Chavez Price Controls Mean Record Oil Fails to Prevent Shortage

May 23 (Bloomberg) -- A day's drive west of Venezuela's Orinoco Belt, where the largest liquid deposit of oil in the Western Hemisphere helped deliver $13.9 billion for social programs last year, security guard Efrain Rengifo waits in a queue outside a government-run grocery.

The line spills out of the concrete-block Super Mercal in Barinas, capital of a beef-producing region in the home state of President Hugo Chavez. The avowed socialist is trying to redistribute the country's wealth, blunt U.S. influence and rid capitalism of what he calls its ``anti-values.'' Socialism is Christ; capitalism is Judas, Chavez says.

Rengifo stands with his wife in the April heat while street vendors hawk empanadas and iced cups of juice. He wears the red T-shirt of an education program set up by Chavez, who has defined socialism as ``attending to all of the needs of everyone.''

On this day, the Super Mercal isn't delivering on that promise. In a country blessed with enough crude to make it OPEC's sixth-largest producer, the store has no milk, no chicken, no cooking oil and no flour.

``You have to show up on the right day if you want to find everything you're looking for,'' Rengifo, 43, says.

Rengifo's predicament is a symbol of the warped economics that have taken root in Venezuela. Surging prices have more than doubled the value of oil in the past year. That hasn't put food on the table. Price-controlled staples are often in short supply. Beef production declined last year even as consumer demand surged. Venezuelans are buying new cars as investments. A currency black market is thriving. Inflation hit an annualized 29 percent in April.

New York Prices

And rents in upper-middle-class neighborhoods of Caracas have soared to New York levels -- as much as $4,000 a month for a two-bedroom flat.

Smoked salmon and French wines show up on store shelves, yet Chavez found it necessary to order Petroleos de Venezuela SA, the state-owned oil company, to form a unit to distribute beans and rice.

``Venezuela is a place of paradox right now, the paradox of plenty,'' says Leopoldo Lopez, the 37-year-old, U.S.- educated mayor of the Caracas borough of Chacao and leader of opposition party Un Nuevo Tiempo. ``There's plenty of oil, and plenty of dollars coming in from the oil industry, but we don't have enough food.''

The shortages are cutting into Chavez's once-unassailable public support. His popularity rating, measured by Caracas- based polling firm Datanalisis, fell to 51.8 percent in February from 75.4 percent in June 2006. About 71 percent of Venezuelans said they disapprove of how the president has managed the food supply, up from about 38 percent in October.

`A Dangerous Thing'

Most of Latin America has been spared the anxiety over food stocks seen in such countries as the Philippines. Venezuela is an exception. Should its shortages become acute, an economic and political crisis might ensue, says Edwin Gutierrez, who manages about $5.5 billion in emerging-market debt at Aberdeen Asset Management Plc in London.

``It's a dangerous thing when a mother can't get milk for her children,'' he says.

Sterilized milk started reappearing on shelves more regularly after Chavez eliminated price controls and gave importers priority for the dollars they need. Such moves contribute to inflation, though. In Caracas, the capital, food prices soared 42 percent in April from a year earlier. Chavez removed controls on eggs and raised the regulated price on chicken in April to ease shortages.

Jailed Two Years

A former army paratrooper, the 53-year-old Chavez isn't a cautious politician. He went to prison in 1992 for leading a failed coup attempt against President Carlos Andres Perez. Then a lieutenant colonel, Chavez was jailed for two years but later railed against corruption and vowed to redistribute oil revenue to the poor. He won the 1998 presidential election by 16 percentage points.

PDVSA, as the state oil producer is known, tried to drive Chavez from power in 2002 by crippling the economy with a management-led strike. It failed, and the strikers were fired. Chavez installed a confidante, Rafael Ramirez, as PDVSA president in 2004.

``This was a political strike, because there was concern for democracy in Venezuela,'' says Eddie Ramirez, 67, former head of a PDVSA subsidiary, who participated in weeks of marches against Chavez starting in 2002. He says Chavez tried to pack the PDVSA board with ``revolutionaries'' and that the firings scattered a talented workforce to other countries.

`Mr. Danger'

Rafael Ramirez has rebuilt the company to be, in his own words, ``red, very red.'' Chavez, too, uses colorful labels to depict the United States as a global threat. He calls it ``the empire'' and refers to President George W. Bush as ``Mr. Danger'' while denouncing the invasion of Iraq as ``imperialist.'' He labeled Bush ``the devil'' in a 2006 speech at the United Nations, and in one televised address at home, he branded the U.S. president a ``donkey,'' ``assassin'' and ``drunk.''

Behind the swaggering rhetoric, Chavez has achieved some of his goals. In foreign affairs, he has forged an anti-U.S. coalition composed of Bolivia, Cuba, Ecuador, Nicaragua and, to some extent, Argentina.

At home, the government is spending oil wealth by the billions, focusing on health care and education. Thousands of Cuban doctors have been flown in. In April, Chavez raised the minimum wage 30 percent to the equivalent of $372 a month, the highest in Latin America. That followed a 20 percent rise in 2007.

Food Stamps

Anyone who makes the minimum probably qualifies as well for food stamps, which will buy about $186 in food each month. The government says the poverty rate -- as measured by a family's ability to purchase a basket of basic needs -- fell to 34 percent in 2007 from 62 percent in 2003.

Rising wages are lifting demand: Retail sales rose an average of 42 percent during 2007 over year-earlier levels.

``He knows he's involved in a capitalist market,'' says Fernando Coronil, a professor at the University of Michigan who wrote a book on Venezuela titled ``The Magical State'' (University of Chicago Press, 1997). ``What he's doing is taking some steps to make the state play a very important role in the economy.''

Some of the intervention has been stifling. Industrial production gained just 1.7 percent in November, fell 2.5 percent in December and rose 2.6 percent in January before rebounding 12.2 percent in February, according to the Central Bank of Venezuela.

Producing `Nothing'

``There's no incentive to invest in new production now in Venezuela,'' says Jose Guerra, the central bank's former director of economic policy. ``There's been a massive increase in demand, but on the other side, there's a problem, because Venezuela is a country that produces almost nothing.''

Nationalization has scared off many investors. Last year, Chavez increased the government's stake in four heavy-crude projects with foreign companies to 60 percent and nationalized a telephone company and power provider. This year, he announced takeovers in steel, cement and coal.

The toll has been steep. In 1998, foreign investment stood at $4.99 billion, according to the central bank. Last year, it plummeted to $646 million.

Even the privately owned Cada supermarket in Barinas is facing shortages similar to those at the crosstown Super Mercal. Two days after Rengifo waited to buy food at the government-run grocery, fresh milk was out of stock at Cada, though the powdered kind was available.

Tapping PDVSA

``There are some products you just can't find,'' insurance broker Diego Ramirez, 30, says. ``Rice, cooking oil, beef -- everything that's a basic necessity.''

Chavez's fix consists of more social spending and a series of pricing changes on regulated goods. He's poured cash into the economy from PDVSA revenue, which has boosted overall economic growth. The oil company's so-called social contribution to the nation was just $34 million in 2001. By 2007, the floodgates were open. The $13.9 billion contribution last year represents a more than 400-fold increase from six years earlier.

One result: Venezuela's $182 billion economy has expanded an average of more than 12 percent in the past four years -- the highest growth rate among Latin America's biggest economies.

Criticizing Ethanol

The government offers subsidies to producers and consumers for some food staples and caps prices on many items, though Chavez has begun loosening controls to spur output. Mercal, run by the Food Ministry, has almost 16,000 stores offering discounted prices, according to the company's Web site. Chavez often criticizes the diversion of cropland to ethanol production, saying the shift is partly to blame for global food-supply imbalances -- and rising prices at home.

``We're the fatherland of corn, which is why it's a crime to use this product to produce ethanol, as the U.S. empire desires,'' he said on April 24 during a farm visit.

Chavez also says speculators and hoarders are contributing to shortages, without providing specifics.

``We have to forget these terrible capitalistic anti- values, in which everyone tries to rob each other,'' he said on his regular Sunday television program, ``Alo, Presidente,'' on Feb. 10.

In December, Chavez moved to end price controls on sterilized milk after he suffered his first electoral defeat. Voters rejected his attempt to allow changes to the constitution via referendum, including a provision to eliminate presidential term limits.

Barnyard Epithet

The outcome stung. After results were announced in the early morning hours of Dec. 3, Chavez said he'd accept the defeat ``for now,'' echoing words he used after his failed 1992 coup. Within days, he was attacking the opposition, calling the vote a ``shit victory'' on TV. Later, he increased the regulated price of beans and some cheeses.

In another step to boost supply, Chavez launched a new subsidiary of PDVSA this year. Called PDVAL, it distributes hard-to-find items, including milk, beans, rice and beef. The food is sold off pallets and under tents.

Chavez has also been expropriating private agricultural land he says is underused and turning it over to peasants.

``If you don't produce on your land, then don't complain when we come and take it away,'' he said on April 24 on state television. He says 2 million hectares (4.9 million acres) of ``idle'' land have been taken. Together, that would make up an area larger than the state of Connecticut.

`Flight of Investment'

Food producers say the seizures by the National Land Institute have made shortages worse.

``There's a flight of investment from food production,'' says Rogelio Pena, a former cattle rancher in Barinas state whose land was confiscated in 2003. ``Many of the ranches they've taken over produced milk and beef.''

Pena, 49, says the land institute accused him of leaving too much of his 3,600-hectare ranch idle and of not having proper paperwork to prove he owned it. He says his documents were in order and that he was raising 2,300 cows. Institute representatives accompanied by soldiers showed up one day and ordered him out, without compensation, he says. Pena now works at his family's hardware store in downtown Barinas.

Juan Carlos Loyo, director of the institute, didn't respond to calls seeking comment.

Beef Output Falls

Whether through idle land or lack of investment, milk and beef output have suffered. Though milk production has risen 8 percent in each of the past three years, it's still down from a decade ago. Output peaked at 1.72 billion liters (454 million gallons) in 1988 and last year stood at 1.5 billion liters, according to the National Cattle Ranchers Federation of Venezuela. The group says beef production fell 22 percent to 343,798 metric tons in 2007 from a year earlier.

The government divides expropriated land into small units for individual farmers, while larger communal areas are devoted to cooperative projects. The farmers don't own the plots. While grateful for the land, many co-op farmers express frustration at delays in obtaining promised government funding and training.

``We've had to fight,'' says Marisol Ramirez, president of a 1,000-hectare cooperative of 42 families in Barinas state. ``There's a lot of negligence at the state entities that are supposed to help farmers.''

Only nine co-op families have electricity, and most live in wooden shacks without plumbing. Since expropriating the property in 2004, the government has built a school and given the farmers a 340,000 bolivar ($158,000) loan to build a corral and prepare part of the land for cattle grazing. Promised loans and grants for a clinic, a plant nursery, housing and electrification projects are stalled in the bureaucracy, Ramirez, 41, says.

Imports Surge

The farmers, many of them former laborers, grow fruits and vegetables, taking to market only what's left over after feeding their families, Ramirez says. Together, they raise 160 head of cattle on communal land.

With domestic production lagging behind demand, companies and the government have turned to imports. Purchases of goods from abroad surged 40 percent last year to $48.6 billion, according to the central bank. Exports rose 6.1 percent to $69.2 billion.

Buying abroad isn't easy. Importers need dollars, and the biggest bottleneck is the government's Foreign Exchange Administration Commission, known as Cadivi, which decides how to allocate the currency. Red tape can stretch the process to months, merchants say.

Cars as Investments

Empresas Polar SA, which makes everything from margarine to frozen hamburgers as the country's biggest food processor, is having trouble lifting output because of the exchange controls, Chief Executive Officer Lorenzo Mendoza says.

``Supply chains in many areas are breaking because the bureaucracy involved in accessing those dollars is not working effectively,'' he said in an April interview with Bloomberg Television.

With inflation taking an increasing toll on Venezuelans' savings, durable goods such as automobiles have become popular products in which to sink cash. The Mazda3 and Ford Fiesta are among the hottest imports. Car sales last year rose 43 percent to 491,899, with imports alone jumping 81 percent. Sales of cars assembled at Venezuelan plants fell 1.3 percent.

Defying economic norms, some vehicles increase in value after purchase. Among the reasons: Venezuela is a nation of car lovers, and driving is cheap. Subsidies keep a gallon of gasoline at about 17 U.S. cents compared with the U.S. average of $3.69 as of May 9. In addition, first-time buyers can get a tax rebate on certain small models.

Avoiding Banks

And there's an incentive to take out a car loan. The average interest rate on car loans in late April was about 27 percent, a couple of points below inflation.

``With cars, you never lose,'' says Eduardo Pacheco, a pilot who says he bought a 2007 Toyota pickup truck in December 2006 that he sold this year for a 67 percent gain. ``I wouldn't leave any of my money in the bank.''

The government imposed new import restrictions on cars this year, limiting the types of vehicles that can be brought into the country so that food importers can be given priority for dollars. That's created even bigger shortages of popular models, says Silvestre Tovar, vice president of Iveco Venezuela, a unit of Fiat SpA's truck-making division.

Choke Points

Iveco's plant in Aragua state, west of Caracas, operated at half capacity in the first quarter because of bureaucratic delays in importing parts and kits, Tovar says.

``The problem isn't demand; it's that we can't get the parts to build trucks,'' he says. The choke points are foreign exchange agency Cadivi and customs, which can cause up to three-month delays, Tovar says.

Chavez's policies have weighed heavily on PDVSA, which accounts for 90 percent of the value of the nation's exports. As he taps the company's petrodollar revenue to pay for social programs, less is spent on exploration, production and refining.

Both production and revenue are falling, even as world oil prices soar beyond $125 a barrel. As of April, Venezuela's oil output had declined to 2.32 million barrels a day from 2.77 million barrels in February 2005, according to Bloomberg estimates. Last year, PDVSA's revenue dropped 3 percent to $96.2 billion.

`Egregious'

PDVSA shows signs of being cash starved. As of April, the company was demanding payment by customers within eight days, down from its normal 30 days.

``The extent to which PDVSA is being used now is egregious,'' Aberdeen's Gutierrez says. ``It's the golden goose that's paying for everything.''

Amid the growing imbalances, Venezuelans are finding ways to take advantage of the government's elaborate system of controls. Black markets are burgeoning. One ploy involves exploiting the gap between the parallel, unofficial exchange rate and the official rate of 2.15 bolivars to the dollar.

As the parallel rate plunged to as low as 6.6 bolivars per dollar last year, crafty Venezuelans started exploiting a regulation that allows them to spend $5,000 a year each on their credit cards while abroad. They fly to Curacao, about 75 kilometers (47 miles) off the coast of Venezuela in the Netherlands Antilles. There, they can use a credit card to buy $5,000 in casino chips billed at the official exchange rate, cash in the chips for dollars and return home to sell the dollars on the parallel market.

Political Erosion

The rate gap has eased. In mid-May, the parallel rate stood at about 3.5 bolivars to the dollar, still 63 percent more than the official rate.

The economic distortions, coupled with doubts raised after Chavez's failed campaign for referendum changes, may be providing an opening for political opponents. In November, gubernatorial and mayoral elections will be held in 22 states and in Caracas.

``They act as if this revolution was a franchise that they own,'' National Assembly member Wilmer Azuaje says of the Chavez family. Over Chavez's objections, Azuaje, 31, a member of the ruling coalition, launched a campaign earlier this year for governor of Barinas state, where Chavez's father, Hugo de los Reyes Chavez, is the departing governor.

The opposition's eight main parties are trying to organize themselves to take control of statehouses and city halls. In January, they signed an agreement to back a single candidate in each race.

`Chavismo' Crisis

``This is an internal crisis within Chavismo,'' says Milos Alcalay, Venezuela's ambassador to the UN from 2001 to 2004, using an often-heard label for Chavez's ideology.

For now, many Chavez supporters remain grateful to the president for helping pull them out of poverty. Marisol Ramirez, the co-op president, says she still believes in Chavez even if government agencies are inefficient and corrupt.

``We don't blame the president for all that,'' she says. ``It's just that he doesn't know. I know he's going to come do an `Alo, Presidente' here one day, and he'll see all that we're doing.''

Should it ever return to power, the opposition won't abandon the poor, Nuevo Tiempo's Lopez says.

``The government will always have to invest greatly in social programs,'' he says. ``There was a lot of frustration with previous governments. Venezuela has to manage this paradox. We're a rich country with poor people.''

Petrodollar billions can buy a lot of things. As Chavez has found, well-stocked grocery shelves aren't always among them.

Google, Chevron Build Mirrors in Desert to Beat Coal With Solar

May 23 (Bloomberg) -- Along a dusty two-lane highway in California's Mojave Desert, 550,000 mirrors point skyward to make steam for electricity. Google Inc., Chevron Corp. and Goldman Sachs Group Inc. are betting this energy will become cheaper than coal.

The 1,000-acre plant uses concentrated sunlight to generate power for as many as 112,500 homes in Southern California. Rising natural gas prices and emissions limits may make solar thermal the fastest-growing energy source in the next decade, say backers including Vinod Khosla, the founder of computer maker Sun Microsystems Inc.

Costs for the technology will fall below coal as soon as 2020, the U.S. government estimates. JPMorgan Chase & Co. and Wells Fargo & Co. invested last year in the biggest solar plant built in a generation; Chevron and Google are funding research; and Goldman Sachs is seeking land to lease as demand outpaces wind turbines and geothermal.

``Solar thermal can provide a substantial amount of our power, more than 50 percent,'' says Khosla, who along with the Menlo Park, California, venture capital firm Kleiner Perkins Caufield & Byers led a $40 million investment in solar power producer Ausra Inc. ``This is an industrial-strength solution.''

Developers need to overcome limited power lines and the need for energy storage systems, while lobbying for the extension of tax credits.

``They have to prove their technology,'' says Reese Tisdale, senior analyst at consulting firm Emerging Energy Research, which estimates solar thermal will lure more than $85 billion in investments by 2020. ``There need to be some significant technology jumps.''

Steam Turbines

The Ardour Solar Energy Index, covering all forms of solar power, climbed 55 percent in the 12 months through yesterday, outperforming an 8.5 percent decline in the Standard & Poor's 500 Index.

Unlike photovoltaic solar panels that convert sunlight to electricity, solar thermal focuses sunrays with mirrors to heat oil in glass pipes to about 700 degrees Fahrenheit (370 degrees Celsius). The oil turns water to steam, which spins an electric turbine.

Nine solar thermal plants built in the California desert from 1985 to 1991 still operate, with Juno Beach, Florida-based FPL Group Inc. running seven. They have combined capacity of 354 megawatts, enough to power 230,000 Southern California homes.

Development slowed when Congress eliminated tax credits for alternative energy in the early 1990s. Laws put in place in 2005 give solar investors a 30 percent tax credit.

Desert Sun

At FPL's solar thermal site in the Mojave, 90 miles northeast of Los Angeles, sunshine beats down 340 days a year. The parabolic reflectors have an efficiency of more than 90 percent, compared with 80 percent for a typical bathroom mirror. FPL uses 4,000-gallon (15,000-liter) trucks to spray water weekly to clean the surfaces, seven feet (two meters) off the ground.

``There's always been a solar resource here,'' says Harvey Stephens, a production manager and one of 100 workers at the plant. ``It's just that it hasn't been cost-effective enough.''

At noon on a typical workday, technicians in a two-story control room monitor a dozen screens showing the heat generated by each array of mirrors. As temperatures creep past 700 degrees, icons blink to red from green, indicating the center is ready to feed electricity to the California grid.

Clouds' Challenge

Temperatures and power production drop as clouds blow across the sky. Solar thermal companies are trying to develop backup heat storage using pressurized boiling water or molten salt that can be warmed to more than 1,000 degrees.

Solar power ``fits with our peak demand very well as long as the sun is cooperating,'' says Michael Yackira, chief executive of Sierra Pacific Resources, the company that owns utilities serving Las Vegas and other Nevada cities. ``When it's cloudy, when it's raining, when it's dark, it doesn't produce power.''

A solar thermal unit that begins operation in 2010 will produce power at 14.2 cents a kilowatt hour, almost triple the 4.8 cents for a plant using pulverized coal, the Energy Information Administration estimates.

Costs for solar thermal may fall as low as 3.5 cents a kilowatt hour by 2020, according to a report commissioned by the U.S. Energy Department. Meanwhile, coal expenses may rise. Congress is considering limits on carbon dioxide and other greenhouse gas emissions. The purchase of pollution permits may be required under a measure the Senate will begin debating next month.

`To Beat Coal'

Ausra's plants will produce electricity at 10 cents a kilowatt-hour starting in 2010, and the price will fall to 8 cents a few years later as it adopts systems with fewer parts that will be less costly when widely deployed, the company says.

``We are going to beat coal,'' says Bob Fishman, Ausra's chief executive officer. His company has a contract with PG&E Corp.'s Pacific Gas & Electric for a site in central California.

Chevron, Goldman Sachs, FPL, PG&E and other companies have filed more than 50 applications with the Bureau of Land Management to lease government-owned desert property for solar power systems. Chevron, which has invested in the solar thermal builder BrightSource Energy Inc. in Oakland, California, and Goldman, the biggest U.S. securities firm, declined to comment.

Google's philanthropic division put $10 million into eSolar, a start-up in Pasadena, California. Dan Reicher, a former Energy Department official who manages the unit's climate and energy initiatives, said there will be more such investments.

U.S. Economy: Home Resales in U.S. Decline, Inventories Climb

May 23 (Bloomberg) -- Sales of previously owned homes in the U.S. fell in April and the supply of unsold properties reached a record, signaling no let-up in the housing slump.

Purchases declined 1 percent to an annual rate of 4.89 million, higher than forecast, the National Association of Realtors said today in Washington. The median price dropped 8 percent from April last year, the second-biggest drop.

``There is no indication that things are improving,'' said Christopher Low, chief economist at FTN Financial in New York, who forecast sales would drop to a 4.9 million pace. ``Inventories will stay out of balance at least until the end of 2009 and prices will keep falling.''

Defaults on subprime mortgages have prompted lenders to restrict credit, while falling property values have given buyers who are still able to get financing reason to delay purchases. The slide in home values may hurt consumer spending, which accounts for more than two-thirds of the economy.

Treasury securities, which had risen before the report, stayed higher. Benchmark 10-year note yields fell to 3.88 percent at 10:20 a.m. in New York, from 3.92 percent late yesterday. The Standard & Poor's 500 stock index dropped 1.2 percent to 1,378.33.

Resales were forecast to fall 1.6 percent to a 4.85 million annual rate, according to the median forecast of 67 economists in a Bloomberg News survey.

Sales were down 18 percent compared with April 2007.

Glut of Homes

The number of previously owned unsold homes on the market at the end of April jumped to 4.55 million, up from 4.12 million in March. The total represented 11.2 months' supply at the current sales pace, the highest on record and up from 10 months at the end of the prior month.

The median price of an existing home fell to $202,300 from $219,900 in April 2007.

``We had an unrealistic run-up of prices and the faster they come back down to the real world the better,'' William Cheney, chief economist at John Hancock Financial Services in Boston, said in an interview with Bloomberg Television. ``The faster prices come down, the quicker we can get back to an equilibrium where we actually have transactions.''

Existing home sales account for about 85 percent of the U.S. housing market while new home sales make up the rest. Monthly figures on resales are compiled from contract closings and may reflect sales agreed upon weeks or months earlier.

Purchases of new homes, which are recorded when a contract is signed, are considered a more timely barometer of the market. The Commerce Department's report is due next week.

Property Types

Today's report showed resales of single-family homes dropped 0.5 percent to an annual rate of 4.34 million. Sales of condos and co-ops declined 5.2 percent to a 550,000 rate.

Purchases decreased in two of four regions, led by a 6 percent decline in the Midwest.

Federal Reserve policy makers, who cut their 2008 growth estimate by almost 1 percentage point, said ``tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters,'' according to minutes of their April meeting released on May 21.

The economy will expand by 0.3 percent to 1.2 percent this year, policy makers estimated. Their efforts to support growth include 2.25 percentage points of reductions in the benchmark interest rate this year, the most in almost two decades.

Recent reports signal little relief for the housing market. The number of banks reporting tighter lending standards approached a record in April, a Fed survey showed. Builders broke ground on single-family homes last month at the slowest pace in 17 years, Commerce figures showed.

Construction Slump

Residential construction, which has subtracted from economic growth since the first three months of 2006, will remain a drag through most of this year.

Restricted access to credit will continue to depress property values, eroding household wealth as home equity shrinks. The declines are likely to weaken consumer spending further.

Housing-related firms have faced the brunt of the economic slump. Home Depot Inc., the largest home-improvement retailer, this week said full-year earnings may be at the low end of its prior forecast. Rival Lowe's Cos. said 2008 sales won't meet its estimates. First-quarter profit plunged 66 percent at Home Depot and 18 percent at Lowe's as consumers cut back on remodeling.

``The housing and home-improvement markets remain very difficult,'' Home Depot Chief Executive Officer Frank Blake said on a May 20 conference call. There will be ``more risks than opportunities through the remainder of the year.''

The U.S. Senate Banking Committee this week approved housing legislation to stem foreclosures by insuring as much as $300 billion in mortgages. The plan, yet to be approved by the full Senate, also would create a new regulator for Fannie Mae and Freddie Mac, the two largest U.S. mortgage-finance companies.

U.S. Stocks Retreat on Housing, Energy Concern; Ford Slumps

May 23 (Bloomberg) -- U.S. stocks fell, extending the market's biggest weekly retreat since February, on concern a worsening housing recession and rising energy costs will prolong the slump in corporate profits.

Ford Motor Co. declined for a sixth straight day after the second-biggest U.S. automaker said consumers are buying fewer trucks as fuel prices climb to records. Nordstrom Inc. led retailers to a six-week low as crude rose. All five homebuilders in the Standard & Poor's 500 Index slid on an industry report showing sales of previously owned homes matched an all-time low in April.

The S&P 500 slipped 14.13 points, or 1 percent, to 1,380.22 at 10:32 a.m. in New York. The Dow lost 111.87, or 0.9 percent, to 12,513.75. The Nasdaq Composite Index sank 18.82 to 2,445.76. Six stocks dropped for each that rose on the New York Stock Exchange.

``Housing prices are still falling, and that's a big issue for this market,'' David Joy, who helps oversee about $160 billion as chief market strategist at RiverSource in Minneapolis, said in a Bloomberg Television interview. ``Oil is the dominant story, but housing is important, particularly housing prices. That really speaks to the health of the consumer sector.''

All 10 industries in the S&P 500 retreated. Profits have fallen 18 percent on average for the 461 companies in the index that have reported first-quarter results, the group's third straight slump in quarterly earnings, according to data compiled by Bloomberg.

The Dow average has lost 3.6 percent this week, while the S&P 500 and Nasdaq have tumbled 3.2 percent.

Ford Tumbles

Ford decreased 23 cents, or 3.2 percent, to $6.93. Ford estimates that full-size pickups fell to 9 percent of the U.S. market compared with 14.1 percent in 2007, Chief Executive Alan Mulally told reporters late yesterday after a speech in Detroit. Such figures don't include sales to corporate fleets or rental- car companies.

``We've never seen movement this fast,'' Mulally said. ``This is a fundamental change.''

General Motors Corp., the largest automaker, tumbled 3.7 percent to $17.74 after pledging $215 million, $15 million more than its initial estimate, to help end a 12-week strike at a supplier that reduced production at the largest U.S. automaker by 230,000 cars and trucks this quarter.

D.R. Horton Inc. led homebuilders to a sixth-straight decline after the National Association of Realtors said sales of existing homes declined 1 percent to an annual rate of 4.89 million from 4.94 million in March. The median price dropped 8 percent from April last year, the second-biggest decline ever, as the number of houses on the market surged.

Consumer Shares Slump

Nordstrom, operator of more than 100 department stores, lost 3.3 percent to $33.50. Wal-Mart Stores Inc., the largest U.S. retailer, retreated 49 cents to $55.56. Darden Restaurants Inc., the owner of the Olive Garden and Red Lobster restaurant chains, slumped 3.7 percent to $31.98.

Crude oil rose more than $2 a barrel as the dollar fell against the euro and a report forecast that the 2008 hurricane season may be more active than usual, threatening oil platforms and refineries in the Gulf of Mexico. Crude for July delivery rose $2.06, or 1.6 percent, to $132.87 a barrel in New York.

Apple Inc. advanced $3.65, or 2.1 percent, to $180.70. Merrill Lynch & Co. raised its share-price estimate for the maker of the iPod media player by 16 percent to $215, citing a ``significant increase'' in sales generated by the iPhone.

Intuitive Surgical Inc. rallied $7.25 to $282. The maker of robots to aid in surgery will replace Bear Stearns Cos., which is being acquired by JPMorgan Chase & Co., in the S&P 500. The addition of Intuitive Surgical may support its stock price as money managers tracking the index purchase the company's shares.

Thursday, May 22, 2008

Webb's Just the Reagan Democrat Obama Needs

Commentary by Margaret Carlson

May 22 (Bloomberg) -- It's time for Senator Barack Obama to place the following ad:

WANTED -- Military man south of Mason Dixon line, at home in a helmet, hardhat and combat boots. Political experience in a red state and knowledge of firearms helpful. Applicant must be familiar with bowling, boxing and bass fishing. College degree not required. Wine drinkers need not apply. Interested parties please respond to veepstakes@obama.com.

After another drubbing at the hands of Senator Hillary Clinton in Kentucky, to say that Obama lacks appeal among non- college-educated, working-class Ronald Reagan Democrats -- the voters Clinton calls ``hardworking white Americans'' -- is to call the Grand Canyon a hole in the ground.

Barring putting Clinton on the ticket -- and most Obama folks do -- there's another Democrat who fills the bill, the freshman senator from Virginia, Jim Webb.

Webb is all over the place this week -- ``Meet the Press,'' NPR, ``The Late Show With David Letterman,'' a party at the Four Seasons in New York -- promoting his book, ``A Time to Fight: Reclaiming a Fair and Just America.''

This isn't your typical Capitol Hill book of pasted-together speeches. Webb, 62, has written a vivid analysis of the folly of our foreign policy and the unfairness of our domestic one. He makes the case for the ordinary Joe who punches a clock and goes down in a coal mine to work for The Man, who makes in an hour what he earns in a year.

Perfect Fit

What makes Webb the perfect fit for a party desperately in search of Reagan Democrats is that Webb IS a Reagan Democrat. He left the party in disgust when Jimmy Carter granted amnesty to draft evaders and later went to work for Reagan as secretary of the Navy.

He was a critic of Bill Clinton's lack of military experience and ethics.

``Every time I see him salute a Marine, it infuriates me,'' Webb said. When Clinton was slammed over the pardons he granted as he left the White House, Webb was delighted the president was finally being judged ``for the ethical fraudulence that has characterized his entire political career.''

In 2000, Webb backed George Allen, a son of a one-time Redskins coach and a former governor, against incumbent Senator Charles Robb. Robb lost.

When President George W. Bush's response to 9/11 was to invade the wrong country, Webb returned to the Democratic Party. He fiercely opposed the effort to ``export democracy at gunpoint.'' His opposition was so strong that in 2004 he supported Senator John Kerry for president, even though he had refused to shake Kerry's hand for 20 years after the young Vietnam veteran threw his military ribbons on the steps of the Capitol to protest that war.

Running Against Allen

It also led him to finally run for office, against Allen. He was a long shot, but Allen committed some unforced errors, including making a racist comment, and Webb began to catch on.

He'd written a book extolling the redneck sensibilities of his Scots-Irish forebears who produced President Andrew Jackson and General George Patton, settled in Appalachia and cling (yes) to their guns and religion. He supports their getting a leg up without taking away from those who suffer from institutional racism.

Next to Allen, who spent summers on a dude ranch when Webb was leading 170 men in Vietnam, Webb had standing to hate the Iraq War and love the soldier. He won by 7,000 votes and gave Democrats control of the Senate.

`Proper GI Bill'

In the Senate, he got 58 co-sponsors for his legislation to provide current veterans ``a proper GI Bill'' that's coming up for a vote. He got a commission to try and rid Iraq of fraud and waste.

Recently, the State Department decided to keep doing business with Blackwater, the security company under scrutiny in the shooting deaths of innocent Iraqi civilians that Webb says pays each mercenary almost a half-million dollars a year.

Webb has his drawbacks. Thirty years ago, he derided the idea of women in combat. He is, in fact, a college graduate, having attended the U.S. Naval Academy, where he won a varsity letter in boxing and fought Ollie North. He has written novels, and with reviews comparing him with Ernest Hemingway and Stephen Crane, he could be tarred as an intellectual.

He's the opposite of Obama on the campaign trail: blunt, no frills, no oratorical flourish. He's no backslapper and is rumored to have a temper, although it's hard to imagine him comparing unfavorably to John McCain on anger management.

Rebuking Bush

When Bush asked Webb during a White House reception how his son fighting in Iraq was doing, Webb answered, ``I'd like to get them out of Iraq, Mr. President.''

``That's not what I asked you,'' the president said. ``How's your boy?''

Webb replied, ``That's between me and my boy, Mr. President.''

Where Obama is weak is exactly where Webb is strongest, which is why he's at the top of many lists of prospects for vice president.

Whether he gets chosen, he is the finest writer Washington has seen in decades. In his book, he walks across the Capitol over marble steps polished by generations of hard-soled shoes, describing the workings of democracy with its elaborate courtesies that keep the most cunning creatures on Earth engaged in debate, rather than a brawl, to preserve America's greatness.

Stare Into Future

He arrives at the Senate chamber with its spittoons and school desks with names carved into the compartments by now-dead hands and reminds us of the brief window to do good.

``Sit at your desk, open up the drawer, and stare directly not only into history but into the future when you yourself will simply become a carved memory,'' he writes.

He's written the best tour of the Capitol I've ever taken. It's yours at the nearest book store.