Forex Aces

Ben Bernanke pledged to help restore financial markets to health on Tuesday, saying the Federal Reserve would continue to make this a “top priority.”

His comments came in testimony to Congress in which he admitted that it was very difficult for the Fed to judge the right way to balance serious risks to both growth and inflation.

Mr Bernanke said recent developments highlighted that “many financial markets and institutions remain under stress.” Tight financial conditions, high energy prices and falling house prices would continue to pose downside risks to growth.

But at the same time, he said, Fed policymakers see view the inflation outlook as “unusually uncertain” amid fears that commodity prices could keep rising and could become embedded in inflation expectations.

He said “a critical responsibility of monetary policy is to prevent that process from happening.”

The Fed released a new set of economic projections, in which policymakers revised up their central tendency forecast for growth this year from between 0.3 per cent and 1.2 per cent to between 1 per cent and 1.6 per cent following a stronger than expected first half.

But they still expect unemployment to end the year between 5.5 per cent and 5.7 per cent. They revised up the forecast for inflation this year to between 3.8 per cent and 4.2 per cent, compared with an April projection of between 3.1 per cent and 3.4 per cent.

Officials also see core inflation a fraction higher over the next two and a half years. These forecasts were submitted on June 24, before the latest relapse in financial markets.

Further evidence of consumer weakness and rising inflation in the US economy was provided on Tuesday by data showing unexpectedly slow retail sales and a sharp increase in producer prices in June.

Retail sales measured by the commerce department rose by 0.1 per cent last month, a disappointment to economists who had been forecasting a gain of 0.4 per cent on average. The slower than expected rise suggests that the impact of nearly $110bn in fiscal stimulus cheques sent out to consumers beginning in May could be starting to wear off, potentially leading to a drop-off in spending.

“Most of the boost to spending growth rates now appears to be in the past, with the large increases having come in April and May,” said economists at Goldman Sachs. “The stimulus may hold the level of spending up for another month or two, after which sales should fall,” they added.

In particular, American consumers scaled back their car purchases, which fell by 3.3 per cent. Excluding auto sales, retail sales rose by 0.8 per cent – also below expectations of a 1 per cent gain.

Meanwhile, the bite of high petrol and food prices was felt in last month’s producer price index, which rose by 1.8 per cent against expectations of a 1.5 per cent jump and a 1.4 per cent increase in May. However, core wholesale prices, excluding food and energy, rose by 0.2 per cent last month, which was slightly less than expected and will be of comfort to policymakers.

The data was released ahead of testimony on the health of the US economy by Ben Bernanke, chairman of the Federal Reserve, which was scheduled to begin at 10am in the Senate banking committee.

Electronic Arts, the video game giant that owns the rights to digital versions of the board game Scrabble, has announced that later this month, it will launch a Facebook application version of the game in conjunction with Hasbro.

Unlike the last time we saw an announcement like this, it actually extends to the United States. (Remember, rights to Scrabble are owned by different companies in the U.S. and abroad–here, it’s Hasbro, there, it’s Mattel.)

“Scrabble is one of the best social-game brands in existence, and we’ve worked diligently with the Hasbro team to ensure that regardless of the platform you’re playing, you’ll be able to enjoy a world-class version of Scrabble with friends or family,” Chip Lange, general manager of EA Hasbro Games, said in a release Monday. “We’re delighted to be bringing communities everywhere access to one of their favorite games.”

Unfortunately for EA and Hasbro, the story is much more complicated than that.

A game of Scrabulous on Facebook.

(Credit: Scrabulous)

There was, famously, all that fallout early this year over Scrabulous, a Facebook application that bears a suspicious resemblance to Scrabble. It’s ad-supported, which means that the India-based brothers who created it are making money off the game. And perhaps because there was no “real” Scrabble on the social network, Scrabulous became wildly popular.

Scrabble’s manufacturers weren’t thrilled, and they served a handful of takedown notices. But months later, Scrabulous is still alive and kicking, and the millions of Facebook users who have been playing it are unlikely to make the switch–who says they’ll even notice the presence of the new game?

The “official” Scrabble application, licensed by Mattel for Facebook users outside the States, has fewer than 4,000 daily users on a social network of more than 80 million, and Scrabulous is about 100 times more popular.

But EA’s official version might gain traction elsewhere. The company will also be launching a version of the game on Pogo, an EA-owned casual-game site. If that’s the start of a distribution effort across other game hubs, the “real” Scrabble could get some attention.

On Facebook, though, unless Hasbro reignites its dormant legal efforts to remove Scrabulous from the system, the game probably doesn’t stand much of a chance.

Investor activist Carl Icahn on Monday announced that Microsoft is supporting his proxy battle efforts to unseat Yahoo’s board, with the software giant indicating that it is willing to negotiate a potential deal to acquire the company or its search assets with a new board.

Although Icahn and Microsoft acknowledge that there can be no guarantees that a Yahoo buyout or sale of its search assets will occur, if Icahn wins his proxy fight, the search pioneer’s stock price is soaring on the Microsoft-Icahn news.

Here is a copy of Icahn’s letter:

Dear Yahoo shareholders: 

During the past week, I have spoken frequently with Steve Ballmer, CEO of Microsoft. Several of our conversations have lasted as long as an hour. Also, a few of our discussions have taken place while other top executives, such as Kevin Johnson, participated.

Our talks centered on the industry in general but, more importantly, on how Yahoo and Microsoft can do a transaction together. Steve made it abundantly clear that, due to his experiences with Yahoo during the past several months, he cannot negotiate any transaction with the current board.

His logic is simple. If and when a transaction (were) consummated, Microsoft would be guaranteeing a great deal of capital at closing. However, a transaction could take at least nine months, and perhaps longer, to obtain regulatory clearance in the U.S., Europe, and elsewhere.

During that period, if the current board and management team of Yahoo mismanage the company (and their recent track record is far from reassuring), Microsoft would be putting its money at risk, and a great deal could be lost.

For example, in a transaction to purchase the whole company, a very large amount of capital would be due at closing. Even in an “alternate” transaction, where just the “Search” assets were purchased, large guarantees would have to be made and, again, large sums could be lost if the company was mismanaged.

Microsoft perceives this risk may be quite high, with the current board and management in place. However, Steve made it clear to me that if a new board were elected, he would be interested in discussing a major transaction with Yahoo, such as either a transaction to purchase the “Search” function, with large financial guarantees or, in the alternative, purchasing the whole company.

He stated that Microsoft would be willing to enter into discussion immediately, if the new board that has been nominated were elected. While there can be no assurance of a future transaction, as many of you know, I have negotiated successfully a large number of transactions over the past years. If and when elected, I strongly believe that in very short order, the new board would, subject to its fiduciary duties, be presenting to shareholders either a purchase offer for the whole company or a very attractive offer to purchase “Search” with large guarantees.

I hope to continue to be speaking to Steve over the next few weeks; however, since I do not as yet represent the Yahoo board, both Steve and I do not wish to get into details over price, or even which of these transactions makes the most sense.

Much has been said about how badly the Yahoo board has “botched up” negotiations with Microsoft over the past months. There is no need to keep pointing out the mistakes I believe Yahoo made by not immediately taking a $33 offer made by Microsoft. But one thing is clear: Jerry Yang and the current board of Yahoo will not be able to “botch up” a negotiation with Microsoft again, simply because they will not have the opportunity.

Our company is now moving toward a precipice. It is currently losing market share in its “Search” function; our current board has failed to bring in a talented and experienced CEO to replace Jerry Yang and return Jerry to his role as Chief Yahoo, and currently, it is witnessing a meaningful exodus of talent.

It is no secret that Google (which hired a great operator as CEO) continues to dramatically outperform Yahoo. According to publicly available information, Google’s income from operations grew 59 percent per year over the last two years, while Yahoo’s shrank 21 percent per year. However, none of the above has caused the Yahoo board to hesitate in paying themselves $10,000 per week. IT IS TIME FOR A CHANGE.

If elected, I have little doubt that the new board, subject to its fiduciary duties, will do what the current board will not do, i.e.,

• Immediately start negotiation with Microsoft to sell the whole company or, in the alternative, sell “Search” with large guarantees.

• Move expeditiously to replace Jerry Yang with a new CEO with operating experience.

Legal & General Investment Management has announced that Mark Zinkula has been appointed to the post of chief executive officer of Legal & General Investment Management America (LGIMA).

Zinkula joins from Cornell College where he served as chief financial officer and treasurer.

Earlier in his career he served as the worldwide leader of Fixed Income at AEGON.

LGIMA handles $8bn of fixed income investments within the US.

The firm was first established two years ago and Zinkula’s appointment heralds the beginning of its second developmental phase.

The appointment of Zinkula, who has been a director since LGIMA’s creation, has been welcomed by Peter Chambers, Legal & General Investment Management’s chief executive.

. R. Berkley Corporation yesterday announced the creation of FinSecure, LLC, which is to be based in Baltimore.

The new venture is to provide property and liability insurance for financial institutions and firms that offer financial services.

A number of W.R. Berkley member corporations will have their underwriting needs catered for by FinSecure.

Annette Merz is to occupy the position of president for the new firm, leaving behind her present post of president of Lenpex LLC.

Merz brings with her over two decades of industry experience.

A quartet of other senior appointments has been announced.

The head of underwriting is Paul Zubrowski, who has worked in the insurance industry for 24 years.

Donna Sofinowski will become head of claims, and brings with her extensive experience accumulated during her three decades in the industry.

Melanie Cookson becomes assistant vice president, and will be given responsibility for sales and marketing.

Deborah Martenson is to become chief information officer.