Actual finance blog

Australians are anxious to know if they will avoid recession and are turning to some unexpected, unofficial economic indicators to find answers.

Unconvinced by official data, which are sending mixed and sometimes dubious signals, pundits are instead turning to everything from muffin sales to home-brewing kits.

Even economists and the central bank are being forced to play private detective and rummage through the rubbish bin of economics in search of important clues.

“We look at everything,” said Craig James, chief economist at brokerage CommSec. “You need to paint a picture of the economy and you do that by looking at all the available indicators.”

Economists spend most of their time analysing official data, ranging from retail sales to job statistics, but they also rely on the street to tell them if the figures are lying.

Right now, the street is confirming that Asia Pacific’s star developed economy is slowing sharply but suggests that it is still weathering the global storm fairly well, at least for now.

The gloomier alternative indicators include reports that corporate Christmas parties are being canceled and, in a very dark sign, more Australians are brewing their own beer at home.

ALTERNATIVE THEORY

Newspapers report daily on big job losses and are themselves leavened with fewer job ads, while shop windows on the high street are plastered with “sale” signs freecreditscore.

But the real harbinger of recession — known as the “muffin effect” in alternative Australian economic theory — is far from conclusive. Muffin sales appear to be holding up.

Advocates of “the muffin effect,” as it was dubbed by the Australian Financial Review recently, believe that when the economy slams into reverse, office commuters deny themselves their usual muffin with their morning cup of coffee.

“We are selling the muffins with the coffees,” said Matthew Burke, owner of Prima Vera coffee shop in downtown Sydney, as office workers queued to place orders.

“I don’t think we have noticed the flow-on into the real economy yet. People are still getting their pay packets. But it will definitely start to affect us if people lose their jobs.”

Anecdotes and alternative indicators like the “muffin effect” are gaining ground as doubts grow over some of the official data produced by the state Australian Bureau of Statistics.

Budget cuts have forced the bureau to cut the size of sample surveys for its flagship series, retail sales and employment, at a critical time. Economists say the results can be more volatile and therefore less reliable. 

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Swiss Life (SLHN.VX: Quote, Profile, Research, Stock Buzz) warned on profits and cut its dividend, while Dutch financial group ING (ING.AS: Quote, Profile, Research, Stock Buzz) posted its first quarterly loss, as the financial crisis bites into insurers’ investment income and premiums.

Swiss Life, Switzerland’s third-largest insurer, said on Wednesday third-quarter premium volumes fell 11 percent to 3.075 billion Swiss francs ($2.61 billion), warned it would not meet its full-year net profit guidance and halted its share buyback program.

ING reported its first-ever quarterly loss as impairments on stocks and bonds, counterparty losses and property writedowns ate into its income.

Banker and insurer ING projected its loss in October before agreeing to a 10 billion euro ($12.7 billion) cash injection by the Dutch government to shore up its core capital.

Swiss Life said it no longer assumes its dividend will be 600 million francs and halted its share buyback programme.

Shares in Swiss Life fell steeply, down 14 percent at 93.6 Swiss francs, while ING shares were up 1.7 percent at 8.2250 euros at 0825 GMT. The DJ Stoxx European insurers index was up 1.2 percent.

“It’s really a problem that the dividend is going to be cut. It was said this was a sure thing and people bought the share in the hope of an attractive yield,” said one trader.

The insurer now expects to report a clear full-year loss on continuing operations but said it would post extraordinary gains of 1 short-term cash loans.5 billion francs from disposals.

“The pronounced intensification of the financial crisis since the end of September, however, means that we cannot confirm our earnings guidance for 2008,” Chief Executive Bruno Pfister said in a statement.

A Swiss Life spokesman confirmed the company does not intend to sell its stake in German pensions specialist MLP (MLPG.DE: Quote, Profile, Research, Stock Buzz) or launch a hostile bid.

Swiss Life shares have fallen around 60 percent since the company bought a near 25 percent stake in MLP in August. It trades at about five times forecast 2009 earnings, just behind the average of the European insurance sector .

German financial services provider AWD (AWDG.DE: Quote, Profile, Research, Stock Buzz) also said on Wednesday it was closing some of its activities in the UK.

ING LOSS ALREADY PROJECTED

ING was one of the healthier financial institutions with relatively manageable losses from the credit crisis, but it decided to take the capital injection to shore up its balance sheet after its share plummeted to a 15 year-low on investor concerns over the impact of the credit crisis.

Its net loss for the third quarter was 478 million euros, after writedowns totaling 1.5 billion euros. ING posted a profit of 2.3 billion euros a year earlier. 

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Canadian cultural policy has long relied on two levers to promote Canadian content. First, regulators require broadcasters and cable companies to allocate a portion of their revenues to help support the creation of new Canadian content. Second, that content is granted preferential treatment through minimum "CanCon" requirements for both television and radio broadcasting.

While these approaches may have worked for conventional broadcasting, the big question in the Canadian Radio-television and Telecommunications Commission’s forthcoming hearings on new media is whether they can be applied to the Internet.

Canadian cultural groups, the biggest proponents (and beneficiaries) of this policy approach argue that similar mechanisms can be adapted to the Internet by requiring Internet service providers to hand over a portion of their subscriber revenues for the creation of new media content. ISPs unsurprisingly opposed, arguing an Internet tax is unfair since it forces all subscribers to fund content in which they may have little interest. Moreover, they note such a scheme may also be illegal since it applies the Broadcasting Act to telecommunications activities.

The CRTC adopted a new CanCon approach for the introduction of satellite radio in Canada and similar creative thinking is needed for the online environment.

One possibility would be to provide new media creators – whether independent filmmakers, digital photographers, musicians, podcasters, or bloggers – with the assurance of equal access to online audiences by mandating that Canadian ISPs treat all similar content in an equivalent or neutral fashion.

In recent months, many Canadian ISPs have engaged in "network management practices" that degrades the bandwidth allocated to certain applications and content. While the ISPs argue such practices are essential to ensure quality of service for the majority of their users, similar activities in the United States have drawn a rebuke from the Federal Communications Commission and a promise from President-elect Barack Obama to address the issue.

This issue has been typically treated as telecom matter, yet there would be considerable benefits in assessing it through the lens of Canadian cultural policy Faxless pay advances. Granting preferential treatment for Canadian content may have made sense in a world of scarcity when there were limited channels and bandwidth, however, it no longer applies in a world of abundance in which the Internet offers virtually unlimited choice.

Canadian creators, therefore, do not need guaranteed space since there is room on the Internet for everyone. Rather, they need guaranteed access – the assurance that their content can find an audience by being treated like any other video or cultural programming. As ISPs move toward tiered access that grants preferential treatment (such as faster speeds) to their own content or to premium content promoted by deep-pocketed interests, an equal approach to new media content would bring CanCon into the Internet era by asking for nothing more than a fair shake.

This approach would also address the funding side of cultural policy. Many ISPs object to the equal treatment principle by maintaining that new media creators should pay for equal access and avoid using technologies such as BitTorrent that are viewed as transferring the cost of distribution from the creator to the network provider. From their perspective, if a new media creator (or a public broadcaster like the CBC) wishes to use an application to distribute content subject to reduced speeds, a requirement to grant unimpeded access should be regarded as a subsidy from the network provider to the content creator.

If so, such a subsidy could be seen as the Internet equivalent of cultural funding. Rather than adopting an ill-suited ISP tax, the costs associated with providing Canadian content with equal treatment could be treated as the financial contribution, thereby eliminating the legal concerns associated with an ISP tax and allowing the CRTC to extract support from network providers for the benefit of Canadian cultural production.

Michael Geist holds the Canada Research Chair in Internet and E-commerce Law at the University of Ottawa, Faculty of Law. He can reached at mgeist@uottawa.ca or online at www.michaelgeist.ca.

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Air Canada has reported a third-quarter loss of $132 million during the busy summer travel season, citing rising fuel costs and the impact of fuel-hedging contracts negotiated before the price of oil tumbled.

The country’s largest airline, which is flying out of a period of record fuel prices into a global economic recession, said it lost $1.32 per share during the three-month period versus a profit of $273 million, or $2.73 a share, in the year-earlier period.

Sales, meanwhile, rose 4.1 per cent to $3 billion.

Investors, who had expected a profit, responded by pushing the airline’s stock down 91 cents, or nearly 17 per cent, to $4.49 on the Toronto Stock Exchange.

Montie Brewer, the airline’s chief executive, told analysts during a conference call that high fuel prices still hurt operations during the third quarter, even as the price of oil began to fall after hitting a high of $147 (U.S.) per barrel in July.

"As the great proportion of our tickets are sold in advance of the date of travel, the prices we charge simply could not match the pace in the rise of fuel prices," Brewer said.

Air Canada said its fuel expenses increased $348 million in the third quarter to $1 cheapest cash advance.1 billion, up 49 per cent, compared with the third quarter of 2007.

At the same time, the airline incurred mark-to-market losses of $93 million on financial instruments, consisting mostly of fuel hedge contracts, and net losses on foreign currency of $87 million.

Analysts expressed concern that Air Canada’s liquidity situation was tightening just as it headed into a seasonally weak period. As well, the opportunity to borrow money is limited by the ongoing credit crunch.

In June, Air Canada said it was scaling back flying by 7 per cent and slashing up to 2,000 jobs to combat a fuel bill expected to soar by nearly $1 billion for the year.

Brewer said yesterday that the recent fall in oil prices – a barrel of crude now trades for about $60 (U.S.) – does not change Air Canada’s plan to cut back flights.

"Although oil prices have since retreated, the tight capacity strategy remains valid as we are expecting demand to weaken, given the global financial crisis and weakening customer confidence."

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For most banks, lending is all about the numbers.

If a customer has the right credit score, good financial records and a believable plan, the bank is interested in doing business. If they don’t, well, no dice, particularly in this economy.

Some banks are going beyond the numbers to develop long-term relationships, digging deeper to make sure business customers are doing all they can to survive the turbulent economy. It’s a long tradition among community banks, which focus on serving businesses, consumers and farmers in their local market areas.

The extra attention ranges from financial checkups or priority-setting sessions at Commerce Bancshares Inc. and National City to Enterprise Bank & Trust Co.’s college-style courses.

Sandy Washington, senior vice president of small-business banking at Commerce, said the bank has been doing its checkups for years, but customers are more receptive to them in the current environment.

"The more we understand what their goals and their objectives are, the more we can help them," Washington said.

Rick Sems, Missouri banking president for National City, said building relationships with business customers is nothing new for the bank. Twice a year, customers have a business priority agenda session with an account manager, a local branch manager and a cash management officer.

Jim Watson, president of Midwest BankCentre, said the bank also does checkups and sponsors regular gatherings with speakers who can help customers understand the economy.

"Communications is a mutual responsibility," Watson said. "Even our customers today are very concerned about how their bank is doing."

Kevin Eichner, who retired as chief executive of Enterprise Bank in May to become president of Ottawa University, said the bank started Enterprise University to give its business customers a chance to continue their education in a way that fit their schedules and their budgets.

"It’s part of a consultative approach" at Enterprise, said Jerry Mueller, the bank’s senior vice president of marketing. "The idea is, we want to partner with our clients and help them be more successful."

On a recent Wednesday morning, 20 executives sat at tables scattered around a classroom in an industrial building in Olivette.

Lori Lewis, Enterprise’s director of organizational development, was leading a class on "Managing Your Energy," based in part on "The Power of Full Engagement," a book by Jim Loehr and Tony Schwartz.

For nearly three hours, Lewis led the executives through exercises designed to help them manage their business and personal lives more effectively. Lewis, who has a doctorate in organizational psychology, sprinkled her lecture with a clip from National Public Radio, a Power Point presentation, handouts and a Sudoku puzzle.

Classes at Enterprise University range from marketing, sales and financial management to leadership effectiveness and personal financial planning. Some are taught by bank executives like Lewis or Stephen Marsh, the bank’s president. Other teachers include lawyers, business consultants or experts in things such as energy conservation.

The classes are open to anyone with an interest in the topics covered. There is no charge, and it’s up to attendees whether they’d like to be contacted by the bank after the class.

Kay Erb, registrar for the classes and a member of the bank’s marketing department, says between 300 and 500 people attend Enterprise University classes every semester. About 80 percent are presidents or top managers of their companies.

Jeffrey Jappa, president of JMC Manufacturing in Bridgeton, said the classes gave him a good introduction to the bank. He had been considering changing banks after he bought the wood products company from his father absolutely free credit report.

"Other banks sponsor seminars," Jappa said, "but not one that’s really put together like a university with a course load that’s really targeted to the small-business owner. Even though I was already interested in the bank, there was no selling whatsoever."

Jappa has since become an Enterprise customer, and likes their approach.

"Other banks just let you run, and you only hear from them when things are going wrong," he said. "My account manager is very interested in my business. He’s worked hard to create compliance targets that are reasonable and can be attained."

Mueller said Enterprise University has been a great way to set the bank apart.

"It enhances the relationship," Mueller said. "We can help (customers) improve their skills and show them ways to make their businesses more efficient."

Commerce Bank’s financial checkups include an hour-long meeting to review financial statements. Customers are encouraged to bring their tax advisers along. The bank may ask about the customer’s goals, the ways they’re collecting receivables or managing cash. Personal finance can be on the agenda as well.

"We always have an open door," Washington said. "We encourage our customers to meet with us regularly. As economic conditions change, so does the bank’s appetite to supply credit to particular businesses."

Washington said the bank recently worked with a family-owned bakery facing a downturn in its business because of a decline in the market for sweet goods.

"We sat down with the family and provided some reality checks," Washington said. The bank was able to help the business improve its collections and worked with an accountant to help the bakery manage its finances.

At National City, the agenda-setting sessions range from reviews of financial statements to discussions about cash management. Small-business customers’ personal wealth often is tied up in the company. Owners need to make sure their families are protected while they run the business, Sems said.

The bank has had to get more creative on loans lately, tapping Community Development Corp. programs and working with business development groups to arrange financing or equity injections, he said. Recently, customers have been more concerned about how their accounts are titled to ensure that they have the maximum insurance from the Federal Deposit Insurance Corp.

"I really try to push that what we’re trying to do is advise, not prod and poke so much," Sems said.

Wayne Kissel, owner of K1 Creative, a design firm in Eureka, said sessions with his National City banker have shown him how to protect assets, change investment strategy and handle employee benefits. Kissel said he went with National City after looking at proposals from six different banks.

"My personal lender has been down to earth and easy to work with," Kissel said. The bank was instrumental in helping the business build its own building after years in less desirable rented space.

Bankers have to be careful about how much advice they give because of potential liability if a customer feels he or she was pushed to make a decision that turns out badly, said Rick Palank, senior vice president for finance at the St. Louis County Economic Council.

Palank said it’s rare for banks to go beyond the numbers, especially now.

"They’re very, very conservative now," Palank said.

jerristroud@post-dispatch.com

314-340-8384

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The global financial crisis will add at least 20 million people to the world’s unemployed, bringing the total to 210 million by the end of next year, the U.N. labor agency said Monday.

That will be the first time in a decade of record keeping that the global total has been above 200 million people, said officials of the International Labor Organization.

Global leaders need to focus on the impact on individuals rather than just financial institutions when they devise rescue plans, ILO Director-General Juan Somavia told reporters.

"We thought it was not good to talk about the financial crisis exclusively in financial terms," Somavia said. "We have to talk about the financial crisis in terms of what happens to people and in terms of what happens to jobs and enterprises."

He said it is already clear that people are going to be hurt by the financial crisis and that measures should be taken to provide unemployment compensation and other social protection.

"If we have enough resources to pump into the financial system, this is not the moment to say, ‘Yes, but we don’t have the resources to care about people,"’ said Somavia.

He said the first step in a global rescue plan remains getting out of "the credit paralysis."

"Hopefully, the decisions that have been taken are going to work," he said, adding that all measures should be taken to contain as much as possible the fall of the real economy and reduce the recession possibilities as much as possible.

But then attention should turn to "taking care of those enterprises that produce the most jobs," Somavia said payday advance lenders. "Those tend to be the small enterprises."

"The financial system has to go back to its fundamental function," he said, meaning providing credit to people with entrepreneurial spirit to set up a company that will produce goods and services and create jobs.

Another issue is protecting pensions, especially for those whose funds are invested in the stock market, he said.

"You better give enough credit to the pension systems so they don’t have to sell [shares] in a battered market," said Somavia, noting that the U.S. Congress had passed a US$700 billion rescue plan for financial institutions.

"Make sure some of that money goes to the pension systems so that they can pay pensions," he added. "People are very afraid all over the world."

The ILO based its unemployment projection in part on the latest forecast by the International Monetary Fund that the economies of the United States and Europe would virtually stop growing and that Japan would have only 0.5% growth, Somavia said.

The agency also factored in data from the United Nations and from countries that have produced recent statistics, he said.

"The estimate that we are now making is that as compared with January 2008 to December 2009 we are probably going to have about 20 million jobs lost, and this may be underestimated," Somavia said.

He said the agency had yet to break the forecast down by region or country. 

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Battered British banks, along with the United Kingdom Treasury office, are expected to unveil details of a massive capital raising plan early Monday, according to The Wall Street Journal, citing people familiar with the situation.

On Sunday night, the paper reported that the British government was close to a plan to take control of the Royal Bank of Scotland, injecting at least 15 billion British pounds ($25.5 billion).

Last week, the British government said it would make $87 billion available to the nation’s eight largest banks in an effort to shore-up their capital positions. In return for the infusion of capital the British government will receive preferred shares of those banks.

In addition to RBS, affected institutionss include Barclays and HBOS, a mortgage lender.

The announcement last week came a day after the U.K. Treasury teamed up with five central banks around the world to cut interest rates in an effort to bolster global economies.

"A healthy banking system is the cornerstone of the economy. But many banks, all over the world, don’t have sufficient capital," British Finance Minister Alistair Darling said after the rate cuts were announced. "What started in America, last year, has now spread to every part of the world. And I’ve made it clear that we will do whatever is necessary to maintain stability."

The government has already moved several times to increase the amount of long-term funding it is providing to banks under a special liquidity plan announced in April guaranteed approval cash advance loans. The amount, which has totaled over $176 billion year to date, was recently increased to upwards of $350 billion.

According to the Journal, the rout on Wall Street was responsible for pushing the U.K. to speed up the announcement, with at least some banks expected to say by Sunday how the capital will be raised.

Nothing is set in stone, however, including Monday’s deadline.

Under the plan, the banks will be required to raise an additional £25 billion ($42 billion) by year end, according to the U.K. Treasury Web site. The institutions can either raise the funds through private investors or through the British government.

RBS and HBOS are considered the two most likely to seek the funds from the government, said the Journal, according to people familiar with the situation and analysts that cover the two banks. The paper also said RBS Chief Executive Fred Goodwin has intimated that he would step down if that’s what it takes to shore up the bank’s financial position.

A person familiar with the U.K. Treasury’s plan told the Journal that an injection of taxpayer money would most likely lead to talk of executive departures, including Mr. Goodwin. 

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WASHINGTON–New applications for unemployment benefits rose slightly last week to a seven-year high due to a weakening economy and the impact of Hurricanes Ike and Gustav, the Labor Department said Thursday.

The department reported that initial claims for jobless benefits increased by 1,000 to a seasonally adjusted 497,000. That's significantly above analysts' estimate of 475,000. The total is the highest since just after the Sept. 11 terrorist attacks seven years ago.

U.S. stock futures declined on the report. Dow Jones industrial average futures dropped 102 to the 10,785 level, pointing to a lower opening for shares.

The hurricanes, which hit Texas and Louisiana earlier this month, added about 45,000 claims from the two states for the week ending Sept. 27, the department said.

The hurricanes have led to higher claims for several weeks. As a result, the four-week average of claims, which smooths out fluctuations, jumped to 474,000, up 11,500 from the previous week.

In the week ending Sept. 20, Texas reported a 22,235 jump in claims, while Louisiana said claims rose by 9,671.

The number of people continuing to receive benefits increased to 3.59 million, up 48,000 and higher than analysts' estimates. That's the highest total in five years.

Jobless claims are at elevated levels even excluding the hurricanes. Weekly claims have now topped 400,000 for 11 straight weeks, a level economists consider a sign of recession payday loans in 1 hour. A year ago, claims stood at 324,000.

The economy is struggling with the financial crisis and slowing consumer spending, leading to increased layoffs by the nation's employers.

Economists expect a separate Labor Department report Friday on payrolls to reflect further weakness in the labor market. They predict the report will show that the nation's employers cut 100,000 jobs last month. That's on top of 605,000 jobs that were eliminated in the first eight months of this year.

The report is expected to show that the jobless rate remains at 6.1 percent. The rate jumped above 6 percent for the first time in five years in August.

The financial crisis will likely cause greater job cuts in the coming months. Several large, troubled banks have been bought by competitors and layoffs are likely.

Citigroup Inc. on Monday purchased Wachovia Corp., which had about 120,000 employees. JPMorgan Chase & Co. last week bought Seattle-based Washington Mutual, which employed roughly 43,000.

Several companies have announced layoffs in the past week, including aluminum company Alcoa Inc., auto retailer CarMax, Inc. and chicken producer Pilgrim's Pride Corp.

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Britain is set to nationalize troubled bank Bradford & Bingley on Monday after Spanish bank Santander agreed to buy its retail deposits and branch network.

B&B would be the second British bank nationalized this year and the latest in a string of high-profile banks in Europe and the United States to fall victim to the global credit crunch.

Santander will pay about 400 million pounds ($735 million) to acquire 2.7 million Bradford & Bingley customer savings accounts containing some 21 billion pounds of deposits, a company spokesman said.

It will also take over the mortgage lender’s network of around 200 branches, the spokesman said. The B&B brand will remain for now but the accounts will transfer to Abbey, a British bank bought by Santander in 2004.

Finance minister Alistair Darling is expected to announce plans early on Monday to nationalize the remainder of Bradford & Bingley, people familiar with the matter said free credit report.com.

The Treasury led intense talks on the rescue of Britain’s 9th biggest mortgage provider over the weekend.

The government would have preferred a private-sector buyer to acquire all of B&B, but rivals appeared unwilling to take on B&B’s 41 billion pound residential mortgage portfolio amid the global credit crisis and weakening British housing market.

B&B shares tumbled to a record low on Friday and closed at 20 pence, valuing the company at less than 300 million pounds. 

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Google Inc.’s announcement last year that it would give away software that could run cell phones was met by dizzy accolades from analysts who thought it would let the search engine company conquer the world of mobile advertising.

Fruit of that announcement is set to drop: T-Mobile USA will reveal Tuesday the first phone to use Android, Google’s software platform.

But a lot has happened in the world of cell phone software in the intervening year, and Google looks set for an uphill battle in trying to capture the desires of consumers and wireless carriers.

Research firm Strategy Analytics estimates T-Mobile could sell 400,000 phones this year, giving Google about 4 percent of the U.S. market for "smart" phones, a category dominated by Research in Motion Ltd.’s BlackBerry phones with competition from Apple Inc.’s iPhone, Palm Inc.’s Treos and Centros, and phones running Microsoft Corp.’s Windows Mobile software.

The new phone, called the G1 according to T-Mobile’s invitation, is widely expected to be a design from HTC Corp. of Taiwan. Based on previous Google demos of its software, it’s assumed that it will have a touch screen and a slide-out, full-alphabet keyboard.

The Wall Street Journal reported last week, citing unidentified sources, that the phone would sell for $199 and carry the Google brand absolutely free credit report. It’s likely that the phone will go on sale in a few weeks. Other details are scant, and it’s not clear exactly what the phone will be capable of, but Web browsing and e-mail are safe bets.

"This is the right moment for Google to answer some of the big questions that have been outstanding since Android was announced," said Morgan Gillis, executive director of the LiMo Foundation, which has created a rival cell phone software platform. "What will the consumer do on this handset that can’t be done on other handsets?"

The LiMo Foundation is behind one of the developments that has undermined the prospects for Android. In May, Verizon Wireless said LiMo, or Linux Mobile, would be the "preferred" software for its phones, starting next year, joining some European carriers.

Like Android, LiMo is based on Linux computer software and is given away free to phone makers. But the LiMo Foundation is designed as consortium of industry participants to assuage their fears that a single company would dominate phone software, like Microsoft does on PCs.

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