Finance & Business World

Australia’s economy has less scope than previously expected for “robust” growth that doesn’t stoke inflation, central bank Governor Glenn Stevens said.

“Monetary policy must therefore be careful not to overstay a very expansionary setting,” Stevens told lawmakers at a parliamentary committee hearing in Canberra today.

Policy makers said this week their decision to unexpectedly keep interest rates unchanged this month was “finely balanced” amid concern that European sovereign-debt risks may weaken the global economic recovery. Stevens said borrowing costs in Australia are still between 50 and 100 basis points below what the central bank considers “normal.”

“Stevens is quite bullish on domestic growth, but whether that translates into a March hike is another matter,” said Adam Carr, an economist at ICAP Australia Ltd. in Sydney. “I don’t know what more they need to see to hike again — it should already be very clear cut.”

The Australian dollar traded at 89.25 U.S. cents at 9:56 a.m. in Sydney from 89.38 cents before the governor’s testimony began. The yield on two-year government bonds rose six basis points, or 0.06 percentage point, to 4.31 percent from 4.25 yesterday. A basis point is 0.01 percentage point.

Stevens was the first central banker in the world to raise borrowing costs three times last year, taking the cash rate target to 3.75 percent in December from 3 percent at the start of October.

‘Further Adjustments’

“If economic conditions evolve roughly as we expect, further adjustments to monetary policy will probably be needed over time to ensure that inflation remains consistent” with the bank’s target range of 2 percent to 3 percent, Stevens said.

Stevens’s testimony today came after the Federal Reserve Board raised the discount rate charged to banks for direct loans by a quarter point to 0.75 percent, another step in the U.S. central bank’s gradual retreat from its unprecedented actions to halt the deepest financial crisis since the Great Depression. The Fed left the benchmark overnight lending rate in a range of zero to 0.25 percent at its meeting on Jan. 27.

Traders are betting there is a 38 percent chance of a quarter- percentage-point rate increase when the Reserve Bank of Australia next meets on March 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 10:02 a.m. Prior to today’s testimony, chances of a move stood at 40 percent.

Below Normal

“We’re still below normal, I would say, which hitherto has been the appropriate place to be,” Stevens said. “There’s a little distance to go before you could characterize interest rates as normal.”

Stevens said unemployment has peaked at less than 6 percent, “much lower than we or most others forecast.”

Australia is experiencing its biggest jobs boom in five years. Employers added 194,600 workers in the five months through January, cutting the unemployment rate to an 11-month low of 5.3 percent, almost half European Union and U.S. levels.

The jobs surge should help spur the economy, one of the few to skirt last year’s global recession after Prime Minister Kevin Rudd distributed more than A$20 billion ($18 billion) in cash to households and began spending another A$22 billion on roads, railways and schools.

The central bank forecast on Feb. 5 that gross domestic product will rise at an annual pace of 3.25 percent in the three months through December 2010, up from 2 percent in the final quarter of 2009.

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A Greek government inquiry uncovered a series of swaps agreements with securities firms that may have allowed it to mask its growing debts.

Greece used the swaps to defer interest repayments by several years, according to a Feb. 1 report commissioned by the Finance Ministry in Athens. The document didn’t identify the securities firms Greece used. The government turned to Goldman Sachs Group Inc. in 2002 to obtain $1 billion through a swap agreement, Christoforos Sardelis, head of Greece’s Public Debt Management Agency between 1999 and 2004, said in an interview last week.

“While swaps should be strictly limited to those that lead to a permanent reduction in interest spending, some of these agreements have been made to move interest from the present year to the future, with long-term damage to the Greek state,” the Finance Ministry report said. The 106-page dossier is now being examined by lawmakers.

European Union leaders last week ordered Greece to get its deficit under control and vowed “determined” action to staunch the worst crisis in the euro’s 11-year history. Standard & Poor’s and Fitch Ratings are questioning Greece over its use of the swap agreements, said two people with direct knowledge of the situation, who declined to be identified because the talks are private.

“Greece used accounting tricks to hide its deficit and this is a huge problem,” Wolfgang Gerke, president of the Bavarian Center of Finance in Munich and Honorary Professor at the European Business School, said in an interview. “The rating agencies are doing the right thing, but it may be too little too late. The EU slept through this.”

Euro Criteria

Lucas van Praag, a spokesman for New York-based Goldman Sachs, the most profitable securities firm in Wall Street history, didn’t respond to e-mails seeking comment.

Greece, whose burgeoning budget deficit caused it to fail the criteria for joining the single European currency in 1999, joined the Euro in 2001. Member nations had to reduce their budget deficit to less than 3 percent of gross domestic product and trim national debt to less than 60 percent of GDP.

Greek Prime Minister George Papandreou, who came to power in October after defeating two-term incumbent Kostas Karamanlis, more than tripled the 2009 deficit estimate to 12.7 percent. Greek officials last month pledged to provide more reliable statistics after the EU complained of “severe irregularities” in the nation’s economic figures free business cards.

‘Political Interference’

The Finance Ministry report blamed “political interference” for the collapse of credibility in Greece’s statistics. There were “serious weaknesses” in data collection, especially with spending figures, as information often came from second-hand sources, the report found.

The Goldman Sachs transaction consisted of a cross-currency swap of about $10 billion of debt issued by Greece in dollars and yen, Sardelis said. That was swapped into euros using a historical exchange rate, a mechanism that implied a reduction in debt and generated about $1 billion of funding for that year, he said. Eurostat, the EU’s Luxembourg-based statistics office, and the rating companies were both aware of the plan, he said.

Officials for Eurostat couldn’t be reached for comment. Officials for Fitch, Moody’s and Standard & Poor’s didn’t return calls seeking comment outside regular office hours yesterday.

‘Deal Restructured’

Sardelis said the agreement was restructured “a couple” of times while he was still in office. He left in 2004 and joined Banca IMI, the investment-banking unit of Italy’s Intesa Sanpaolo SpA’s. He said the fees, or the spread that Goldman Sachs was paid on the contract, were “reasonable.” The New York-based firm made about $300 million from the agreement, the New York Times reported Feb. 14.

Goldman Sachs bankers including President Gary Cohn traveled to Athens in November to pitch a deal that would push debt from the country’s health-care services into the future, the newspaper reported, citing two people briefed on the meeting. Greece rejected the offer, the New York Times said.

The government met with major international banks over the last month in order to explore options and discuss their involvement in financing Greek national debt, said an official at the Greek finance ministry who declined to be identified. Debt-financing operations are conducted transparently in order to be fully Eurostat-compliant, the official said.

Goldman Earnings

Goldman Sachs reported net income of $13.4 billion in 2009’s fiscal year, outpacing the $11.6 billion profit in 2007, its next-best year. The shares doubled last year to $168.84.

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Former Federal Reserve Chairman Alan Greenspan said a U.S. economic recovery is “going to be a slow, trudging thing,” and that he “would get very concerned” if stock prices continue to fall.

A drop in stock prices is “more than a warning sign,” Greenspan said yesterday on NBC’s “Meet the Press” program. “It’s important to remember that equity values, stock prices, are not just paper profits. They actually have a profoundly important impact on economic activity.”

U.S. stocks on Feb. 5 finished a fourth consecutive weekly decline, the longest such stretch since July. The Dow Jones Industrial Average through Feb. 5 had fallen 4 percent in 2010.

Unemployment likely will stay around 9 or 10 percent for most of this year, Greenspan said. “It’s very difficult to make the case that unemployment is coming down any time soon,” the former Fed chief said.

The U.S. has lost 8.4 million jobs since the recession, the deepest since the Great Depression of the 1930s, began more than two years ago. Unemployment topped 10 percent in October — the first time that’s happened in a quarter century — before retreating to 9.7 percent in January, according to Labor Department statistics.

Greenspan, who served as Fed chairman from 1987 until 2006, said the most useful step Congress could take to create jobs at this point would be to enact tax cuts for small businesses.

“They are the big creator of jobs,” he said. “But they won’t hire anybody if they don’t have any business.”

Economic Growth

Greenspan said the fourth-quarter’s economic growth rate was helped by inventory rebuilding, suggesting the U.S. economy “shot our ammunition” at the end of 2009. That means economic growth now “doesn’t have the strong momentum I hoped it would have,” Greenspan said.

The economy grew at a 5.7 percent annual rate during the last three months of 2009, the fastest pace in six years, according to Commerce Department data. That was the second quarterly increase in gross domestic product following four consecutive declines, the longest stretch of losses since records began in 1947.

In the residential property market, Greenspan said home prices are “bottoming out.” The housing market was the epicenter of the recession, and foreclosures are projected to set a record this year, according to private forecasts.

Regarding the federal budget deficit, which the Obama administration projects at more than $1 trillion for the second consecutive year, Greenspan said a tax increase will be needed and that the budget shortfall threatens the country’s standing in financial markets.

Tax Increase

“I have no doubt that we have to raise taxes in order to close this huge deficit, but we cannot do it wholly on the tax side, because that would significantly erode the rate of growth in the economy and the tax base, and the revenues that would be achieved would be far less” than one would expect, Greenspan said.

On Feb. 4, Congress approved increasing the federal debt limit by $1.9 trillion, to $14.3 trillion, enough to prevent lawmakers from having to raise it again before November’s midterm elections. The increase was more than twice the size of any of the four previous debt increases approved in the past two years.

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Man doth not live by financial capital alone but also by human capital. And, of course, Warren Buffett had a lot to say about that, too, when he took Phil DeMuth and me to dinner a couple of weeks ago in bitterly cold, snowy Omaha.

"It’s vital to be able to communicate well," he said. "Just being able to communicate with others on the job adds at least 50% to your value." Apt words indeed from the man whose annual report (I would guess) is read by more people than all of the other annual reports in the world combined, and whose words have probably saved more lives than any book except the Bible.

"It’s also incredibly important to get along with people," Buffett also said. He talked at length about his early days working with Ben Graham’s firm and how he made it a point to not only work very hard but to get along well with everyone he worked with, and still makes it a point. He spoke highly of an old standard, Dale Carnegie’s "How To Win Friends and Influence People" — a book that still teaches me and one that I consult almost every day.

I asked him about the problems of having a significant part of the labor force that has little intellectual aptitude and learns very little in schools. "For some of them," he said, "there will be better and better tools, tools that allow even people with modest skills to do useful work."

But when I pressed him about the segment of the population that does not really care to learn at all, such as members of violent gangs or others who just refused to learn, he sighed and said that the government would have to come up with some make-work projects for them, projects that paid a modest wage and allowed such people to have some feeling of self-esteem. (I wonder whether they would rather do those jobs than what they are doing….)

But what about people who refused to learn how to do work that is a way to convert human capital into financial capital, i instant payday loans completely online.e., people who refuse to learn to do value investing? He threw up his hands. "I learned it right away when Ben Graham said it," he said. "It was like a vaccination that just took right away. Some people can get the same shot and it doesn’t take at all. Some do get it right away." (I am paraphrasing.)

He was kind enough to sign a copy of his famous article, "The Superinvestors of Graham-and-Doddsville," about value investing compared with other forms of investment, "To Ben Stein, who understood this a long time ago," and I only wish it were true.

In my case, the vaccination only works sporadically. (Buffett has also famously said that in any card game there’s always one sucker and if you don’t know who it is, it’s probably you. I do know who it is, and it’s definitely usually little me…except when it isn’t.)

The overall vibe I get from Warren Buffett, besides his astonishing kindness, mind-boggling intelligence, and perfect, self-deprecating humor, is a reminiscence of something once said by a childhood neighbor who knew Ted Williams. The great baseball player, said my neighbor, had vision so good he could see the stitches on a fastball zooming towards him. No matter how much he might try to explain to you how to do it, if you did not have the natural talent to do it, you couldn’t do it.

But what if you could have made a wager on how many home runs Williams would hit? Or what if, for a few dollars, you could have gotten a share of Ted Williams endorsements? That’s what astute people could have done with Buffett, and it was a rare opportunity.

In the meantime, value investing starts at home, with building up your own value as an earner, enough so that you can some day be a Superinvestor of your ownville. 

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The groundbreaking deal that will see Time Warner Cable Inc. pay News Corp. for over-the-air television programming illustrates the differences between the broadcasting models in Canada and the United States, observers say.

Time Warner and News Corp. agreed on a distribution deal Jan. 1, though details were not disclosed. Other broadcasters, such as CBS Corp., have also said they may seek payment for programming that is currently free.

News Corp. demanded to be paid for the rights to shows on Fox Networks, home of The Simpsons and American Idol as well as sports programming such as college and NFL football games.

If other networks seek similar terms, cable operators may have to fork out as much as $5 billion (U.S.) a year and would likely pass the cost on to subscribers, said Craig Moffet, an analyst at Sanford C. Bernstein in New York.

"The broadcast networks are really struggling to find a viable business mode," Moffett said. "They’re looking at the cable networks that make money both on advertising and the money that the cable operators pay them and saying, `We need a dual revenue stream to survive, too.’"

These battles are playing out just as the television industry is coping with the wrenching changes brought on by new competition from the Internet.

In Canada, the Canadian Radio-television and Telecommunications Commission has embarked on a sweeping review of the cable and satellite television industry business

BAGHDAD–A consortium led by Russia's private oil giant Lukoil on Tuesday signed an initial deal with Iraq to develop one of its biggest oilfields, an agreement key to the war-ravaged nation's efforts to boost the output of a resource crucial to its postwar reconstruction efforts.

Lukoil had partnered with Norway's Statoil ASA to bid to develop the 12.88 billion barrel West Qurna Phase 2 field, the crown jewel of the 15 fields offered during Iraq's second postwar oil licensing round held earlier this month.

Under the 20-year deal which is slated to be presented Thursday to Iraq's Cabinet, the companies plan to produce 1.8 million barrels per day in 13 years and will be paid $1.15 (U.S.) per barrel of crude they produce from the southern field.

Lukoil's vice president of strategy and business development, Dmitry A. Timoshenko, hailed the signing as an important step forward in its work with the Iraqi government.

"Now we are waiting for the other legal procedures to be completed," Timoshenko said. "We hope that these procedures will be concluded soon so that we can start our work as soon as possible.''

For Iraq, the deal marks a crucial step forward in the country's sofar faltering bid to raise oil output.

Although it sits atop the world's third largest proven reserves of conventional crude oil, Iraq produces about 2.5 million barrels per day, of which about 1.9 million barrels a day are exported.

Decades of neglect of the fields have been compounded by the effects of the fighting and sabotage in the wake of the 2003 U.S.-led war to oust Saddam. That violence has meant that Iraq has been unable to even reach its pre-war output levels of oil. Crude oil sales account for roughly 90 per cent of the government's budget.

The oil auction held earlier this month was crucial for Iraq, during which seven deals were awarded. At the first round of bidding in June, only one deals was signed on the spot.

At that auction, six oil and two gas fields were offered, but interest was only on the safest and cheapest fields to develop, with companies shrinking away from fields in restive regions where violence is a key concern as U.S. troops prepare to withdraw from Iraq. Two other deals were subsequently struck.

The second auction saw more deals done – a total of seven. But most of the interest was again focused on fields in the relatively calm and stable Shiite heartland in the south and the U.S. supermajors like Exxon Mobil failed to even bid, let alone win, any of the fields.

Oil Minister Hussain al-Shahristani ambitiously projected that with these fields, along with others Iraq will develop independently, output could climb to 12 million barrels per day within six years. Analysts say those expectations will fall far short of the reality.

Senior Deputy Oil Minister Abdul-Karim Elaibi said all the deals awarded during the second auction will be submitted to the Cabinet on Thursday for approval.

The deal was a coup for Lukoil, which had been granted the rights to develop the field in 1997 by Saddam Hussein only to see the dictator rescind the $3.7 billion contract five years later.

Lukoil had been trying to revive the deal since 2003 after Moscow wrote off most of Iraq's $12.9 billion in debts. Iraqi officials, however, eager to make sure that the reopening of the country's oil sector to the world was as transparent as possible, shrugged off the Russian calls and insisted on putting the field up for bids.

Lukoil and Statoil beat out three other consortiums led by Britain's BP PLC, France's Total SA and Malaysia's state-run Petronas to nab the rights to develop the mammoth field. Although discovered in August 1973, it has been only partially developed, with a total of 13 wells drilled, so far.

The field lies next to the West Qurna Phase 1 field, which has 8.6 billion-barrel and was part of three deals awarded in Iraq's first bidding round.

A consortium grouping U.S. and European oil giants Exxon Mobil and Royal Dutch Shell PLC won the rights to develop West Qurna Phase 1 field for $1.9 per barrel produced and signed an initial deal. It also still waiting the Cabinet's final approval.

Four other deals emerging from the second auction were initialed last week. Those included fields won by consortiums led by European giant Royal Dutch Shell PLC, Petronas, China's CNPC and Russia's Gazprom.

The last two deals – with Angola's Sonangol – will be initialed Wednesday.

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Bakers Footwear Group Inc., a St. Louis-based women’s footwear retailer, announced Friday that it no longer meets the minimum stockholders’ equity requirement needed to remain listed on the Nasdaq Capital Market.

For the quarter ended Oct. 31, Bakers reported a shareholders’ deficit of $3.5 million. The retailer said it intends to submit to Nasdaq by Dec. 29 a plan explaining how it will turn the deficit into equity and reach the minimum requirement of $2 poor credit personal loans.5 million this quarter. If the plan isn’t accepted by Nasdaq or if the plan fails, the company faces delisting from the stock exchange.

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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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The Translational Genomics Research Institute and Scottsdale Healthcare are testing an Italian pharmaceutical firm’s new drug for thymic cancer.

Scottsdale Healthcare is the world’s first site for the Phase I trial of a new oral drug, being called NMS-1286937. The hospital had conducted a Phase II trial for another of the Italian company’s drugs, called PHA-848125ac for advanced thymic cancer. This new research is based on the earlier promising results of PHA.

The thymus is a small organ near the lungs and heart that is a key part to the body’s immune system during fetal and childhood development.

The Italian company, called Nerviano Medical Sciences, is working in conjunction with TGen and SHC on both the thymic cancer drugs. The goal is to quickly turn these discoveries into targeted therapies at SHC’s Virginia G paydayloans. Piper Cancer Center in Scottsdale.

Mark Slater, senior vice president of research at Scottsdale Healthcare, said while SHC is the only U.S. site for the study, France and Italy also are conducting studies.

“Our partnership with TGen has allowed us to bring in novel therapies, really cutting-edge treatments that have addressed new mechanisms for rare cancers and cancers that have not responded well to standard therapy,” Slater said. “Our approach is to target our therapies using advanced molecular diagnostics.”

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The Toronto stock market fell sharply Thursday in a broad-based decline despite solid earnings reports from two of the big Canadian banks as investors opted for caution ahead of Friday's U.S. non-farm jobless report.

The S&P/TSX composite index declined 143.18 points to 11,636.55 with a report showing a surprising contraction of the U.S. service industry during November also limiting advances.

The Institute for Supply Management's non-manufacturing index fell to 48.7 from 50.6 in October. Economists had expected the index to rise to 51.5, which would show continued expansion.

Market sentiment Friday will likely be determined by the U.S. jobless report. Economists expect that employers cut 130,000 jobs last month and that the unemployment rate remained flat at 10.2 per cent.

"It's understandable that the market would tread water at this point,"" said Tim Knepp, chief investment officer of Genworth Financial Asset Management.

"Job creation is going to be the key to sustaining any kind of rally."

The Canadian dollar moved down 0.41 of a cent to 94.81 cents US.

The TSX financial sector stepped 1.3 back per cent amid reports from three major banks Thursday.

"They're bumping into resistance right now, particularly TD and CIBC are kind of at the high end of their trading ranges," said Colin Cieszynski, market analyst at CMC Markets Canada.

"We had the prices run up on anticipation of a recovery in bank earnings, and so now we're getting the recovery in bank earnings but the market had already anticipated that to a certain extent, which is why we're getting this consolidation (over the last three months)."

CIBC shares were ahead $1.52 to C$70 on the TSX after the bank reported fourth-quarter net income of $644 million or $1.56 per share, up from year-ago profit of $436 million or $1.06 per share. Revenues totalled $2.9 billion for the quarter, compared to $2.2 billion last year.

CIBC's provision for loan losses surged 91 per cent from a year ago to $424 million due to higher losses in its credit cards, unsecured personal lending and corporate lending portfolios. But provision for credit losses was down $123 million from the prior quarter, primarily due to lower losses in these same portfolios.

TD Bank Financial Group (TSX: TD) reported net income for the fourth quarter was essentially flat compared with the same period last year at just over $1 billion. TD's provision for credit losses nearly doubled to $521 million but was down from the prior quarter. Its shares fell $1.71 to $66.08 as U.S. personal and commercial banking profits tumbled 51 per cent to $122 million. And continued weakness in the U.S. real estate market brought net impaired loans higher to $879 million, a rise of 163 per cent over the same time last year payday loan.

National Bank Financial Group (TSX: NA) missed expectations reported net income of $241 million or $1.39 per share for the fourth quarter, up from year-ago profit of $70 million or 37 cents per share. Revenues came in at $1.1 billion, rising 43 per cent from $765 million last year and its shares dropped $3.78 to $60.84.

In other earnings news, shares in Bombardier Inc. (TSX: BBD.B) fell 13 cents to $4.56 after the airplane and train manufacturer said its profits fell 26 per cent to $168 million in its summer quarter amid harsh economic conditions that triggered recent layoffs. But the company said it managed to keep revenues at year-ago levels of $4.6 billion and a contract worth US$779 million with AMR Eagle Holding Corp, the parent company of American Eagle Airlines for 22 CRJ700 regional jets.

The energy sector was down 1.17 per cent as the January crude contract on the New York Mercantile Exchange slipped 14 cents to US$76.46 a barrel.

EnCana Corp. (TSX: ECA) shares were down $27.62 to $28.81 after the energy company completed its split into two companies on Monday. EnCana becomes a pure play natural gas company while Cenovus Energy Ltd. is an integrated oil company. Cenovus shares started regular trading Thursday on the TSX and were off five cents to $26.25.

The gold sector was down just over two per cent as the February bullion contract on the Nymex gained $5.30 to a record US$1,218.30 an ounce.

The base metals sector declined 1.5 per cent as March copper was down 1.35 cents at US$3.24 a pound. Sherritt International (TSX: S) lost 14 cents to C$6.48.

Market heavyweight Research In Motion Ltd. (TSX: RIM) also pressured the TSX, moving down $1.35 to $61.53.

The TSX Venture Exchange edged 0.18 of a point lower 1,461.61.

Losses also picked up in New York late in the session as the Dow Jones industrial average fell 86.53 points to 10,366.15.

The Nasdaq composite index dropped 11.89 points to 2,173.14 while the S&P 500 index ticked 9.32 points lower to 1,099.92.

In other corporate news, WestJet Airlines Ltd. (TSX: WJA) stock slipped 29 cents to $11.65 after the carrier said it expects the ongoing transition to a new reservation system will have a negative impact on its fourth-quarter passenger revenue. The Calgary-based airline said revenue is expected to be at least 11 per cent below last year.

Shares in uranium giant Cameco Corp. (TSX: CCO) gained 26 cents to $32.93 after the company approved a 17 per cent increase in the annual cash dividend to 28 cents a share from 24 cents, beginning in 2010.

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