，不一定要調息。

他表示，加上外圍市場欠佳，若再起息，不僅經濟受打擊，大多數家庭也受到打擊，因為逾50%家庭的收入是低過3000令吉。利息再起，進一步加重他們的融資成本負擔，如房貸、車貸甚至是信用卡貸款等。

恐引發第二回合效應

目前國家銀行先要評估通膨的影響程度，特別是今年6月初大幅度調高零售汽油價格每公升78仙及7月1日起電費的衝擊，才更準確的決定是否調息、調升幅度等。預料今年8月杪前有答案。

李興裕認為，一旦調息，預料會介於25個基點至50個基點。之後才關注及評估它所產生影響程度，再作進一步行動。

他表示，由成本推動的通膨，比市場需求推動來得更難應付。若是後者，只要通過貨幣政策調高利息，很快就會收效。不過，升息卻對成本推動膨，沒有太大效果。

若是目前物價全面揚升之後進行另一個階段的第二回合效應，進一步延伸至薪金漲潮，引發延至螺旋狀上升，將對企業公司造成壓力。目前可能僅限於運輸、食品領域，若是全面延至其他領域，後果嚴重可想而知。

他表示，隨著汽油燃料起價後，經使許多企業限制使用燃油，盈利下滑並考慮減少產量應對。素質較差的小公司可能不能應付接踵而來的額外成本，而關門大吉，不會令人感到驚訝。

當局在目前高通膨風險，及高經濟下滑風險之際，對是否要調息時必須要拿捏得准，取得最好平衡，以將大局的最壞情況降至最低水平，也是目前國行面臨最嚴峻的挑戰。

升息對馬股影響

假如利息真的調高，這對股市是“百害而無一利”。除了手握充裕現金的上市公司外，其他公司因融資成本增加而“中招”，體質較弱企業，可能因成本推動通膨侵擊後，升息更是“百上加斤”而不支倒地。

分析員表示，以目前市況及經濟情況，國行調高利率可能性很高，以克制全球性通膨壓力，避免進一步惡化而打擊經濟。不過目前的關鍵，是當局將要調升幅度而定。

目前馬股已經反映及預算年杪前會調高至少25個基點至3.75%，相信25個基點是個可以被接納的水平。

分析員預料，若是調息幅度比預期高或是時機出乎市場意料之外，相信馬股會作出負面反應。無論如何，在目前影升息風潮中，預測今年下半年馬股綜指，會在1050／1100點至1200／1250點間波幅游走。

吳姓資深分析員表示，國行面臨很大的調高利率壓力，因為除了國內的通膨壓力，外圍主要市場的利率也紛紛高企，使之間的差距擴大，若國行不調息，相信會有更多資金外流。不過若是升息，卻又是打擊經濟成長，國行目前“進退兩難”。

張子敏表示，若政府調高利息，將對整體銀行業是負面，惟實際衝擊則胥視個別銀行情況而定，例如對以浮動利率貸款為主，以及在銀行同業放貸活動中的淨放貸者，將會從起息中受惠，而大眾銀行（PBBANK，1295；主板金融組）則是首要贏家。

相反地，以固定利率進行分期供款貸款的大馬投資（AMMB，1015；主板金融組）則是銀行股的主要輸家，因固定利息收入在成本增加情況下受到擠壓。

整體來說，隨著政府調升汽油價後，各行業均受負面影響，並已有跡象顯示最近貸款成長出現放緩跡象，包括來自產業發展、消費、中小型企業、企業機構等對貸款負債更為謹慎，從而打擊銀行的貸款成長。

同時，高負債上市公司，無論是來自那個行業或領域，將是利率回升趨高的主要輸家。特別是未擁有將成本轉嫁能力的公司。

他表示，一旦升息，料使令吉匯率有望走強，而擁有約200億令吉各貨幣外債的國家能源（TENAGA，5347；主板貿服組）將獲得更高的外匯盈餘，成為罕有受惠股項。

他表示，馬股綜指最近跌跌不休，跌至目前約1130點水平，除了利息看升的經濟問題外、政治局勢也是左右馬股後市表現的主要關鍵因素。

張子敏表示，目前馬股已將政府將調高利息25個基點的利空因素消化及預算在內。除了確實調息水平超過此水平。不然的話，將不會對馬股後市表現再有太大負面衝擊。

今年5月杪開始，銀行同業拆息率已開始揚升，超越3.50%至3.7%-3.8%間，即顯露市場預期國行會起利息跡象。

分析員認為，由於汽油甫於6月初起價，而電費則在7月初，及其他物價才漲升。所以，目前即評估它們產生的影響程度，尚過早下定論。

政府料會在8月杪公佈今年第2季經濟成長時，才宣佈會否調升利息。

通膨乃全球問題

通膨惡魔橫掃全球，各國中央銀行紛紛調息抗衡，這乃大勢所至，因為全球經濟經過10年榮景之後，目前已經來到回落循環期，全球市場引發各項不平衡狀態後，經濟進入放緩階段。

經濟學家白文春表示，其實目前全球一些國家的中央銀行正忙著抗衡通膨問題，包括歐盟最近因通膨揚升至4%水平（目標僅為2%），使它被逼將利率調高25個基點。

其一些成員國經濟成長也出現顯著萎縮現象，如丹麥、萄葡牙及西班牙等。而他們的策略是，先應付通膨，才來考慮經濟成長。至於來龍去脈，得從美國次貸風暴開始談起。

全球經濟體特別是歐盟，原以為美國次貸風暴也會嚴重打擊它們的經濟，從而沒有太過關注通膨問題，認為經濟放緩程度足以低消通膨壓力，這反而讓後者有機可趁，演變成今日嚴重地步。

美國次貸風暴對歐盟經濟沖擊沒有想像般嚴重，成長仍比預期好得多，再加上美國減息，使全球資金無處可逃，轉向流入原油及商品領域，推高至天價及引發通膨壓力。

白文春指出，最近一些國家通膨率升至新高即可見一斑，如越南升至26%、委尼瑞拉逾30%、甚至新加坡也創下逾7%新高。若不及時遏止通膨問題，它較後連鎖效應更是難以控制與痛苦，就像越南被逼將利率從8.7%猛調至14%，經濟幾乎崩潰打回原形，也要與通膨作戰到底。

可能的解決方案

要遏止今次這輪由高商品及高原油天價引發的全球經濟災難，個中可能解決方案有幾個可能性。

1. 美國直接進場干預遏止商品交易的投機活動：

這肯定會使價格暴跌，解除全球通膨壓力。不過就算要做，可能還是需要花費一些時日才可有望實行，因為目前此事僅落在美國下議院尋求援引條例行動的初步階段。

2000年時，商品及原油期貨交易僅有約31%為投機活動，目前卻已劇增至71%，不僅對衝基金大肆上下其手，現在連傳統保守的退休基金也入場參與其盛，因為它們持有大量資金無處可走，卻又要獲取較佳回酬，反而轉向期貨交易投機。

2. 美元幣值大幅度回升：

這短期內似乎不太可能，因沒有推動美元走高催化因素。

3. 國際商品及原油沒有需求：

全球經濟真正萎縮，利率不斷提高克服通膨及需求，最終玉石俱焚，重新開始。

4. 其他：

除了上述3個方案，又或許有更為樂觀的結局，就讓我們拭目以待。

Coming Week: No End to Volatility

The best investors can hope for these days is a chaotic market -- at least, if "all over the place" seems preferable to "all down."

As the financial services, homebuilding and auto sectors bleed at a frightening pace, it's up to groups such as energy and technology to keep the markets on an even keel with second-quarter earnings and beyond.

The week ahead is chock-full of events in all corners of economics and finance, and experts are preparing for loads of volatility.

The markets will continue to watch the situation with Fannie Mae and Freddie Mac, which spiraled downward last week after market observers became concerned that the government would have to bail out the two companies. Speculation is raging about how dire their situations are, but government officials continue to maintain that the agencies are still financially healthy.

Oil, once again, is also going to be in focus after it ended last week in the mid-$140s. Tensions between Iran and Israel won't help, either, as the situation threatens to plunge the oil-rich Middle East into greater-than-usual turmoil.

"It's our expectation that oil will press higher. We have it at about $160 at the end of the year, until we get some sense of slowing international demand," says Nigel Gault, chief U.S. economist at Global Insight.

Stocks ended on a down note last week, with the Dow falling 1.7% to 11,100.54, the S&P 500 tumbling 1.9% to 1239.49 and the Nasdaq Composite just a tad lower at 2239.08 over the five sessions.

On the scheduled calendar, earnings will come in force next week, dominated by the financial-services industry and the blue chips. Current estimates are for S&P 500 company earnings to be off 10% to 15% or more year over year, though the bulk of the losses are expected in financials.

"I'm actually hoping we get [an earnings] preannouncement from a big company and the market sells off," says Brian Rauscher, director of portfolio strategy at Brown Brothers Harriman. "That could lead to a tradable bottom" after which a big bounce could follow.

A number of Dow components will report their profit results. On Tuesday, Johnson & Johnson and Intel are due. Thursday brings Coca-Cola, JPMorgan Chase, United Technologies, International Business Machines and Microsoft. On Friday, Citigroup reports.

On the financial-services front, companies due to report this week include M&T Bank on Monday, and Charles Schwab, State Street and US Bancorp Tuesday. Wednesday will feature Wells Fargo, and on Thursday there's Bank of New York, BB&T and Merrill Lynch.

"Analysts just don't know what these companies are going to report because the companies themselves don't know what's on their balance sheets," says Charles Rotblut, senior market analyst at Zacks Investment Research. "People thought they had thrown the kitchen sink in there before, but it turns out there was more than one kitchen sink."

The tech sector has its share of news coming out, with eBayEBAY reporting on Wednesday, as well as Advanced Micro DevicesAMD and GoogleGOOG on Thursday.

"There's a little bit of disbelief about what the tech companies are going to do for the rest of the year," Rotblut says. He says weaker-than-expected reports from Research In Motion and Oracle made investors nervous, but he actually thinks the tech sector could help pull stocks out of their slump.

Delta Air Lines and AMR report on Wednesday, and Continental comes in Thursday. Carriers have been in the news lately for tacking on extra passenger fees and cutting back flights, so their results aren't likely to look very strong.

Other notable reports will come from Ford, Harley-Davidson, Safeway and Honeywell International.

If the earnings calendar already doesn't wear out investors, there will be a lot in store on the economic side as well.

The monthly inflation indicators come out, with the producer-price index on Tuesday and the consumer-price index Wednesday, both from the Bureau of Labor Statistics.

"It's still overwhelmingly food and energy" pushing the PPI and CPI higher, says Gault of Global Insight. "The question is, do the core indexes [which don't take into account volatile food and energy prices] show some acceleration?"

Federal Reserve Chief Ben Bernanke testifies before Congress on Tuesday and Wednesday, and his take on the economy should grab a fair bit of attention. On Thursday, the minutes from the most recent Federal Open Markets Committee meeting will be released.

"People will want to see how close the Fed is to raising interest rates in the face of the inflation risks," Gault says. As for the details of the last Fed policy meeting, he says, "one person voted for a rate hike, so the minutes may give some idea of the balance of the opinion of the rest of the FOMC, and whether people were leaning toward a rate hike."

Other economic data include the Census Bureau's retail-sales report on Tuesday, which may stay fairly strong in the wake of a positive chain-store sales report and amid consumer spending of stimulus checks. Then on Friday, also from the Census Bureau, building permits and housing starts are likely to be weak as the real estate sector continues to work off heavy inventory.

奧運經濟策劃：股市行情的期許

北京奧運已快進入倒計時的最後一個月。6月末以來，滬深股市已連續3日刷新調整新低，儘管行市低迷，奧運盛事“助跑”中國股市，仍是市場的期許之一。

自7月初起，奧運直接相關的消費與傳媒股票逆市走強，明確表達了市場資金對“奧運助跑”願望。奧運股展開新一輪“衝刺”，5個交易日內，西單商場、中體產業、中青旅、首旅股份、北京旅遊等均表現上佳，多有漲停。漲幅最多的中視傳媒幾近連拉4個漲停板，升逾40%。

不過，多數市場人士還是寧願理智看待A股的所謂“奧運行情”，有分析師稱，奧運概念早在去年就已掀起熱潮，今年初又經輪番炒作，“泛奧運”相關股票行情幾乎“透支”。近期大市重挫，泥沙俱下，即便再次啟動新一輪行情，亦是遊資成分大，預計炒作範圍小，時間亦不會持久。

在遊資熱情炒作短線“奧運股”之時，人們對奧運後股市會否繼續下挫的憂慮仍未停歇。

學者樊綱說，去年底開始，包括股市在內的整個宏觀經濟都在調整，“經過了這些調整之後，確實可以比較有信心地說，奧運會後沒有再進行進一步調整的理由”，學者曹鳳岐亦多次表示，“奧運不會成為股市拐點”。

行情不靠奧運行落

更應相信，A股後市，自有其運行軌跡，行情不會僅僅依賴奧運而生，亦不會因奧運結束而崩塌。

業內分析師罕以“奧運”為節點來研判中國股市，業界看重的是下半年國內外經濟大勢及宏調策略。後市起色，關鍵制約有三：

因素一，宏觀經濟不確定與企業利潤下滑，令資本缺乏投資方向。一度氾濫的流動性大幅縮減，不論撤離股市的境內資金，還是“有影無蹤”的境外熱錢，均礙于樓市股市低迷，“窩”在銀行等待投資機遇。

因素二，股改“後遺症”，最新統計顯示，3季度股改後限售股（大小非）解禁市值將達4390億元，較2季度激增40%，主要集中在8月，當月將有逾3000億元限售股解除禁售。媒體報稱，學者吳曉求認為眼下市場結構“最不穩定”的時期，即是大小非解禁高峰期，他說，此前兩年的股改，還需要3年時間來消化。

因素三，政策走向。一些市場人士期望奧運後從緊貨幣政策放鬆，拉動內需和災後重建，或有促進節能降耗產業的政策出台，將刺激股市回暖。

奧運能否“助跑”中國股市？眼下，“前奧運時代”的炒作已過去，“奧運時代”行情並不會長久高歌猛進，真正的機遇或在“後奧運時代”，正如學者所說，“也許奧運會以後，中國經濟會開始新一輪相對健康穩定的增長。”

Period of cyclical inflation, secular boom

FOR investors, there are so many factors to be worried about. The subprime problem was one although it is beginning to fade into the background. Then came bankruptcies and bailouts of the major Western financial institutions.

As the credit markets in turn got hit, many became convinced that the US economy is heading for deep trouble and, in the process, pulling the entire world economy down.

As time went by, the worst fears did not materialise. And as fears subsided somewhat, the surging crude oil price, which was somewhat sidelined, came to the forefront of headlines again.

Along with this, rising inflation and reports of protests everywhere against rising oil prices filled the pages.

So far, the Federal Reserve (Fed) has tackled the subprime and related problems well. As i Capital has repeatedly advised, the subprime and related problem is containable.

It is within the powers of the Fed to prevent the problem from affecting the whole US economy.

The quick rescue of Bear Stearns is a good example of this. Another is the setting up of the Term Auction Facility. However, the surging oil price and its effects on inflation is something else.

At the fundamental level, the current rise in energy prices is not the same as the rise in the 1970s when the oil crisis was essentially due to an unexpected disruption in oil supply.

The impact was sudden and the consumers were not able to adapt to the higher oil price gradually.

This time, the rise is due to strong demand, which although strong and sustained, can only rise by a certain amount per year.

Thus, the current rise in crude oil price has not created the same disruptive effect as in the 70s.

Notwithstanding this, the rise in the last year or so has been more rapid than the prior few years and there is certainly a limit with which consumers can absorb.

In recent times, that limit appears to have been reached, not just in the developing countries but also in developed economies.

Opec has finally recognised that it is getting wealthier at the expense of the billions of poor people and needs to do something effective and fast about the surge in oil price.

At the same time, the oil speculators are recognising that crude oil price may be reaching a temporary point of inflection.

In short, i Capital is of the view that crude oil price is heading for a meaningful correction in the shorter term before resuming its rise eventually.

Such a breather, albeit relatively short-lived, provides plenty of breathing space to consumers, central bankers and policymakers, and can make investors less worried.

More importantly, it also ensures that the rate of inflation does not get entrenched in an ever-rising trend.

i Capital has termed the global economic experience of the last five years as a “cyclical inflation, secular boom”.

Few people have seen it this way and have therefore missed an important aspect of the current economic and pricing environments. This phenomenon is best captured by the chart.

Those who talked about stagflation or are worried about rising inflation have missed the big picture.

The rise in US inflation rate from 1965 to 1982 was a secular trend. The period 1982 to the mid-1990s was a period of disinflation, another secular trend.

However, the days of secular trends are over. From around 1998 onwards, the US pricing environment has become volatile with inflation moving up and down in a cyclical fashion. Recognising and understanding this feature is very important.

This brings us to the expected correction in crude oil price. Should this happen, and i Capital thinks it will, it would reinforce i Capital’s views that the current rise in US inflation rate is cyclical in nature.

At this point in time, i Capital is sticking to this view.

Why pension funds beat mutual funds

Understanding the edge enjoyed by people who run pension money can make you a smarter investor.

(Money Magazine) -- Are you happy with how well your mutual funds are doing?

Didn't think so. Over the long run, two-thirds of stock funds deliver less than the market as a whole - a performance most of us can stomach, barely, when stocks are doing well. But in a market as stingy as the one we've endured since 2000, below-average results really hurt.

So are mutual funds doomed to underperform? Not necessarily, and new research shows how you can find better funds more reliably.

Experts have long struggled to explain why pension funds - the big pools of money run for traditional corporate and government retirement plans - tend to outperform mutual funds even when they're run by the same people investing in the same stocks.

The simple explanation: Mutual funds charge more because they cost more to run. A pension fund doesn't have to advertise how great it is, maintain a 24-hour toll-free phone bank or mail out tens of thousands of prospectuses.

Mutual funds do, and that gives them higher expenses than pension funds - depending on how you count, between 0.03 and 0.3 percentage points a year, or up to an extra $3 on every $1,000 you invest.

Rewards for bad behavior

But there's a lot more at stake here than three bucks. The difference between pension funds and mutual funds goes way beyond what gets recorded as expenses.

A new study led by Rik Frehen, a Dutch finance scholar, looks at the stock-investing records of pension and mutual funds in the U.S. - and the findings are fascinating and alarming.

Comparing the returns of 700 pension funds against those of 4,000 mutual funds between 1992 and 2004, Frehen found that both categories had underperformed the broader market but that pension funds had killed mutual funds.

The former had trailed the market by 0.1% a year, beating mutual funds by at least 1.4 percentage points a year, on average, after adjusting for expenses, risk, the size of the funds and their style of investing.

Now we're no longer talking about three dollars. Over the period that Frehen and his colleagues studied, $10,000 in a mutual fund would have returned just under 9% a year, giving you $30,000.

But the same amount invested in a pension fund would have grown to $36,000, or 20% more. If the stock market returns an average of 6% annually after inflation, you'll give up more than a quarter of your gain by being in a mutual fund - and that's before you pay your annual expenses.

What accounts for this huge gap? Much of it lies in how mutual fund managers are compensated and judged. Managers get paid on the size of the portfolios they run and on the basis of quarterly and annual performance - pressure that pension fund managers don't generally face.

That incentive scheme can lead to behavior that hurts you. To goose short-term results and make a mutual fund appear to own the "right" companies when it reports holdings to investors, managers trade stocks too frequently. Trading doesn't cost the manager anything, and it's not reported as an expense to the fund, but the resulting brokerage costs erode your return by up to 1% a year.

Also, some funds allow big investors to put in and yank out tens of millions of dollars at a time, maximizing the funds' assets but also raising trading and tax bills. Finally, funds pay brokers for "shelf space," or preference in sales campaigns. One way or another, that also comes out of your pocket.

It's your fault too

Your behavior can hurt performance too. Research shows that when tons of money pour into a hot fund with a great recent track record, the stocks it then buys go on to underperform the market; meanwhile, when a fund goes cold and money flows out, the stocks it sells to cash out investors subsequently outperform.

In short, investors often force their mutual fund managers to buy expensive stocks and sell cheap ones. The only real solution is for managers to close their funds to keep "hot money" out - something most are reluctant to do. Pension funds, on the other hand, get a steady and stable inflow of cash, so they don't have these kinds of problems.

But all is not lost. Some funds do outperform over time. To increase your chances of finding them, look for ones offered by the small and mid-size fund companies I call owner-operators, where the portfolio managers invest heavily both in their own funds and in the company that runs them.

Trading too much, churning up tax bills or shooting for short-term gains will hurt these managers almost as much as it will hurt you. They'll close hot funds to new investors; they'll try to keep a lid on fees. Their interests are aligned with yours, helping them stay focused on the long term.

Among such firms are Ariel, Bridgeway, Davis, FPA, Longleaf, Numeric, Oakmark, Third Avenue and Tweedy Browne.

Finally, you can buy a whole-market index fund from a low-cost firm like Fidelity, T. Rowe Price or Vanguard - which eliminates unnecessary trading entirely, since these funds always own everything.

As Vanguard's founder Jack Bogle likes to say, "Buy right and sit tight." To get a result as good as a pension fund would give, you must act as rarely and patiently as the best pension managers do and shun funds that think short term.

S&P 500 plunges into a bear market

NEW YORK (Reuters) - Stocks tumbled on Wednesday, dragging the S&P 500 into a bear market, as worries about more credit losses hurt financial companies and Cisco Systems led technology shares lower after its CEO raised fears of an extended economic downturn.

The S&P closed 20 percent below its all-time high set in October, making it the last of the three major U.S. stock indexes to fall into a bear market. Stocks have been roiled for months by the credit crisis and a severe U.S. economic slowdown.

In the latest news to scare the market, Cisco's (CSCO.O) John Chambers told Reuters that customers of the company, which makes Internet infrastructure, see the economy picking up early in 2009 rather than later this year. At least two brokerages also cut their price targets on the stock.

Fannie Mae (FNM.N) and Freddie Mac (FRE.N) dropped sharply as some investors worried that the two pillars of the U.S. housing market will need to raise billions of dollars in additional capital through stock sales, diluting the holdings of current investors.

Merrill Lynch (MER.N) shares fell more than 9 percent, after Fitch Ratings said it may cut the U.S. investment bank's debt rating, given expected ongoing write-downs and diminished prospects for earnings.

"There is uncertainty about financials as we're going into the earnings season about what write-offs and capital raising might be needed," said Bucky Hellwig, senior vice president at Morgan Asset Management, in Birmingham, Alabama.

"There is also concern that as the earnings reports come out, that the projections for future performance for technology may not be as strong due to the weakness in economy."

All three major stock indexes fell more than 2 percent: The Dow Jones industrial average (.DJI) shed 236.77 points, or 2.08 percent, to 11,147.44, while the Standard & Poor's 500 Index (.SPX) tumbled 29.01 points, or 2.28 percent, to 1,244.69. The Nasdaq Composite Index (.IXIC) fell 59.55 points, or 2.60 percent, to close at 2,234.89.

On the Nasdaq, Cisco shares fell 5.7 percent to $21.58. UBS said it expects enterprise spending to remain challenging. Shares of other big technology companies also fell, with chip-maker Intel (INTC.O) down 5.3 percent at $19.81.

IBM's (IBM.N) shares fell 2.8 percent to $120.40 and were the top drag on the Dow.

Concerns about the economy also hit big manufacturers such as General Electric (GE.N) and 3M Co (MMM.N), both with losses of more than 3 percent. GE shares fell 3.1 percent to $27.19 on the New York Stock Exchange, while shares of 3M dropped 3.4 percent to $68.64.

Even Alcoa Inc (AA.N) was unable to hold on to gains a day after the aluminum producer posted second-quarter results that beat analysts' estimates. Shares fell 2.4 percent to $31.54.

Freddie Mac shares slid 23.8 percent to $10.26 while Fannie Mae lost 13.1 percent to $15.31.

The S&P financial sub-index (.GSPF) dropped 5.2 percent, its biggest one-day decline in more than six years.

Merrill shares fell 9.3 percent to $29.74 and Bank of America (BAC.N) stock lost 6.3 percent to $22.06.

Bank of America's chief executive said it may feel to some people for the next year as if the economy is in recession.

Analysts are now expecting a 13.5 percent drop in second-quarter earnings of S&P 500 companies, according to the average estimate of analysts polled by Thomson Reuters. That's compared to the 2 percent drop they were expecting in April.

Trading volume was moderate on the New York Stock Exchange, with about 1.49 billion shares changing hands, below last year's estimated daily average of roughly 1.90 billion, while on Nasdaq, about 2.28 billion shares traded, above last year's daily average of 2.17 billion.

Declining stocks outnumbered advancing ones by about 2 to 1 on both the NYSE and the Nasdaq.

Sir John M. Templeton, Philanthropist, Dies at 95

Sir John M. Templeton, a Tennessee-born investor and philanthropist who amassed a fortune in global stocks and gave away hundreds of millions to foster understanding in what he called “spiritual realities,” died on Tuesday in Nassau, the Bahamas, where he had lived for decades. He was 95. His death, at Doctors Hospital in Nassau, was caused by pneumonia, a spokesman, Don Lehr, said.

The foundation awards the Templeton Prize, one of the world’s richest, and sponsors conferences and studies reflecting the founder’s passionate interest in “progress in religion” and “research or discoveries” on the nebulous borders of science and religion.

In a career that spanned seven decades, Sir John dazzled Wall Street, organized some of the most successful mutual funds of his time, led investors into foreign markets, established charities that now give away $70 million a year, wrote books on finance and spirituality and promoted a search for answers to what he called the “Big Questions” — realms of science, faith, God and the purpose of humanity.

Along the way, he became one of the world’s richest men, gave up American citizenship, moved to the Bahamas, was knighted by the Queen of England and bestowed much of his fortune on spiritual thinkers and innovators: Mother Teresa, Billy Graham, Aleksandr I. Solzhenitsyn, the physicist Freeman Dyson, the philosopher Charles Taylor and a pantheon of Christians, Jews, Muslims, Buddhists and Hindus.

Inevitably, the Templeton charities engendered controversy. Critics called his “spiritual realities” a contradiction in terms, reflecting a fundamental incompatibility between science and religion. To many, the very idea of “progress” in religion seemed strange, and giving grants for “discoveries” in the field invited accusations that science was being manipulated to promote religion.

But Sir John was unmoved. A Yale graduate, a Rhodes Scholar, an audacious investor, a Presbyterian who preached open-mindedness and eschewed literal interpretations of Scripture, Sir John — who began annual meetings with prayers, he said, to clear the minds of shareholders — made billions as a pioneer in his globally diversified Templeton funds, often taking the old advice, “buy low, sell high,” to extremes.

In 1939, when World War II began in Europe, the 26-year-old investor borrowed $10,000 and bought 100 shares each in 104 companies that were selling at $1 a share or less, including 34 in bankruptcy. A few years later, he made large profits on 100 of the companies; four turned out to be worthless.

In 1940, he bought a small investment firm that became Templeton, Dubbrow and Vance, the early foundation of his empire. Sir John embarked on mutual funds in 1954, establishing the Templeton Growth Fund in Canada to cut the taxes of many shareholders — Canada then had no capital gains tax — and to emphasize the global reach of its investment strategy.

As investor interest widened in the 1950s, he started funds specializing in nuclear energy, chemicals, electronics and technology. In 1959, with five funds and $66 million under management, he joined a surge of funds going public. Growth was dramatic. The flagship Templeton Growth Fund reported a 14.5 percent average annual return from 1954 to 1992; a $10,000 investment, with dividends reinvested, would have grown to $2 million.

Sir John sold the Templeton family of funds — scores of them with $13 billion in assets — in 1992, and turned to philanthropies that had engaged him for decades. While he was an elder of the Presbyterian Church (U.S.A.), he took a broad view of spirituality, espousing non-literal views of heaven and hell and a shared divinity between humanity and God.

Contending that almost nothing of God was actually “known” through Scriptures and theology, he founded the Templeton Prize in 1972 to foster “progress in religion” — an idea that included philosophy and exemplary conduct relating to love, gratitude, forgiveness and creativity. He called it an effort to redress the fact that no Nobel Prize was given for religion.

Its first recipient, in 1973, was Mother Teresa of Calcutta, who received $85,000 for her charities. In the 35 years since, the prize, given in London, has grown to $1.6 million. And its criteria has been refined in recent years to encompass “progress toward research or discoveries about spiritual realities.”

The Templeton Foundation, based in West Conshohocken, Pa., was established in 1987 to administer the prize and promote “projects to apply scientific methodology to the study of religious subjects,” with room for theoretical physics, evolutionary biology, cognitive science and researches into love, human purpose and the nature and origin of religious beliefs. Today, with a $1.5 billion endowment, it largely sustains the controversial modern movement to reconcile science and religion.

Foundation projects have included a multimillion-dollar study of forgiveness, and a two-year study to demonstrate the effect of prayer on 600 patients about to undergo surgery.

Many critics contend that reconciling science and religion is not possible, and that studies to that end are naïve, quixotic or motivated by a desire to put religious beliefs on an equal footing with scientific knowledge.

But others defend the foundation’s approach, insisting that science has no monopoly on truth and that religion and science can cooperate productively.

“We have somehow to break down the barriers between our contemporary culture of science and disciplined academic study” and “the domain of the spirit,” Charles Taylor said in accepting the prize in 2007.

John Marks Templeton was born on Nov. 29, 1912, in Winchester, a small Tennessee town 60 miles from Dayton, the scene of the 1925 Scopes “monkey trial” pitting Clarence Darrow and William Jennings Bryan in a battle over the theory of evolution versus fundamentalist views of the Creation. The boy was only 12 then, but issues in the case dominated his later life; he wrote at least eight books on spiritual matters.

He was raised in a devout household and was the first student in town to go to college. Supporting himself at Yale in the Depression, he graduated near the top of his class in 1934, won a Rhodes Scholarship to Balliol College at Oxford University and earned a master’s degree in law. He began his Wall Street career in 1937.

That year, he married the former Judith Folk. The couple had three children. His wife died in 1951. In 1958, he married Irene Reynolds Butler, who died in 1993. His daughter, Anne Templeton Zimmerman, died in 2005, and a stepson, Malcolm Butler, died in 1995. He is survived by two sons from his first marriage, John M. Jr., of Bryn Mawr, Pa., a retired surgeon and the chairman and president of the Templeton Foundation, and Christopher, of Colfax, Iowa; a stepdaughter, Wendy Brooks, of Delray Beach, Fla., and three grandchildren and three great-grandchildren.

Among his many gifts was the 1984 endowment of Templeton College, a business and management school at Oxford. In 1987, he was knighted by Queen Elizabeth II for his philanthropies. After many years on Wall Street, he renounced his American citizenship in the 1960s, became a British subject and moved to the Bahamas, a Commonwealth nation that has long been a tax haven.

Sir John said his investment record improved after he distanced himself from Wall Street and no longer worried about the tax consequences of his decisions. He was an early investor in Japan in the 1960’s and later in Russia, China and other Asian markets. He sold large holdings before the technology bubble burst in 2000, and warned several years ago that real estate prices were dangerously high.

In Nassau, his net worth swelled into the billions, but his lifestyle remained relatively modest. He drove his own car and spent his days reading, writing and managing his foundation. Visitors were given sandwiches, tea and courtly advice in the afternoon at his white-columned antebellum home on Lyford Cay, set on a hillside lush with citrus trees and bougainvillea, overlooking a golf course and the ocean.