Finance & Business World

Global stocks gave up some of their recent gains Monday amid concerns over Italy’s ability to get a handle on its colossal debt pile, while the yen slid in the wake of another attempt by the Japanese monetary authorities to weaken the currency.

Last week, stocks enjoyed one of their best weeks in months as investors breathed a sigh of relief that eurozone leaders finally presented the broad outlines of a convincing anti-crisis strategy. The three-pronged strategy of boosting the bailout fund, getting private creditors to take a bigger hit on their Greek debt holdings and the banks to raise more capital was largely viewed favorably by the markets, though details need to be ironed out.

Many analysts, however, think that Europe will end up having to do more, especially if bond market investors continue to ask for more in return for buying up Italian debt _ a poorly received auction last Friday has fueled concerns over the country.

Italy is the eurozone’s third largest economy and only Greece has more debt as a percentage of national income. Its debts dwarf the euro1 trillion ($1.4 trillion) Europe’s bailout fund will have at its disposal if last week’s commitments are delivered.

“We remain sceptical that the plan will prove enough to restore financial market stability for long, with some signs of disappointment already starting to creep into the market as Italian 10 year yields continue to march above 6 percent,” said Lee Hardman, an analyst at The Bank of Tokyo-Mitsubishi UFJ.

Investors more cautious view of last week’s plan weighed on stock markets Monday.

In Europe, the FTSE 100 index of leading British shares was down 1.1 percent at 5,641 while Germany’s DAX fell 1.6 percent to 6,260. The CAC-40 in France was 1.1 percent lower at 3,282.

Wall Street was also poised for a lower opening _ Dow futures were down 0.8 percent at 12,070 while the broader Standard & Poor’s 500 futures fell 1 percent to 1,268.

Earlier, the main point of interest in financial markets was the Bank of Japan’s latest intervention to weaken the yen, which had hit a new post World War II high against the dollar.

The strong yen has dented earnings of Japanese corporations such as Nintendo Co. and Toyota Motor Corp. and hurt the economy’s recovery from the March 11 earthquake and tsunami. Finance Minister Jun Azumi said monetary authorities could continue intervening.

The dollar surged about 5 percent to above 79 yen for a while, before slipping back to 77.81 yen. Japan’s export sector _ whose fortunes are largely tied to the relative strength of the yen _ rose abruptly. Isuzu Motors Corp. jumped 3.7 percent. Canon Inc. rose 1 percent and Nikon Corp. added 1.8 percent. Nintendo Co. gained 1.5 percent.

Those gains helped limit the losses on Tokyo’s Nikkei 225 index. It closed 0.7 percent lower at 8,988.39.

Analysts are skeptical over whether the intervention will have a long-lasting impact. Previous efforts this year have provided short-term relief.

The intervention is likely to feature at a summit of leaders from the Group of 20 industrial and developing nations in Cannes, France, later this week. How to get the global economy moving again is likely to the main topic of debate.

There’s also a lot of U.S. economic data to digest this week, culminating in Friday’s monthly jobs report on Friday.

“This month is going to be another watershed insight into whether we are looking at a low growth environment or something worse,” said Ric Spooner, chief market analyst at CMC Markets in Sydney. “To maintain the low growth environment view, the market is going to want to see positive employment growth.”

The Federal Reserve and the European Central Bank also meet to decide on their monetary policies this week. Mario Draghi will on Thursday hold his first meeting and press conference as chief of the ECB and successor to Jean-Claude Trichet. Investors will be looking for signs that the bank is considering cutting interest rates and that it will continue its program to buy bonds. The program, used intermittently by the ECB, has helped keep bond yields down so far this year in Italy and Spain.

Elsewhere in Asia, mainland Chinese shares were mixed. The benchmark Shanghai Composite Index snapped a five-session winning streak by falling 0.2 percent to 2,468.25, while the Shenzhen Composite Index added 0.5 percent to 1,040.93.

In Sydney, shares of Australian flag carrier Qantas Airways Ltd. jumped 4.3 percent after a court ordered employees of the world’s 10th-largest airlines back to work. The airline had grounded its entire fleet on Saturday following weeks of strikes by its workers, but an arbitration court on Sunday ordered an end to the strikes and canceled the staff lockout.

Oil prices tracked equities lower, with the benchmark rate for December delivery down 49 cents at $92.85 a barrel in electronic trading on the New York Mercantile Exchange.

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FedEx expects to handle more than 17 million packages on its busiest day of the year in mid-December, as holiday shoppers continue to buy more online.

That volume represents a 9 percent increase from last year’s busiest day, and is almost double what FedEx ships on a normal day. The world’s second-largest package delivery company thinks its busiest day will fall on Dec. 12.

The number of shipments handled on the busiest day has climbed steadily through the recession as holiday shoppers skip stores and have gifts shipped after buying them online.

Between Thanksgiving and Christmas, FedEx Corp. expects more than 260 million shipments. That’s a 12 percent increase from 2010.

The Memphis, Tenn. company plans to add about 20,000 seasonal workers to handle the surge.

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TORONTO

Asian stocks opened lower Wednesday after Slovakia blocked a measure to expand Europe’s financial rescue program for heavily indebted countries.

The move sent markets south as worries intensified that a failure by Europe to contain its debt crisis could lead to a massive debt default by the Greek government.

Japan’s Nikkei 225 index dropped 0.7 percent to 8,716.13. South Korea’s Kospi fell 0.3 percent to 1,790.30, while Hong Kong’s Hang Seng fell 1.4 percent to 17,894.31. Benchmarks in Australia, Taiwan, Singapore and mainland China were also lower.

Slovakia’s parliament rejected a bill Tuesday that would have strengthened the powers of a regional rescue fund to help bail out strapped economies in the eurozone.

The 16 other countries that use the euro have already signed off on the bill, but the measure requires unanimous support.

There are ways around Slovakia’s opposition, but the move temporarily sets back efforts to address Europe’s debt jam, which has been the most important issue for financial markets for months.

Greece has been on the brink of defaulting on its debt for months. If that happens, it would hurt European and U.S. banks by decimating the value of Greek government bonds they own. Those banks would then be less likely to lend to each other and to businesses. That could plug up an already weak global economy, with implications for everything from bank stocks to international trade.

The decision came after U.S. stock markets closed. The Dow Jones industrial average ended down 17 points after moving between small gains and losses throughout the day.

The Dow lost 0.1 percent to close at 11,416.3. The Standard & Poor’s 500 index rose 0.1 percent to 1,195.54, and the Nasdaq composite rose 0.7 percent to 2,583.03.

Many market watchers think the volatility will continue until heavily indebted countries like Greece, Spain and Italy have established a clear path out of their current debt mess.

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Austria-based Erste Group Bank AG says it will make a net loss of euro700 to euro800 million ($950 million to $1.1 billion) for 2011 because of the government debt crisis and troubles in Hungary.

The bank said in a statement Monday that the writeoffs will erase what would have been an euro850 million to euro900 million profit.

Hungary has passed a law letting people with foreign currency mortgages pay them off at less than market exchange rates. Hungary writedowns amount to euro760 million, and the bank will put an additional euro600 million more capital into its subsidiary there payday loan.

Erste Group Bank also marked down holdings of bonds issued by troubled governments such as Greece, Portugal, Spain, Ireland and Italy.

The bank has 3,200 branches across Central and Eastern Europe.

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The United Auto Workers union has called local leaders to Detroit on Tuesday, a strong sign that a contract deal with Ford Motor Co. is near.

Such a meeting normally means an agreement has been reached, and union bargainers brief local leaders on the details. UAW spokeswoman Michele Martin said Monday that although no deal has been finalized with the company, the union is hoping it will have one to present to the leaders.

“To get all those people here from across the country, people have to make travel arrangements,” Martin said. “I think they must have some hopeful anticipation to call the meeting.”

Ford spokeswoman Marcey Evans would say only that bargaining continues and it’s progressing.

The four-year deal with Ford is expected to be sweeter than the contract approved by UAW employees at General Motors Co. last week. It’s likely to have profit sharing instead of annual wage increases for Ford’s 41,000 UAW members. It’s also expected to bring down Ford’s hourly labor costs, which are the highest in the U.S. auto industry.

Any deal must be approved by the membership, but that could be a problem because many expected the company to restore pay raises and other benefits they sacrificed to help Ford through tough financial times starting in 2007.

Talks between the union, Ford and GM have gone fairly smoothly this year, with Ford expected to settle more than a month ahead of the last contract reached in 2007 saving account pay day loan. Four years ago, Ford and the union didn’t reach agreement until Nov. 3.

Up next will be Chrysler, where the talks could be more contentious. The company isn’t making as much money as Ford and GM and probably can’t afford the same deals.

The UAW talks are watched closely because they set wages for more than 112,000 workers in the auto industry and set the bar for pay at auto parts makers and in other manufacturing industries.

The GM deal gives workers $5,000 signing bonuses, $1,000 a year for three years to cover inflation and at least $3,500 in profit-sharing this year. The worst GM workers can do is $11,500 over the four years of the contract. GM was able to avoid a pension increase for the first time since 1953, and Ford’s terms are expected to match that.

More than 1,900 entry-level workers at GM, who make about half the roughly $29 per hour paid to a GM factory worker, got raises of more than 20 percent. Ford has only about 70 entry-level workers, and will try to lower its labor costs by hiring more of them.

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When the market falls as rapidly as it has lately, you’ll inevitably hear analysts proclaiming that stocks are now bargains.

At one level, they’re stating the obvious: Like shirts on the department store’s bargain rack, companies are suddenly 5, 10 or 20 percent cheaper than they were a few months ago. The current crop of bargain-hunters, though, think they’ve found something more significant than a quick markdown.

By some traditional measures, stocks are as cheap as they have been in decades. The stocks in the Standard & Poor’s 500 index, for example, sell for about 12 times the profit they earned in the past year. That’s called the price-earnings ratio, and its long-term average is around 16.

The S&P 500 companies also are trading at less than twice their book value, which is the accounting measure of their worth. Historically, a typical number would be more like 3 times book. The last time the price-to-book measure got this low was in March 2009, which in hindsight turned out to be a terrific buying opportunity.

Some money managers see a similar opportunity today. “We really think the market is pretty darned cheap,” says David Rolfe, chief investment officer at Wedgewood Partners in Ladue. “There’s this fear of what may happen in Europe, but if you get just a whiff of relief, a whiff that maybe we’ve priced in the worst of Greece, the U.S. stock market is like a coiled spring.”

In other words, he’s buying and waiting for a bounce. With short-term interest rates at near zero, Rolfe adds, stocks have never been more attractive in comparison to Treasury bills and other cashlike investments.

When someone talks about ratios, though, it’s important to look at both numerator and denominator. A plunging stock price might make the price-earnings ratio look attractive, but how reliable are the earnings?

After all, stocks didn’t look overpriced in 2007, but then a severe recession turned profits into losses and the market lost half its value.

Perhaps, then, we should put a little less faith in analysts’ estimates of what a company might earn next year. If earnings are volatile, maybe the classic P/E ratio can’t tell us whether stocks are cheap or expensive.

Robert Shiller, a finance professor at Yale University, tackled this problem by constructing a cyclically adjusted price-earnings ratio. It compares today’s stock price to a 10-year average of company profits. By his measure, today’s stock market isn’t cheap. In fact, the so-called Shiller P/E stands at almost precisely its 50-year average.

The Shiller concept is a good tool for assessing today’s market, says Mark Keller, chief investment officer at Confluence Investment Management in Webster Groves.

“Earnings are so volatile in recent years,” he explained. “You could argue that today’s profit margins are not sustainable.”

As a percentage of the U.S. gross domestic product, corporate profits are already at a record level. “Maybe we’ll go to a new all-time high, but we find it hard to believe things could get much better,” Keller said.

Perhaps, then, we’ve hit the profit peak for this cycle. If profits can only grow as fast as GDP

WASHINGTON

U.S. retail sales of video game hardware, software and accessories fell 21 in August to $649 million, according to market researcher NPD Group, partly because the popular “Madden NFL 12″ released later in the month than usual.

In its monthly report, the NPD Group said Thursday that video game software sales _ which refers to sales of the games themselves _ sank 34 percent in August to $265 million, compared with nearly $404 million in August 2010.

NPD analyst Anita Frazier said much of this drop stemmed from video game publisher Electronic Arts Inc.’s decision to release its latest “Madden” football game, “Madden NFL 12,” at the end of August, which is later than it usually rolls out a new version of the game. She added that the next several months includes a “strong release schedule” and that full-year game sales may end up flat or up slightly compared with 2010.

The research firm does not include game downloads and online games in its monthly retail sales data, so the numbers can sometimes show a decline even if more people are playing games on Facebook, their mobile phones and elsewhere payday loan.

Sales of video game hardware, which includes hand-held game systems and gaming consoles such as Nintendo Co.’s Wii and Microsoft Corp.’s Xbox 360, dropped 12 percent to $249 million from $283 million a year earlier. Sales of video game accessories inched down 1 percent to $135 million.

Adding in sales of PC games, overall U.S. sales dropped 23 percent overall to $670 million.

The top-selling games during the month included “Deus Ex: Human Revolution” from Square Enix Inc., “NCAA Football 12″ from Electronic Arts Inc. and “Call of Duty: Black Ops” from Activision Blizzard Inc.

For the current month, Frasier expects “Madden NFL 12″ to take the top spot.

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Last Saturday, I talked about helping readers resolve smaller complaints. Now I’ll highlight some big-ticket resolutions achieved for those in need of assistance.

Carrier air conditioning system: Vinay Aggarwal’s new unit started leaking in the second year. Carrier Canada agreed to cover the part under warranty, but wouldn’t cover labour and refrigerant replacement.

“I had no choice and went ahead with the work. The total bill was $900,” says Aggarwal, who has three children under 6 years old.

This summer, the system leaked again. Carrier said it would cover the part under warranty for a second time, but not the labour and refrigerant.

Colin Jennings, the company’s vice-president of residential sales, reacted quickly when I contacted him. He paid $1,800 to cover both repairs.

“We apologize for the inconvenience and hope that problem is behind you,” he told Aggarwal.

Ford truck purchase: Laszlo Gorgenyi bought a cargo van, a 2011 Ford Transit Connect, at a Mississauga dealer for $28,000. He had it fitted with ladder racks and shelves for his new heating contractor business.

Then, he heard Ford Motor Co. of Canada had a $1,000 incentive for commercial vehicles to pay for such work.

He called the dealer several times and struck out. Ford’s head office said he was eligible for the incentive, but had to work through the dealer.

“It’s costing me $3,500 to up-fit my truck and the $1,000 would be helpful,” he said.

Gorgenyi picked up his cheque two days after contacting me. While he got an apology from Ford’s head office, he’s still waiting to hear why the dealer didn’t help out.

Medication Services Inc: Deborah Carson paid $2,000 for help getting a Canada Pension Plan disability pension. The company’s contract promised to give back half the fee if her case was resolved without a hearing.

Last April, her CPP disability pension was approved without a hearing. But by late August, Carson hadn’t been able to get reimbursed.

Medication consultant Michael Sacco responded within hours, saying he had been away and had other issues to address. He was sending the refund right away.

“I am sorry for the delay and oversight,” he told me. “Please convey my apologies to Deborah.”

CitiFinancial: Rosa Denault financed a retail purchase with Citi and paid all the monthly instalments on time, except for the 12th and last one.

“They are charging me $683.33 interest for paying three days late in error,” she said. “The interest is being calculated on the full balance as if I had not made any prior payments.”

Told she owed $911 in interest at first, Denault had persuaded Citi to cut it by 25 per cent. She hoped she could do better.

After I contacted Citi spokesman Troy Underhill, the late payment charge was cancelled altogether.

Canadian Tire Financial Services: Wolfgang Foullong is retired. He doesn’t need insurance to protect him if he loses his job or can’t work.

After the postal strike in June, he started checking his bills more carefully and found he’d been paying for insurance on his Canadian Tire Gas Advantage card since April 2009. (He stopped working in 2007.)

“I was never informed and I wouldn’t have agreed. I had already declined a similar charge on my Canadian Tire Options card,” he said.

After contacting me and the card issuer, he received a refund of almost $300 to cover all his insurance fees.

Under a new federal law, credit card issuers can only add insurance if you say yes. No longer can they bill you for it and wait for you to opt out.

Ellen Roseman writes about personal finance and consumer issues. You can reach her at eroseman@thestar.ca.

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