Actual finance blog

The European Union and Singapore should complete talks on a free trade agreement in a few months and implement the pact by the end of 2011, aiming to double trade within five years, a top EU negotiator said Wednesday.

The trade pact would eliminate several hundred million dollars a year in EU tariffs that Singapore companies currently pay, Chief EU Negotiator Rupert Schlegelmilch said.

“We’re still discussing technical issues like rules of origin and tariff and services liberalization,” Schlegelmilch said at a news conference in Singapore. “But on all these chapters we’re very advanced.”

The EU is also deep into trade agreement negotiations with India and Malaysia and is considering beginning talks with Japan, Vietnam, Indonesia, the Philippines and Thailand, Schlegelmilch said.

Trade between the EU and Singapore jumped 22 percent last year, led by higher demand for machinery and transport equipment. Despite a population of just 5.1 million, Singapore is the EU’s 12th-largest trading partner with two-way trade of euros 43 billion ($62 billion) last year and the fifth-biggest in Asia behind China, Japan, India and South Korea.

For Singapore, the EU is its second-biggest recipient of the city-state’s goods after neighboring Malaysia.

The EU poured Singapore dollars 173 billion ($141 billion) of foreign direct investment into Singapore in 2009, about 30 percent of all FDI to the island compared to 11 percent from the U.S. About 8,500 EU companies have a presence in Singapore.

“You have very often the impression that the EU is on the decline,” EU Ambassador to Singapore Marc Ungeheuser said. “But the statistics don’t lie.”

The EU accounts for 28 percent of the global economy and has a population of 501 million.

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A Houston company is in the early stages of planning one of the largest energy infrastructure projects the Midwest has seen in years - a $1.7 billion high-voltage transmission line connecting Kansas wind farms with consumers in St. Louis and throughout the Ohio River Valley.

The so-called Grain Belt Express transmission line, named to evoke images of train hopper cars rolling across the Plains, would stretch 550 miles from southwestern Kansas to southeastern Missouri. It would be capable of moving 3,500 megawatts of electricity - roughly enough to power 3.5 million homes - to eastern Missouri, Southern Illinois and beyond.

The project is being driven by renewable energy demand, more specifically state mandates that have been approved by voters and legislatures including Missouri and Illinois. The goal in each case is to replace coal-fired power with cleaner energy supplies.

While there is solar energy potential anywhere the sun shines, and renewable fuels such as biomass are getting more traction, wind power is eyed as the renewables workhorse.

“The trick is you’ve got to move it from windy parts of the country to where the population centers are,” said Mark Lawlor, director of development for Clean Line Energy Partners LLC, the company planning the project.

That describes the logic behind the Grain Belt Express line. Western Kansas is among the areas with the nation’s best wind energy potential, but development of new projects has stalled somewhat because that area is already awash in wind power.

Developers there are lining up to build new wind farms, representing thousands of megawatts. Projects have been permitted and land has been leased, but work won’t go forward without additional transmission infrastructure, he said.

Lawlor said the existing transmission grid lacked capacity to move Kansas wind power to eastern Missouri. A similar challenge faces wind farm developers in Iowa, northern Illinois and elsewhere. Even if capacity was available on existing lines, it would be difficult logistically - the equivalent of driving 500 miles on winding, two-lane country roads.

ENERGY SUPERHIGHWAY

The answer, according to Clean Line Energy, is a large-scale transmission project, an electron superhighway spanning the better part of two states with no off-ramps between the start and end points.

“We want to do it on a large scale to keep the overall cost of the power at a minimum,” Lawlor said.

Besides scale, the key to making the project viable is direct current technology.

The Grain Belt Express line will look much like existing alternating current transmission lines crisscrossing the country, but the planned high-voltage DC line is preferable for moving large amounts of power long distances. Such lines are more efficient, reliable and economical, Lawlor said. They also require narrower rights of way and smaller towers.

Such DC transmission lines are rare, but not new. Twenty already operate in the United States, the company said.

The Grain Belt Express line will originate near Spearville, Kan., and stretch across southern Missouri to a St. Francois County substation, where it will connect with Ameren facilities. A specific route hasn’t been chosen. If all goes as planned, construction could begin as soon as 2014 and be complete by 2016, Lawlor said.

Developers have a lot of work to do in the meantime. They need approval from federal and state regulators. Then there’s siting and permitting issues and negotiations with land owners, who often object to the installation of infrastructure many consider unsightly.

“We’re spending a tremendous amount of time up front to identify a route that has the least impact,” Lawlor said.

‘TOLL ROAD’

Clean Line Energy applied in March with the Kansas Corporation Commission to be approved as a public utility in the state. The company is expected to seek permission from the Missouri Public Service Commission next year.

Lawlor said the project would be privately financed and ultimately paid for by utilities, their customers, other wholesale power buyers and renewable energy generators that buy capacity on the line. Rates will be set by the Federal Energy Regulatory Commission. Clean Line Energy would maintain the line, but it would be controlled by a regional grid operator.

Who pays for intrastate transmission projects is frequently a thorny issue. Clean Line Energy seeks to avoid such disputes because only transmission customers will pay for it.

“This is like a toll road,” he said. “You don’t pay for it if you don’t use it.”

To help sell the project, Clean Line says the project will be an economic boon for Kansas and Missouri, stimulating $7 billion in new wind power projects and hundreds of permanent jobs in western Kansas and thousands of construction jobs along the entire route, according to a study prepared for the company by St. Louis-based Development Strategies.

Of course, any economic benefit is secondary to the main purpose of the project, to accommodate growing renewable energy demand without breaking the bank.

The Department of Energy’s National Renewable Energy Laboratory said last year in a technical study that the eastern half of the country - an area that’s home to 70 percent of the population - could get at least 20 percent of electricity from wind power by 2024, but it would require tens of billions of dollars in new transmission infrastructure.

PENT UP DEMAND

The study underscored the fact that wind development has outpaced transmission infrastructure, prompting new companies to sprout up to help satisfy a backlog of demand. Those companies include independent transmission developers such as Clean Line Energy as well as utilities such as Ameren, which have formed transmission subsidiaries.

Ameren announced last year a $1.3 billion series of transmission projects spanning more than 500 miles in Illinois. The Illinois projects, collectively referred to as the Grand Rivers projects, is aimed at least partly at moving wind power to the east.

“Ameren is working closely with Clean Line Energy to reliably integrate their project into the transmission system,” said Maureen Borkowski, CEO of the Ameren subsidiary. “We believe it will mesh well with Ameren Transmission’s plans.”

Ameren Transmission plans to target Missouri for its next initiative, but nothing has been announced publicly.

Clean Line Energy is owned by Ziff Brothers Investments LLC and Michael Zilkha of Houston, who previously owned Horizon Wind Energy LLC. Several former Horizon executives are part of the company’s senior management.

The Grain Belt Express project is one of four long-haul transmission projects the company is developing.

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Several dozen residents from the town around Japan’s crippled nuclear plant have been allowed back to their homes briefly to collect belongings for the first time since the complex went into crisis after a devastating tsunami.

Residents of Futaba were among the 80,000 people evacuated from the area soon after the March 11 disaster, and most have not been able to return.

Many evacuees had no idea how long the crisis would drag on and left with only the clothes they were wearing and their purses or wallets.

Residents of Futaba were allowed to stay at their homes for two hours only, and given one large plastic bag in which to collect their things due to space restrictions and fears of contamination.

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The push to replace the U.S. dollar as the world’s reserve currency has been gaining steam, with one expert arguing that America "must give up on the dollar."

In a Financial Times op-ed, Michael Pettis, a finance professor at Peking University, said U.S. policymakers should lead the charge to create a more diverse reserve system, "in which the dollar is simply first among equals."

The dollar has been the dominant reserve currency for decades, with central banks and other institutions around the world amassing vast reserves.

Pettis argues that this has resulted in dangerous trade imbalances that threaten to destabilize the global economy. He contends that countries such as China have been able to "game the system" by stockpiling dollars, which has allowed them to grab a larger share of global demand for goods and services.

At the same time, the U.S. economy has suffered as money rushes out of the country and into red-hot emerging markets. Pettis said this leaves the United States with a stark choice between further pain in the job market, as demand continues to shift overseas, or adding to already massive deficits to finance domestic growth.

"Americans, in other words, must choose between higher unemployment and higher debt," Pettis wrote.

As such, the United States may eventually need to force the rest of the world to gradually "disengage" from the dollar as a reserve currency if it continues to decline.

The dollar index, which measures the greenback against a basket of currencies, has fallen 5% so far this year to around 74.80. That’s down from a high near 87 in June of 2009, as jittery investors flocked to the dollar for safety.

However, there is not an obvious alternative to the dollar.

Pettis suggested that the euro could emerge over the next decade, since no other world currency has "the necessary characteristics to allow it plausibly to serve the needs of the global economy."

But he suggested that European officials would resist taking on the responsibility, since it would saddle the European Union with the same burdens currently facing the United States.

Meanwhile, the International Monetary Fund has proposed a larger role for its special drawing rights, or SDRs, in the global reserve system.

SDRs represent potential claims on the currencies of IMF members. They were created by the IMF in 1969 and can be converted into whatever currency a borrower requires at exchange rates based on a weighted basket of international currencies. The IMF typically lends funds to countries denominated in SDRs.

The global monetary system and the dollar will be discussed this weekend as finance officials from the Group of 20 economies gather in Washington for the spring meetings of the International Monetary Fund and the World Bank.

The dollar found some support Friday as investors turned cautious ahead of possible policy changes stemming from this weekend’s summit.

"Today’s risk will come from sideline comments from the G20 and IMF meetings as well as the deluge of U.S. data," said Camilla Sutton, chief currency strategist at Scotia Capital.

Investors are also focused on the outlook for global interest rates, as central banks adjust to rising inflation.

China reported Friday that overall consumer prices rose 5% in March, as energy and food prices have surged. China’s central bank has been gradually raising interest rates this year to help cool inflation.

In Europe, consumer prices rose 2.7% in March versus last year, according to data released Friday from EuroStat. The European Central Bank hiked interest rates last week for the first time since the 2008 financial crisis.

U.S. inflation also picked up in March, driven mainly by rising gas prices. Excluding food and energy prices though, inflation remains relatively tame.

While many investors and economists expect the Federal Reserve to maintain its low interest rate policy for some time, some central bank officials have been calling for a tighter stance to ward off inflation.

"The biggest risk to a change in the downward US dollar trend is a shift in stance at the Fed," said Sutton. "At some point the Fed will move away from emergency level interest rates and the US dollar will likely rally temporarily." 

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Canadians are paying 20 per cent more on average than Americans for identical products even though the value of the loonie has soared above the U.S. greenback, according to a report to be released Thursday.

The price survey by a leading Canadian economist confirms what many consumers suspect

Berkshire Hathaway now has four internal candidates to eventually replace Warren Buffett as chief executive.

That new tidbit about the plan to replace the revered 80-year-old investor someday was revealed Monday in documents filed with the Securities and Exchange Commission. Previously, Buffett had said Berkshire had three internal candidates for the CEO job but refused to name them.

Buffett remains in good health and has no plans to retire.

The revelation about a fourth candidate reinforces speculation that Burlington Northern Santa Fe CEO Matt Rose became a contender after Berkshire acquired the railroad last year guaranteed payday loan.

The other Berkshire managers believed to be on the short list are David Sokol, chairman of NetJets and MidAmerican Energy; Ajit Jain, who runs Berkshire’s reinsurance division; and Tony Nicely, chief executive of Geico.

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JEFFERSON CITY

Floodwaters poured into the empty downtown of Australia’s third-largest city Wednesday after tearing a deadly path across the northeast, swamping neighborhoods in what could be Brisbane’s most devastating floods in a century.

The surging, muddy waters reached the tops of traffic lights in some parts of Brisbane, and the city’s mayor said at least 20,000 homes were in danger of being inundated.

At least 22 people have died and more than 40 are missing across Australia’s northeastern state of Queensland since drenching rains that began in November sent swollen rivers spilling over their banks, flooding an area larger than France and Germany combined. Brisbane, the state capital with a population of 2 million, is the latest city to face down the waters, and officials expect the death toll to rise.

On Wednesday, Brisbane residents who had spent two days preparing took cover on higher ground while others scrambled to move their prized possessions to the top floors of their homes. Some stacked furniture on their roofs.

The Brisbane River is expected to reach its highest point on Thursday. After days of bad news in which figures were constantly being revised, the Bureau of Meteorology late Wednesday delivered a small and rare positive forecast _ the floodwaters would crest about a foot (30 centimeters) lower than earlier thought.

If correct, the new forecast meant the waters would not reach the depth of 1974 floods that swept the city. Queensland Premier Anna Bligh said the news was welcome, but of little comfort.

“This is still a major event, the city is much bigger, much more populated and has many parts under flood that didn’t even exist in 1974,” she said. “We are still looking at an event which will cripple parts of our city.”

The dragged-out crisis escalated when a violent storm sent a 26-foot (eight meter), fast-moving torrent _ described as an “inland instant tsunami” _ crashing through the city of Toowoomba and smaller towns to the west of Brisbane on Monday. Twelve people were killed in that flash flood. Late Wednesday, Bligh said the number of missing had been revised down to 43.

“This is a truly dire set of circumstances,” Prime Minister Julia Gillard said.

The Brisbane River broke its banks on Tuesday and was continuing its rise Wednesday _ partly controlled by a huge dam upstream that has had its floodgates opened because it is brimming after weeks of rain across the state.

Water levels were expected to stay at peak levels until at least Saturday, but many people won’t be able to access their homes for several days beyond that, Bligh said.

The flooding has transfixed Australia and is shaping up to become the nation’s most expensive disaster, with an estimated price tag of at least $5 billion. The relentless waters have shut down Queensland state’s crucial coal industry and ruined crops across vast swaths of farmland.

Brisbane’s office buildings stood empty Wednesday with the normally bustling central business district transformed into a watery ghost town. Most roads around the city were closed, and people moved about in kayaks, rowboats and even on surfboards. One of the city’s sports stadiums, which hosts international rugby games, was flooded with muddy, chest-deep water.

Boats torn from their moorings floated down the rising river along with massive amounts of debris. A popular waterside restaurant’s pontoon was swept away by the current and floated downstream installment payday loans. Officials said they would probably have to sink a barge that serves as an entertainment venue, to stop it from breaking free and becoming a floating torpedo.

Officials opened three more evacuation centers on Wednesday, and Newman said there was now room for 16,000 people to take shelter. Officials have urged people to get to higher ground and keep off the streets unless absolutely necessary.

Energex, the city’s main power company, said it would switch off electricity to some parts of the city starting Wednesday as a precaution against electrocution. Almost 70,000 homes were without power across Queensland by Wednesday afternoon, Bligh said.

“I know that this is going to be very difficult for people,” Bligh said. “Can I just stress: Electricity and water do not mix. We would have catastrophic situations if we didn’t shut down power.”

Darren Marchant spent all day moving furniture and other household goods to the top floor of his home, near the river in the low-lying Brisbane suburb of Yeronga, which is expected to be inundated. He and two neighbors watched in awe as dozens of expensive boats and pontoons drifted past.

“We were watching all kinds of debris floating down the river _ one of the (neighbor’s) pontoons just floated off,” he said Wednesday. “It was amazing.”

For weeks, the flooding had been a slow-motion disaster, devastating wide swaths of farmland and small towns. On Monday, the crisis took a sudden, violent turn, with a cloudburst sending a raging torrent down the Lockyer Valley west of Brisbane. Houses were washed from their foundations and cars tossed about like bath toys in what Police Commissioner Bob Atkinson described as “an inland instant tsunami.”

Hundreds had to be rescued by helicopter Tuesday and emergency vehicles were moving into the worst-hit parts of the valley on Wednesday. Bligh warned that the death toll would likely rise as rescue officials gained access to the devastated areas.

In the Lockyer Valley town of Grantham, entire houses that had been swept off their foundations sat in sodden heaps of jumbled debris. Waters that had submerged a railway bridge receded, exposing an avalanche of twisted wreckage caught in its foundation: furniture, a “for sale” sign, a child’s swing set, even a dead cow.

The city of Ipswich, home to about 15,000 people, was swamped Wednesday by the water heading Brisbane’s way. By the afternoon, 3,000 properties had been inundated, and 1,100 people had fled to evacuation centers, Mayor Paul Pisasale said. Video from the scene showed horses swimming through the brown waters, pausing to rest their heads on the roof of a house _ the only dry spot they could reach.

Steph Stewardson, a graphic designer, said there was an exodus from Brisbane’s downtown around lunchtime Tuesday with people streaming out of skyscrapers as the river broke its banks. Stewardson, 40, hopped in her car and crossed the swollen river to collect her dog, Boo, from daycare while waters started covering the boardwalk stretching along its banks.

Stewardson took shelter in her house and plans to stay there _ for now.

“I’m about 800 meters (half a mile) from the river on a hill, so I think it’s going to be OK,” she told The Associated Press.

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Stocks finished higher Wednesday as the market continued on pace for its best December in nearly twenty years.

The Standard and Poor’s 500-stock index - the market measure used by most professional investors - has gained 6.7 percent this month. If it closes Friday at this level or higher, it will be the best December return for the index since 1991.

Trading continued to be thin ahead of the New Year’s holiday. In the absence of any fresh economic data or major corporate news, investors were attracted to the government’s latest bond auction. Treasurys rallied and stocks also drew strength from the successful sale. Traders’ moods also appear to be buoyed by the mostly positive economic news of recent weeks.

Strong corporate profits have helped push stocks higher for much of 2010.

“The primary theme of 2010 was that corporate profits were much better than expected,” said Philip Dow, director of equity strategy at RBC Wealth Management in Minneapolis. “As we enter into 2011, my hope and belief is that we move from recovery to expansion and a self-sustaining economy.”

The Dow Jones Industrial average closed 9.84 points higher, or 0.1 percent, to 11,585.38. The S&P 500 rose 1.27, or 0.1 percent, to 1,259.78. The technology-focused Nasdaq gained 4.05, or nearly 0.2 percent, to 2,666.93.

Stocks rose across the market, with eight of the 10 industry groups in the S&P index posting gains.

Stock trading volumes on Wall Street are expected to be light throughout this week between the Christmas and New Year’s holidays. Many investors have already closed their books for the year and are on vacation until January. Trading volume totaled just 2.3 billion shares on the New York Stock Exchange, where seven shares rose for every three that fell low fee cash advance.

Traders have been encouraged that Americans took out their wallets to shop during the holiday season, after two years of holding back. However, RBC’s Dow warns that America cannot depend on consumers alone to pull it out of the trough this time.

“People probably got bored of not spending and it was time to celebrate a little, but we shouldn’t be surprised if the consumer retrenches again,” said Dow.

A disappointing report on consumer confidence released Tuesday showed that while holiday spending surged, consumers are still fretting about the economy and high unemployment.

In corporate news Wednesday, BJ’s Wholesale Club Inc. rose 7 percent to finish at $47.62 after reports that a private-equity firm might be interested in acquiring the discount club. The firm, Leonard Green & Partners, recently reached deals to buy other retailers including fabric and crafts chain Jo-Ann Stores Inc., and is partnering with TPG Capital to buy preppy clothier J. Crew Group Inc.

The dollar fell 0.7 percent against an index of six heavily traded currencies.

Looking ahead to Thursday, investors will check for signs of how the housing market is performing when November data on pending home sales will be released. In October, there was a 10 percent increase in new contracts signed on falling home prices and low mortgage rates.

Also on Thursday, the Labor Department’s report on weekly unemployment claims will be released at 8:30 a.m. Eastern.

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The country’s biggest newspaper publishers say advertising trends continue to improve in the fourth quarter _ even if they are still not ready to predict when or if traditional print revenue will start growing again.

Gannett Co., publisher of USA Today and other dailies, and McClatchy Co., which owns The Sacramento Bee and The Miami Herald, said Wednesday that smaller print declines and cost cutting will help results in the last three months of 2010.

Newspapers are struggling to arrest a nearly four-year slide in ad revenue as more advertisers turn to online destinations like Google and Facebook. Print circulation is dropping as well as readers turn to the Web for news.

With the recession behind them, publishers are reporting smaller declines in print revenue. But they haven’t seen the kind of rebound that would make up for steep declines last year.

Gannett’s TV stations have benefited as auto makers and other advertisers ramp up commercial spending coming out of the recession. Political campaigns also spent big money on TV time during the midterm elections. And the company’s newspapers have seen print advertising declines ease.

Gannett Chief Operating Officer Gracia Martore said the company is “comfortable” that its fourth-quarter profit will be at the high end of expectations.

Analysts surveyed by Thomson Reuters estimate earnings for the final three months of the year at between 72 cents and 80 cents per share.

Gannett shares rose 60 cents, or 3.9 percent, to $15.92 in midday trading Wednesday.

McClatchy, which does not own broadcast stations, said ad revenue in the first two months of the quarter slipped 5.8 percent compared with the same two months of last year. That’s an improvement over the previous quarter, when McClatchy’s ad revenue was down 6.4 percent from the previous year.

Though McClatchy did not provide a specific earnings or revenue forecast for the full quarter, advertising trends from the first couple of months were enough to push the company’s stock up 35 cents, or 9.9 percent, to $3.90 in midday trading.

The latest updates from Gannett and McClatchy were roughly in line with new figures from The New York Times Co.

The owner of the Boston Globe, the International Herald-Tribune and a group of smaller dailies along with its namesake newspaper said Tuesday that a drop in expenses should boost its fourth-quarter profit. Like its fellow publishers, the Times Co. expects print advertising revenue will show a smaller decline than the previous quarter.

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