Finance & Business World

ST. LOUIS — The Budweiser Clydesdales might be headed back to the Super Bowl after all.

Just two days after trumpeting a lineup of nine Super Bowl ads that did not include the popular horses, Anheuser-Busch said Thursday it has reconsidered. The brewer plans to release a Clydesdales ad and two other Budweiser ads on its Facebook page today to gauge public reaction.

The original Clydesdales spot — which fell short in focus group testing — has been reworked and might make it to the big game, according to A-B’s top marketing executive.

"This was a surprise opportunity that wasn’t in our hands until yesterday," Keith Levy, A-B marketing vice president, said Thursday evening.

Levy downplayed the notion that the change of heart was motivated by widespread criticism of A-B’s original decision to bench the Clydesdales, which have appeared in Budweiser ads for at least the last eight consecutive Super Bowls.

"We simply did not have a spot in our hands that did well" in testing, Levy said, although he noted A-B did "have some contact" from upset consumers that could have spurred A-B to revisit the ad.

Levy also said this was not part of an intentional publicity plan. Super Bowl advertising expert John Antil believed him.

"I think this is more about them just saving face," said Antil, a University of Delaware marketing professor. "I don’t think this is some kind of test."

Sidelining the Clydesdales drew plenty of criticism. Readers called and complained to the Post-Dispatch and on message boards. Twitter was burning. "Say it ain’t so! They’re the reason I watch!" wrote one woman. "What are they thinking?" lamented another. And: "Boo Hiss! Everybody loves the Clydesdales!"

The Clydesdales debuted in Budweiser TV ads in 1956 and have appeared in 15 Super Bowl ads. A-B bought five minutes of the pricey, precious ad time — an estimated $2.5 million for a 30-second spot— for the Feb. 7 football game, the year’s biggest advertising spectacle that is expected to be watched by at least 100 million people.

Levy said three ads would be released sometime before noon today at facebook.com/budweiser, the brand’s page on the social networking site. If the brewer selects the Clydesdales spot for the Super Bowl, it could result in a total reworking of A-B’s ad lineup because the new horse spot is 60 seconds long and would be replacing a 30-second spot.

The ad, created by Chicago ad agency DDB, opens with two baby horses — one is a Clydesdale — separated by a fence and running through a field. The ad follows the horses as they grow up together. It is a story about friendship and lifelong bonds, Levy said.

Kind of like those between some consumers and the Clydesdales.

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San Francisco brokerage Charles Schwab said Monday that fourth-quarter earnings will come in lower than the third quarter.

The firm said earnings per share will be 2 cents to 4 cents lower than the prior quarter due to lower interest rates and slower trading in recent weeks.

Schwab (NASDAQ: SCHW) also said Monday that it plans to waive $108 million in fees on its money market funds, an 8 percent increase from the firm’s earlier forecast.

The earnings warning indicates Schwab expects to earn 13 cents to 15 cents per share in the current quarter, down from 17 cents in the third quarter and 27 cents per share in last year’s fourth quarter Payday advance.

November’s daily average trading — a key performance measure at Schwab — was down 11 percent from October and down 27 percent from November 2008, when financial markets were in a tailspin.

“Continued declines in the rate environment have led to heightened revenue pressures … and client trading volumes have slowed in recent weeks,” said Joe Martinetto, Schwab’s chief financial officer.

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Options traders are growing less bullish on the yen after efforts by Japanese officials to boost the world’s second-biggest economy and a U.S. jobs report led to the currency’s biggest weekly decline in a decade.

Japan’s currency plunged 2.5 percent against the dollar and 1.3 percent versus the euro on Dec. 4 after the U.S. Labor Department said employers cut the fewest jobs since the recession began. The yen sank 4.5 percent versus the greenback for the week, the most since February 1999 and retreating from a 14-year high. Traders sold yen and bought dollars on speculation interest rates in the U.S. will increase before June.

“The improving U.S. jobs market suggests the Federal Reserve won’t stand pat on interest rates longer than the Bank of Japan,” said Kazutoshi Yasuda, general manager of the markets department in Tokyo at FX Prime Corp., a unit of Itochu Corp. Increased U.S. borrowing costs would lead traders to favor using yen to finance higher-yielding investments, leading to more losses for the Japanese currency, he said.

Options showed declining bets the yen will rise. The odds for a gain to 84.5 yen per dollar by the end of March from 90.56 last week fell to 38 percent from 80 percent on Nov. 30, data compiled by Bloomberg show. Chances of a decline to 92 versus the dollar by Dec. 31 reached 63 percent. Options grant buyers the right to purchase or sell an asset at a predetermined price.

Weekly Tumble

The yen tumbled 3.6 percent versus the euro last week, the sharpest slide since the five days to April 3. The yen also fell 4.5 percent against the dollar, the most since the week ended Feb. 19, 1999, when it slumped 5.9 percent. The yen’s biggest drop during the week came after the U.S. Labor Department said payrolls dropped by 11,000 last month, the smallest decrease since the recession began.

The yen traded at 89.90 per dollar as of 11:53 a.m. in Tokyo from 90.56 last week, and was at 133.87 versus the euro from 134.54.

“What the job numbers do is firm up expectations that the Fed interest-rate hike is coming,” said Camilla Sutton, a strategist in Toronto at Bank of Nova Scotia, the nation’s third-largest lender. “That should be a strong-dollar story.”

Federal-funds futures contracts on the Chicago Board of Trade show a 43.3 percent probability the U.S. central bank will raise its target rate for overnight bank borrowing to 0.5 percent by June from the current range of zero to 0.25 percent, up from 12.6 percent odds a month ago.

‘Finally Turning’

UBS AG expects the Fed to set its key rate at the top end of its 0.25 percent range in April and follow with a quarter- point increase in June. The jobs report and last week’s gains “suggest the greenback is finally turning,” Mansoor Mohi-uddin, the Zurich-based bank’s global head of currency strategy, wrote in a note to clients.

The yen was the best performer against the dollar among the 16 most-traded currencies the past four years, Bloomberg data show. It surged to 84.83 on Nov. 27, the strongest since July 1995, from 124.13 in June 2007. The yen tends to advance amid financial turmoil because Japan’s trade surplus reduces reliance on foreign capital.

Record low U.S. interest rates have kept the dollar under pressure at the expense of the yen, making the greenback the favorite for so-called carry trades, where investors raise funds in countries with low borrowing costs and use the proceeds to invest in countries with higher returns.

Benchmark rates of as low as zero in the U.S. and 0.1 percent in Japan compare with 3.75 in Australia and 2.5 percent in New Zealand.

Libor

The London interbank offered rate, or Libor, for three- month loans in the U.S. currency has been below the equivalent yen rate since Aug. 24. In the decade before then, the dollar rate averaged 2.94 percentage points more than the yen rate.

Contracts betting the yen would climb against the dollar rose to 51,710 on Nov. 27, the most since May 2008, according to the Commodities Futures Trading Commission in Washington based on contracts at the Chicago Mercantile Exchange. As recently as June, there more contracts betting on a decline than a gain.

Such “extreme” positioning may suggest that the decline in the yen represents traders unwinding “long” positions rather than an outright bet on the currency’s depreciation, Marc Chandler, the global head of currency strategy at Brown Brothers Harriman & Co. in New York, said in a note to clients on Dec. 4.

The median estimate of more than 30 strategists surveyed by Bloomberg is for the yen to end March at 92 to the dollar and 136 to the euro.

‘Urgent Steps’

Fujio Mitarai, head of Japan’s largest business lobby, called on the government to take “urgent steps” on Nov. 27 to curb gains in the yen, which make Japanese exports less competitive and threaten corporate profits. The same day, Finance Minister Hirohisa Fujii said in Tokyo the nation will “do what is necessary” and he may contact U.S. and European officials to act.

Exports make up about 12 percent of Japan’s economy, compared with 6 percent in the U.S. The nation’s gross domestic product is forecast to shrink 5.7 percent this year, according to the median estimate of economists surveyed by Bloomberg. That compares with a contraction of 2.4 percent in the U.S.

The Bank of Japan announced an emergency 10 trillion yen ($113 billion) credit program on Dec. 1 to combat falling prices and the stronger yen. The spread between dollar- and yen-based Libor narrowed to 2.72 basis points on Dec. 4 from as much as 7.25 basis points on Sept. 8.

Stimulus Plan

“The BOJ’s action worked,” said Masato Mori, senior manager of the business and marketing department at NTT SmartTrade Inc. a unit of Nippon Telegraph & Telephone Corp. “Stopping the yen’s advance will require additional spending from the government.”

A stimulus plan worth as much as 4 trillion yen may be agreed upon today, Chief Cabinet Secretary Hirofumi Hirano said last week. The government planned to announce the measures on Dec. 4 before disagreements between Prime Minister Yukio Hatoyama’s ruling Democratic Party of Japan and coalition partners, who want a larger package, caused a delay.

Bonds to be issued in the fiscal year starting April 1 may reach 146.2 trillion yen compared with a revised 132.3 trillion yen this year, according to Citigroup Global Markets Japan Inc.

“There is probably enough in the policy action in Japan by the government and the BOJ to argue for further upside on cross- yen currencies near term,” said Greg Gibbs, a foreign-exchange strategist at Royal Bank of Scotland Group Plc in Sydney.

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The Toronto stock market surged to its highest close of the year Tuesday as worries about Dubai's credit problems receded while a trio of American economic reports reinforced the impression a rebound is underway.

The S&P/TSX composite index jumped 260.12 points to 11,707.32 – its highest close since October 2008 – led by rising commodity stocks as a weaker U.S. dollar helped boost oil and metals.

The gain left the TSX up 30.25 per cent year to date.

Markets were sent reeling late last week after Dubai World said it wanted to postpone payments on its approximately US$60 billion of debt for at least six months. But investors felt better about the Dubai issue after the Persian Gulf emirate's government-owned conglomerate, Dubai World, said that it had begun "constructive" discussions with its creditors over US$26 billion of its debt.

"It does seem contained," said Ian Nakamoto, director of research at MacDougall, MacDougall and MacTier.

"The most important thing is that there is no contagion effect and what I mean by that is that investors don't say: 'What else is out there; is it going to be a domino effect?' And so far, it doesn't look that way."

A weaker U.S. currency pushed the Canadian dollar up 0.81 cents to 95.54 cents US.

The move up also came amid a comment from a senior Russian central bank official that the country will buy Canadian dollars in the next few months in a bid to diversify its currency reserves. Russia had previously mentioned plans to buy Canadian and Australian dollars in the near term, but had not specified when that would happen.

The TSX energy sector was 2.17 per cent higher as positive economic data from China and U.S. dollar weakness sent the January crude contract on the New York Mercantile Exchange up $1.09 to US$78.37 a barrel. A Chinese industry group released a survey showing manufacturing activity expanded in November for a ninth straight month. EnCana Corp. (TSX: ECA) gained $1.06 to C$57.63 while Suncor Inc. (TSX: SU) climbed $1.30 to $39.20.

The December bullion contract on the Nymex climbed $18 to a record high close of US$1,199.10 an ounce, taking the gold sector up 5.28 per cent. Goldcorp Inc. (TSX: G) advanced $2.83 to C$46.90.

Shares in Barrick Gold Corp. (TSX: ABX) climbed $3.34 to $48.20 after the company said it had eliminated all of its gold hedges ahead of schedule. The hedges had limited Barrick's ability to take advantage of rising gold prices, although they also were designed to protect the company from lower prices.

The base metals sector ran up 2.6 per cent as the December copper contract added 5.5 cents to US$3.20 a pound. Teck Resources (TSX: TCK.B) was up 52 cents to C$37.01 while Equinox Minerals (TSX: EQN) was up 30 cents at $4.20.

Richard Ross, global technical strategist at Auerbach Grayson in New York, said the drop in the U.S. dollar and the jump in riskier assets like commodities signals investors aren't willing to give up on the market's surge even if they have concerns it might be overdone.

"It speaks to that sort of bullish undercurrent," he said. “Whether it's misplaced optimism, that's another question."

The industrials sector, up 1.83 per cent, also lifted the TSX, with Bombardier Inc. (TSX: BBD.B) ahead 12 cents to $4.60.

Shares in Canadian Pacific Railway (TSX: CP) rose 93 cents to $51.90 after Canada's second-largest railway company said it's making a $500-million voluntary payment to its pension plan.

The financials sector advanced 1.29 per cent ahead of earnings reports from most of the big banks later in the week. National Bank (TSX: NA), TD Bank (TSX: TD), CIBC (TSX: CM) report on Thursday while Royal Bank (TSX: RY) issues earnings on Friday. TD Bank (TSX: TD) advanced 92 cents to $67.38 and Bank of Montreal (TSX: BMO) moved up 77 cents to $54.52.

The TSX Venture Exchange moved ahead 35.43 points to 1,450.49.

New York indexes also made solid gains with the Dow Jones industrials up 126.74 points to 10,471.58 after the Institute for Supply Management said its manufacturing index came in at 53.6 in November after a 55.7 reading in October. A reading above 50 indicates growth but the showing was below the 55 level that economists had expected.

"We are not overly concerned with the monthly drop, as there has been a lot of positive momentum in this indicator recently, which indicates the manufacturing sector is trying to catch its breath rather than what runners like to call hitting the wall," said Ian Pollick, economics strategist at TD Securities.

"Additionally, it would be a mistake not to recognize that the absolute level of the index continues to sit above the 50-threshold."

The Nasdaq composite index rose 31.21 points to 2,175.81 while the S&P 500 index climbed 13.23 points to 1,108.86.

Other data showed that number of homebuyers who signed contracts to buy previously occupied homes rose 3.7 per cent from September to October. The National Association of Realtors' adjusted index of sales agreements hit 114.1. Economists surveyed by Thomson Reuters expected the index would fall to 109.5.

And construction spending posted a tiny increase in October, the first advance in six months.

In other corporate news, Agnico-Eagle Mines Ltd. (TSX: AEM) said Monday that drilling results support the company's position that there is considerable exploration upside at its Kittila project in Finland and Pinos Altos project in Mexico. Its shares rose $2.86 to $68.66.

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The U.S. economy seems to be on the mend, but some economists are arguing that another round of stimulus is needed to keep the recovery on track.

Congress passed the largest stimulus bill on record in February, a $787 billion package that included aid to states and local governments, money for public works projects, tax breaks and more assistance for the unemployed.

With the help of that package, most economists now believe the recession that started in December 2007 came to an end at some point this summer.

But unemployment has continued to climb, hitting a 26-year high of 10.2% in October. Now there are some worries that the economy could slip back into recession at some point next year. And that is prompting calls for another shot of federal help.

The case for more stimulus

Mark Zandi, chief economist for Moody’s Economy.com, said that between $125 billion and $150 billion in new stimulus, with about $50 billion to $60 billion of that going to further extensions in unemployment benefits beyond what was passed by Congress last week, is needed.

A big portion of the remaining new stimulus funds could be used to give more help to state and local governments. Zandi said without another stimulus package, "the odds of sliding back into recession rises with the incredibly weak labor market."

Zandi is not alone in calling for more stimulus. On Wednesday, the Center on Budget and Policy Priorities, a think tank that concentrates on state and local government financial issues, called for additional help to states.

The center estimated that about $50 billion in additional state and local government aid is needed, and added that state budget cuts could lead to a loss of 900,000 jobs next year if there isn’t additional federal help.

Robert Greenstein, executive director of the center, said calls for more stimulus are justified because the recession has dragged on longer and unemployment has risen higher than foreseen in February.

"The magnitude of the state budget deficits that lie ahead could be a significant drag on the economy just as it is beginning to recover," he said.

Other economists argue that the original stimulus package didn’t go far enough to spur economic growth or job creation.

Gary Burtless, senior fellow at the Brookings Institute, a liberal think tank, said that it is not clear if the economy can continue to grow once the effect of February’s stimulus plan fades.

He said that while concerns about the size of the federal deficit will limit what can be approved in any additional stimulus act, a bigger danger "is that we may have an extremely weak, slow recovery in which unemployment remains high for an unnecessarily long time no credit check payday loan."

Some think existing stimulus is already working

Still, there are plenty of economists who question the need for additional stimulus.

"Rather than force feed an economy, you have to show some patience that it will perform as it did in the past," said Joseph Carson, chief economist at AllianceBernstein. "Trying to push a button and get an immediate result — economies don’t work that way."

Lakshman Achuthan, managing director of the Economic Cycle Research Institute, added that offering additional unemployment benefits might be a good idea but agreed that Congress shouldn’t hastily approve another stimulus package.

He said that by the time another round of stimulus has an actual impact, the economy would already have improved even more on its own.

"Throwing some money into [the economy] doesn’t change the direction or the fact that the [recovery] process is happening," he said.

The administration has been noncommittal about whether it would call for additional stimulus as it concentrates on the health care reform battle.

When asked about more stimulus recently, White House Press Secretary Robert Gibbs said only that the administration would continue to look at "any idea that can help our economy become stronger."

Nadeam Elshami, a staffer for House Democratic leadership, said that another large stimulus package is not being discussed right now. But he said there have been discussions about what smaller steps can win support, such as additional help to state governments. But nothing is likely to start moving on these fronts until the debate over health care reform is complete.

Even advocates of additional stimulus acknowledge that increased government spending is a tougher sell now than at the start of the year. But Zandi said the near unanimous vote for a partial extension in unemployment benefits approved by Congress last week shows that there can be support for what he calls "smaller scale stimulus."

"Another extension in unemployment benefits to help those who are suffering the most: who is going to vote against that?" Zandi asked. 

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Henderson Land Development Co. said it sold a duplex apartment in Hong Kong for a record price, hours after city Chief Executive Donald Tsang signaled the government may release more land to deflate a property bubble.

The apartment, on the 68th floor of Henderson’s 39 Conduit Road development, fetched HK$439 million ($57 million), or HK$88,000 a square foot excluding parts of the building shared by all residents, the company controlled by billionaire Lee Shau-kee said today. Henderson said it may ask HK$100,000 per square foot for two penthouses on the 88th floor.

Last year, the fewest apartments were completed since at least 1972. Prices, especially for luxury homes, have rallied in 2009 on record-low interest rates and an influx of money from China. The government is Hong Kong’s biggest provider of land and has altered supply to support or depress prices.

“The relatively small number of residential units completed and the record prices attained in certain transactions this year have caused concern about the supply of flats, difficulty in purchasing a home and the possibility of a property bubble,” Tsang said in his annual policy address.

Tsang, 65, said his administration will closely monitor “market changes” and may direct the Urban Renewal Authority and subway operator MTR Corp., both controlled by the government, to bring readily-available building sites to market.

Tsang, Hong Kong’s leader since 2005, may be concerned the luxury-market boom will fuel wider price increases, Centaline Property Agency Ltd. analyst Wong Leung-sing said.

‘Social Issue’

“He’s more concerned whether mass-market housing prices would get pulled up by the momentum in the luxury market,” Wong said. “If that happens, it’ll become a social issue.”

Instead of changing the government’s land-sales system, Tsang is more likely to have the MTR speed up the sale of suburban land, Wong said. The MTR develops sites around its stations in ventures with developers and uses the proceeds to help pay railway construction costs.

The city’s Hang Seng Property Index, which includes six companies, climbed 1.6 percent today, taking this year’s gain to 66 percent. The benchmark Hang Seng Index rose almost 2 percent and has advanced 52 percent this year to a 14-month high.

Billionaire Owners

Hong Kong, where property companies owned by billionaires including Henderson’s Lee and Cheung Kong (Holdings) Ltd.’s Li Ka-shing account for about 10 percent of the benchmark stock index, stopped supplying new land in 2002 during a seven-year property rout. The government started a new system of land auctions in 2004, after prices stabilized.

Hong Kong brokers typically count a portion of the common areas when they price properties. On that basis, the price for the 6,158 square-foot (572 square-meter) home on Conduit Road came to the equivalent of HK$71,280 a square foot, according to Thomas Lam, Henderson’s general manager for sales.

One Hyde Park in London set the previous record of 6,000 pounds (HK$74,318 or $9,590) a square foot, Lam said at a press conference in Hong Kong today.

Sun Hung Kai Properties Ltd., the world’s largest developer by market value, last month raised the asking price of two penthouses in Hong Kong by 50 percent to a record HK$75,000 a square foot, including a share of common areas in the building, as demand surges for luxury apartments.

Housing completions in Hong Kong have been lower than initial government projections in the past two years. Builders finished 8,780 units, fewer than the forecast 10,980 last year, and 10,470 in 2007 against the forecast 12,740, the Rating and Valuation Department said in March. It then estimated completions at 14,740 for this year.

Policy Changes

Tsang announced policy changes aimed at promoting the redevelopment of old industrial buildings, which have fallen into disuse as companies use cheaper factories in China instead.

Hong Kong is determined to improve air quality and will promote the use of electric cars and energy-saving light bulbs, according to Tsang.

While Shanghai has been designated by China as a center for financial services and trade — two of Hong Kong’s main industries — the development of the two cities can be cooperative, Tsang said. For example, Hong Kong can help China develop its offshore yuan business.

Hong Kong’s economy will keep improving this year, Tsang said.

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Inside General Motors’ iconic Detroit headquarters, scores of retail tenants are waiting to find out what happens to their own businesses in the wake of their landlord’s bankruptcy.

"When people aren’t sure of the company’s status, it puts you not in the best of moods," said Frank Taylor, president and CEO of Seldom Blues restaurant in the Renaissance Center.

The Ren Cen, which sits on the Detroit River, houses 4,300 General Motors (GM, Fortune 500) employees, the Detroit Marriott hotel, various professional offices and several dozen small businesses that serve the tenants. GM moved its global headquarters into the Renaissance Center in 1996 and spent $500 million to revamp the 5.5-million square foot complex, which began construction in 1973.

Taylor said GM’s troubles have made some people within the Ren Cen skittish about spending money for a meal at his sit-down restaurant, which features American cuisine and jazz music. "I’ve never had to work so hard in my life to fight for customers," said Taylor, who employs 65 workers at Seldom Blues.

Seldom Blues opened in 2004 and had no trouble attracting customers in its early years, Taylor says. Last year, it did $4 million in sales. But business has become more difficult as GM lurched toward bankruptcy.

"It’s not like I saw it when we first moved in," Taylor said of GM’s mounting woes. "We had a lot more people coming in for lunch on a daily basis. The mood has taken a total turnaround here."

To combat the downturn, Seldom Blues began offering "Southern Selections" specials last month to attract diners who are skittish about splurging for a meal. The specials, featuring $10 lunches and $19 dinners, have been popular, Taylor said.

GM’s struggles also have also cut into business at Ashley’s Flowers. Owner Ashley Alexander said sales at her floral shop are down about 30% from last year.

"The nature of our business puts us in proximity to people’s personal lives," said Alexander, who has six employees at her two downtown stores. "People are nervous. They don’t know what’s about to happen to their jobs."

Alexander is waiting to see what GM does next before deciding on the future of Ashley’s Flowers in the Renaissance Center. Everything is up in the air: While GM employees nervous about their jobs clamp down on their consumer spending in the Ren Center, GM CEO Fritz Henderson hasn’t ruled out the possibility that GM could leave its sprawling headquarters payday loan for bad credit.

"I think we have to wait to hear their decisions, and see the fallout from their decisions," Alexander said.

Not all small businesses at the Ren Cen are hurting. Pure Detroit, a clothing store that features Detroit-centric and GM-licensed products, has seen a 50% increase in sales since moving to a new site within the building a year ago.

Pure Detroit’s new location is just down the hall from its previous spot, which opened in 2004. But co-owner Kevin Borsay said the new store has the benefit of being near escalators and the Marriott hotel, which has boosted foot traffic for the retailer.

"I think the move and the revamping of the store overcame the negatives of the economic climate," said Borsay, who has two employees at his Renaissance Center store.

Borsay said he’s noticed that shoppers — about 80% of them are GM workers, GM visitors or Marriott (MAR, Fortune 500) guests — are buying lower-priced items. Still, the Renaissance Center continues to be the best performing store of Pure Detroit’s three shops in the city.

"There’s a lot of good points about doing retail in the Ren Cen," Borsay said.

Tony Bahu, president and owner of BonBons Candy and Godiva Chocolatier, agrees. Though he declined to discuss sales, he said last year was a record year for BonBons, and he expects to sales to grow in 2009 as well.

He attributes the store’s growth to the crowds that come for festivals and outdoor events at GM Plaza & Promenade, a gathering place on Detroit’s riverfront that sits across the street from BonBons’ store. Business has been good enough at the Ren Cen that Bahu said he hopes to extend his lease.

Bahu believes GM will become a stronger company through its restructuring, and said many of his customers are also bullish about GM’s future.

"It seems like there’s still people who believe highly in GM and believe that, no matter what happens, they’re going to pull through," Bahu said.

Each of the businesses said they believe GM is doing the best it can to survive, and so are they — no matter what GM’s fate at the Renaissance Center.

"We’re hopeful," Alexander said. "The world doesn’t revolve around GM." 

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Federal Reserve Bank of Dallas President Richard Fisher said the U.S. slump will probably persist until next year as consumers restrain spending, while the outlook for inflation remains “meek.”

The economy faces a “very slow slog” to recovery, Fisher said yesterday in a speech in Washington. The recession “will moderate in the current quarter, and then we are likely to bounce along the bottom for a while,” with sustained growth doubtful before the end of this year, he said.

Fisher urged Congress not to “politicize” the central bank by taking a role in selecting Fed district bank presidents. Some lawmakers suggested such a role over concerns that Stephen Friedman, former chairman of the New York Fed’s board of directors, also served as a director of the board of Goldman Sachs Group Inc. Friedman quit the Fed post this month.

The central bank may step up purchases of assets to secure a stronger economic recovery, minutes of the April 28-29 meeting released last week showed. The Fed’s Open Market Committee voted unanimously to keep unchanged its targets for purchases of housing debt and long-term Treasuries amid signs the economic contraction may be easing.

“We’re not done with that program,” Fisher said in response to an audience question after the speech, referring to plans to buy $300 billion in Treasuries.

Fisher repeated his view that the U.S. unemployment rate will reach 10 percent, more than most of his colleagues. Fed officials projected a deeper U.S. contraction with a 9 percent unemployment rate lasting through the end of 2010, according to the minutes.

More Pessimistic

Fisher’s view on the economy is more pessimistic than private forecasters. The U.S. recession will probably end in the third quarter, according to a survey by the National Association for Business Economics.

The economy will shrink at a 1.8 percent annual rate from April to June, and then grow at a 0.7 percent pace in the next three months, the survey showed. Growth will accelerate to a 1.8 percent rate by the final quarter.

“Given the vast amount of slack worldwide, the near-term outlook for inflation is meek,” Fisher said to the Washington Association of Money Managers. “Indeed, the recent pressures have been to the deflationary side. It is doubtful that inflation will raise its ugly head until employment and capacity utilization tighten easy payday loans no credit check.”

Fisher dissented five times against easing of monetary policy in 2008 because of concern over higher prices, giving him the reputation as one of the most “hawkish” of U.S. policy makers.

‘Aware of Doubts’

The Fed official said he was “well aware of doubts” that some analysts have expressed about the Fed’s ability to withdraw its monetary stimulus to keep prices from rising too much, saying the central bank is now “studying ways to unwind our balance sheet in a timely way.”

“There are concerns in some quarters that the Federal Reserve will be politicized,” Fisher said. “For example, there have been suggestions that Congress should be involved in the selection of Federal Reserve Bank presidents.”

“I trust that Congress will resist this initiative and not upset the careful federation that has for so long balanced the interests of Main Street with those of Washington,” he said.

Stable Relations

Fisher, answering an audience question, said China has become dependent on stable relations with the U.S. in finance and other areas.

“They have no desire to inflict harm on the United States because they would inflict harm on themselves,” he said. The interests of China and the U.S. are “interconnected and intertwined.”

The Fed official cited some “green shoots,” Fed Chairman Ben S. Bernanke’s term for signs of recovery, while adding the sprouts are not “spreading like kudzu.”

In the past few weeks, reports have pointed to a thawing in credit markets and an easing of the pace of the recession that began in December 2007.

Home resales in the U.S. rose for the second time in three months in April as foreclosure auctions and cheaper prices spurred bargain hunters, the National Association of Realtors reported May 27.

Confidence among U.S. consumers jumped in May by the most in six years, according to the Conference Board’s sentiment index. Manufacturing in the Philadelphia region contracted in May at the slowest pace in eight months as shipments and employment improved, the Philadelphia Fed reported.

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Asia’s export-driven growth model is “broken” and nations in the region need to do more to boost domestic demand, said Nouriel Roubini, the New York University economics professor who predicted the financial crisis.

“The old model of export-led growth is broken,” Roubini said in an interview with Bloomberg News yesterday. “Unless policy makers find ways of stimulating consumption and private domestic demand, then the growth recovery is going to be, even over the medium term, weaker than otherwise.”

Asia’s developing economies are almost twice as reliant on exports as the rest of the world, with 60 percent of their overseas sales ultimately destined for the U.S., Europe and Japan. The International Monetary Fund yesterday said it expects recessions this year in South Korea, Singapore, Taiwan, Malaysia and Thailand.

“Asia has to find a new model of growth,” Roubini said in Singapore, where he is attending a conference organized by Bank of America-Merrill Lynch. “This is happening too slowly and this will make Asia’s recovery lag.”

Asian nations must implement more policies to boost domestic consumption as advanced nations are unlikely to absorb the region’s excess production, Asian Development Bank President Haruhiko Kuroda said May 4. To boost local demand, Asian governments need to spend more on health and education and boost social safety nets to encourage consumer spending and reduce precautionary savings, he said.

‘Weak Outlook’

Exports by developing Asian economies may shrink 10.3 percent this year, after growing 14.7 percent in 2008, the Manila-based ADB predicts. Global trade may contract for the first time since World War II this year, according to the World Trade Organization, as U.S. and European demand slumps.

“A good chunk of Asia is going to be in recession this year, with the exception of China and India,” Roubini said. “Recovery is going to occur next year, but even then I see a weak outlook for the U.S., Europe and Japan, and unless there is a recovery in these economies, the recovery in Asia is going to be less than otherwise.”

Asian policy makers have been responding to the global recession by slashing interest rates and implementing fiscal stimulus packages free credit score online. Governments in the region have pledged to pump more than $950 billion into their economies through increased expenditure, tax cuts and cash handouts to kick-start local consumer and business spending.

‘Sharp Deterioration’

“The economies of Asia, like the rest of the world, have slowed significantly,” Monetary Authority of Singapore Managing Director Heng Swee Keat said in a speech today. “While actions taken by governments and financial authorities have helped to stem the sharp deterioration, the road to full economic recovery is likely to be bumpy.”

Further fiscal stimulus may be required in Asia given the likely weakness of the recovery in the U.S., Europe and Japan, Roubini said.

“Greater fiscal stimulus might be necessary,” he said. “One way to stimulate domestic demand in the short run is domestic public demand.”

Economies in Asia face a “long recovery ahead” from the global slowdown and “forceful” fiscal measures are still needed to lift the region out of the recession quickly, the IMF said in a report yesterday.

External Demand

“Asia’s strong reliance on external demand weigh against the prospects of a speedy turnaround,” the IMF said. “Despite governments’ efforts to invigorate domestic demand, the prospects of a recovery at this stage hinge critically on a rebound in global activity.”

The IMF last month lowered its world economic growth forecasts and said the global recession will be deeper and the recovery slower than previously thought as financial markets take longer to stabilize. The world economy will contract 1.3 percent, it predicts.

The U.S. remains weak and the consensus among analysts that the world’s largest economy may expand in the third and fourth quarter is “too optimistic,” Roubini said.

“Certainly the rate of economic contraction is slowing down from the freefall of the last two quarters,” he said. “We are going to have negative growth to the end of the year and next year the recovery is going to be weak.”

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Banks that want to exit from the U.S. government’s capital injections must demonstrate they can issue debt to private investors without a Federal Deposit Insurance Corp. guarantee, according to people familiar with the matter.

The Treasury will unveil conditions for repaying the Troubled Asset Relief Program money as soon as tomorrow, the people said on condition of anonymity. Banks generally must apply to the Treasury and secure permission from their bank supervisor in order to pay back the government; so far only a handful of small banks have done so.

The new guidance would come before the Federal Reserve’s May 7 publication of results of stress tests on U.S. banks. People familiar with the matter said yesterday that about 10 of the firms will be deemed to need additional capital.

Firms that don’t need stronger buffers may seek to quickly retire existing government stakes. Banks including Goldman Sachs Group Inc., JPMorgan Chase & Co. and Northern Trust Corp. have said they want to repay the money. Both New York-based companies sold debt without FDIC guarantees in the past month, as has Chicago-based Northern Trust.

“My hope is this helps with clarity on who are the winners and who are the losers,” said Joel Conn, president of Lakeshore Capital Inc., which invests $90 million.

Bank of New York

Earlier today, Bank of New York Mellon, another bank taking part in the stress tests, raised $1.5 billion of debt, without FDIC backing. The bank said proceeds from the sale will be used to help repay the $3 billion capital injection it got from the TARP last year.

FDIC Chairman Sheila Bair has said banks need to wean themselves off the debt guarantees as financial markets heal from last year’s crisis. In March, the FDIC extended the time in which banks could issue government-guaranteed debt, while also announcing plans to raise fees on the program. FDIC spokesman Andrew Gray declined to comment today on the Treasury’s repayment policy.

The Treasury’s requirement is that banks must demonstrate an ability to borrow without the government guarantee and does not affect outstanding debt, the people familiar with the matter said approved cash advance. On April 14, a Goldman Sachs executive said the bank did not see a direct link between the debt guarantees and the Treasury’s capital injections.

Debt Sales

“We still have some capacity under the FDIC-guaranteed at pretty attractive spreads,” said David Viniar, the company’s chief financial officer, in an April 14 conference call with investors. “We’ll continue to use that when it’s available, but we expect to continue to raise unguaranteed debt when it’s available as well.”

For banks that need to deepen their reliance on government capital after the stress tests, officials may set limits on their dividends and political lobbying. While it’s unlikely to influence day-to-day operations at the firms, the government won’t be a “hands-off” investor and will take steps to ensure that management is “effective,” Fed Chairman Ben S. Bernanke told lawmakers today.

“It’s obviously not our intention or desire to have long- term government ownership of banks,” Bernanke said at the congressional Joint Economic Committee. Still, he added that it would likely be a “few years” before banks can end their dependence on government capital.

Officials’ “top priority” will be working with the banks to get them on a path toward repaying the taxpayer, including sales of assets or raising private capital, the Fed chief said.

The Obama administration has yet to detail how it intends to implement executive compensation guidelines enacted by Congress, another restriction faced by banks that keep taxpayer funds. The rules limit incentive pay for top executives at banks receiving at least $500 million in rescue funds from the Treasury.

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