Morgan Stanley, MS, a US investment bank, and Visa Europe have decided to settle a long?running anti-trust dispute. The move could bring to an end a six-year competition probe by the European Commission into the credit card group.

The dispute started after Visa denied Morgan Stanley join its card network. The US investment bank had wished to offer card services to shops and merchants in the European Union. However, Visa did not permit Morgan Stanley access to its network, pointing that Morgan Stanley runs the Discover card in the US in competition with Visa.

In 2000, Morgan Stanley filed a complaint to the European Commission. The commission opened an investigation and issued formal charges against Visa in August 2004 accusing it of abusing a dominant market position. Visa has been waiting for a final decision ever since.

According to executives from both the groups, Visa and Morgan Stanley have now agreed to settle the dispute. Now, Morgan Stanley will become a member of the Visa card network, and in return withdraw its anti-trust complaint to the Commission. The move follows the decision by Visa Europe in October to split from the Visa group’s international operations. While Visa International plans to be a publicly-listed company, Visa Europe decided to retain its structure as an association owned and run by its member banks.

The Commission refused to comment on the move. Formally speaking, the settlement between Visa and Morgan Stanley does not affect the probe, although in practice it will be very difficult for the regulator to pursue an infringement already addressed by the parties. Should the agreement between the parties force the Commission to abandon its probe, it would remove the threat to Visa Europe of a fine of up to 10 per cent of its global annual turnover. However, Visa and its rival MasterCard still face pressure from the Commission to cut the fees they demand from retailers.

US economic growth slowed to an annualized rate of just 1.6% in the third quarter of 2006. Housing and the oil-fuelled rise in imports remain the primary factors for dragging down the economic activity. The news of the slowdown comes at a bad time for the Republican party, which has been leaning on its economic record to regain its support damaged by the war in Iraq.

Growth in the third quarter was the slowest since early 2003. However, strong consumer spending ensured the economy continued to expand, though below its potential growth rate. Inflation pressures were eased a little, with the core personal consumption expenditure deflator growing at an annualized rate of 2.3%, down from 2.7%.

Most analysts predict growth to rebound in the current fourth quarter, as lower oil prices depress imports, though it will probably remain below trend.

Figures from the eurozone showed growth in lending to the private sector equaled its highest rate since the launch of the euro in 1999. This highlights robust economic activity in Europe but raising expectations of possible further interest rate rises by the European Central Bank.

Democrats seized on the weak US third-quarter growth figures as evidence that the US
was “on the wrong track.” However, Hank Paulson, the Treasury secretary, rejected weak third-quarter growth as a “blip”.

According to Carlos Gutierrez, the commerce secretary, the capacity of the economy to absorb the correction in housing is another example of how flexible and how strong this economy is.

Although growth is lower than expected, it is unlikely to prompt the Federal Reserve into early consideration of interest rate cuts. Fed issued a statement saying: “Going forward, the economy seems likely to expand at a moderate pace.” The statement is being seen as a pre-emptive strike ahead of the third-quarter growth report.

Some of the world’s largest investment managers have appealed to US regulators to give shareholders the right to change the composition of US boards. They claim shareholders in US companies lack basic rights which are given to shareholders in other developed countries. The appeal is a sign that one of the key creed of US corporate governance – limited shareholder get access to company proxies for board elections – comes under attack from non-US investors as foreign ownership of US companies is increasing.

The group, which manages about $34,000 billion in assets collectively, has written a letter to Christopher Cox, chairman of the Securities and Exchange Commission. The letter is signed by the Australian Reward Investment Alliance, the Association of British Insurers, F&C Asset Management, the Third Swedish National Pension Fund, Scottish?based Standard Life Investments and PGGM-a large Dutch pension fund manager. In the letter, the group appeals the regulator to give investors the right of voting in the election of directors. This move, the group thinks, might help to prevent corporate scandals and board-level negligence of duty which have surfaced in recent years in US companies.

The move follows the delay of a key SEC meeting that was to discuss whether shareholders should be allowed more access to company proxies. The SEC was to decide whether to let stand a recent US court ruling that had forced the regulators to review its policy that blocked shareholder access to proxies where elections of board directors were concerned.

The matter has become a key battleground in US corporate governance. Shareholder rights activists have strengthened efforts to get access to the proxy to contribute in the composition of company boards-and therefore also in such matters as executive compensation.

“The US system is at odds with shareholders’ basic ownership rights and lags behind other countries in corporate democracy”, said Peter Moon, chief investment officer of the Universities Superannuation Scheme. “It is critical that US policymakers understand that this has ramifications for how overseas investors view the integrity of the US markets”, he added.

There is nothing quite like dipping gasoline prices to boost the US stock market. A lot of things have changed since August 2, when gasoline futures hit a 2006 peak of about $2.34 a gallon on the New York Mercantile Exchange. The prices of gasoline fell 75 cents through the middle of this week. In the stock market, the S&P500 Index jumped 8.6% and the Nasdaq Composite Index climbed more than 13%.

Indeed, a few other things have been going on at the same time, including indications that the Federal Reserve is finished increasing short-term interest rates for the foreseeable
future. And experts of the market keep telling us that changes in energy prices don’t pack as much of an economic wallop as they did a few years ago.

All the same, a break at the pump can still energize investors’ sprits. The investment firm UBS AG says that in the past two months, its UBS/Gallup index of investor optimism has climbed 26 points to 79, concurrent with a fall in the number of investors worried about the economic impact of energy prices.

When the price of oil topped $78 a barrel in July, the sense of strong upward movement was almost obvious. Speculations swirled that oil price was headed for $100 a barrel. Instead, what happened was a change of direction that caused pain on large and small investors alike. Some well?known hedge funds came away bleeding with energy-inflicted wounds.

While most other stock mutual funds have rallied smartly, Morningstar Inc. data show natural-resources and precious-metals funds with minus signs in the past three months. Many arguments can be made for holding a natural?resources or other commodity-related fund as part of a diversified investment plan. Having a stake in energy investments can serve as a nice offset in case rising fuel prices hit the family budget. Quite possibly hordes of commodity bulls are correct that fast growth in China and India will increase demand for energy and industrial commodities for year to come.

US blue chips fell on October 25 as dim views from Boeing and General Motors cast doubt on investors’ hopes for next year’s earnings. Boeing shares fell 2.9% to $81.18 after the company announced a charge that pushed down the top end of its full-year 2006 earnings forecast. However, Nasdaq and S&P500 stock indexes were trading higher, supported in large part by results from online retailer Amazon.com.

People were expecting the Federal Reserve to keep its key interest rate unchanged at 5.25% for a third straight time after its two-day policy meeting. However, the investors were divided as to whether its next move will be to raise or cut rates. According to Jon Brorson, managing director of growth equities at Neuberger Berman in Chicago, earnings were somewhat of a mixed bag on October 24 and the same trend was expected on October 25.

On October 25, the Standard & Poor’s 500 Index was up 1.66 points at 1379.04. The Dow-Jones industrial average was down 28.10 points at 12,099.78. The Nasdaq Composite Index was up 7.91 points at 2,352.75. Shares of Amazon.com soared 11.2% to $37.40. The company’s profit and revenue have proved the analysts’ estimates wrong. The Web retailer announced it would slow growth in its technology spending, suggesting future profit may go up.

GM’s shares fell 4% to $34.76 as investors looked afar the rise in quarterly operating profit to 2007 and beyond when GM’s financial comparisons will be tougher. Shares of RadioShack, electronics retailer, fell 9.1% to $17.19 after the company announced a quarterly loss.

Hardware shares and household furnishings were among the worst performing subgroups as the National Association of Realtors released US existing home sales data for September. The data shows sales declining more than anticipated to a 6.18 million unit annual rate from a 6.30 million pace in August.

PepsiCo has announced its plans to launch healthier products next year and focus on growth in emerging markets. This will be in continuation of the strategy that has helped the world’s No 2 beverage company stay profitable even as sales growth of its soft drinks has slowed.

According to PepsiCo’s new CEO Indra Nooyi, the company is on right track to meet its annual target of volume and revenue growth in the mid-single digits and earnings per share growth in the low double digits. Speaking at an analysts’ conference in New York on October 23, Nooyi said she would lead the company without a major departure from the strategy of her predecessor Steve Reinemund, who will retire in May. Nooyi added that she has been involved in the company’s strategic planning for the last several years and a radical shift in the strategy is not going to happen.

Under Reinemund’s guidance, PepsiCo evolved into a $33-billion food company from being known mostly for selling soda and salty snacks. The company embraced the push into healthier options like Tropicana juices, Aquafina water and whole grain Quaker Oats Cereals while seeing earnings rise.

PepsiCo has fixed its targets for midteen-range profit growth in the international unit and 7% growth in the North America unit. Nooyi said that health and wellness, natural and organic products and premium products are the areas ripe for growth in North America. Mike White, CEO PepsiCo International, said concerns about health are global and because of the growing concerns about obesity, they were not pushing international consumers to increase the serving size of their salty snacks, but to just eat them more frequently. CFO Richard Goodman said that PepsiCo would allocate $500 million a year for tuck-in acquisitions as part of an aggressive expansion strategy. Some analysts feel there will be more focus on acquisitions in the near future.

All leading indicators are now confirming that most US home markets are in bear mode with anxious sellers and limited buyers. The Donald Trump Index is also not telling a different story. Donald Trump Index is mostly a psychological measure, which is based on popularity of real-estate-oriented seminars headlined by the property mogul and TV star.

According to the Learning Annex, a New York-based education company, the Real
Estate Wealth Expo, featuring Trump and 70 other money mavens, attracted more than 60,000 participants in 2005, when the home market was at its peak. The Expo charged as much as $499 per person. Recent ads for the event offered a price as low as $99 for similar seminars that are scheduled in cities such as Boston, Los Angeles, New York, Chicago and Toronto. Is there any connection between the 80% drop in the Trump Index and the measurable decline in the market?

It is evident now that there are more home sellers than buyers. The data collected by
National Association of Realtors says that there is more than a 7 month-plus supply of
unsold houses. Higher mortgage rates combined with large, static inventory depresses existing home sales, which fell 0.5% in August to the lowest level since 2004. The housing starts in August were down 20% from a year ago. With the highest supply of homes in 13 years, the housing group forecasts a 9% drop in existing-home sales for 2006 and a 17% drop in new-home purchases.

The total number of homes available on the market is out of balance with the demand. If we assume that the US population of 300 million is growing at a rate of 1% per year, and there are about 2.6 people per household, the base demand for housing is about 1.15 million units. The new-home construction rate was 1.7 million in August, and there are roughly 4 million unsold homes in the market today. Unless speculators and investors absorb the surplus, the supply may exceed the demand by 4.5 million homes.

Homebuilders are now offering teaser incentives to buyers, such as free kitchen and bath upgrades. That sounds tempting if you are exploring for a new home, but see how serious they are to lock sales by asking them to cut their selling prices.

With oil prices down sharply from its peak, some investors who invest money into energy-sector exchange traded funds (ETF) have slipped up as well. From its July peak of close to $80 a barrel, oil prices have fallen about 22 per cent and pulled down stocks of major energy companies along with it.

ETFs in the energy sector haven’t bucked the trend. With about $4.6 billion in assets, Energy Select Sector SPDR Fund, the largest energy-oriented ETF, has dropped 9 per cent from mid-July. Investors see the quick downfall of oil-related ETFs as a reminder of the volatility inherent in betting on narrow slices of the stock market. ETFs are similar to index-oriented mutual funds but trade on an exchange, like a stock. There are many ETFs which replicate broad well-known stock market indexes like the S&P 500.

Many advisors warn against Main Street investors using ETFs to pile into hot sectors, rather than cautiously investing their money over all kinds of investments. For investors
who think a recovery in oil prices is in the cards, energy-related ETFs would be a good bet since they hew to their index of choice. Unlike actively traded mutual funds, energy?related ETFs don’t boost holdings of cash or take other measures that would buffer their fall or limit their gains should oil prices rotate.

With energy prices falling, there have been big outflows in energy ETFs. However the
outflows don’t necessarily indicate that investors are cutting contact to energy stocks. Since ETFs can be sold short or used to hedge complicated bets on market, analysts warn frequently that ETF asset flows give a clearer picture of institutional trading activity than investors attitudes. In reality, while energy ETFs have lost assets recently, the outflows began in July, when oil was at its crest. Energy sector ETFs witnessed net outflows of about $234 million in July and $507 million in September. Some analysts think what happened is not a reflection on sentiment in the market but an institutional activity.

Heard this from a reader about LINTA, Liberty Media Interactive : “LINTA, in case you had not heard , is being added to S & P. Proposed net buy 14 million today is the add.”

Mutual-fund company stocks are defeating the funds they manage. You can take a look at the 20.8% gain posted by an index of 20 fund?manager stocks from January 1 through the end of second week of October. That gain was double the 10.2% advance of the average stock-mutual fund tracked by Bloomberg.

The Russell 3000 Investment Management Company Index has gained 15.6% a year over the past five years, outrunning the average stock-fund’s annual return of 10.4%.
According to John Bogle, retired chairman of the Vanguard Group, hired managers have arrogated to themselves an excessive share of the rewards of investing. He says one key reason this has happened is due to public ownership at fund companies.

Some critics say that when a fund manager has to answer to its own stockholders, as well as to shareowners of its funds, conflicts of interest arise. The fund company starts viewing itself more as a marketer working to attract new money than a steward of the assets already entrusted to its care. This starts a lively argument. A fund manager may feel he deserves some extra rewards for doing the home work and concentrating on a single business rather than owning a diversified portfolio of securities, as fund investor does.

The three largest US fund groups, namely Fidelity Investments, Capital Group’s American Funds, and Vanguard are all closely held. So are the several others among the fast growing up?and?comers, including Dimensional Fund Advisors, Dodge & Cox, and Davis Selected Advisers. A financial research by Boston consulting firm says these six groups together attracted almost $99bn of new money in the first eight months of 2006. That is more than half the $168 bn that was invested into stock and bond funds of all types.

Few investors or their advisors have made an obvious cause out of favoring private fund managers. They do naturally drift towards managers they perceive as able, consistent and reliable. Another choice that remains with every investor is to buy the fund managers’ shares instead of the funds. However, it should be kept in mind that individual fund?company stocks are prone to greater volatility than shares of a typical broad-based fund.

With the Fed still somewhat unclear on the interest rate issue, it may be a good idea to stow away cash in longterm CD or money market accounts. Bankaholic has the best bank interest rate and scoop on bank deals.

As an investor, do you know how can you avoid the next Amaranth? As more and more individuals are investing directly in the hedge funds, it is essential to calculate risks since the Securities and Exchange Commission (SEC) offers slight oversight. Recently, a federal appeals court cancelled the SEC’s right to register funds and check their books.

It is not hidden now that Amaranth Advisors lost $6 billion in a wrong bet on natural-gas prices in September. The impact of that trading disaster goes far beyond the industry. For example, the San Diego County pension fund is reported to have invested $175 million in the fund and lost an estimated $45 million.

The industry’s opacity has often upset regulators and big investors. Even private watchdogs have failed to spot the next wreck. There are a lot of dark corners to the industry, yet how to spot a risky portfolio, before it is too late? Here are some things to do and questions to ask before investing in hedge funds.

First, search for a due-diligence consultant. If independent, they will be able to dip into offering statements and other documents to identify potential problem areas. Some consultants have modeling software that can show you the weak areas of a particular portfolio. However, even with software, the complexity of some funds makes it hard to spot trouble areas. Evaluate liquidity, credit, and market risks. Try to find the answers to these questions. How much leverage is the portfolio using? Do the funds you’re considering have highly illiquid or hard-to-value investments? Can you get your money out in a short time? Many funds set the condition of an initial ‘lock-up’ period that prevents easy redemption.

Predicting the next hedge-fund blowup is similar to forecasting the next devastating hurricane. You cannot predict when it will occur, but you may know where storms are likely to hit. Although, it is a matter of probabilities, it helps extremely if someone can give you some odds.

Denis brought up an interesting conspiracy theory.
D. Lam (10:54:30 AM): Hey… Thought u might be interested
D. Lam (10:54:50 AM): A friend says that republicans are manipulating the market big time now to show that they’re good with with economy and that inflation is under control.
D. Lam (10:55:08 AM): And that oil is also being manipulated
D. Lam (10:55:00 AM): So after elections in November, there should be a big correction.

Dunno if its true, but just something to keep in mind.

I mentioned ORCL, Oracle Corp., about 2 weeks ago when I pointed out the stock chart breakout. ORCL is moving big after hours today. Oracle Corp. said Tuesday its first-quarter profit jumped 29 percent, easily exceeding expectations on record sales across most business lines and geographic regions.

I saw this spoof on Cramer’s Mad Money on Nasdaq Trader.

Hey,
I hope you guys like the new design. I’ve been working with a CSS designer to give the blog a refreshed look. Please let me know your comments on the look while we continue making adjustments.