toronto

Obama’s Letter To G20 Urges World Leaders To Continue Stimulus

June 18, 2010

WASHINGTON — President Barack Obama is appealing to the world’s major economies not to waver in their efforts to support a sustained rebound from the near collapse of the global economic system in the fall of 2008. “We must act together to strengthen the recovery,” Obama said in his letter to other leaders of the Group of 20 major industrial countries, written in advance of next week’s summit meeting in Toronto. But Obama’s appeal for unity underscored a number of divisions that have developed between the major powers. Many European nations, rattled by the debt crisis that had engulfed Greece, have started to trim their own budget deficits while China has rejected calls by the United States to allow its currency to rise in value as a way to boost sales of American and other foreign products in China. Obama referred in an oblique way to those disagreements in the letter, avoiding mentioning other countries by name. “Our highest priority in Toronto must be to safeguard and strengthen the recovery,” he said in the letter, which the White House released on Friday. “We worked exceptionally hard to restore growth; we cannot let it falter or lose strength now.” Obama called on the other nations to “reaffirm our unity of purpose to provide the policy support necessary to keep economic growth strong.” The president noted that “significant weaknesses” linger among the major and developing economic powers. He told his summit partners “it is essential that we have a self-sustaining recovery that creates the good jobs that our people need.” The White House released a copy of the letter on Friday. In the letter, Obama said that the June 25-27 summit should also focus on efforts to stabilize public deficits in the “medium term,” a reference to the administration’s position that governments need to run huge deficits currently to provide the stimulus needed to ensure a sustained recovery but then move in future years to deficit reduction efforts. But several European nations including Germany, France and Britain are already moving to attack high deficits in an effort to calm global financial markets which have stumbled in recent weeks over concerns that Greece or other highly indebted nations could default on their loans. Obama is having a tough time making the argument for increased deficit spending at home as well. The Senate has blocked a scaled-down jobs bill with critics complaining that the $120 billion pricetag is still too high. In his letter to the G-20, Obama said: “I am committed to the restoration of fiscal sustainability in the United States and believe that all G-20 countries should put in place credible and growth-friendly plans to restore sustainable public finances.” “But it is critical that the timing and pace of consolidation in each economy suit the needs of the global economy, the momentum of private sector demand and national circumstances.” The recovery from recession in the United States has been erratic and uneven. In his letter, Obama also called on his G-20 partners to promote “balanced global demand” and said he remained concerned about the “continued heavy reliance on exports by some countries with already large external surpluses.” While not mentioning China by name, that comment was an obvious reference China’s trade surpluses and continued resistance to U.S. demands that it allow its currency, called the renminbi, to rise in value against the dollar. A stronger Chinese currency and a cheaper dollar would make U.S. goods more competitive in China and provide Chinese consumers with cheaper products. American manufacturers contend that China is manipulating the value of its currency to gain unfair trade advantages and some U.S. lawmakers are pushing legislation to impose stiff penalties on Chinese imports unless Beijing allows its currency to appreciate. White House spokeswoman Amy Brundage said Friday that the administration will review the status of a long-delayed report on China currency after the G-20 meeting. The report should have been released April 15, by law, but Treasury Secretary Timothy Geithner delayed it to give more time for discussions with the Chinese. “We will take stock of where we are with the foreign exchange report after the G-20,” she said. The Obama administration is under heavy pressure from Congress to name China a currency manipulator, a designation that would trigger talks between the two countries and could ultimately lead to U.S. trade sanctions against China. There had been hopes that China would move on the issue before the Toronto summit but on Thursday Chinese Foreign Ministry spokesman Qin Gang told reporters that “we believe it would be inappropriate to discuss the renminbi exchange rate issue in the context of the G-20 meeting.” Qin reiterated the government’s position that it would gradually reform its exchange rate policies at a timing of its choosing and not in response to pressure. ___ Associated Press writers Darlene Superville in Washington and Charles Hutzler in Beijing contributed to this report.

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Business Inventories in U.S. Increased 0.4% in April as Sales Climbed 0.6%

June 11, 2010

By Courtney Schlisserman June 11 (Bloomberg) — Inventories in the U.S. rose 0.4 percent in April, less than the gain in sales, putting companies in a better position to weather a slowdown in demand last month. The increase in the value of stockpiles was smaller than the median forecast of economists surveyed by Bloomberg News and followed a 0.7 percent advance the prior month, data from the Commerce Department showed today. Sales climbed 0.6 percent. Companies had enough goods on hand to supply 1.23 months’ worth of sales at April’s pace, matching the record low reached a month earlier. The need to replenish depleted stockpiles helped propel economic growth over the past two quarters, a boost that will probably diminish in coming months. “Inventory accumulation should be slowing, contributing less to economic growth,” Michael Gregory, a senior economist at BMO Capital Markets in Toronto, said before the report. “One of the reasons why I think you would start to see inventory growth slow a bit is anticipation of sales slowing.” Retail sales unexpectedly dropped in May, signaling consumers boosted savings as employment slowed and stocks fell, another report from the Commerce Department showed today. Purchases decreased 1.2 percent, the first drop since September 2009. Demand plunged at building-material stores, reflecting the end of a government appliance rebate, and sales fell at auto dealers, in contrast to industry figures which showed a gain. Economists forecast inventories would rise 0.5 percent, according to the median projection in a Bloomberg News survey. Stockpiles vs. Sales April’s inventory-to-sales ratio matched the March reading as the lowest since comparable records began in 1992. Retailers’ inventories, the only part of today’s report not previously released, increased 0.2 percent in April after jumping 0.9 percent a month before. Sales, excluding food, increased 0.6 percent. Saks Inc., the New York-based luxury retail chain, last month reported first-quarter earnings that beat analysts’ estimates after marking down fewer goods following a 9.9 percent reduction in inventories. Factory inventories rose 0.5 percent and wholesale stockpiles increased 0.4 percent. Stockpile replenishment added 1.65 percentage points to gross domestic product in the first quarter, down from 3.79 percentage points in the last three months of 2009, according to Commerce Department estimates released May 27. While the contribution to GDP may diminish, efforts to meet demand and to restock shelves will still support economic growth. Factory Pickup Efforts to rebuild inventories are among the reasons manufacturing has picked up. The Institute for Supply Management said last week that its factory index totaled 59.7 in May. Fifty is the dividing line between expansion and contraction. The ISM manufacturing gauge for customer inventories fell to 32, matching the lowest on record. Factories are “trying to make up some ground with inventories,” Norbert Ore, chairman of the purchasing managers’ factory survey, said on a conference call June 1. Other firms continue to say they’re restraining spending. American Eagle Outfitters Inc. plans to cut inventory levels in the second half after increasing stock by 15 percent in the first quarter, chief financial officer Joan Hilson said on a conference call May 26. The retailer projected a second-quarter profit that was below analysts’ estimates and cited “weaker business trends early in the quarter.” To contact the reporter on this story: Courtney Schlisserman in Washington at cschlisserma@bloomberg.net ;

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Geithner Says China&rsquos Yuan Peg Hurts Global Recovery

June 11, 2010

By Ian Katz June 11 (Bloomberg) — Treasury Secretary Timothy F. Geithner said China’s exchange-rate policy prevents a balanced global recovery and urged a stronger yuan to help contain inflation in the world’s third-largest economy. “The distortions caused by China’s exchange rate spread far beyond China’s borders and are an impediment to the global rebalancing we need,” Geithner said in testimony to the Senate Finance Committee. China’s commerce ministry said hours later that the yuan’s peg to the dollar remains unchanged and the country’s policy was made clear to the U.S. in talks last month. The U.S. has been trying to push China to let the currency rise, with Geithner hewing to a diplomatic approach and so far resisting efforts to impose trade sanctions. China adopted the peg during the financial crisis to shield its exporters, fueling complaints from trading partners and U.S. lawmakers that the world’s biggest exporter has an unfair advantage. Reports yesterday from the U.S. and China highlighted concern that trade imbalances that reached record levels prior to the global crisis may be reemerging. Chinese exports climbed 48.5 percent in May from a year earlier, the most in six years after adjusting for distortions from the Lunar New Year holidays. U.S. imports of Chinese goods exceeded exports to China by $71 billion, a 5.7 percent increase in the bilateral trade gap from the year-earlier period, the report showed. ‘Frustrations’ Rising “The frustrations with China’s trade practices are growing by the moment,” Senator Lindsey Graham , a South Carolina Republican who has co-sponsored legislation targeting China’s currency policy, said in an interview on Bloomberg Television’s “Political Capital with Al Hunt” airing this weekend. The rising tension comes just as optimism that the world’s fastest-growing major economy is withstanding the threat of Europe’s debt crisis spurs gains in stocks worldwide. The MSCI Asia Pacific Index rose 1.4 percent as of 10:13 a.m. in Hong Kong today, after the U.S. Standard & Poor’s 500 Stock Index jumped 3 percent overnight. Yesterday’s hearing in Washington featured senators blaming China for failure to protect intellectual property rights and giving unfair preference to its companies in procurement practices. “There is now a long trail of broken promises that can no longer be ignored,” Senator Ron Wyden , an Oregon Democrat, told Geithner. “At least five of your predecessors have been slow- danced by the Chinese,” he said. “What are you going to do to change that” and prevent getting “slow-danced off the dance floor” he said. Geithner’s Dance Geithner responded that China did let the yuan advance 21 percent against the dollar in the three years to 2008. He also reiterated his view that it’s in China’s own interest to loosen controls on the currency. A Chinese Ministry of Commerce press official said today China will stick to its currency reform principles of making independent decisions and pursuing a gradual and controlled process. The official reiterated the government’s view that the currency isn’t the cause for the trade gap. Geithner said that a more flexible yuan would allow China to pursue “a more effective, independent monetary policy, which is particularly important now, with China’s economy facing a risk of inflation in goods and in asset prices.” China’s Inflation China’s inflation rate increased to 3.1 percent in May, exceeding the government’s target for the full year, a government report showed today. Data yesterday showed property prices rose at a near-record pace, with costs jumping 12.4 percent across 70 cities, the statistics bureau said. Senators repeatedly criticized China’s business practices and Geithner said it’s important U.S. companies have fair access to the growing Chinese market. Senator Charles Grassley , the top Republican on the committee, said the Chinese need to “grow up and be citizens of this world.” China became a member of the World Trade Organization in 2001. “Instead of doing everything it can to comply with the letter and spirit of its World Trade Organization obligations, the Chinese government appears to be looking for ways to evade those rules,” Grassley said. The Senate will vote “soon” on a measure aimed at getting China to raise the value of the yuan, Senator Charles Schumer of New York told Geithner at the hearing. Graham said in the interview that the measure has “huge” support in Congress and President Barack Obama “runs the risk” of being overridden by lawmakers if he attempts to veto it. Looming Vote “Despite the administration asking us not to do it,” lawmakers will proceed with the legislation “to provide specific consequences for countries that fail to adopt appropriate policies,” said Schumer, a Democrat and lead sponsor of the legislation. He said this week the Senate would vote within two weeks. Geithner, in response, said “I recognize, and I think it’s very important for China to understand,” that Schumer’s legislation “has very broad support” from Democrats and Republicans. Since July 2008 Premier Wen Jiabao ’s government has kept the yuan around 6.83, per dollar. In April, Geithner delayed the release of a twice-yearly report on whether China or any other country is manipulating its exchange rate. Under questioning, Geithner said he hasn’t decided when to release the currency report. “Once we get through the G-20 meeting we’ll take some stock,” he said, referring to a Group of 20 nations leaders’ summit in Toronto June 26-27. Geithner told the Senate panel that “reform of China’s exchange rate is critically important to the United States and to the global economy.” To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net

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China Inflation Accelerates to 3.1% as Risk of Economy Overheating Grows

June 10, 2010

By Bloomberg News June 11 (Bloomberg) — China’s inflation accelerated in May to the quickest pace in 19 months, highlighting overheating risks in the fastest-growing major economy. Consumer prices rose 3.1 percent from a year earlier, that statistics bureau said in Beijing today. That was more than the median 3 percent estimate in a Bloomberg News survey of 32 economists and April’s 2.8 percent gain. Today’s data, combined with surging exports and near- record property-price gains, underscore U.S. arguments for a more flexible yuan ahead of a Group of 20 nations meeting in Toronto in two weeks’ time. U.S. Treasury Secretary Timothy F. Geithner told the Senate Finance Committee yesterday that a move could redress global economic “distortions” and help China cool prices. “China’s economy is still in a cycle towards overheating and the government should step up measures to curb inflation expectations,” Liu Li-Gang , a Hong Kong-based economist at Australia and New Zealand Banking Group Ltd., said before today’s release. “This weekend or this period of time in general before the G-20 summit would be an excellent time” for China to widen the yuan’s trading band, Liu said. Producer-price inflation quickened to 7.1 percent from 6.8 percent. New loans were a more-than-forecast 639.4 billion yuan ($93.6 billion) the central bank said separately. UBS AG said yesterday that officials may de-peg the currency from the yuan in the “coming weeks.” U.S. Criticism Chinese policy makers have limited the currency to trading at about 6.83 to the greenback since July 2008, intensifying criticism from some U.S. lawmakers, who already saw the yuan as undervalued and giving China an unfair advantage in trade. China’s industrial output rose 16.5 percent in May from a year earlier, today’s data show, less than economists’ median forecast of 17 percent. In April, output grew 17.8 percent. Retail sales rose 18.7 percent, compared with an 18.5 percent gain in the previous month, today’s data show. Urban fixed-asset investment climbed a more-than-forecast 25.9 percent in the five months through May, compared with 26.1 percent in the first four months, the statistics bureau’s data show. The median estimate was for a 25.7 percent increase. Today’s increase in consumer prices tops the government’s targeted 3 percent ceiling for the year as a whole, highlighting the threat of inflation getting out of control after banks flooded the economy with money to drive the nation’s recovery. Central Bank Data Lending in May exceeded the median forecast of 600 billion yuan in a Bloomberg News survey of 24 economists. In April, the amount was 774 billion yuan. M2, the broadest measure of money supply gained last month 21 percent from a year earlier, after a 21.5 percent gain in April. Wage increases at companies such as Foxconn Technology Group and Honda Motor Co. are adding to inflationary pressures. Still, consumer-price gains may be capped by month-on-month declines in commodity and vegetable costs. In May, consumer prices fell 0.1 percent from April. Producers gained 0.6 percent. Economic growth is likely to moderate as the government cools the property market, the effects of a November 2008 stimulus package fade, and comparisons are made with higher year-earlier bases. Europe’s sovereign-debt crisis could also damp exports in coming months. In the first quarter, the Chinese economy expanded 11.9 percent. Investment bank China International Capital Corp. expects the pace to slow to 7.5 percent by the fourth quarter. Betting on Yuan Non-deliverable yuan forwards strengthened after yesterday’s export figures showed a 48.5 percent jump in shipments in May, the biggest increase in more than six years after adjusting for seasonal distortions at the start of each year. The contracts indicated the currency will appreciate 1.2 percent against the dollar in the next 12 months, as of 9.32 a.m. in Hong Kong today. Property-price data released yesterday showed that a government crackdown on speculation is having an effect. While prices across 70 cities rose 12.4 percent in May from a year earlier, the gain slowed for the first time in 11 months and the value of property sales slid from the previous month. The nation may remain in a “policy void” for the next two-to-three months as officials observe the European crisis and the effects of the property measures, Wang Qian , chief China economist at JPMorgan Chase & Co., said this week. The International Monetary Fund warned this week that global economic risks have “risen significantly” and Europe’s woes could disrupt global trade. China’s trade surplus , which widened to $19.53 billion in May, may remain large, providing ammunition for the U.S. to keep up pressure for currency changes, according to ANZ’s Liu. — Li Yanping . With assistance from Sophie Leung in Hong Kong and Jay Wang in Singapore. Editors: Paul Panckhurst , Stephanie Phang . To contact the reporter on this story: Li Yanping in Beijing at yli16@bloomberg.net Sophie Leung in Hong Kong at sleung59@bloomberg.net

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Geithner Says China Yuan Policy Is `Impediment’ to Global Economic Growth

June 10, 2010

By Ian Katz June 10 (Bloomberg) — Treasury Secretary Timothy F. Geithner said China’s exchange-rate policy prevents a balanced global recovery and called for a stronger yuan that would help officials fend off inflation in the world’s third-largest economy. “The distortions caused by China’s exchange rate spread far beyond China’s borders and are an impediment to the global rebalancing we need,” Geithner said in testimony to the Senate Finance Committee today. A more flexible yuan would allow China to pursue “a more effective, independent monetary policy, which is particularly important now, with China’s economy facing a risk of inflation in goods and in asset prices.” The U.S. has been trying to pressure China to allow the currency to strengthen, with Geithner resisting efforts at trade sanctions and hoping talks will lead to a higher yuan. China has kept the yuan pegged to the dollar during the financial crisis, fueling complaints from trading partners and U.S. lawmakers that the world’s biggest exporting nation has an unfair advantage in global commerce. China’s economy is “fast on its way to becoming the world’s second-largest” after the U.S. and supplanting Japan, the current No. 2, Geithner said. “American firms operating in China should have the same rights enjoyed by Chinese companies, just as Chinese firms have in the United States. This is a simple principle of fairness.” China’s Exports A report released earlier today in Beijing showed China’s exports jumped the most in six years and property prices rose at a near-record pace, signs that China is withstanding the sovereign-debt crisis in Europe. Exports gained 48.5 percent in May from a year earlier, China’s customs bureau said, more than the 32 percent median estimate in a Bloomberg News survey of 32 economists. Real- estate prices rose 12.4 percent across 70 cities, the statistics bureau said separately. The U.S. lacks a “coordinated” policy on China, said Max Baucus , the committee’s chairman and a Democrat from Montana. “We must craft a holistic strategy, orchestrated and led by the White House, to develop a strong, mutually beneficial U.S.-China economic relationship.” Senator Charles Grassley , the top Republican on the committee, said China needs to “grow up and be citizens of this world as mature citizens.” China became a member of the World Trade Organization in 2001. WTO Membership “Instead of doing everything it can to comply with the letter and spirit of its World Trade Organization obligations, the Chinese government appears to be looking for ways to evade those rules,” Grassley said. The Senate will vote “soon” on a measure aimed at getting China to raise the value of the yuan, Senator Charles Schumer of New York told Geithner at the hearing. “This is fair warning,” said Schumer, a Democrat and lead sponsor of the legislation. Lawmakers, “despite the administration asking us not to do it, are going to move forward with our bipartisan legislation to provide specific consequences for countries that fail to adopt appropriate policies.” Schumer said yesterday that the Senate would vote within two weeks. Geithner, in response, said “I recognize, and I think it’s very important for China to understand,” that Schumer’s legislation “has very broad support” from Democrats and Republicans. U.S. Trade Gap The U.S. Commerce Department, in its monthly report on the country’s trade balance, said today that U.S.-China trade totaled $126.5 billion in the first four months of the year, up 19 percent from January through April last year. U.S. imports of Chinese goods exceeded exports to China by $71 billion, a 5.7 percent increase in the bilateral trade gap from the year- earlier period, the report showed. “We want China to provide a level playing field for the products of American workers and investments by American companies,” Geithner said. “And we want China to change its growth strategy to rely less on exports and more on consumption.” Geithner said the U.S. is “seeing some progress, but we still face many challenges.” Since July 2008, the yuan has been held by officials around 6.83 per dollar, after Premier Wen Jiabao ’s government allowed a 21 percent advance in the prior three years. In April, Geithner delayed the release of a twice-yearly report on whether China or any other country is manipulating its exchange rate. Currency Report Under questioning today, Geithner said he hasn’t decided when to release the currency report. “Once we get through the G-20 meeting we’ll take some stock,” he said, referring to a Group of 20 nations leaders’ summit in Toronto later this month. Geithner told the Senate panel that “reform of China’s exchange rate is critically important to the United States and to the global economy.” It would be “in China’s own interest to allow the exchange rate to reflect market forces,” he said. China has until the end of the month to strengthen its currency before Congress acts, JPMorgan Chase & Co.’s Rebecca Patterson said today. “Treasury’s said, ‘We’re going to stay quiet; we’re not going to put any pressure on you,’” Patterson, head of foreign exchange at the private banking unit of JPMorgan, said during a Bloomberg Radio interview today on Surveillance with Tom Keene. “If it doesn’t happen by the end of June, we can’t hold the dogs back much longer — no offense to the congressmen.” To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net

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Autism’s Genetic Ties May Lead to Early Detection, Treatment

June 9, 2010

By Michelle Fay Cortez June 9 (Bloomberg) — Researchers uncovered an array of genetic variations linked to the development of autism , with similarities that may allow doctors to diagnose it earlier and spur treatments. A comprehensive genetic analysis of 996 children with autism, as well as their parents and a comparison group of 1,287 people without the condition, found sections of DNA are either duplicated or missing more often in people with autism. Autistic children inherited some changes from their parents, while other variations were new, according to findings published today in the journal Nature . The results of the international trial indicate a shift in understanding the causes of autism, said Stephen Scherer, the lead researcher from the Hospital for Sick Children , in Toronto, in a conference call. While studies suggest as many as 90 percent of cases of autism spectrum disorder are genetic, the genes responsible were widely sought and hard to find. “Most people in the field believe autistic individuals share common genetic variations in perhaps just a few genes,” Scherer said. “The genetic variations we discovered are actually rare in frequency, meaning most individuals with autism are probably genetically quite unique, each having their own genetic form of autism.” The researchers identified dozens of genes that appear to raise the risk of autism, including many that may speed diagnosis, Scherer said. They were also able to tie the varied genetic findings to common biological pathways and networks, most of which help control the way the brain functions, he said. Range of Behaviors About 1 in 150 U.S. children is diagnosed with autism spectrum disorder , a range of behaviors, including autism. With each variation uncovered, the researchers were able to explain more of the cases, Scherer said. The findings confirm genetically what doctors have long suspected. Autism is a complex condition that manifests in a variety of ways, ranging from mild to severe, the researchers said. It has three main symptoms: problems with social interaction, communication and repetitive behaviors, according to the National Institute of Neurological Disorders and Stroke . While each child has a unique form of autism, the biochemical pathways and targets the researchers identified may be used to develop medicines for the condition, said Geraldine Dawson, chief science officer of Autism Speaks , a New York-based advocacy group. “What is critical now is to translate these basic biological findings into tools for early detection and treatment,” Dawson said in a conference call. “Families want to understand what causes autism, and more important, how we can effectively treat this challenging condition.” Treatment Strategies Most of the genetic variants the researchers uncovered predispose people to autism or a related disorder, rather than directly causing it, said Louise Gallagher, a researcher from Trinity College in Dublin. Identifying young children at risk may help diagnose them and design treatment strategies that can help them cope with the condition, she said. “Currently autism diagnosis is entirely behavioral and lengthy, and parents are subjected to a long process where their child is being assessed,” Gallagher said. “Some children aren’t getting a diagnosis until as late as five years old.” The results may lead to better genetic counseling for families and help determine the risks of autism for other children, said Tony Monaco, from the Wellcome Trust Centre for Human Genetics , at the University of Oxford in the U.K. It is too soon to recommend prenatal testing, as not all people are affected the same way by the variations, the researchers said. “Just knowing about these genetic changes can help the families involved come to terms with why their child has autism, but it can also be important where there are siblings too in determining future risk,” Monaco said. The findings don’t provide any immediate insight into other things, including environmental factors, that may play a role in the development of autism, Dawson said. Additional work is under way to see how the environment interacts with a genetic susceptibility, she said. To contact the reporter on this story: Michelle Fay Cortez in London at mcortez@bloomberg.net

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Autism’s Genetic Ties May Lead to Early Detection, Treatment

June 9, 2010

By Michelle Fay Cortez June 9 (Bloomberg) — Researchers uncovered an array of genetic variations linked to the development of autism , with similarities that may allow doctors to diagnose it earlier and spur treatments. A comprehensive genetic analysis of 996 children with autism, as well as their parents and a comparison group of 1,287 people without the condition, found sections of DNA are either duplicated or missing more often in people with autism. Autistic children inherited some changes from their parents, while other variations were new, according to findings published today in the journal Nature . The results of the international trial indicate a shift in understanding the causes of autism, said Stephen Scherer, the lead researcher from the Hospital for Sick Children , in Toronto, in a conference call. While studies suggest as many as 90 percent of cases of autism spectrum disorder are genetic, the genes responsible were widely sought and hard to find. “Most people in the field believe autistic individuals share common genetic variations in perhaps just a few genes,” Scherer said. “The genetic variations we discovered are actually rare in frequency, meaning most individuals with autism are probably genetically quite unique, each having their own genetic form of autism.” The researchers identified dozens of genes that appear to raise the risk of autism, including many that may speed diagnosis, Scherer said. They were also able to tie the varied genetic findings to common biological pathways and networks, most of which help control the way the brain functions, he said. Range of Behaviors About 1 in 150 U.S. children is diagnosed with autism spectrum disorder , a range of behaviors, including autism. With each variation uncovered, the researchers were able to explain more of the cases, Scherer said. The findings confirm genetically what doctors have long suspected. Autism is a complex condition that manifests in a variety of ways, ranging from mild to severe, the researchers said. It has three main symptoms: problems with social interaction, communication and repetitive behaviors, according to the National Institute of Neurological Disorders and Stroke . While each child has a unique form of autism, the biochemical pathways and targets the researchers identified may be used to develop medicines for the condition, said Geraldine Dawson, chief science officer of Autism Speaks , a New York-based advocacy group. “What is critical now is to translate these basic biological findings into tools for early detection and treatment,” Dawson said in a conference call. “Families want to understand what causes autism, and more important, how we can effectively treat this challenging condition.” Treatment Strategies Most of the genetic variants the researchers uncovered predispose people to autism or a related disorder, rather than directly causing it, said Louise Gallagher, a researcher from Trinity College in Dublin. Identifying young children at risk may help diagnose them and design treatment strategies that can help them cope with the condition, she said. “Currently autism diagnosis is entirely behavioral and lengthy, and parents are subjected to a long process where their child is being assessed,” Gallagher said. “Some children aren’t getting a diagnosis until as late as five years old.” The results may lead to better genetic counseling for families and help determine the risks of autism for other children, said Tony Monaco, from the Wellcome Trust Centre for Human Genetics , at the University of Oxford in the U.K. It is too soon to recommend prenatal testing, as not all people are affected the same way by the variations, the researchers said. “Just knowing about these genetic changes can help the families involved come to terms with why their child has autism, but it can also be important where there are siblings too in determining future risk,” Monaco said. The findings don’t provide any immediate insight into other things, including environmental factors, that may play a role in the development of autism, Dawson said. Additional work is under way to see how the environment interacts with a genetic susceptibility, she said. To contact the reporter on this story: Michelle Fay Cortez in London at mcortez@bloomberg.net

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Sarkozy, Merkel Urge Faster EU Curbs on Speculation

June 9, 2010

By Ben Moshinsky and Gregory Viscusi June 9 (Bloomberg) — France and Germany called on the European Union to speed up curbs on financial speculation, saying some bets against stocks and government bonds should be banned as markets suffer a resurgence of “strong volatility.” In a joint two-page letter, French President Nicolas Sarkozy and German Chancellor Angela Merkel sought proposals from European Commission President Jose Manuel Barroso on a ban on so-called naked short sales of “certain” stock and bonds, as well as on naked credit-default swaps on sovereign bonds. They call for proposals to be ready by the middle of next month rather than October as had been planned. The letter shapes a common position between the leaders of Europe’s two largest economies after Merkel last month caught other EU leaders off guard when she unilaterally banned naked sovereign credit-default-swaps within Germany. She argued the actions of “speculators” exacerbated the European debt crisis that has rattled markets and driven the euro to a four-year low. Proposals to regulate short selling and credit-default- swaps will be brought forward and come “during the summer,” Commission Spokeswoman Pia Ahrenkilde-Hansen told journalists in Brussels today. She didn’t specify whether they would be ready by July as requested by Merkel and Sarkozy in their letter. “The return of strong volatility in the markets makes it necessary to question certain financial methods and certain products such as naked short-selling and credit default swaps,” the leaders said in the letter, e-mailed by their respective offices in Paris and Berlin today. ‘Imperative’ to Regulate While Sarkozy made greater market regulation one of his main rallying cries since the start of the financial crisis, he has so far refused to follow Merkel’s lead and instead pushed for EU-wide measures. Stocks around the world dropped on May 19 when the temporary German ban was introduced. Merrill Lynch’s MOVE Index , an options-based gauge of expectations for price swings in Treasuries, rose to 97.2 from a low of 74.10 on March 17. Eddy Wymeersch , chairman of the Committee of European Securities Regulators , said May 26 there was no “unanimous move to follow the German route.” “The commission is doing a good job, just that the president and the chancellor want it speeded up,” French Finance Minister Christine Lagarde told reporters today after a meeting of Sarkozy’s Cabinet. “Regulating financial markets is imperative to restore confidence.” July Deadline The Commission, the executive arm of the EU, should have its proposals ready before a mid-July meeting of European finance ministers, the letter said. The Commission is drafting proposals on short selling and sovereign credit-default-swaps which had been due in October. Credit-default swaps are derivatives that pay the buyer face value if a borrower — a country or a company — defaults. In exchange, the swap seller gets the underlying securities or the cash equivalent. Traders in naked credit-default swaps buy insurance on bonds they don’t own. Naked short selling involves selling a security without ever being in possession of it. “I don’t see any reason why these proposals shouldn’t be accelerated,” Richard Portes , professor of economics at London Business School, said in a telephone interview today. “If the political will is there then capitalize on that.” The Commission should “consider the possibility of a ban at the European level of naked short sales on all or certain shares and bonds, and on certain naked CDSs on sovereign securities,” the letter said. EU Proposals “It would be very surprising if any proposals from the European Commission would be softer than what Germany has put in place,” Thomas Tindemanns , a financial regulatory lawyer at White & Case LLP in Brussels, said in a telephone interview. Merkel’s Cabinet on June 2 nevertheless backed a draft bill that bans naked short-selling of credit-default swaps on euro- area government bonds and stocks of German companies. The draft, which will be put to parliament before the summer recess begins on July 9, also gives Germany’s Finance Ministry and the BaFin regulator leeway to ban euro-related derivatives trades without seeking further endorsement by lawmakers, and obliges investors to inform BaFin of naked short positions on shares in German companies. Merkel and Sarkozy agreed in a phone conversation to work “closely together,” the German leader’s office said in a statement issued late yesterday. They said they will prepare jointly for a June 17 EU summit and the subsequent Group of 20 gathering in Canada. Government officials have said the sovereign debt crisis and weak euro will dominate both meetings. European governments must “deliver a strong and unified position” on financial services rules before the G-20 summit in Toronto, Barroso told journalists last week in Brussels. The commission considered the Merkel-Sarkozy letter “an expression of support” for its approach on short selling, Ahrenkilde-Hansen said. “We welcome the sense of urgency.” To contact the reporters on this story: Gregory Viscusi in Paris at gviscusi@bloomberg.net ; Ben Moshinsky in Brussels at bmoshinsky@bloomberg.net .

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Cameron Gains as Merkel Wanes With European Debts in Global Investor Poll

June 8, 2010

By John McCormick and Catherine Dodge June 9 (Bloomberg) — Newly elected British Prime Minister David Cameron enjoys the backing of investors, while Europeans are more sour on his German counterpart, Angela Merkel , a Bloomberg survey shows. Cameron, 43, the Conservative Party leader who replaced Labour’s Gordon Brown last month, gets a favorable rating of 52 percent, while 15 percent of respondents have an unfavorable opinion, according to a global quarterly poll of 1,001 investors and analysts who are Bloomberg subscribers. In Europe, his approval rating is 63 percent. That is a stark contrast to his predecessor; only about a quarter of investors had a favorable view of Brown in the previous survey in January. Merkel, 55, the German chancellor who is leading efforts to manage the euro zone’s debt crisis, is viewed unfavorably by more than half of those polled in Europe and by 40 percent worldwide. Poll respondent Clark Toews , managing director of institutional equity trading at Paradigm Capital Inc. in Toronto, said the election of Cameron is helping to give him renewed confidence in the U.K. “He is willing to make the hard decisions in getting their budget deficit under control, namely cutting spending and government services,” said Toews, 38. “Amid uncertainty, leaders often take the heat,” said J. Ann Selzer , president of Selzer & Co., a Des Moines, Iowa-based firm that conducted the survey. “Merkel appears to suffer while the newcomer, whose hands are unsullied at this point, offers promise.” Obama Slips President Barack Obama continues to see his favorability erode, most notably among European investors, the survey shows. While more than 6 of 10 Bloomberg subscribers in Europe view Obama favorably, his rating there is down 19 percentage points since January. His approval rating globally is 51 percent, though in the U.S. it is 29 percent, unchanged from January. The quarterly Bloomberg Global Poll of investors, traders and analysts in six continents was conducted June 2-3 by Selzer & Co. It is based on interviews with a random sample of 1,001 Bloomberg subscribers, representing decision makers in markets, finance and economics. The poll has a margin of error of plus or minus 3.1 percentage points. While Cameron earns praise, his countryman, BP Plc ’s Chief Executive Officer Tony Hayward , gets the worst ranking of any of the 10 public figures tested in the poll. Two-thirds of global investors say they have an unfavorable view of Hayward, whose company has struggled for weeks to plug a gushing oil well in the Gulf of Mexico that may end up causing one of the worse environmental calamities in U.S. history. ‘Poster Boy’ “Regrettably, Tony Hayward has become the poster boy for the Gulf oil spill,” said Sean Keville , 48, a mortgage-backed securities broker at ICAP Plc in Jersey City, New Jersey. “He should quit now.” Cameron may owe some of his appeal to the governing coalition he formed with Deputy Prime Minister Nick Clegg of the Liberal Democrats, said Chris Low , 45, chief economist at FTN Financial in New York. The prime minister “has been honest about Britain’s challenges and is not wed to one way of meeting them,” Low said. “He is treating the Liberal Democrats as partners, which suggests an encouraging open-mindedness and focus on results.” In a June 7 speech, Cameron said Britons should prepare for spending cuts to combat a deficit that reached 11.1 percent of gross domestic product in the fiscal year through March. ‘Decades to Come’ “The decisions we make will affect every single person in our country,” he said. “And the effects of those decisions will stay with us for years, perhaps decades to come.” Still, the popularity may not be lasting. A third of investors said they don’t yet know enough about Cameron to form an opinion. In the U.S., there is even more uncertainty, with 42 percent not yet sure what to think about him. U.K. stocks retreated for a third day yesterday as Fitch Ratings said Britain’s deficit challenge is “formidable,” fueling concern Europe’s sovereign debt crisis is spreading. The benchmark FTSE 100 fell 0.8 percent to 5,028.15 in London after earlier rising as much as 0.3 percent. Germany’s Merkel has been struggling to help her country and the European Union recover from the worst recession since World War II. The euro has fallen 17 percent against the dollar in the past six months as the debt crisis exposed cracks in the monetary union and prompted deficit cuts across Europe that may hobble the economic rebound. Merkel Cuts On June 7, Merkel’s cabinet approved levies on banks, air travel and nuclear-power plants as part of what she called an “unprecedented” round of budget cuts . The program, a mixture of spending reductions and revenue-raising steps, amounts to 81.6 billion euros ($97.5 billion) from 2011 through 2014, the government said. In the poll, Merkel does far better with respondents outside her continent. In Europe, 53 percent of investors have an unfavorable opinion of her, while in the U.S., she gets a 51 percent favorability rating, and 46 percent in Asia. Of the other figures in the poll, investors remain bullish on U.S. Federal Reserve Chairman Ben S. Bernanke , who is viewed favorably by two-thirds of respondents. His numbers are strongest in Asia, where 72 percent of poll participants have a positive view. Paul Volcker , the former Fed chairman who now leads Obama’s Economic Recovery Board, is viewed favorably by half of those in the poll. U.S. Secretary of State Hillary Clinton ’s ratings have moved higher since last measured by the poll in January, with 54 percent now having a favorable view of her. In the U.S., 47 percent have a positive view of Clinton, while 53 percent have that opinion in Europe. More than two- thirds in Asia have a positive view of the former first lady and U.S. senator. To see the methodology and exact wording of the poll questions, click on the attachment tab at the top of the story. To contact the reporters on this story: John McCormick in Chicago at jmccormick16@bloomberg.net . Catherine Dodge in Washington at Cdodge1@bloomberg.net .

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Aussie, Kiwi Dollars Rise as Hungary Eases Concern on Greece-Like Default

June 7, 2010

By Yoshiaki Nohara June 8 (Bloomberg) — The Australian and New Zealand dollars rose against the yen, ending a two-day loss, as Hungary eased concerns it faces a Greece-like debt crisis, reviving demand for higher-yielding assets. The so-called Aussie strengthened against all of its 16 major counterparts as Hungary’s government pledged to control its budget deficit and make structural changes to overhaul the economy. The New Zealand dollar rallied amid speculation the nation’s central bank will raise interest rates from a record low on June 10. “Hungary was obviously used as an excuse,” said Ray Attrill , global research director at Forecast Ltd. in Sydney. “Short-term speculative players are moving quickly” to buy back the Aussie and kiwi. “That’s why we are seeing more volatility,” he said. Australia’s currency rose 1.1 percent to 74.87 yen as of 11:09 a.m. in Sydney. It gained to 81.65 U.S. cents from 81.04 cents in New York yesterday. New Zealand’s dollar advanced 0.9 percent to 60.76 yen. It fetched 66.25 U.S. cents from 65.87 cents. Hungary’s domestic politics roiled global markets last week as officials in Prime Minister Viktor Orban ’s government compared the country to Greece while claiming the previous administration lied about public finances. ‘Do Everything’ “What we have decided is that we will do everything to be able to follow the planned deficit path,” Mihaly Varga , Orban’s chief of staff, said yesterday in Lovasbereny, Hungary. The Reserve Bank of New Zealand will raise the official cash rate to 2.75 percent from a record low 2.50 percent on June 10, according to all except two of the 15 economists in a Bloomberg News survey. Swaps traders are betting on a 72 percent chance of a rate increase next week, according to a Credit Suisse AG index . “The word on the street remains that the RBNZ will swallow hard and hike rates on Thursday,” David Watt , a senior currency strategist in Toronto at Royal Bank of Canada, wrote in a note today. The kiwi’s decline below 66 U.S. cents yesterday “suggests the market does not see a potential rate hike as providing much lift beneath the kiwi’s wings.” Gains in the Aussie may be limited before a report forecast to show Australian home-loan approvals fell in April for a seventh month, adding to signs the nation’s economic growth is slowing. ‘Disappointing News’ “With the external backdrop for the Australian dollar having deteriorated significantly in the eyes of speculative investors and a circuit breaker not apparent in the short-term, the currency is vulnerable to any disappointing domestic economic news,” John Kyriakopoulos , Sydney-based head of currency strategy at National Australia Bank Ltd., wrote in a note today. The number of loans granted to build or buy houses and apartments dropped 2 percent in April, according to the median estimate of economists in a Bloomberg News survey before the statistics bureau’s report tomorrow. Australian government bonds fell. The yield on the 4.5 percent note maturing in April 2020 rose four basis points to 5.33 percent, according to Bloomberg data. A basis point is 0.01 percentage point. New Zealand’s two-year swap rate, a fixed payment made to receive floating rates, was little changed at 4.29 percent. To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

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AIG’s Asian Unit Deemed Too Big to Sell Means Public Offering Is an Option

June 1, 2010

By Hugh Son June 1 (Bloomberg) — American International Group Inc. ’s main Asia unit, with 320,000 agents and 23 million customers, may be too large for a rival to purchase, leaving a public offering the most likely route for divesting the business. Prudential Plc’s agreement to buy AIA Group Ltd. faltered after investors of the London-based firm balked at the $35.5 billion price and AIG rejected a reduced offer. AIG, which was rescued by the U.S. in 2008, could return to its earlier plan of holding a stock offering, the Treasury Department said May 26. “Without a doubt, the size of AIA magnifies the execution risk of closing a deal,” said Angelo Graci , managing director at Chapdelaine Credit Partners. “At this point it’s difficult to see another single buyer come in with a competitive price.” AIG Chief Executive Officer Robert Benmosche , 66, had touted the March 1 Prudential deal as evidence the firm was making progress toward repaying its $182.3 billion rescue. The original agreement to sell AIA, which operates in markets spanning China to Australia and has more than $60 billion in assets, would have exceeded the total proceeds of more than 20 other sales AIG disclosed since its September 2008 bailout. Prudential CEO Tidjane Thiam , 47, sought to lower the price for AIA to $30.4 billion to appease shareholders who refused to fund a deal at the original price. New York-based AIG rejected that price in part because of concern that even at the reduced bid, Prudential shareholders might still reject the takeover at a June 7 meeting, said two people with knowledge of the matter. Robin Tozer , a spokesman for Prudential, declined to comment. Taking AIA public complicates the repayment of U.S. taxpayers because an offering may be several months away and would probably be done in stages, said David Havens , managing director at Nomura Securities International Inc. in New York. Federal Reserve “The net effect is that the Federal Reserve will probably retain exposure to AIG for a longer period of time than we would have thought a few months ago,” Havens said. The IPO is AIG’s best remaining option because of the small chance another bidder will emerge, he said. AIG slipped 49 cents, or 1.4 percent, to $34.89 at 12:19 p.m. in New York Stock Exchange composite trading . Prudential surged 6.3 percent in London. AIG said in a statement today that it will “not consider revisions” to the March terms. The Fed agreed last year, as part of AIG’s fourth bailout, to allow the company to pay down a $60 billion credit line with an equity interest in AIA and another non-U.S. life division, American Life Insurance Co. The plan reduced pressure on AIG to sell units in early 2009 when potential bidders were hobbled by losses and an inability to raise funds. MetLife Inc. , which is larger than Prudential by market value, agreed about three months ago to pay $15.5 billion for Alico. AIA operates in faster-growing economies including China while Alico gets most of its revenue in Japan. ‘Unique Asset’ Thiam had said Prudential would double profit in Asia within three years after an AIA takeover, and the unit’s value may increase 80 percent from the acquisition price in that time. AIA generated about $1.44 billion in operating profit in 2009, compared with $1.59 billion in 2008, Prudential said in a filing in March. “Given the turbulence in the markets, it’s hard to see others stepping up right now, even though AIA is a unique asset,” Havens said. “There is only a small handful of buyers of $35 billion companies, particularly if a significant amount of the payment needs to be made in cash.” AIG had planned to use $25 billion in cash from the AIA sale to pay down a Fed credit line that expires in 2013. That sum includes $16 billion that AIG committed to the Fed as part of the March 2009 deal to lower its borrowing. Bailed Out AIG announced it would divest AIA in October 2008. The unit attracted interest from Manulife Financial Corp. , Prudential and Temasek Holdings Pte, with all seeking to buy a stake, according to people familiar with the matter speaking in May 2009. The unit may be valued at slightly less than $30 billion in a public offering, according to an analysis done before the March announcement by Graci of Chapdelaine. AIG will be entitled to a breakup fee of 153 million British pounds ($224 million) if Prudential is unable to complete the AIA purchase for reasons including the inability to get shareholder approvals, AIG said in a March filing. Attempts to reach a spokesperson for Singapore-based Temasek weren’t immediately successful. Manulife, based in Toronto, declined to comment, said spokesman David Paterson . Prudential Plc has no relation to Newark, New Jersey-based Prudential Financial Inc. and operates in the U.S. through its Jackson National Life Insurance Co. unit. To contact the reporter on this story: Hugh Son in New York at hson1@bloomberg.net

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HP to Cut 9,000 Jobs, Take $1 Billion Charge in Shift to Computer Services

June 1, 2010

By Hugo Miller and Katie Hoffmann June 1 (Bloomberg) — Hewlett-Packard Co. , the world’s largest personal-computer maker, plans to cut 9,000 jobs and take a $1 billion restructuring charge as it beefs up its computer-services business to compete with International Business Machines Corp. HP is taking the steps to modernize its data centers and provide more automated services to customers at a lower cost, it said today in a regulatory filing . The Palo Alto, California- based company plans to replace about 6,000 of the eliminated positions in various countries. “These sets of actions will enable HP to grow better than the market,” Ann Livermore , executive vice-president for enterprise business, said today on a conference call. “This is a substantial opportunity for us and something that we think is a good opportunity for our clients as well.” The job cuts come after Hewlett-Packard raised its 2010 forecast last month for the third time since November as results beat analysts’ estimates on a revival in business spending. The company is looking to expand into more profitable services after the recession crimped corporate budgets for computer equipment. HP said the $1 billion in expenses for severance costs and asset impairments will be applied between now and fiscal 2013. The moves will result in net annual savings of $500 million to $700 million by the end of fiscal 2013, the company said. Dell, Xerox “It’s just another example of how this company is focusing more and more on revenue growth in their services business,” said Aaron Rakers , an analyst at Stifel Nicolaus & Co. in St. Louis. “IBM’s always going to have a big presence in services, but these guys are going to battle it out for big deals.” Hewlett-Packard isn’t the only hardware maker trying to gain ground on IBM, the world’s largest computer-services company. Dell Inc. , the No. 3 personal-computer maker, bought Perot Systems Inc. in November for about $3.9 billion. Round Rock-Texas based Dell said in February it plans to acquire more computer-services companies. Xerox Corp., based in Norwalk, Connecticut, completed its purchase of Affiliated Computer Services Inc. for about $6 billion in February to accelerate its focus on computer services amid declining sales of printing equipment. Hewlett-Packard fell 17 cents to $45.84 at 10 a.m. in New York Stock Exchange composite trading. The stock had dropped 11 percent this year before today. “We are very supportive of this move,” Louis Miscioscia , an analyst at Collins Stewart Plc in Boston, said today in a note. “We believed there was more to be done” for HP to catch up to IBM. To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

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Canada Becomes First G-7 Member to Raise Key Interest Rate Since Recession

June 1, 2010

By Greg Quinn June 1 (Bloomberg) — The Bank of Canada raised its key interest rate from a record low today, the first Group of Seven country to do so since last year’s global recession, and said further moves will be “weighed carefully” against future growth in Canada and elsewhere. The target rate on overnight loans between commercial banks rose to 0.5 percent from 0.25 percent, as predicted by 25 of 27 economists surveyed by Bloomberg News. It was Mark Carney ’s first increase as governor and the bank’s first since July 2007. “Given the considerable uncertainty surrounding the outlook, any further reduction of monetary stimulus would have to be weighed carefully against domestic and global economic developments,” the Ottawa-based central bank said in a statement. The next decision is July 20. The bank said Canada’s recent growth and inflation have been “largely as expected” while the global recovery is “increasingly uneven.” Canada’s output grew at a 6.1 percent annualized pace, twice that of the U.S. in the first quarter, while the central bank predicts inflation will exceed its 2 percent target over the next year. “The bank did add a heaping dose of caution,” said Sal Guatieri , senior economist at BMO Capital Markets in Toronto. “The bank will keep a very close eye on further contagion to financial markets and commodity prices from Europe’s debt crisis.” Europe Concerns The Canadian dollar declined 0.8 percent to C$1.0530 per U.S. dollar at 9:45 a.m. in Toronto, compared with C$1.0445 yesterday. One Canadian dollar buys 94.96 U.S. cents. The yield on the two-year Canadian government bond declined to 1.71 percent from 1.82 percent yesterday. The Bank of Canada said today that domestic growth was “robust” in the first quarter, while Europe and the debt crisis were mentioned four times in the policy makers’ statement. IKEA Canada said March 31 it is expanding its store in Ottawa, adding 125 workers, and Teva Pharmaceutical Industries Ltd., the world’s largest generic drugmaker, said May 27 it will spend C$56 million to expand its Stouffville, Ontario production plant. “The global economic recovery is proceeding but is increasingly uneven across countries, with strong momentum in emerging market economies, some consolidation of the recovery in the United States, Japan and other industrialized economies, and the possibility of renewed weakness in Europe,” the statement said. ‘Considerable’ Stimulus Brazil, Malaysia and Peru have already raised rates this year. Earlier today, Australia’s central bank left its benchmark interest rate unchanged at 4.5 percent after six previous increases since October, and signaled it may keep borrowing costs steady in coming months as it assesses the impact of the most aggressive rate increases in the Group of 20. India’s central bank boosted its reverse repurchase rate for the second time in five weeks on April 20. The Federal Reserve may not raise its key lending rate until the fourth quarter, and the European Central Bank may wait until the first quarter of next year, according to separate Bloomberg surveys. “This decision still leaves considerable monetary stimulus in place, consistent with achieving the 2 percent inflation target in light of the significant excess supply in Canada, the strength of domestic spending, and the uneven global recovery,” the bank said today. Rising Demand Canada has benefited from rising demand for copper, gold, wheat and oil from emerging economies such as India and China. The country is the world’s second-biggest exporter of natural gas, and sits on the largest pool of oil reserves outside the Middle East. Private companies led a 108,700 gain in jobs last month, the largest in records dating from 1976, and the unemployment rate fell to 8.1 percent from 8.2 percent. Job growth is supporting retail sales, which set a record high in March according to Statistics Canada. Canada should raise rates “without delay,” the Organization for Economic Cooperation and Development said May 26, as it predicted the country’s growth will lead the G-7 this year at 3.6 percent. The Bank of Canada said in April that inflation will be “slightly higher” than its 2 percent target in the next year. Inflation accelerated to 1.8 percent in April from 1.4 percent in March. ‘Rich Resources’ The central bank also said today it will reduce the excess C$3 billion in the system that settles overnight commercial bank payments back to the usual C$25 million in settlement balances by June 16. The bank had used extra cash in the system to help keep the benchmark rate close to 0.25 percent. As well, the bank said today it would make purchase and resale transactions with major bond dealers a permanent feature of its monetary policy framework. “Canada has a better position than many other countries in terms of those really rich resources we have in Canada, and how that needs to fuel an upcoming recovery,” Siemens Canada Ltd. Chief Executive Officer Roland Aurich said in a May 26 interview in Ottawa. Siemens may soon open a new factory in Ontario to produce wind turbine blades to take advantage of local demand, he said. ‘Cautious’ on Recovery Aurich also said that Canada needs more export growth and a smooth end to government stimulus for a true recovery. Finance Minister Jim Flaherty said May 3 that that while the country’s recession is “technically” over, he was still “cautious” about the recovery. Canada’s dollar, identified as a risk to future growth by the bank in April, has weakened against the U.S. dollar since April 20. A stronger currency makes the country’s exports less competitive. The bank in April increased its assumption for the Canadian dollar to 99 U.S. cents, after saying in its January report the currency would average 96 U.S. cents. The bank should avoid boosting the country’s dollar too much with rate increases, said Brad Miller, Chief Executive Officer of IMW Industries Ltd. in Chilliwack, British Columbia. The high currency “is the flip side of our success,” said Miller, whose company makes natural gas machinery. “When you look at manufacturing it makes us less competitive.” To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net .

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Israel Won’t Join Nuclear-Free Mideast Talks, Calls UN Resolution `Flawed’

May 29, 2010

By Gwen Ackerman May 30 (Bloomberg) — Israel called “deeply flawed” and “hypocritical” a United Nations resolution ratified by 181 countries that calls for a 2012 conference on a nuclear-free Mideast, and said it would not take part in the talks. “Israel is not obligated by the decisions of this conference, which has no authority over Israel,” a statement from Prime Minister Benjamin Netanyahu ’s office distributed to press travelling with him in Toronto said. “It singles out Israel, the Middle East’s only true democracy and the only country threatened with annihilation,” the statement said. “It ignores the realities of the Middle East and the real threats facing the region and the entire world.” Agreement on the 2012 meeting helps the U.S. address a demand of Arab nations as President Barack Obama pressures Iran to halt the pursuit of nuclear technologies that might lead to development of an atomic weapon. Arab states have said Israel has a nuclear arsenal that must be part of the discussion. Israel, which hasn’t confirmed or denied it has nuclear weapons, hasn’t signed the non-proliferation treaty and didn’t attend the UN review conference. The declaration said Israel should ratify the treaty and allow inspection of nuclear facilities by the International Atomic Energy Agency. June 1 Meeting Netanyahu will discuss the resolution in a meeting scheduled with Obama on June 1, the statement said. “Regarding the practical consequences of this resolution for Israel, we take note of the important clarifications that have been made by the U.S. regarding its policy,” the statement added. Gary Samore , the White House coordinator for arms control, called the naming of Israel in the UN resolution’s text “a negative political symbol” that made it less likely that Israel will attend, or even that the meeting will take place. Obama, in a White House statement May 28, said the U.S. “welcomes the agreements” from the conference, yet will “strongly oppose efforts to single out Israel, and will oppose actions that jeopardize Israel’s national security.” The U.S. backing of the resolution, even after subsequent criticism of the singling out of Israel by the Obama administration, is likely to be detrimental to ties between the allies, said Gerald Steinberg , a political scientist at Bar Ilan University. U.S. Reliability “Clearly for Israel this is another sign that the U.S. is not reliable on key security issues,” Steinberg said by phone. The resolution will also not benefit the indirect Israeli- Palestinian peace talks launched earlier this month as it will make Israel more reluctant to take security risks, he said. Netanyahu canceled a planned trip to attend a nuclear summit in the U.S. in April when it became apparent that it was going to be used as a vehicle by some countries to attack Israel for not being a signatory to the Nuclear Non-Proliferation Treaty. The Nuclear Non-Proliferation Treaty is an agreement between the five original nuclear powers — the U.S., Britain, China, France and Russia — not to spread the weapons and eventually to disarm, in exchange for a pledge from other nations not to join the arms race. At the same time, the non- nuclear nations were accorded the right to develop peaceful programs. The proposal for Middle East talks in 2012 says all nations will meet “on the establishment” of a zone free of weapons of mass destruction “on the basis of arrangements freely arrived at” by them all. In the past two months, Obama has signed an arms-reduction treaty with Russia, pledged to limit the potential U.S. use of atomic weapons and won commitments from 46 nations to protect stockpiles of uranium and plutonium. To contact the reporter on this story: Gwen Ackerman in Jerusalem at gackerman@bloomberg.net .

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America as Export Juggernaut Led by Intel With Surging Chip Manufacturing

May 28, 2010

By Timothy R. Homan and Anthony Feld May 28 (Bloomberg) — Intel Corp., the world’s largest maker of computer chips, is increasing production and commanding higher prices as an export boom puts American manufacturing at the forefront of the economic recovery. Santa Clara, California-based Intel ’s factories are operating at 80 percent of capacity, up from a record low of about 50 percent last year in the midst of the recession. The average selling prices of personal computer processors have risen a total of 12 percent over the past two quarters. Overseas demand for U.S.-made goods from semiconductors to printers is boosting the fortunes of manufacturing , which has been shrinking as a proportion of the economy in 13 of the past 14 years. As a result, trade may add to growth for the first time in a post-recession year since World War II, says Morgan Stanley economist Richard Berner . “U.S. manufacturing has really seen a renaissance of sorts driven by improved competitiveness and strength in global markets,” said Joseph Carson , director of economic research at AllianceBernstein LP in New York. “Exports have been the key driver of growth. We think it’s a new trend.” Net exports, or the difference in value between what the U.S. sends overseas and what it buys from abroad, will add about 0.3 percentage point to gross domestic product this year, according to Berner, Morgan Stanley’s co-head of global economics in New York. He forecasts economic growth of 3.4 percent in 2010 after last year’s 2.4 percent contraction. European Crisis Companies from Palo Alto, California-based Hewlett-Packard Co. to Cisco Systems Inc. are boosting sales forecasts in anticipation of stronger demand for semiconductors, computers and software in the world’s fastest-growing economies. In the near term, exports may suffer from a European debt crisis that’s strengthening the dollar and making euro-zone goods cheaper worldwide. Paul Otellini , chief executive officer of Intel, whose chips run more than 80 percent of the world’s personal computers, said this month that the PC market may expand as much as 16 percent in the next four years. The company’s ability to manufacture more advanced chips is putting it further ahead of the competition , he said. Strong demand and tight supply have allowed Intel to limit the discount it gives its customers and to raise average chip prices, according to Dean McCarron , an analyst at Cave Creek, Arizona-based Mercury Research. U.S. exports to China, the third-biggest market for American-made goods, were up 47 percent in the first quarter this year from the first three months of 2009. Shipments to South Korea, the seventh-largest importer of American-made goods, increased 66 percent during the same period, Commerce Department figures show. Business Spending “Consumer and business demand in the rapidly growing economies have become key factors driving their growth,” Morgan Stanley’s Berner wrote in an April 28 research note. “U.S. exporters will be increasingly leveraged to that fast-growing pie as their share of exports to those regions increases, especially in capital goods and consumer business services.” In an interview yesterday, Berner said the dollar’s almost 7 percent gain against the euro this month hasn’t changed his forecast for U.S. export growth. “We had anticipated in the wake of what was going on that we would see further strengthening of the dollar against the euro,” he said. Shares in companies that make computer and technology goods are poised to weather the recent stock-market downturn better than other industries. The Philadelphia Semiconductor Index is up 0.5 percent so far this year, compared with a 1.1 percent decline in the broader Standard & Poor’s 500 Index . Technology stocks have outperformed the S&P 500 over the last year and are trading near a 52-week high on a relative-performance basis. ‘Many Bargains’ “From a longer-term perspective I’m really bullish on this sector,” said Benjamin Tal , a senior economist at CIBC World Markets Inc. in Toronto, who sees “many bargains in the market” among technology and communications companies. “Those big companies in the manufacturing sector in the U.S. are cheap because they will surprise on the upside two, three, four years from now,” he said. Manufacturing, which accounts for 11 percent of the world’s largest economy, down from 12.3 percent in 2006, helped lead the U.S. out of recession in the second half of last year. The industry contributed to more than half of the expansion in the past two quarters, the economy’s best six-month performance since 2003, as companies stabilized inventories after a record drawdown in 2009, according to Commerce Department figures. Export Forecast Exports will keep growing, some manufacturers forecast. San Jose, California-based Cisco, the world’s biggest provider of networking equipment, is calling for sales of at least $10.7 billion in the current quarter, following record revenue in the quarter ended May 1. Sales of semiconductors in the Asia-Pacific region climbed to a record $12.57 billion in March, up 72 percent from a year earlier, according to the Semiconductor Industry Association, based in San Jose. Worldwide sales in March were $23.1 billion, an increase of 4.6 percent from the previous month, the industry group said on May 3. The recovery is “accelerating,” John Chambers , chief executive of Cisco, said on a May 12 conference call. “I’d say now almost without exception, most people are beginning to slowly turn cautiously optimistic.” The expansion is not without risks. Sovereign-debt concerns in Europe are threatening to impede the global recovery, while a decline in the value of the euro makes European exports cheaper. Still, the crisis may not translate into significant losses for U.S. manufacturing, according to AllianceBernstein’s Carson. “Not all changes in exchange rates turn into product races,” Carson said. During the last nine months “the European demand hasn’t been there, but that still has not stopped one of the most powerful export cycles we’ve ever seen,” he said. To contact the reporters on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net ; Anthony Feld in New York at afeld2@bloomberg.net

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America as Export Juggernaut Led by Intel With Surging Chip Manufacturing

May 28, 2010

By Timothy R. Homan and Anthony Feld May 28 (Bloomberg) — Intel Corp., the world’s largest maker of computer chips, is increasing production and commanding higher prices as an export boom puts American manufacturing at the forefront of the economic recovery. Santa Clara, California-based Intel ’s factories are operating at 80 percent of capacity, up from a record low of about 50 percent last year in the midst of the recession. The average selling prices of personal computer processors have risen a total of 12 percent over the past two quarters. Overseas demand for U.S.-made goods from semiconductors to printers is boosting the fortunes of manufacturing , which has been shrinking as a proportion of the economy in 13 of the past 14 years. As a result, trade may add to growth for the first time in a post-recession year since World War II, says Morgan Stanley economist Richard Berner . “U.S. manufacturing has really seen a renaissance of sorts driven by improved competitiveness and strength in global markets,” said Joseph Carson , director of economic research at AllianceBernstein LP in New York. “Exports have been the key driver of growth. We think it’s a new trend.” Net exports, or the difference in value between what the U.S. sends overseas and what it buys from abroad, will add about 0.3 percentage point to gross domestic product this year, according to Berner, Morgan Stanley’s co-head of global economics in New York. He forecasts economic growth of 3.4 percent in 2010 after last year’s 2.4 percent contraction. European Crisis Companies from Palo Alto, California-based Hewlett-Packard Co. to Cisco Systems Inc. are boosting sales forecasts in anticipation of stronger demand for semiconductors, computers and software in the world’s fastest-growing economies. In the near term, exports may suffer from a European debt crisis that’s strengthening the dollar and making euro-zone goods cheaper worldwide. Paul Otellini , chief executive officer of Intel, whose chips run more than 80 percent of the world’s personal computers, said this month that the PC market may expand as much as 16 percent in the next four years. The company’s ability to manufacture more advanced chips is putting it further ahead of the competition , he said. Strong demand and tight supply have allowed Intel to limit the discount it gives its customers and to raise average chip prices, according to Dean McCarron , an analyst at Cave Creek, Arizona-based Mercury Research. U.S. exports to China, the third-biggest market for American-made goods, were up 47 percent in the first quarter this year from the first three months of 2009. Shipments to South Korea, the seventh-largest importer of American-made goods, increased 66 percent during the same period, Commerce Department figures show. Business Spending “Consumer and business demand in the rapidly growing economies have become key factors driving their growth,” Morgan Stanley’s Berner wrote in an April 28 research note. “U.S. exporters will be increasingly leveraged to that fast-growing pie as their share of exports to those regions increases, especially in capital goods and consumer business services.” In an interview yesterday, Berner said the dollar’s almost 7 percent gain against the euro this month hasn’t changed his forecast for U.S. export growth. “We had anticipated in the wake of what was going on that we would see further strengthening of the dollar against the euro,” he said. Shares in companies that make computer and technology goods are poised to weather the recent stock-market downturn better than other industries. The Philadelphia Semiconductor Index is up 0.5 percent so far this year, compared with a 1.1 percent decline in the broader Standard & Poor’s 500 Index . Technology stocks have outperformed the S&P 500 over the last year and are trading near a 52-week high on a relative-performance basis. ‘Many Bargains’ “From a longer-term perspective I’m really bullish on this sector,” said Benjamin Tal , a senior economist at CIBC World Markets Inc. in Toronto, who sees “many bargains in the market” among technology and communications companies. “Those big companies in the manufacturing sector in the U.S. are cheap because they will surprise on the upside two, three, four years from now,” he said. Manufacturing, which accounts for 11 percent of the world’s largest economy, down from 12.3 percent in 2006, helped lead the U.S. out of recession in the second half of last year. The industry contributed to more than half of the expansion in the past two quarters, the economy’s best six-month performance since 2003, as companies stabilized inventories after a record drawdown in 2009, according to Commerce Department figures. Export Forecast Exports will keep growing, some manufacturers forecast. San Jose, California-based Cisco, the world’s biggest provider of networking equipment, is calling for sales of at least $10.7 billion in the current quarter, following record revenue in the quarter ended May 1. Sales of semiconductors in the Asia-Pacific region climbed to a record $12.57 billion in March, up 72 percent from a year earlier, according to the Semiconductor Industry Association, based in San Jose. Worldwide sales in March were $23.1 billion, an increase of 4.6 percent from the previous month, the industry group said on May 3. The recovery is “accelerating,” John Chambers , chief executive of Cisco, said on a May 12 conference call. “I’d say now almost without exception, most people are beginning to slowly turn cautiously optimistic.” The expansion is not without risks. Sovereign-debt concerns in Europe are threatening to impede the global recovery, while a decline in the value of the euro makes European exports cheaper. Still, the crisis may not translate into significant losses for U.S. manufacturing, according to AllianceBernstein’s Carson. “Not all changes in exchange rates turn into product races,” Carson said. During the last nine months “the European demand hasn’t been there, but that still has not stopped one of the most powerful export cycles we’ve ever seen,” he said. To contact the reporters on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net ; Anthony Feld in New York at afeld2@bloomberg.net

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Retail Sales in U.S. Probably Rose in April for Seventh Consecutive Month

May 9, 2010

By Timothy R. Homan May 9 (Bloomberg) — Sales at U.S. retailers probably rose in April for a seventh straight month, pointing to a rebound in consumer spending that is broadening the recovery, economists said before reports this week. Purchases increased 0.2 percent in April, extending the most successive gains since 1999, according to the median estimate of 60 economists surveyed by Bloomberg News before Commerce Department figures on May 14. Other reports may show manufacturing picked up and the trade gap was little changed. The biggest increase in payrolls in four years may be a harbinger of additional gains as employers become more certain sales will grow, which in turn will lift wages and consumer spending further. Electronics stores may have led retailers last month as Apple Inc. sold at least 1 million iPads. “Retail sales are picking up because of income growth,” said Dean Maki , chief U.S. economist at Barclays Capital in New York. “Consumption is going to be growing at a firm pace through the end of the year. We are in a sustainable recovery now.” Cupertino, California-based Apple said it sold out of all three versions of the iPad 3g, which went on sale two weeks ago, at its retail stores in 13 U.S. cities. “Demand continues to exceed supply,” Natalie Kerris , a spokeswoman for Apple, said May 6. “We’re working hard” to provide iPads to additional customers, she said. Government Rebates A remnant of last year’s government stimulus package may have also propelled sales of appliances last month, said Michael Feroli , chief U.S. economist at JPMorgan Chase & Co. in New York. Almost two-thirds of the $300 million the government allotted for state rebates on purchases of energy efficient appliances became available last month, Feroli said in a May 3 note to clients. Florida’s rebate program ran out of funds in three days last month, while Texas and Illinois ran through the money in a day, he said. The incentives may boost core retail sales, which exclude items such as autos, building materials and gasoline, by 0.3 percentage point, according to Feroli. One reason Americans are spending may be that the employment outlook is brightening. Payrolls increased by 290,000 in April, the most in four years, according to figures from the Labor Department last week. Unemployment climbed to 9.9 percent from 9.7 percent as thousands of jobseekers entered the workforce. Less Broad-Based The increase in April sales may have been less broad-based than in prior months. Chain stores reported the smallest increase in monthly sales since November, industry figures showed last week. Demand was dragged down by teen-clothing retailers Abercrombie & Fitch Co. and Aeropostale Inc., and an early Easter, which boosted March sales at the expense of April. The debt crisis in Europe also raises the risk that tumbling stock prices may cause households to rein in spending. Shares have been pummeled the past two weeks, with the Standard & Poor’s 500 Index dropping 8.7 percent since April 23. “Clearly, a blossoming labor market recovery is a big positive,” economists Paul Ashworth and Paul Dales of Capital Economics Ltd. in Toronto, said in a note to clients last week. “But if equity and house prices continue to fall, households will ramp up their savings to compensate for the loss of wealth, perhaps undermining consumption.” For now, more jobs may trump the drop in stocks. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment for May probably rose to 73.5 from 72.2 the prior month, according to the survey median. The figures are due May 14. Factory Gains Manufacturing, which accounts for about 12 percent of the economy, continues to expand. A Federal Reserve report May 14 may show production at factories, mines and utilities climbed 0.6 percent in April, the tenth straight gain, according to the survey median. The need to replenish depleted inventories, combined with rising business spending, is giving factories a lift. Stockpiles in the U.S. probably rose 0.4 percent in March, capping the first three-month gain since 2008, economists said ahead of a Commerce Department report on May 14. Finally, the trade deficit in March was probably little changed at $40 billion, compared with $39.7 billion the prior month, according to the survey median before a May 12 report from the Commerce Department. To contact the reporter on this story: Timothy R. Homan in Washington at thoman1@bloomberg.net

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Futures Traders Boost Bets to Record That Euro Will Decline Against Dollar

May 7, 2010

By Oliver Biggadike and Ben Levisohn May 7 (Bloomberg) — Futures traders increased bets to a record that the euro will fall against the dollar two days after European leaders announced a 110 billion-euro ($140 billion) bailout package for Greece on speculation the aid wouldn’t be enough to halt the spread of the region’s fiscal woes. The number of wagers by hedge funds and other large speculators for a decline in the 16-nation currency rose on May 4 to 103,402 contracts more than those anticipating a gain, according to Commodity Futures Trading Commission data. It was the second consecutive week that the amount climbed to a record. “The fiscal side of the euro zone is such a mess and it’s not clear what would happen if crises flare up in other countries,” said Sacha Tihanyi , a foreign-exchange strategist in Toronto at Bank of Nova Scotia, Canada’s third-largest lender. “It’s hard to draw the line in the sand and say here’s where you go long the euro. I don’t see anything to suggest we’re at a bottom.” The euro fell the most against the dollar this week since the collapse of global credit markets in 2008 as the European Central Bank failed to ease concern that Greece’s fiscal crisis would intensify across the region. Europe’s common currency fell 4 percent to $1.2755 this week. The euro gained 1 percent today on speculation the ECB may come to the aid of banks threatened by Greece’s crisis in an effort to halt contagion. Each Friday the CFTC publishes aggregate numbers for long and short positions for speculators such as hedge funds and institutional investors that buy or sell futures to protect against price moves. Analysts and investors follow changes in speculators’ positions because such transactions can reflect an expectation of a change in prices. Futures are agreements to buy or sell assets at a set price and date. To contact the reporters on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net ; Ben Levisohn in New York at blevisohn@bloomberg.net

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Loonie Rises Most Since January as Bank of Canada Says It Will Raise Rates

April 20, 2010

By Mary Childs April 20 (Bloomberg) — Canada’s dollar climbed the most since January as the central bank said it will start raising interest rates because of faster-than-expected economic growth and inflation. The Canadian dollar strengthened through parity with its U.S. counterpart as the central bank kept its key lending rate at a record low 0.25 percent while dropping a pledge to hold it there through June. The currency traded on a one-for-one basis with the greenback on April 6 for the first time since July 2008 on speculation rates will rise faster in Canada than in the U.S. “Dropping the conditional pledge is a very strong pointer to a rate hike coming as soon as June,’’ said Shaun Osborne , chief currency strategist in Toronto at Toronto-Dominion Bank, Canada’s second-largest lender. “It makes you wonder why they didn’t go today. Given the overall tone here, this is a very strong statement on the near-term outlook for the Canadian economy.” The loonie, as the currency is nicknamed for the image of the waterfowl on the C$1 coin, gained 1.5 percent to 99.95 Canadian cents per U.S. dollar at 9:29 a.m. in Toronto, after climbing as much as 1.6 percent, the biggest intraday gain since Jan. 4. It closed at C$1.0144 yesterday, when it touched C$1.0216, the weakest level since March 30. “With recent improvements in the economic outlook, the need for such extraordinary policy is now passing, and it is appropriate to begin to lessen the degree of monetary stimulus,” the central bank led by Governor Mark Carney said in a statement today from Ottawa. “The extent and timing will depend on the outlook for economic activity and inflation.” Phrase Dropped The central bank dropped the phrase about its “conditional commitment” to keep the rate unchanged until July unless the inflation outlook shifted. The bank will raise the rate to 1.25 percent by year-end, according to a Bloomberg survey. The U.S. Federal Reserve will increase its benchmark to 0.75 percent, from a current range of zero to 0.25 percent, another Bloomberg survey showed. Canada’s consumer prices gained 0.4 percent in February, more than forecast, after rising 0.3 percent in January. They posted a third straight monthly gain in March, increasing 0.2 percent, according to the forecast in a Bloomberg survey before Statistics Canada reports the data on April 23. The loonie touched 99.54 Canadian cents per U.S. dollar, the strongest level since June 2008, on April 14. To contact the reporter on this story: Mary Childs in New York at mchilds5@bloomberg.net

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Yen Advances as Speculation About China, Greece Spurs Demand for Safety

April 17, 2010

By Ben Levisohn April 17 (Bloomberg) — The yen advanced against all of its most-traded counterparts as speculation China may take further steps to slow its economy and Greece may trigger a $61 billion rescue package spurred demand for relative safety. The dollar dropped for two straight weeks against the yen for the first time since January after Goldman Sachs Group Inc. was charged with fraud, making U.S. stocks less attractive. Canada’s dollar fell against the greenback for the first time in three weeks after touching parity for a second week before the Bank of Canada’s policy meeting on April 20. “The Greece story isn’t going away soon, and we expect further tightening from China,” said Vassili Serebriakov , a strategist at Wells Fargo & Co. in New York. “That’s triggered some caution in the market, and that’s why you’re seeing the yen doing better.” The yen gained 1.1 percent to 124.44 per euro yesterday, from 125.79 on April 9. Japan’s currency appreciated 1.1 percent to 92.17 against the dollar, from 93.18. It advanced to 91.91 yesterday, the strongest level since March 25. The euro was little changed at $1.3503, compared with $1.35. The dollar dropped to the lowest level against the yen in almost a month as Goldman Sachs was sued by the Securities and Exchange Commission for fraud related to collateralized debt obligations that contributed to the worst financial crisis since the Great Depression. The charges “are completely unfounded,” Goldman Sachs said in a statement. ‘Riveted’ on Goldman “The Goldman news has people riveted,” said Firas Askari , head currency trader in Toronto at Bank of Montreal, Canada’s fourth-largest lender. “Risk off.” The Standard & Poor’s 500 Index erased its weekly gain, ending the week down 0.2 percent. Crude oil dropped 2.3 percent this week, the most since the five days ended Jan. 22. New Zealand’s dollar slid 2.1 percent to 65.31 yen this week and Australia’s currency lost 2 percent to 85.18 yen on speculation investors will reduce carry trades, in which they buy higher-yielding assets with amounts borrowed in nations with low interest rates. Japan’s benchmark of 0.1 percent has made the yen popular for funding such transactions. Twelve-month non-deliverable yuan forwards finished the week at 6.6185 per dollar, indicating traders bet China’s currency may gain 3 percent in the next 12 months. China has pegged the yuan at about 6.83 since July 2008, after allowing it to rise 21 percent in the previous three years. China’s cabinet raised minimum mortgage rates and down- payment ratios for some home purchases, saying “more forceful” steps are needed to cool speculation after property prices rose at a record pace in March. ‘Prudent Policy’ “It’s what China needs to do and should do,” said Alan Ruskin , head of currency strategy at Royal Bank of Scotland Group Plc in Stamford, Connecticut. “This is prudent policy to achieve sustained growth over the cycle.” The nation’s economy grew 11.9 percent from a year earlier in the biggest gain since the second quarter of 2007, the statistics bureau said this week. Singapore’s dollar rallied the most against the greenback in six months, appreciating 1 percent to S$1.3756 as its central bank unexpectedly revalued its currency after the government raised forecasts for economic growth and inflation. The Monetary Authority said it will seek a “modest and gradual appreciation” in the local dollar and shift to a stronger range for currency fluctuations, the first such combined move in its 39-year history. Greece Talks The euro fell for a second straight week versus the yen before talks on Greece involving the European Union, the International Monetary Fund and the European Central Bank that are scheduled to begin on April 19. European finance ministers offered as much as 30 billion euros ($41 billion) in three-year loans in 2010 at about 5 percent, compared with the three-year Greek bond yield of 7.21 percent. Another 15 billion euros would come from the International Monetary Fund. “I see Greece doing the sensible thing and turning its back on the bond market,” said Andrew Wilkinson , senior market analyst at Interactive Brokers Group LLC in Greenwich, Connecticut. “We say take it at 5 percent.” Canada’s dollar slid 1 percent to C$1.0128 versus the greenback this week after trading at 99.54 Canadian cents versus the dollar on April 14, the strongest level since June 2008. The Bank of Canada will meet April 20 to decide on interest rates. Governor Mark Carney signaled last month he’s open to raising the target lending rate as soon as June 1 as inflation and growth outpace forecasts. South Africa’s rand was the biggest loser versus the dollar, declining 1.8 percent to 7.390 on speculation the nation’s central bank will lower its target lending rate, now at 6.5 percent. The nation’s retail sales unexpectedly contracted for a 13th month in February, a report showed this week. To contact the reporters on this story: Ben Levisohn in New York at blevisohn@bloomberg.net

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BCE Will Sell More Assets to Fund IPhone, Fiber-Network Upgrades, CFO Says

April 14, 2010

By Hugo Miller April 14 (Bloomberg) — BCE Inc. Chief Financial Officer Siim Vanaselja plans to sell venture-capital investments and assets partly to raise money for network upgrades that can help ease the strain from devices like Apple Inc.’s iPhone. The assets are worth “a few hundred million dollars,” Vanaselja said in an interview yesterday in Toronto. He didn’t give a time frame for the sales. BCE, Canada’s largest phone company by subscribers, first offered the iPhone in November, more than a year after rival Rogers Communications Inc. BCE will put some of the money into overhauling its fiber network, said Vanaselja, 53, who has overseen the carrier’s finances for almost a decade. BCE rolled out a new network in November to support the iPhone. While the device uses twice the network capacity of a typical smartphone, according to Sanford C. Bernstein & Co., it also generates more revenue.      “The market is rewarding them for being more aggressive for ploughing more money into capital spending,” said Maher Yaghi , an analyst at Desjardins Securities in Montreal. He rates the shares “hold” and doesn’t own any.      BCE, which had climbed 15 percent in the past year before today, fell 9 cents to C$29.43 at 1:07 p.m. in Toronto Stock Exchange trading. BCE still faces the challenge from four new wireless carriers this year and lags behind Rogers and Telus Corp. in smartphone adoption, said Dvai Ghose , an analyst at Genuity Capital Markets. He also has a “hold” rating on BCE stock and doesn’t own it himself. The company had gained 1.8 percent this year before today, less than the 3.9 percent gain for Toronto-based Rogers, Canada’s biggest wireless carrier, and Telus’ 9.8 percent advance. Asset Sales BCE’s 15 percent stake in CTVglobemedia Inc. the publisher of The Globe and Mail newspaper and CTV television network, may be among those put up for sale, said Ghose, who is based in Toronto. He estimated it might fetch about C$150 million ($150 million). Mark Langton , a spokesman for BCE, said the company is “happy with its investment in CTVglobemedia.” CTV spokeswoman Bonnie Brownlee declined to comment. BCE, based in Montreal, said this month it sold its stake in satellite-services company SkyTerra Communications Inc. for C$111 million. Its C$110 million holding in Clearwire Corp. was sold in December. The carrier is focusing on the wireless business, its most profitable with C$1.28 billion in earnings last year . “By and large I think we’ve achieved our objective of eliminating the holding company, conglomerate structure of what BCE has been,” said Vanaselja. What remains are “isolated niche parts of the business that have been around for many years and just aren’t part of the core and just aren’t profitable.” Dividend Growth Assets still to be sold include venture-capital investments, some businesses and potentially real estate, Vanaselja said. He declined to be more specific. While it’s too early to say whether the company will raise its dividend again this year, returning cash to shareholders is a priority for BCE, Vanaselja said. The company boosted its annual dividend to C$1.74 a share in December. It has the fifth- highest dividend yield of the 178 companies on the S&P/TSX Equity Index, according to Bloomberg data . “A clear component of our capital market strategy is to look to sustainable increases in our dividend,” Vanaselja said. “That word sustainable is critically important.” To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

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Ryder Cup Financier Backs Startups to Unclog Wireless Networks

April 13, 2010

By Hugo Miller April 13 (Bloomberg) — Shortly after Terry Matthews left his native Wales for Canada in 1969, he started a venture importing electric lawnmowers from the U.K. It quickly floundered, he said. The shipping company lost the delivery and the machines didn’t arrive until October. “You can’t give lawnmowers away in October,” said Matthews, 66. “Timing in life is almost everything.” Now Matthews, who became a billionaire from technology companies he started, sees opportunity for companies that can help wireless carriers relieve the strain on their networks from smartphones such as Apple Inc. ’s iPhone. Among the 60 companies he has started or backed are a handful that make technology for wireless operators, including Dragonwave Inc. and Bridgewater Systems Corp. “The drivers of change are mobile devices, mainly mobile phones,” said Matthews, during an interview in his modern concrete office building outside Ottawa. “The bandwidth that’s associated with that is dramatically increasing.” Dragonwave and Bridgewater, both based in Ottawa, have surged along with the data on wireless operators’ networks. Dragonwave rose 10-fold last year, while Bridgewater more than tripled. Dragonwave supplies microwave radio products that link transmission towers to carriers’ land-line networks; Bridgewater makes software to help Verizon Wireless and other customers ease data congestion. Several Matthews-backed startups are still private, including BenBria. This month, Mitel Networks Corp., a maker of telecom software and equipment started by Matthews, said it plans to raise as much as $211 million in an initial public offering. Matthews wouldn’t discuss the IPO, citing restrictions of the current investor roadshow. Ryder Cup Development Matthews’ investments have been successful enough that in 1980 he bought the former Wales maternity hospital where he was born, and has spent 100 million pounds developing the property into the Celtic Manor Resort with three golf courses. The site is scheduled to play host to golf’s Ryder Cup in October.     The courses are “full all the time,” said Matthews, who sold his Newbridge Networks Corp. to Alcatel-Lucent SA in 2000 for $7.2 billion. “I don’t play. It takes four hours.” Matthews sees his startup investments as part of a broader revival in the Canadian technology sector. Many local companies are being founded by former employees of Nortel Networks Corp. , the telecom equipment maker that filed for bankruptcy last year. Dragonwave Chief Executive Officer Peter Allen and Bernard Herscovich , CEO of local startup BelAir Networks Inc., both worked at Nortel. Revival In Ottawa “You take a look at Ottawa, and you’ll say Nortel’s melted down, well true,” said Matthews. “The fact of the matter is it is coming back. The activity level for new companies starting up is wild.” Last year, 222 startups were established in the nation’s capital, according to the Ottawa Centre for Research and Innovation , while 215 firms were bought or went bust. Matthews sits on the boards of 12 companies and chairs 10 of them. “The fact that Bridgewater and Dragonwave have succeeded reminds investors why technology investing can be a profitable enterprise,” said Mark McQueen , president of the Toronto-based venture capital firm Wellington Financial. The skills of the region’s workforce may be well suited to helping major carriers with network congestion, Matthews said. AT&T Inc. , Verizon Wireless., and other mobile-phone operators are looking for cost-effective ways to manage the surge in data traffic on their wireless networks. AT&T has said that traffic on its network has increased 50-fold in the past three years. The new companies haven’t boosted total technology employment in the Ottawa area. The number of tech jobs slipped 1.3 percent last year to 78,067 according to the Ottawa Centre. Investment Approach Matthews’ investment approach is to back companies that solve real problems for customers and have attracted customers willing to pay up for products. “It’s a fallacy to think that you take a pot, put very smart people in it, a ton of money and something’s bound to come out,” he said. “The important thing is to connect with clients.” In his office, he pulled down an old rotary-dial converter made by one of the first companies he started in 1972 with a mere C$4,000. He sold a controlling stake in that company to British Telecom in 1985. “I start about five new companies a year. The typical amount I start a company with is a half a million dollars,” Matthews said. “What I do is remove the speculative nature of the R&D by connecting with clients.” To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

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Video: Misek Says a Possible Sale `Makes Sense’ for Palm: Video

April 12, 2010

April 13 (Bloomberg) — Peter Misek, an analyst at Canaccord Adams in Toronto, talks with Bloomberg’s Susan Li about the potential sale of Palm Inc. Palm, creator of the Pre smartphone, is seeking bids for the company as early as this week, according to three people familiar with the situation. Taiwan’s HTC Corp. and China’s Lenovo Group Ltd. have looked at the company and may make offers, said the people. (Source: Bloomberg)

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Nathan Lewis: How to Buy Real Gold

April 12, 2010

If you’ve been following any of the hair-raising stories about the gold bullion market, you are probably thinking about how to own real gold, instead of “paper gold.” There are a few simple rules when it comes to owning gold: 1) Gold is metal. If you can’t hold a block of metal in your hand within 24 hours, you don’t own gold. 2) Everyone’s a damn crook. If you observe those two rules, you’ll do fine. First, how to buy real gold? The following suggestions will pertain for individual holdings of $1000 up to about $10 million. If you want institutional size, you should find better advice than a column on the Huffington Post . The usual caveats apply. This is not a recommendation to buy gold. This is a suggestion on how to buy gold. For a while, it was possible to take delivery on Comex futures contracts. These days, I’d say don’t press your luck. Go to a reputable gold dealer. I would suggest the Tulving Company at tulving.com or Blanchard and Company at blanchardonline.com. These dealers have been around for years, and do big business with tight margins. All gold is the same. You want to pay as little for it as possible. You should be very aware of the “premium” you are paying to “spot.” “Spot” is the price for very large accounts, trading in 400oz. institutional bars. (Ideally – reality can be a bit different.) In small sizes, from a dealer, you have to pay a little more. The dealer has to pay for his business, and that comes from buying low and selling high – the “spread.” Tulving is selling new kilobars (about 33 troy oz.) direct from the smelter for $8.95/oz. over spot. Since gold is about $1150 today , that is about a 0.78% premium. Plus, it includes free shipping. If you ask, either Tulving or Blanchard might have some larger 100oz. and 400oz. bars available. Tulving says they shipped $285 million dollars of precious metals in 2009, and $5.3 million on February 4, 2010 alone. So, they won’t flinch at your $1 million or $2 million order. For a 1 oz. Krugerrand, the premium is $29.95/coin. There are two additional costs here – one is for the dealer, and one is for the minting of the coin. It comes out to a 2.60% premium. That’s not bad. If you’re paying more than this, you’re paying too much. Dealers like Tulving and Blanchard have insurance that covers delivery to and from the dealer. So, if they send something to you, it is insured under their policy until it arrives at your door. I’ve sent 100oz. gold bars via Fedex. Insured, of course. Get it in writing if you’re nervous. Now you hold some gold in your hand. Where to store it? From time immemorial, people have stored gold at their residences. People are still unearthing gold hoards from Roman-era manors. Wealthy French stored gold at their estates during World War II. Bury it, or hide it somehow. Don’t tell anyone about it of course. If you don’t like that solution, the only other solution I would suggest (not counting overseas options) is to use an independent depository. I suggest First State Depository , in Wilmington, Delaware. There might be a comparable solution on the West Coast. Do not use any depository affiliated with a bank or the Comex. This means Scotia Moccatta, HSBC, Brinks, JP Morgan, Goldman Sachs, UBS etc. etc. Don’t ask your dealer to “hold it for you.” I wouldn’t use bank safe deposit boxes. Apparently, during the S&L crisis in the early 1990s when many Texas banks failed, the contents of bank safe deposit boxes were confiscated. Was that “legal”? Who knows. Who cares. It happened. With a “real” depository like First State, you can make an appointment to visit (“audit”) your gold on 24 hours’ notice. Go there and hold it in your hand. Check the serial numbers and specific weights if you like. See Rule #1. You should be able to hold your gold in your hand within 24 hours. The “dubious” depositories, such as the Comex depositories, do not allow you to visit your gold. They used to provide information on serial numbers and specific weights, on paper warehouse certificates. However, they have phased out the warehouse certificates as well. Besides, the service stinks. You can wait weeks to get delivery of your gold, compared to hours from a real depository. How many more red flags do you need? (See Rule #1 and Rule #2.) The storage fees charged by a “real” depository are the same as those of a “dubious” depository, and also the fees on ETFs. It doesn’t cost any more. It’s just a lot better. Want to hear some horror stories? Listen to this interview with someone who personally visited the Scotia Moccatta depository. If you listen to something like this and don’t take delivery on your gold and silver, you are a moron. The iShares Comex Gold Trust, an ETF with the ticker IAU, claims to be holding 1.4 million ounces of gold apparently in this Toronto vault. However, the eyewitness account only saw 89,000 ounces! If you like, you can have a dealer like Blanchard send your gold directly to a depository like First State. Of course, the depository is also insured. So, the entire chain of delivery and storage is fully insured. Since I’m extra-paranoid, I have also had my bullion examined for tungsten counterfeits. You might want to politely inform your dealer that you plan to examine all incoming bullion for fakes. They are less likely to send you anything “suspicious” that way. Analyst Rob Kirby has released a detailed account of the tungsten counterfeit scam, including names and places. For the visually inclined, here’s a report on German television showing a 500g tungsten fake identified by Heraeus, one of the world’s premier gold smelters. Fortunately, avoiding counterfeit scams is now pretty easy, with the help of a company called Bullion Analysis Inc. (bullionanalysis.com) In the old days, up to about nine months ago, if you wanted to assay your gold, you had to either drill it for samples or send the whole bar out to a lab or smelter. Ugh. Bullion Analysis has a new, non-invasive technique that will detect even the recent high-quality tungsten phonies that have been floating about. Bullion Analysis Inc. is located in Virginia, just a short drive from First State in Delaware. You can make an appointment for them to travel with their equipment to First State, rather than sending the bullion to Virginia. They can do all the analysis on-site. For those of you with hundreds or thousands of 400oz. institutional bars, I would put those Bullion Analysis technicians on a plane pronto. If you own shares of stock, you have to sell on the stock exchange. However, you can sell gold bullion to anyone. For example, if you have some gold at First State, you might be able to ask around at investment advisers and wealth managers to see if anyone would like to buy your gold, without it leaving the depository. Then you could sell it for the highest possible price, and not have to ship it. Otherwise, you can sell to a large dealer like Tulving or Blanchard, for close to the spot price. Don’t use any advertised “cash for gold” outfits, which normally offer horrible prices. Lots of people sell 1 oz. coins on eBay. If this sounds like too much hassle and expense for you, I’d look into “hybrid” systems like Bullionvault (bullionvault.com) and Goldmoney (goldmoney.com). They are much less likely to be crooks – in my opinion – than any bank-affiliated organization. (See Rule #2.) In any case, stay away from all “paper gold” schemes like ETFs, futures, pooled accounts, and anything offered by a bank or London Bullion Market Association member. This is all a lot easier than it sounds – as long as you don’t try to trade it too much. It’s a lot safer than any brokerage account. That has always been one of the main attractions of gold bullion: ultimate safety.

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Peso Ascends With Loonie as Hedge Funds Favor Nafta Currencies as Best Bet

April 4, 2010

By Chris Fournier and Ye Xie April 5 (Bloomberg) — Mexico’s peso and Canada’s dollar are outperforming all other major currencies for the first time since at least 1998 and probably will keep rallying as the U.S. recovery lifts the rest of the world’s largest trading bloc. The currencies gained 5.9 percent and 3.7 percent against the greenback in 2010’s opening months, rising in tandem with the Intercontinental Exchange Inc.’s Dollar Index for a second straight quarter for the first time in 11 years. Hedge funds and large speculators are the most bullish on the peso and Canada’s loonie since at least April 2008, before the credit crisis swamped Lehman Brothers Holdings Inc. five months later, driving both down as much as 31 percent. As U.S. stimulus efforts totaling as much as $8.2 trillion lift demand for Mexican engine parts from Alfa SAB in Monterrey and Canadian oil from Suncor Energy Inc. in Alberta, the strength of all three countries’ currencies is demonstrating the North American Free Trade Agreement’s benefits. By contrast, ballooning deficits in Greece, Spain and Portugal weighed on the currency of the world’s biggest monetary union as the euro fell 5.7 percent versus the dollar in the first quarter. “With U.S. growth resumption, we should see channels of support for the Canadian dollar and Mexican peso assert themselves,” said Sacha Tihanyi , a strategist in Toronto at Bank of Nova Scotia, one of the first quarter’s three most- accurate forecasters on Canada’s currency in a Bloomberg survey. “Trade unions do have an implicit advantage: Each constituent nation can still tailor monetary policy to their specific situation, given that their economic structures may be quite different, whereas a currency-union is bound by a constant policy,” Tihanyi said. Most Since ‘77 The peso and the loonie topped all 13 other most traded currencies tracked by Bloomberg in January, February and March. The duo and the Dollar Index gained an average of 4.5 percent in the first quarter, the most since 1977. Last year, the greenback fell 14.9 percent in nine months against the euro, yen, pound, Swiss franc, loonie and Swedish krona, the Dollar Index’s fastest decline since 1987. Mexico’s currency will rise another 2.5 percent to 12 per dollar by Dec. 31, from last week’s 12.3026 close, according to Royal Bank of Scotland Group Plc, the first quarter’s most accurate peso forecaster along with Royal Bank of Canada, which sees it strengthening 4.7 percent to 11.75 in a year. The loonie, nicknamed for the aquatic bird on Canada’s C$1 coin, will gain 1.1 percent to reach parity with the U.S. dollar for the first time since July 2008, and then appreciate 3 Canadian cents more by Dec. 31, according to Standard Bank and Scotia, two of the first quarter’s three top forecasters on the currency. It closed last week at C$1.0111. Risk Appetite Alan Wilde , head of fixed-income and currencies in London for a unit of Baring Asset Management, said the peso and loonie will continue rising because Mexico’s currency looks inexpensive and Canada’s tends to appreciate as risk appetite improves. “If you have a flexible policy to allow your currency to drift lower on its own, then you can benefit in an economic downturn because your goods trade cheaply,” said Wilde, whose firm oversees $45 billion. “Greece doesn’t have the policy option to use the currency as some sort of stimulus as Mexico and Canada did during the financial crisis.” The U.S. and Canada enlarged an existing free-trade deal to include Mexico in 1994. Two years earlier, the Maastricht Treaty created the European Union, clearing the way for the 1999 debut of the euro, which is shared by 16 countries. Trade Triples Trade among Nafta’s 444 million people amounts to $2.6 billion a day, triple 1994’s level, and the zone generates a combined annual output of about $17 trillion, according to a Web site run by Nafta members. Output in the euro region, home to 330 million people, totals $13.6 trillion. Consumer spending in the U.S. rose in February for a fifth month and retail sales grew 0.3 percent, the most since November. Payrolls rose by 162,000 workers last month, the most since March 2007, the Labor Department said. The world’s largest economy consumes four-fifths of Mexico’s exports and three- quarters of Canada’s. The three economies will grow 3 percent or more this year, almost three times as fast as the euro region. Nafta “is recognized around the world as a success,” said John Manley , head of the Canadian Council of Chief Executives and the country’s former finance minister. “Nafta has been a source of strength for the North American economies from the moment it went into effect in 1994. Bear in mind that Canada, the United States and Mexico don’t just sell goods and services to one another. We make things together and sell them to the rest of the world.” Nafta’s Downside Critics of the agreement in Congress led by Representative Gene Taylor , a Mississippi Democrat, introduced a bill in February to repeal it, citing a 29 percent decline in U.S. manufacturing employment since 1993. Prior to Nafta, the U.S. benefited from a $1.7 billion trade surplus with Mexico, according to a statement accompanying the legislation. By 2007, Mexican exporters sold the U.S. $75 billion more worth of goods than American companies shipped south of the border. Before being elected president, Barack Obama voiced support for renegotiating the agreement. Not everyone is convinced the loonie and peso will keep gaining. Median Bloomberg survey forecasts see the loonie falling 3.7 percent by Dec. 31 and the peso gaining no more than 0.4 percent against the dollar as Federal Reserve interest-rate increases make the greenback more attractive. The last two times the peso and loonie simultaneously rose in consecutive quarters, in 2004 and 1999, both weakened in the next three months. ‘Less Enthusiastic’ Canadian Imperial Bank of Commerce, the nation’s fifth largest lender, sees them weaker at the end of 2010 as the world’s recovery falters. “Slowing global growth makes investors less enthusiastic about commodities currencies,” said Avery Shenfeld , CIBC’s Toronto-based chief economist. Danske Bank, the other top loonie forecaster in the first quarter, sees Canada’s dollar weakening 5.5 percent to C$1.07 by the end of this year. Sixteen years ago, Canada had the highest debt-to-output ratio among Group of Seven countries after Italy. Moody’s Investors Service cut Canada’s Aaa rating in 1994. The following year, then-Prime Minister Jean Chretien’s Liberal Party of Canada imposed austerity measures that led to 11 straight budget surpluses and reinstatement of the country’s Aaa rating in May 2002. Since then, the loonie has appreciated more than 50 percent. Opening Competition After the 1994 peso crisis drove the currency down as much as 40 percent in December and sparked the country’s worst recession in half a century, Mexico reduced its current account as a percentage of gross domestic product to 1.5 percent in 2008, from 7 percent in the year of the crisis. “Canada took the tough decisions; Mexico made some too,” said David Watt , senior currency strategist in Toronto at RBC Capital Markets, a unit of Royal Bank of Canada, the nation’s biggest lender. “Those that haven’t are paying now,” he said, referring to countries in Europe with bigger deficits. Mexico and Canada will have budget deficits equal to 2.6 percent and 2.8 percent of their gross domestic product this year, less than the euro zone’s 6.9 percent and the U.K.’s 12.3 percent, according to median economist estimates. Both countries have benefited from the rising price of oil, their largest export. Oil closed last week at $84.87 a barrel, up from below $34 a barrel in December 2008. Canada is the largest exporter of oil to the U.S. and sits on the biggest pool of reserves outside the Middle East. The Mexican government, the world’s seventh-biggest oil producer, gets almost a third of its revenue from crude exports. Bullishness Speculators had 70,296 more bets that the loonie would rise than contracts that profit from it falling as of March 30 and 73,027 more the week before, when the gap was the widest since October 2007, data from the Washington-based Commodity Futures Trading Commission show. The bullish outlook reflects an economy growing faster than analysts forecast, lower budget deficits and a banking system that didn’t need government funds during the financial crisis. Canada is on course to be the first G-7 nation to erase its budget gap following the global recession. Prime Minister Stephen Harper ’s Conservative Party outlined plans last month to narrow the deficit to C$1.8 billion ($1.78 billion) in 2014, from a record C$53.8 billion last year. Sound Financials The economy grew at a 5 percent annualized rate in the fourth quarter, the fastest pace since 2000. The country’s financial system has been the soundest in the world for two consecutive years, according to the Geneva-based World Economic Forum, and Canadian banks lead 12-month gains on the nation’s equity benchmark, the Standard & Poor’s/TSX Composite Index, which is up almost 40 percent in the past year. Shares of Calgary-based Suncor surged 8.6 percent last month after Canada’s largest oil company announced plans to take advantage of higher crude prices by increasing output. The Bank of Nova Scotia last week raised its recommendation on the stock to “outperform.” The peso is riding Mexico’s export-led recovery, said Clyde Wardle , an emerging-market currency strategist at HSBC Holdings Plc in New York. He sees the peso gaining by year-end to 12.25 per dollar. Mexico reported a preliminary trade surplus of $244 million for February, compared with a median prediction of a $5 million deficit. Industrial production in Latin America’s second-largest economy gained 3.6 percent in January, the most since April 2008. Transmissions Alfa , the world’s largest producer of aluminum engine heads, jumped 344 percent in the past 12 months as Mexico’s car production doubled in January from a year earlier and rose more than 50 percent in February. Mexico City-based Grupo Kuo SAB, which makes transmissions for Ford’s Mustang coupe and Chrysler Group LLC’s Dodge Ram pickup, more than tripled over the past year, compared to the benchmark Bolsa stock index’s 70 percent rise. Bullish bets on the peso outnumbered bearish ones by 109,598 on March 30 and by 109,862 a week before, the most since April 2008. The peso is trading 10.6 percent below its average of 11 per dollar in the past decade even after rallying 26.5 percent from its March 2009 low. Bank of America Merrill Lynch estimates it’s undervalued by 10 percent. “We expect a marathon of slow and steady peso appreciation,” said Alberto Boquin , an analyst for the bank in New York, in a March 26 note. “Fundamental undervaluation of the peso should correct over time.” To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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Barrick Mine’s Gold Output May be Cut in Half by Judge in Nevada Lawsuit

March 31, 2010

By Joe Schneider March 31 (Bloomberg) — Barrick Gold Corp. ’s plan to double production at a Nevada gold mine complex this year by digging out an additional $625 million in deposits may turn on a judge’s decision in an environmental suit by American Indian tribes. The Canadian company forecast a production increase of 562,000 ounces with the addition this year of the Cortez Hills mine, located 2.5 miles (4 kilometers) from an older Nevada installation which produced 518,000 ounces last year. The state’s Shoshone tribes claim the U.S. Bureau of Land Management didn’t fully evaluate the environmental impact of the mine expansion before approving it. They sued in 2008 to stop the new operation, about 200 miles east of Reno, and are seeking a court order forbidding production until a trial is held. Such an injunction “would hit their share price,” said Patrick Chidley , a gold-mining analyst at Barnard Jacobs Mellet USA LLC in Stamford, Connecticut. He declined to predict how much shares may fall, saying only “it would be noticeable.” The judge overseeing the case hasn’t said when he will rule. The Cortez deposits, near Mount Tenabo, a Western Shoshone sacred site, contain about 14.1 million ounces of gold, Barrick said in its annual report. At $1,112 an ounce, the projected 2010 increase in deposits would be worth about $625 million. 600,000 Ounces Production at the new site may exceed 600,000 ounces this year, as output from the older Cortez mine declines, said Chidley, who rates Barrick “outperform” and expects the stock to rise 56 percent to $60.20 in the next 12 months. Chidley said he doesn’t own any shares of Barrick. Most analysts probably agree with Chidley that the existing mining operation at Cortez will produce less gold this year, Barrick’s spokesman Vincent A. Borg said in an e-mail. “That doesn’t mean they are right,” Borg said. The older mine produced 904,000 ounces in 2005 and output fell 43 percent in the next four years. Overall, the Toronto-based company in 2009 produced 2.8 million ounces of gold in North America . U.S. District Judge Larry R. Hicks in Reno must weigh the environmental harm Barrick’s operations would cause against the hardships the company and its employees would suffer if production ceased, said attorney Carrick Brooke-Davidson , a partner at Guida, Slavich & Flores PC in Austin, Texas, who specializes in environmental law. ‘The Crux’ “The crux of the issue is the irreparable harm,” which plaintiffs must prove to obtain the order, said Brooke-Davidson, who worked in the environmental enforcement section of the U.S. Justice Department for 12 years and isn’t involved in the Barrick case. The U.S. Supreme Court has said a violation of environmental law doesn’t always result in irreparable harm. Barrick may be able to convince the judge that limited curtailment of mine operations would be sufficient, Brooke- Davidson said. Barrick is seeking to boost output to benefit from gold prices that have risen for nine straight years. The price reached a record $1,227.50 an ounce on Dec. 3 as investors sought a hedge against inflation and volatility in other markets. Written arguments were completed March 19. Barrick, on March 26, requested oral arguments in Reno federal court. The judge hasn’t ruled on that request, which the plaintiff tribes oppose. Initially Denied The judge initially denied an injunction request by the tribes. That decision was overturned in December by the U.S. Court of Appeals in San Francisco. The appeals court said Hicks failed to adequately consider the mine’s environmental impact, including the effect of air pollution resulting from ore shipments to a processing plant 70 miles away. The appeals court ordered Hicks to “provide injunctive relief” consistent with its opinion. It left the specifics of such relief to Hicks, saying that suspending a project until “careful consideration of environmental impacts” has occurred “comports with the public interest.” The company argued that such an order should allow for production at the mine complex to continue. Barrick proposes to halt truck shipments of ore that must be processed at the offsite plant until the environmental review is completed. That would affect about 3 percent of the production at Cortez Hills, Barrick said. Environmental Assessment The company also has agreed not to pump groundwater until the review is done, in accordance with the appeals court’s finding that the environmental assessment failed to evaluate the effectiveness of company proposals to limit the impact of the operation on springs and creeks. “We are cautiously optimistic that our proposal will be accepted,” Barrick Chief Executive Officer Aaron Regent said Feb. 18 on a conference call. “Our proposal would keep hundreds of people employed at a time when the state of Nevada is facing tremendously difficult economic circumstances.” Chidley, the analyst, said he expects the judge to side with Barrick. The tribes oppose an injunctive order that is limited to truck traffic and water use. “The Ninth Circuit ruling was very clear” in permitting an injunction fully halting production, said Roger Flynn, founding director of the Western Mining Action Project , referring to the San Francisco-based appeals court. Flynn’s group represents the Shoshone tribes. A limited injunction wouldn’t comply with the law, or the appeals court opinion, Flynn said in a telephone interview. Preparing For Trial The two sides are preparing for a trial whose date probably will be set near the end of May, Flynn said. Barrick said a shutdown at Cortez Hills would also result in the loss of about 550 jobs. “The devastating impact on these people of losing their jobs and paychecks goes without saying,” Barrick said in court papers. The case is South Fork Band Council of Western Shoshone of Nevada v. U.S. Department of the Interior, 08-cv-00616, U.S. District Court, District of Nevada (Reno); the appeals court case is South Fork Band Council of Western Shoshone of Nevada v. U.S. Department of the Interior, 09-15230, U.S. Court of Appeals for the Ninth Circuit (San Francisco). To contact the reporter on this story: Joe Schneider in Toronto at jschneider5@bloomberg.net .

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Obama, Sarkozy Unified on Push for New UN Sanctions on Iran ‘Within Weeks’

March 30, 2010

By Helene Fouquet and Julianna Goldman March 31 (Bloomberg) — President Barack Obama and French President Nicolas Sarkozy said they’re unified over new sanctions if Iran fails to rein in its nuclear ambitions, and Obama said the United Nations may agree on the new steps “within weeks.” “The door remains open if the Iranians choose to walk through it,” Obama said at a joint news conference with Sarkozy at the White House yesterday. “In the interim we are going to move forcefully on a UN sanctions regime.” Sarkozy said France and other European nations will support stronger action at the UN. “The time has come to make decisions,” he said. “Iran cannot continue its mad race.” Obama said the U.S. and its partners still don’t have unanimous support for tougher sanctions and “that’s something we have to work on.” Both Russia and China hold a veto at the UN Security Council and have sent conflicting signals about punishing Iran, holder of the world’s second-biggest oil and gas reserves. The U.S. president suggested that some nations may be reluctant to impose sanctions because of Iran’s role as an energy supplier. Commercial Interests “There are a lot of countries around the world that, regardless of Iran’s offenses, are thinking that their commercial interests are more important to them than these long- term geopolitical interests,” Obama said. Still, he said, “We think we can get sanctions within weeks.” Obama and Sarkozy discussed the possibility for other measures if the UN sanctions aren’t strong enough, a French official told a reporters’ briefing on condition of anonymity. That’s not the favored solution, the official said, giving no details of what may be under consideration. Group of Eight foreign ministers, meeting in Canada, in a statement earlier yesterday, said actions by Iran have deepened “serious doubts” about the peaceful nature of the country’s nuclear program. They said they are prepared to take “strong steps” to show resolve on the issue. The statement fell short of calling for sanctions against Iran. Canadian Foreign Minister Lawrence Cannon and U.S. Secretary of State Hillary Clinton said it wasn’t the meeting’s objective to agree on sanctions because that issue should be resolved at the UN Security Council. “It’s important to underscore that the negotiating forum we are all focused on is” the Security Council, Clinton said at a joint press conference. Regulations, Afghanistan Obama and Sarkozy said their meeting also included discussions about the global economic recovery, financial market regulations, the Middle East, Afghanistan and a potential bid by European Aeronautic, Defence & Space Co. to build aerial refueling tankers for the U.S. military. On regulatory overhaul, both leaders praised each another’s efforts to rewrite rules governing financial institutions and pledged to work together on globally coordinated efforts. “I will continue to work with President Sarkozy and other world leaders to coordinate our efforts, because we want to make sure that whatever steps we’re taking, they are occurring on both sides of the Atlantic,” Obama said. Sarkozy said the U.S. would work “hand-in-hand” on financial rules “so that we not go back to what we have already experienced.” Group of 20 Obama, Sarkozy and other world leaders are working as part of the Group of 20 on rules to govern international banks after the worst financial crisis since the Great Depression. Financial companies have written down or lost $1.76 trillion since the crisis began in 2007, according to Bloomberg data. Ahead of the group’s next summit in Toronto in June, Sarkozy, Obama, U.K. Prime Minister Gordon Brown , Canadian Prime Minister Stephen Harper and South Korean President Lee Myung Bak sent a letter to their G-20 counterparts, saying more work is required “to restore the soundness of some global banks’ balance sheets.” On Afghanistan, Sarkozy said the war in that country is crucial to global security and the allies battling the Taliban there “cannot lose.” “We support President Obama’s strategy,” he said. Obama, who made an unannounced visit to Afghanistan March 28, has asked North Atlantic Treaty Organization countries to contribute more resources to the eight-year-old war. French Deployment Since April 2008, France has almost doubled the number of its troops there, deploying them to the troubled east of the country. France’s 3,750 troops are the fourth largest contingent in NATO’s-led Afghan mission. Sarkozy has repeatedly said France has increased its forces enough, though he has promised to send more trainers. Obama said he told Sarkozy that the process for selecting bids for the aerial refueling tanker contract will be “free and fair.” The Defense Department is reviewing a request by EADS to extend by 90 days the period for bidders to submit proposals for the $35 billion contract. EADS’s U.S. partner, Los Angeles-based Northrop Grumman Corp. , dropped out on March 8, saying the rules gave an advantage to a smaller plane offered by Chicago-based Boeing Co ., the only other contender. Obama said the decision will be up to U.S. Secretary of Defense Robert Gates , who has vowed to make the process “completely transparent.” Sarkozy said he told Obama that he trusts the U.S. president’s word on the process for reviewing bids. “Of course we talked about it,” the French president said. “But I said to him I trust you. And I do trust him.” Ben’s Chili Bowl Obama took time at the joint press conference to make light of Sarkozy’s lunch earlier at Ben’s Chili Bowl , a Washington institution known for half-smokes and chili-dogs. Sarkozy ate there with his family. Obama, who himself has been to Ben’s as president, thanked Sarkozy for sampling the local cuisine. Sarkozy joked that when Obama returns, beneath a giant picture of the U.S. president will be a new wall hanging. “When I walked in, I saw a huge photograph of President Obama,” Sarkozy said. “And I’m afraid that when you go back to that restaurant, you may see a smaller photograph of the French president.” To contact the reporters on this story: Julianna Goldman in Washington at jgoldman6@bloomberg.net ; Helene Fouquet in Washington via Hfouquet1@bloomberg.net

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RBC Capital Plans to Be Among the Top Ten Investment Banks in U.S. Market

March 30, 2010

By Doug Alexander March 30 (Bloomberg) — RBC Capital Markets plans to be a top 10 investment bank in the U.S. by attracting business from American companies worth as much as $10 billion, five times larger than its traditional client base. “Our goal over the next two to three years is to be top 10 in the U.S. market,” said Blair Fleming , who heads the U.S. investment-banking unit of Royal Bank of Canada in New York. RBC Capital Markets is expanding its investment-banking services to target larger companies and take U.S. market share from rivals such as Goldman Sachs Group Inc. and Deutsche Bank AG. Previously, the firm focused on “mid-market” businesses with a market value of $2 billion. “Our strategy is to basically build on the mid-market practice that we’ve had, but extend that up into the mid-cap space,” Fleming, 48, said in a March 25 interview in New York. RBC ranked 14th in the U.S. for managing equity financings last year, with $1.27 billion in deals. The Toronto-based lender was 21st for advising companies on takeovers, with 45 announced transactions worth $11.9 billion, according to Bloomberg data. Top-ranked JPMorgan Chase & Co. advised on $34 billion of stock sales while Morgan Stanley ranked No. 1 for mergers, with 136 deals worth $331.7 billion. RBC faces tough odds in trying to crack the top 10 for U.S. investment banks, according to Michael Holland , who oversees more than $4 billion as chairman of Holland & Co. in New York. “The history is not promising; it’s going to be an uphill climb for them,” Holland said in an interview. “The business is incredibly competitive and a lot of it has to do with relationships.” New Hires RBC hired 24 senior bankers from Wall Street firms in the past year to gain those relationships and add coverage of industries such as transportation, restructuring, and aerospace. The firm is also bulking up in areas such as leveraged finance, high-yield debt and acquisitions. “That’s very smart,” Holland said, of RBC’s recruitment efforts. “They’re increasing their odds of success by doing that.” RBC’s strategy may be paying off. The firm was the sole adviser for Triumph Group Inc.’s $984 million takeover of Vought Aircraft Industries Inc. from Carlyle Group announced March 23. That purchase came about eight months after the firm hired James Caldwell from Banc of America Securities to create an aerospace and defense business in New York. “This is exactly the kind of company we want,” Fleming said. “We wouldn’t have had that a year ago because we didn’t have the industry coverage.” Adds Bankers RBC has 254 investment bankers in the U.S. and is looking to hire more as it targets a top-10 ranking in mergers advice and equity sales. “Our pace has slowed down a bit, but you’ll still see us making significant additions over the next quarter,” he said. “What we’re looking to do is continue to broaden the bankers and clients that we have.” Fleming was appointed head of U.S. investment banking in January after leading the bank’s global syndicated loan business from Toronto. Royal Bank is Canada’s largest lender and the fifth-biggest commercial bank in North America by market value. Royal Bank fell 37 cents to C$59.45 in trading yesterday on the Toronto Stock Exchange. To contact the reporter on this story: Doug Alexander in Toronto at dalexander3@bloomberg.net

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CGI’s Roach Hunting for Financial Services, Government Deals as Cash Grows

March 26, 2010

By Hugo Miller March 26 (Bloomberg) — CGI Group Inc. , Canada’s biggest computer-services provider, is hunting for deals to beef up its financial services and government units as the company’s available cash pile grows to $1.7 billion. “Financial services, as a percent of revenue, they invest more in IT than any other sector,” Chief Executive Officer Michael Roach said in an interview, referring to technology spending. “If I find the right company with the right criteria, it could double me in the U.S. and triple me in a sector.” As competitors bulk up through acquisitions, CGI is seeking its first major deal since 2004, when it paid C$1.1 billion for American Management Systems Inc. CGI, which is based in Montreal, has cash and credit lines of about C$1.75 billion ($1.7 billion) to draw from. In September, Roach told Bloomberg he was willing to spend $2 billion on a deal. He wouldn’t give a time frame then and declined to do so now. CGI’s customers include London-based bank Barclays Plc, Philadelphia-based insurer Cigna Corp., U.S. federal government agencies and state and provincial governments in the U.S. and Canada. The company generated more than half its revenue in Canada last year. “We’re looking for companies in the U.S., Western Europe,” Roach, 58, said yesterday at CGI’s Toronto office. He’s interested in businesses that cater to government, a strategy he called defensive because CGI would capitalize on U.S. stimulus spending. “I’m not driven by time.” Roach declined to name targets or say if any talks are under way. ‘Enviable Position’ The company should take advantage of a strong balance sheet and the surging Canadian dollar to gain the critical mass it needs outside Canada and to compete with International Business Machines Corp ., said Steven Li , an analyst at Raymond James Ltd. in Toronto. “The Canadian dollar and their cash flow puts them in an enviable position to make a decent-sized acquisition,” said Li, who rates the shares “outperform” and doesn’t own any. “There is a window of opportunity here but as a shareholder , you don’t want them to buy any old company. If they have contracts that are problematic, it comes back to haunt you.” The Canadian dollar slipped 0.5 percent to 97.15 U.S. cents at 12:50 p.m. New York time. It has gained 20 percent against the U.S. currency in the past year and 21 percent against the euro. Outside of Canada and the U.S., CGI operates throughout Europe as well as in India and Australia. The company said in January that it had more than C$340 million in cash and C$1.4 billion in unused credit at the end of its last quarter. Primarily Cash “We could do a transformational-type deal and I’m confident we could finance it primarily on cash, on a cash basis, essentially,” given the currency’s strength and low interest rates, said Roach, who joined the company in 1998. He served as chief operating officer for almost four years before being named CEO in 2006. The company posted revenue of C$3.83 billion in fiscal 2009, which ended in September, 13 percent higher than in 2006. Profit more than doubled in that period to C$316 million. CGI fell 24 cents to C$15.41 at 12:50 p.m. in Toronto Stock Exchange trading . The shares had gained 9.9 percent this year before today, compared with a 1.3 percent loss for IBM. CGI isn’t alone in trying to gain ground on IBM, the world’s largest computer-services company. Dell Inc. , the third-biggest personal-computer maker, bought Perot Systems Inc. in November for about $3.9 billion. Round Rock, Texas-based Dell said in February it plans to acquire more computer-services companies. Price Too High “Perot would have been interesting for CGI at the right price but the price Dell paid was too high,” Li said. CGI could be considering information-technology units of larger companies as well as stand-alone businesses, he said. Xerox Corp. , based in Norwalk, Connecticut, completed its purchase of Affiliated Computer Services Inc. for about $6 billion in February to accelerate its focus on computer services amid declining sales of printing equipment. “I don’t feel we’re limited financially about going after a target,” Roach said. “Our ability to integrate something very large has been well established. I’m not put off by the size.” To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

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Aussie Losing to Loonie Shows Canada Banks Trump China in Currency Market

March 8, 2010

By Chris Fournier March 8 (Bloomberg) — The Australian dollar is being overtaken by the Canadian dollar among commodity currencies as the safety of Canada’s banking system and ties with the U.S. economy spur investors to buy the loonie. Options show demand for the right to sell the so-called Aussie and buy the Canadian dollar reached the highest last month in almost a year. A measure of traders’ expectations for price fluctuations indicates the loonie is the most secure bet relative to the Australian dollar since July as the global recovery shows signs of wavering. At the start of 2010, the Aussie and loonie approached parity with the greenback as the revival in U.S. growth spurred demand for Canada’s energy exports while China’s expansion supported Australia’s iron ore and coal. The Aussie lost momentum as China, the nation’s largest trading partner, restrained lending to cool its economy while crude oil, Canada’s biggest export, surged to $80 a barrel. “There’s a tremendous amount of positive sentiment for Canada right now,” said Camilla Sutton , director of currency strategy in Toronto at Bank of Nova Scotia, the second-most accurate currency forecaster in the year and a half ended in June, according to data compiled by Bloomberg. “The Australian dollar has already benefited.” Best Performer Australia’s dollar was the best performer in 2009 against the U.S. among the 10 most-traded currencies. It rallied 28 percent as the South Pacific nation skirted the global recession and its central bank became the first among the Group of 20 nations to boost borrowing costs. Now, Australia’s currency may struggle as the pace of interest-rate increases slows and China’s imports of iron ore and copper fall short of last year’s record levels. While Chinese Premier Wen Jiabao affirmed a target of 8 percent growth for 2010, the same goal the government set and surpassed in each of the past five years, People’s Bank of China Deputy Governor Su Ning said the central bank is concerned about rising commodity prices. The Australian dollar fell to 92.56 Canadian cents on March 4 after appreciating 10.5 percent last year in its biggest annual increase since 1994. It slid below the 200-day moving average against the loonie on Feb. 4 for the first time in a year and a half. The Australian dollar tumbled 21 percent the last time it did so in August 2008. The Aussie will drop to 91.35 Canadian cents by September, according to Richard Grace , chief currency strategist in Sydney at Commonwealth Bank of Australia, among the five most-accurate forecasters for the Aussie and loonie last year. The Australian dollar traded at 93.62 Canadian cents as of 11:14 a.m. in London, from 93.38 cents in New York on Friday. Bullish on Loonie In addition to the Aussie and loonie, the New Zealand dollar, South Africa rand, Brazil real and Norwegian krone are considered commodity currencies. The rand has declined about 2.4 percent this year versus the Canadian dollar, the real has fallen 4.4 percent, while the kiwi is down 5.3 percent and the krone off 3.8 percent. The bullish outlook for the loonie, as the Canadian currency is known for the image of the aquatic bird on the C$1 coin, reflects an economy expanding faster than analysts forecast, a reduced budget deficit and a banking system that avoided a collapse or the need for public capital. Canada is on course to be the first Group of Seven nation to erase its budget gap after the global financial crisis. Finance Minister Jim Flaherty anticipated last week that the deficit will narrow to C$1.8 billion ($1.75 billion) in 2014 from a record C$53.8 billion last year. Bank Profits The economy expanded at a 5 percent annualized rate in the fourth quarter, the fastest pace since the third quarter of 2000. Australia’s grew 2.7 percent from a year earlier, while the economy of the U.S., Canada’s largest trading partner, increased 5.9 percent. Canada’s financial system was named the soundest in the world for two consecutive years by the Geneva-based World Economic Forum. Toronto-Dominion Bank, Canada’s second-largest lender, Canadian Imperial Bank of Commerce , National Bank of Canada and Bank of Montreal all reported profits in the first quarter that beat analysts’ estimates. Adding to the positive sentiment, Canada won 14 gold medals at the Olympics in Vancouver, the most by any country in the 86- year history of the Winter Games. The government contributed C$22 million to the “Own the Podium” program to help elite athletes train. “It’s one more thing that puts Canada on the radar screen,” said Bank of Nova Scotia’s Sutton, whose firm trailed only Germany’s Landesbank Baden-Wuerttemberg in Bloomberg’s ranking of 46 companies for currency forecasting. Currency Volatility Measured against a basket of currencies from the Group 10 nations proportioned by how they trade against each other, the loonie is up about 20 percent in the past five years, according to Bloomberg Correlation-Weighted Currency Indexes. The Aussie gained 17 percent in the same period. Three-month implied volatility for the loonie fell to 10.90 percent last week, from 12.59 percent on Jan. 21, the day U.S. President Barack Obama announced measures to impose limits on commercial banks to make them more secure. Volatility for the Australian dollar dropped to 13.44 percent, from 14.13 percent. The difference in volatility was 3.57 percentage points on Feb. 19, the widest since July. Currency fluctuations may erode profits in carry trades, in which investors buy higher-yielding assets with amounts borrowed in nations with low interest rates. Largest Premium Investors paid the largest premium in almost a year last month for Australian dollar put options versus the loonie. The premium of contracts granting the right to sell the Aussie versus the Canadian currency in one week over those for buying increased on Feb. 8 to 1.18 percentage points, the biggest since April 2009, Bloomberg data show. Aussie bulls say the nation will benefit as China’s economy grows even after its central bank raised reserve requirements for lenders. The move in China “is a sign saying growth is very, very strong, and China and the region are doing very well,” said Paul Mackel , director of currency strategy at HSBC Holdings Plc in London. “I would put the Canadian and the Australian dollars in the same camp,” said Shane Enright , a currency analyst in Toronto at CIBC World Markets Inc. “I’m not convinced you’ll see either outperform the other. Right now people are afraid of the euro, and they’re looking at places they deem safe. That pretty much seems to be Sweden, Canada and Australia.” Bank of Canada Australia’s dollar will appreciate to 97 Canadian cents by April, according to Shaun Osborne , chief currency strategist in Toronto at Toronto-Dominion Bank. The potential for Canada’s interest rates to increase at a faster rate than Australian borrowing costs may give the loonie an edge. After its March 2 meeting, the Bank of Canada indicated it won’t extend a conditional commitment to keep its benchmark lending rate at a record low past June. It also didn’t repeat a phrase warning of the risk of slow inflation, after consumer prices rose the most since November 2008 in January. On the same day, the Reserve Bank of Australia said after raising the benchmark cash target rate to 4 percent that inflation would likely be “consistent” with its target, a sign the pace of rate increases may slow. ‘Needs to Do’ The Bank of Canada will boost its target overnight rate by 2 percentage points to 2.25 percent by the middle of next year, compared with an increase of 1.25 percentage points to 5.25 percent for Australia’s rate, according to the average forecasts in Bloomberg News surveys of economists. “We don’t think the market is fully pricing in how much the Bank of Canada needs to do,” said Matthew Strauss , senior currency strategist in Toronto at Royal Bank of Canada. The bank forecasts that the loonie will strengthen beyond parity to C$0.98 against the U.S. dollar by the end of the second quarter, while the Aussie will be little changed at 91 U.S. cents. “The narrowing in that interest-rate spread will provide further support for the cross to come down.” To contact the reporter on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net

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Pfizer’s Failures Clear Path for Cholesterol Drug Push by Canadian Upstart

March 5, 2010

By Ellen Gibson March 5 (Bloomberg) — Resverlogix Corp. , without a marketed product, may accomplish what Pfizer Inc. , the world’s biggest drugmaker, couldn’t: Creating a new medicine that fights heart disease by raising so-called good cholesterol. If the treatment, dubbed RVX-208, shows it can reverse the build-up of artery-clogging plaque, it may grab a “substantial” portion of the $35 billion cholesterol-fighting market, said Simos Simeonidis , an analyst with Rodman & Renshaw Inc. in New York. Resverlogix is in “detailed discussions” with several companies seeking to partner or license the drug, said Chief Executive Officer Donald McCaffrey , 51, in an interview. He declined to identify the potential partners. New York-based Pfizer spent more than $2 billion on two similar treatments without success. The drugs were tested by Steven Nissen , 61, the Cleveland Clinic cardiology chief who is leading the Resverlogix trials. Nissen said RVX-208 works differently than the Pfizer drugs, switching on a protein that helps spur the production of HDL, or good cholesterol. “There is definitely a lot of interest from big pharma” in Resverlogix’s drug candidate, said Simeonidis. “If this drug works, it could be as big as Lipitor.” Pfizer’s Lipitor, the world’s best-selling drug, generated $11.4 billion in revenue last year, according to data compiled by Bloomberg. Pfizer, Merck & Co. of Whitehouse Station, New Jersey, and Swiss drugmakers Novartis AG and Roche Holding AG “would potentially be interested” in co-developing RVX-208, Simeonidis said. He doesn’t have any specific knowledge of the companies’ interest, and all four declined to comment. Rising Shares Resverlogix rose 70 Canadian cents, or 18 percent, to C$4.50 in Toronto Stock Exchange trading yesterday. The shares have gained 86 percent this year. The company, which has a market value of C$177.4 million ($172 million), has no revenue. “What would make a good fit is a pharmaceutical company that has a strong cardiovascular position and an established sales network,” said McCaffrey, who co- founded the nine-year- old, Calgary-based drug developer. Prospective partners “may want to wait to see more data,” said analyst Simeonidis. “Then again, there’s such a huge potential they may be willing to take a flyer.” Best-selling heart drugs Lipitor and London-based AstraZeneca Plc’s Crestor lower production of so-called bad cholesterol, or LDL, by blocking an enzyme in the liver. These drugs belong to a class of medicines known as statins. New Approach Resverlogix’s product would increase the levels of a protein called ApoA-1 that helps produce HDL, which removes bad cholesterol from arterial plaque and ferries it to the liver where it can be disposed. People with naturally high levels of HDL are less likely to develop heart attacks or die from cardiovascular disease, studies show. Resverlogix is banking that artificially raising HDL will have the same effect. Only one treatment now commercially available is marketed to increase good cholesterol. Niacin, a B vitamin, elevates HDL “but it’s not clear whether it lowers cardiac events,” according to Stephen Kopecky , a cardiologist at the Mayo Clinic in Rochester, Minnesota. High doses of niacin are available in prescription form. Abbott Laboratories , based in Abbott Park, Illinois, makes Niaspan, the top-selling non-generic form of niacin. The drug generated $990 million in U.S. sales last year, according to Norwalk, Connecticut-based research firm IMS Health Inc. Facial Flushing Use of Niaspan has been limited because it can cause elevated blood sugar and facial flushing. In a 2009 study, one- third of patients newly treated with niacin reported severe to extreme flushing. Heart disease is the leading cause of mortality in the U.S., resulting in 632,000 deaths a year, according to the Centers for Disease Control and Prevention in Atlanta. In coronary artery disease, fat, cholesterol, calcium and other substances — collectively known as plaque — build up in the blood vessels that supply oxygen to the heart, a condition that can lead to a heart attack. A new class of medicines for combating the disease is “overdue,” according to the Cleveland Clinic’s Nissen, who said he doesn’t own Resverlogix stock and isn’t being paid for his RVX-208 research. Statins only reduce the risk of heart attack and stroke by 25 to 35 percent, he said. Water Supply “We could put statins in the water supply and heart disease would still be the leading cause of death in the developed world,” Nissen said in a telephone interview. Over the past decade, Nissen tested both of the experimental HDL medicines that passed through Pfizer’s pipeline. Pfizer acquired ApoA-1 Milano, a naturally occurring variant of the protein, through its $1.3 billion acquisition of Esperion Therapeutics Inc. in 2004. Once hailed as “ Drano for the heart ,” ApoA-1 Milano showed a reduction of plaque in early testing, according to a Nissen-written report published in the November 2003 issue of the Journal of the American Medical Association . The protein, mined from bacteria, turned out to be too difficult to produce. After conducting “extensive research into the large-scale manufacturing of ApoA-1 Milano,” Pfizer decided “to focus on other drug candidates in its portfolio,” company spokeswoman Anne Wilson said in an e-mail. The drugmaker sold the compound to Parsippany, New Jersey-based Medicines Company in December for $10 million and milestone payments if advances are made. Commercial Potential Nikhil Mehta , the director of cardiovascular portfolio at Decision Resources, a biopharmaceutical research firm based in Waltham, Massachusetts, said the commercial potential of RVX-208 is “much greater” than the failed Pfizer drug. “One of the main attractions of Resverlogix’s drug is that it is oral, unlike Milano, which was given as an infusion,” he said in a telephone interview. Pfizer also spent $1 billion attempting to develop the compound torcetrapib, a type of experimental medicine called a CETP inhibitor. CETP inhibitors aim to raise good cholesterol levels by blocking an enzyme that metabolizes HDL. The company at one point projected $13 billion in annual sales for torcetrapib as the successor to Lipitor, which faces generic competition in 2011. Development of the drug was halted in December 2006 when a study found that deaths among those on the medicine were 60 percent higher than among people who didn’t get it. Market Value Plunges Pfizer shares fell 11 percent on the first trading day after the announcement, wiping out $21 billion in market value, and the drugmaker later dropped most of its early heart-disease research. “Nissen kind of got burned” on torcetrapib, said Harlan Krumholz , a cardiologist at the Yale University School of Medicine in New Haven, Connecticut. “He was sure the CETP inhibitors were going to be great. Torcetrapib wasn’t, and it blew his hypothesis of saying, ‘I know what’s going to work and what’s not going to work.’” An early trial of RVX-208, concluded in August, met primary endpoints by safely increasing ApoA-1 levels by 5 to 10 percent in all 72 participants, Resverlogix said. The company finished enrolling patients in the next phase of testing on Feb. 8. In this study, about 280 patients with coronary artery disease will be dosed with Resverlogix’s experimental drug for 13 weeks to see how it affects their cholesterol levels. The company may present data from the study at the American Heart Association meeting in Chicago in November, CEO McCaffrey said. The company also is conducting a second mid-stage study involving 120 patients who suffered a heart attack in the four weeks before the trial began. The study will use ultrasound to measure plaque volume. Resverlogix obtained $30 million in financing in the past year, enough cash to pay for the current trials, McCaffrey said. If these studies are successful, Resverlogix plans to start the third and final round of testing needed for regulatory approval in mid-2011, McCaffrey said. Assuming all goes well, the company plans to file for approval with the U.S. Food and Drug Administration in 2015, he said. “Hope springs eternal,” Nissen said. “We need to keep trying to find an HDL-raising strategy that works.” To contact the reporters on this story: Ellen Gibson in New York at egibson9@bloomberg.net ;

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CF Industries Offers $4.73 Billion for Terra to Outbid Yara International

March 2, 2010

By Steven Frank March 2 (Bloomberg) — CF Industries Holdings Inc. offered to acquire rival U.S. fertilizer producer Terra Industries Inc. for about $4.73 billion in a renewed bid to create the largest U.S. maker of nitrogen-based fertilizers. The proposal includes $37.15 in cash and 0.0953 of a CF Industries share for each Terra share, CF said today in a statement. The offer is valued at $47.40 per share based on CF’s closing price on yesterday, CF said. CF’s bid would rival one from Yara International ASA, the world’s largest fertilizer maker, which agreed to buy Terra for $4.1 billion last month. In January, Deerfield, Illinois-based CF Industries dropped a hostile attempt to acquire Sioux City, Iowa-based Terra. CF had sought to buy Terra since January 2009 while fending off a hostile offer from Calgary-based Agrium Inc. At stake was whether Agrium or CF would be the world’s second-largest publicly traded maker of nitrogen-based fertilizers after Oslo- based Yara. CF Industries fell $9.54, or 8.9 percent, to $98 at 7:34 a.m. in trading before the regular open of the New York Stock Exchange. Terra rose $5.15, or 13 percent, to $46.35. To contact the reporter on this story: Steven Frank in Toronto at sfrank9@bloomberg.net .

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Vancouver Leveraging Athletes to Avoid Reduced Bond Rating: Canada Credit

March 1, 2010

By Christopher Donville and Chris Fournier March 1 (Bloomberg) — Sidney Crosby’s overtime goal salvaged the Canadian national hockey team’s Olympic gold-medal aspirations. Vancouver may have to count on him now to help sell condominiums to avoid a credit-rating cut. Canada’s third-biggest city is responsible for C$700 million ($665 million) in financing for the luxury condominium development used by Olympic athletes such as Crosby. The city needs to sell 474 units for as much as C$10 million each to recoup its lending and avert a possible credit rating cut. The athletes’ use of the condos overlooking False Creek is part of the city’s sales pitch. “The exposure of the Olympics have been massive, the best possible marketing campaign to have, particularly for the village,” Mayor Gregor Robertson said in an interview on Feb. 27. “We have a very good chance to see the village sold out within about two years.” Robertson is seeking to avoid a repeat of Canada’s last Olympic-financing fiasco: The 1976 Summer Games in Montreal, which left Quebec with C$1.5 billion of debt that took three decades to repay. Vancouver’s costs may increase depending on how long it takes to sell the units and recover the city’s investment, city officials said. Vancouver was forced to finance the project after New York- based Fortress Investment Group LLC withdrew support in late 2008 after losing confidence in Vancouver-based Millennium Development Corp., the project’s developer, amid construction- cost overruns and the effects of the global recession. Rating Cut Elsewhere in credit markets, the Bank of Canada will hold its target rate for overnight lending at a record low 0.25 percent at its meeting tomorrow, according to all 20 economists in a Bloomberg News survey. Bank of Canada Governor Mark Carney has pledged to keep the rate low through June unless the outlook for inflation shifts. Crosby, the leading goal scorer in the National Hockey League, scored 7:40 into the extra period to give Canada a 3-2 victory in Vancouver over the U.S., giving the host country its record 14th championship of the Games. Standard & Poor’s cut Vancouver’s debt rating a year ago to AA from AA+, citing heightened risks related to the C$1.1 billion ocean-side development. Moody’s Investors Service reduced to “negative” its outlook on the city’s debt. “Until they start selling these units, the risks will remain out there,” Alex Bellefleur , a public-finance analyst at Moody’s in Toronto, said in a phone interview last week. “There is risk of a downgrade, but we don’t think it would be a multiple-notch cut that would have a significant effect on the city’s credit profile,” Bellefleur said. “The city’s level of shock-absorbing capacity is high.” ‘Bit of a Cloud’ Vancouver’s 4.9 percent bond due in 2019 yielded 100 basis points, or 1 percentage point, more than equivalent-maturity Government of Canada debt at the end of last week. That’s down from 139 basis points on Oct. 19, reflecting reduced perceived risk. Similar-maturity debt of Edmonton, Alberta’s capital city about 750 miles to the northeast, traded about 90 basis points above the federal debt, or 10 basis points tighter than Vancouver’s. In general, debt owners profit as a bond’s yield trades closer to its benchmark. “Hopefully they do sell those condos in a timely manner and for reasonable value,” said Kevin Dell, who manages about C$1 billion of fixed income assets for Edmonton. He doesn’t own Vancouver bonds. “Investors may have some concerns over the next while until there’s resolution on the Olympic revenues and the sales of the condos. It’s a bit of a cloud over the name.” Corporate Spreads British Columbia’s Finance Minister Colin Hansen will propose his 2010 budget tomorrow. The province forecast a budget shortfall of C$2.8 billion in the fiscal year ending March 31, according to documents published in November on the finance ministry’s Web site. The extra yield investors demand to own Canada company bonds instead of government debt ended last week at 119 basis points, compared with 123 basis points at the end of January, according to the Bank of America Merrill Lynch Canadian Corporate Index. Canadian corporate bonds returned 2.37 percent in January, the most since May 2003, index data show. The debt returned 0.22 percent in February, including reinvested interest, compared with 0.35 percent in the same period last year, according to the index. Canada’s economy grew 5 percent in the fourth quarter, the most since 2000, Statistics Canada said today in Ottawa. Vancouver has advanced C$700 million to Millennium Development by selling debentures, commercial paper and tapping a credit facility arranged by Toronto-Dominion Bank, said Lesli Boldt , a spokeswoman for the Canadian city. Real Estate Values Millennium still owes the city C$193 million for land on which the Olympic condos were built, Boldt said in an interview. While Vancouver real estate values have rebounded from last year’s lows, not everyone thinks the housing units can be cleared quickly. Cameron MacNeill, president of MAC Marketing Solutions, a Vancouver-based condo marketer, said Vancouver may need to sell the units for an average of C$1,100 a square foot to erase the city’s exposure. That compares to an average of C$868 a square foot for the first 273 units that were sold before the global economic slowdown began, according the Bob Rennie, whose Rennie Marketing Systems, is leading the effort to selling housing units. “It’s kind of like having a car lot full of Ferraris,” said MacNeill, who is representing a nearby development that competes with the Olympic Village. “It’s not like the car is bad. No. But there’s a limited market for Ferraris and Lamborghinis.” That won’t stop Olympic Village boosters from exploiting the condos’ Olympic connection. “In a perfect world, we’d love to have the athletes’ signatures beside each front door.” Rennie said in an interview. “We’d love to find some sort of ‘Who’s DNA is on your floor?” To contact the reporters on this story: Christopher Donville in Vancouver at cjdonville@bloomberg.net ; Chris Fournier in Montreal at Cfournier3@bloomberg.net

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Canada’s Economy Grows at Fastest Pace Since 2000, Adding to Rate Pressure

March 1, 2010

By Greg Quinn March 1 (Bloomberg) — Canada’s economy expanded at a 5 percent annualized rate in the fourth quarter, faster than predicted by the Bank of Canada, raising pressure on policy makers to increase interest rates later this year. Gross domestic product grew at the fastest pace since the third quarter of 2000, Statistics Canada said today in Ottawa. The median estimate of 23 economists surveyed by Bloomberg News was for a 4.2 percent expansion, and the Bank of Canada had projected a 3.3 percent gain. The figures come a day before Bank of Canada Governor Mark Carney will keep his key lending rate at 0.25 percent, all 21 economists surveyed by Bloomberg predict. Today’s report will lead Carney to raise the key policy rate after his conditional commitment to keep it unchanged through June expires, said Mark Chandler , a fixed income strategist at RBC Capital Markets in Toronto. “It’s considerably stronger” than the central bank had expected, Chandler said in a telephone interview from Toronto, adding policy makers may “cool the jets in the second half of this year” with rate increases. The bank could start with a half a percentage point increase in the third quarter, he said. The Canadian currency strengthened 0.3 percent to C$1.0482 per U.S. dollar at 8:45 a.m. in Toronto, from C$1.0517 on Feb. 26. One Canadian dollar buys 95.40 U.S. cents. Growth Widespread The economy’s fourth-quarter growth was supported by consumer spending, capital investment and trade, Statistics Canada said. Government spending also contributed to growth. Consumer spending increased 0.9 percent in the quarter, led by durable goods such as furniture and cars. Investment in housing rose 6.5 percent. Exports rose 3.7 percent in the October-through-December period, led by a 13 percent jump in automotive products, while imports rose 2.2 percent. Fixed-capital investment rose 1.6 percent. On a monthly basis, the economy grew 0.6 percent in December, the fastest in three years. Economists predicted output would grow 0.4 percent on the month, according to the median estimate of 21 economists surveyed by Bloomberg News. Statistics Canada revised its estimate of the third-quarter growth rate to 0.9 percent from the earlier reading of a 0.4 percent pace. The agency also revised its earlier figures to show the country’s first recession since 1992 was deeper than thought, with a 7 percent annualized contraction in the first quarter of last year. Annual Contraction The economy shrank 2.6 percent in 2009, the most since 1982 and the third annual contraction in figures dating back to 1961. Carney cut the benchmark lending rate in April to the lowest since the bank was founded in 1934 and pledged to keep it there through the first half of this year unless the inflation outlook shifted. “Monetary policy has worked very well,” said Sebastien Lavoie , an economist at Laurentian Bank Securities in Montreal. The Bank of Canada estimates consumers will account for more than half of a 2.9 percent expansion this year. When the bank raises rates “it won’t be baby steps; it will be major jumps,” Lavoie said. The first increase could be three-quarters of a percentage point, he said, and the rate could reach 3 percent next year, he said. Jobless Still High The return of growth still hasn’t brought unemployment down much from the highest in more than a decade and exporters are still struggling with a strong currency and weak U.S. orders. The economy “is nowhere near recovery” said Louis Lepine, operations manager at TPG Pritchard Metalfab Inc. in Winnipeg, Manitoba, a contract manufacturer to agricultural, mining and transport companies. “We have seen quite a decline in business, but we have been fortunate enough to retain most of our staff,” he said. “We will be doing some cautious expansion this year, some capital expenditures.” Lepine said he’s also struggling with a high Canadian dollar. Canada’s dollar appreciated 21 percent against the U.S. dollar over the past 12 months to about 95 U.S. cents. The currency traded at about 63.6 U.S. cents at the end of 2002, and manufacturers have been squeezed by its gain, along with increased competition from emerging markets such as China. The strength of the currency and weak U.S. orders will slow economic growth this year, the Bank of Canada said in January . Consumer Strength Companies tied to consumers are more optimistic. Wal-Mart Stores Inc., the world’s largest retailer, said Feb. 23 it plans to open 35 to 40 stores in Canada in 2010, adding to the current total of 317. “Even with excess capacity in some industries, there are enough that are going to be ramping up that there will be pinched areas in the economy,” said Warren Jestin , chief economist at Bank of Nova Scotia. “Those are signs the Bank of Canada will be paying quite close attention to.” In a separate report, Statistics Canada said that factory prices rose 0.3 percent in January from December, and manufacturers’ raw materials costs increased 3.3 percent. Economists predicted factory prices would rise 0.5 percent, and material costs would gain 2.2 percent, according to the median estimates of economists surveyed by Bloomberg News. To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net .

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Canada Gold Stocks Fail to Tap Metal’s Nine-Year Surge: Chart of the Day

February 24, 2010

By Matt Walcoff Feb. 24 (Bloomberg) — The adage that all that glitters isn’t gold is all too familiar to investors in Canadian producers of the precious metal, whose holdings have lagged behind as the commodity soared. The CHART OF THE DAY shows the gap between gains in the metal and an index of Toronto-traded gold stocks widened to a record last month as investors took advantage of new opportunities to invest in the commodity directly. Since the end of 2000, the last year gold declined, futures on the metal surged almost 300 percent in New York, about double the advance by the Standard & Poor’s/TSX Gold Index. “Investors are saying, ‘We would want to buy a gold company because of the exposure to the price of gold. Let’s just skip that and buy gold directly,’” said Paul Vaillancourt , director of portfolio strategy for Franklin Templeton Managed Investment Solutions in Calgary. Direct investment in gold has become easier because of the proliferation of gold exchange-traded funds, said Vaillancourt, who helps oversee about $27 billion. From the listing of the first such fund in Australia in March 2003 to the end of last year, gold ETFs grew to at least $62.3 billion in collective value, according to the World Gold Council. Canada is home to 8 of the world’s 20 biggest gold producers, including the biggest, Barrick Gold Corp. They haven’t taken full advantage of record bullion prices in part because the credit crunch has driven up costs, Vaillancourt said. With credit easing and costs for labor and equipment coming down, he is pushing Franklin Templeton money managers to invest in the stocks this year. “We have a preference right now for late-stage cyclicals in Canada, and gold stocks are fitting the bill,” he said. (To save a copy of the chart, click here.) To contact the reporter on this story: Matt Walcoff in Toronto at mwalcoff1@bloomberg.net .

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Brookfield Asset Plans to Bid for a Stake in General Growth, WSJ Reports

February 23, 2010

By Daniel Taub Feb. 23 (Bloomberg) — Brookfield Asset Management Inc. plans to bid for a stake in General Growth Properties Inc., beating an offer by Simon Property Group Inc. for the bankrupt shopping mall owner, the Wall Street Journal reported. The bid would allow Chicago-based General Growth to exit Chapter 11 bankruptcy as a standalone company with Brookfield, the Toronto-based real estate investor, as its largest shareholder, the Wall Street Journal reported on its Web site, citing people familiar with the plan. Simon , the largest U.S. shopping mall owner, has offered to purchase its biggest rival in a deal that would give equity investors about $9 a share and repay unsecured creditors in full. General Growth said the bid, made public on Feb. 16, was too low and would invite other potential buyers to make offers. Brookfield owns almost $1 billion in General Growth debt, two people with knowledge of the company’s holdings said last week. General Growth may raise $1 billion to $2 billion from public markets — or more, were investor demand sufficient — to fund its exit from bankruptcy, according to one of those people, who asked not to be named because the talks are private. Brookfield would invest at least $2 billion, making the company the largest buyer in General Growth’s stock sale, the Journal said. Brookfield’s plan may be announced as soon as this week, the newspaper said. Denis Couture , a Brookfield spokesman, declined to comment. David Keating , a spokesman for General Growth, said he had no immediate comment. Shares Rise General Growth’s shares rallied past Simon’s buyout offer to close yesterday at $12.76, signaling that investors expect a higher bid. William Ackman’s Pershing Square Capital Management LP, General Growth’s largest shareholder, in December issued a 54-page presentation that said the stock is worth $24 to $43. Pershing Square, based in New York, owns a 25 percent economic interest in General Growth, including 7.5 percent of its shares. Based on the current valuations for U.S. mall owners and Simon and Brookfield’s “strong strategic and financial motivations,” General Growth is probably worth $11 to $18 a share, Green Street Advisors Inc. , a Newport Beach, California- based research company, said in a Jan. 13 note. General Growth, the owner of New York’s South Street Seaport and Boston’s Faneuil Hall, filed the biggest real-estate bankruptcy in U.S. history in April after amassing $27 billion in debt during an acquisition spree. Debt Acquired Brookfield said in a Feb. 19 letter to shareholders that it “acquired a substantial amount of defaulted bank debt issued by General Growth Properties” at a discount to par value. In a fourth-quarter earnings conference call that day, Brookfield Chief Executive Officer Bruce Flatt and other executives declined to discuss General Growth. Flatt said in his Feb. 19 letter that Brookfield believes that “acquiring assets through distress situations offers one of the few ways to acquire assets at meaningful discounts to their intrinsic value.” Brookfield owns more than 100 office buildings; 2.9 million acres of timber and agricultural land in Canada, the U.S. and Brazil; apartment complexes; 20 shipping terminals in Europe and Australia; 164 hydroelectric plants; railroads in Australia; natural-gas pipelines in the U.S.; and a property-brokerage business with almost 40,000 brokers in about 2,000 offices in Canada, the U.S. and the U.K. Brookfield last year assembled a $5 billion equity group to invest in distressed properties. Blackstone Group LP , the world’s largest private-equity firm, may join Simon’s bid, two people with knowledge of the discussions said on Feb. 18. Blackstone is in preliminary talks with Simon, said the people, who declined to be identified because the negotiations are private. Simon would lead any resulting partnership, one of the people said. To contact the reporter on this story: Daniel Taub in Los Angeles at dtaub@bloomberg.net .

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Marissa Bronfman: We Are The World: Toronto’s 122nd Annual Board of Trade Gala

February 18, 2010

It was an inspiring night of much-needed storytelling, a night charged with frenetic excitement for a future brimming with possibility and prosperity, and a night humming with hope for a new era in which Toronto takes the world stage. The message on everyone’s lips? Toronto’s time is now. The Honorable Frank McKenna with presenting sponsor Carl Lovas and wife Kathy (Sonia Recchia, Pimentel Photo) Every year the Toronto Board of Trade Gala celebrates the individuals and corporations who pour their blood, sweat and tears into making Toronto one of the world’s greatest cities in which to live, work and play – and this year was no exception. Out from under the global shadow of economic failure and rabid financial uncertainty, Canada has emerged valiantly strong and secure, in great part thanks to Toronto’s dedicated financial players. Yet despite the many, many accolades that Toronto deserves, Canadians’ notorious penchant for modesty has crippled the reach of the city’s reputation abroad. President & CEO of Board of Trade Carol Wilding with Rod Barr and Gerry Millis (Sonia Recchia, Pimentel Photo) Frank McKenna, deputy chair TD Bank Financial Group and Premier Dalton McGuinty (Grant Martin Photography) I asked Toronto’s Mayor David Miller to tell me ‘the most important thing foreigners don’t know about Toronto but should’ and I got a zealous barrage of answers; when I pressed him for a single sentence he seemed stumped but then, perhaps divinely inspired, said “we are the world”. While this may seem an overly confident answer to outsiders, it bares an enormous amount of truth: Toronto is one of the world’s most diverse urban landscapes, a magnificent mosaic – not a maligned melting pot. Mayor Miller with Hazel McCallion, Mayor of Mississauga, and Phyllis Morris, Mayor of Aurora; Marissa Bronfman and Mayor Miller (Sonia Recchia, Pimentel Photo) The night’s keynote speaker, the Honourable Frank McKenna, let us all know that he’s not just telling Toronto’s story, he’s telling it with a megaphone! It was a passionate call to arms as he voraciously enumerated Toronto’s strongest traits, surprising even the most knowledgeable Torontonians I’m sure. To be fair he weighed his remarks with some serious criticisms of the city, chastising us for lagging productivity, a poorly aligned government and most of all, for not marketing ourselves and our city. “It’s not enough to have the steak”, said McKenna, “you have to have the sizzle…Toronto needs to get its swagger back!” Chair of Board of Trade Bill MacKinnon with politicians, members of the Board of Trade Board and Advisory Council (Sonia Recchia, Pimentel Photo) Toronto has fared exceptionally well through the torrent of economic hardship that has beat down even the world’s strongest players; the city must act now to nourish a flourishing future. The 2010 Olympics will reintroduce Canada to the world this month, and Toronto will soon host the G20 Summit, PanAm Games and Bollywood Festival. As Mayor Miller said, “the world will be watching”, and it’s about time they knew our story. George Smitherman, Toronto Mayoral Candidate with Senator Pamela Wallin and Andy Merchant, Presdient Canada-Pakistan Business Council (Sonia Recchia, Pimentel Photo); Rocco Rossi, Toronto Mayoral Candidate and John Tory (Grant Martin Photography)

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Fed Raises Discount Rate: Interest Rate Rises For Banks’ Emergency Loans

February 18, 2010

WASHINGTON — The Federal Reserve decided Thursday to boost the rate banks pay for emergency loans. The action is part of a broader move to pull back the extraordinary aid it provided to fight the financial crisis. The action won’t directly affect borrowing costs for millions of Americans. But with the worst of the crisis over, it brings the Fed’s main crisis lending program closer to normal. The Fed chose to bump up the so-called “discount” lending rate by one-quarter point to 0.75 percent. It takes effect Friday. The central bank said the step should not be seen as a signal that it will soon boost interest rates for consumers and businesses. It repeated its pledge to keep such rates at record-low levels for an “extended period” to foster the economic recovery. The Fed had signaled for weeks that a higher discount rate was coming, though the timing of Thursday’s decision caught some by surprise. It portrayed its action as moving its emergency program for banks closer to normal. The announcement came after the financial markets had closed. Investors saw it initially as a prelude to higher borrowing costs across the board. In after-hours trading, the dollar strengthened on the expectation of higher rates. Yields on two-year Treasury securities rose, and stock futures dipped. After the sell-off in stock futures, Pimco Managing Director Bill Gross warned investors not to overreact. “I’d accept the Fed at its word – that this isn’t a change in monetary policy or in the timing of it,” he said. “Calmer heads may prevail tomorrow.” T.J. Marta, a market strategist, said he thinks higher rates for American borrowers are still months away. But “I think one man’s normalization is another man’s tightening,” he said of investors’ initial anxiety. The Fed has kept the target range for its main interest rate – the federal funds rate – at between zero and 0.25 percent since December 2008. After the Fed’s action Thursday, economists said they still believe it won’t start to boost borrowing costs for Americans until later this year. Some don’t think it will happen until next year, given the fragile recovery. Chairman Ben Bernanke last week signaled the Fed is in no rush to boost rates. When the time does come, Bernanke said the Fed will likely start to tighten credit by raising the rate it pays banks on money they leave at the central bank. Doing so would raise rates tied to commercial banks’ prime rate and affect many consumer loans. That would mark a shift away from the federal funds rate, its main lever since the 1980s. Steering interest rates through the excess reserves rate, now at 0.25 percent, gives the Fed more control over money floating around the financial system. The Fed sets that rate directly; its funds rate is just a target. James Paulsen, chief investment strategist at Wells Capital Management, saw the Fed’s move Thursday as testament to an improving economy. “This may be the bell ringing that the crisis is over,” Paulsen said. The big question over the next few days is whether investors will start selling Treasurys with maturities of two years or less, Paulsen said. Doing so would send yields higher. Savers would start seeing higher interest on their money market accounts. The economy is growing again, and financial conditions have improved. But unemployment is still near double digits. And demand for loans remains weak. Many ordinary Americans and small businesses have found it difficult to borrow. When credit virtually shut down starting in 2008, banks that wanted to borrow had nowhere to go except the Fed. Banks can now more easily tap private lending sources. As a result, the Fed feels more comfortable about boosting the rate banks pay on emergency loans. Because conditions have improved, the Fed also said it will shorten the length of loans drawn from its emergency lending program. It will return to the historical norm of overnight loans, effective March 18. During the crisis, the Fed had lengthened the loans to 30 days. Earlier this month, the Fed shut down a handful of programs to help banks and other companies access credit. Like those shutdowns, the action Thursday is “intended as a further normalization of the Federal Reserve’s lending facilities,” the Fed said. “The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or monetary policy,” the Fed said. Banks have scaled back their use of the Fed’s emergency “discount” loan window as conditions have improved. At the peak of the crisis in the fall of 2008, daily borrowing from the discount window reached $110 billion. Commercial banks averaged $14.3 billion in daily borrowing for the week that ended Wednesday, the Fed said in a report Thursday. That was down from $14.6 billion for the previous week. Congress has demanded the Fed identify the banks that draw on the emergency loans. The Fed has resisted. Bernanke and his colleagues have argued that identifying the banks that take out emergency loans could cause a run on the institution. Created by Congress in 1913 after a series of bank panics, the Fed acts as “lender of last resort” to banks that can’t borrow elsewhere. Its actions help stabilize the financial and economic systems. And its decisions on rates affect the ability of companies and individuals to borrow and spend. The wind-down of Fed programs earlier this month, most of which had fallen out of use, was little noticed. A bigger impact could be felt by the scheduled shut-down of the Fed’s program to buy mortgage securities from Fannie Mae and Freddie Mac. That program is slated to end after March. The purchases of mortgage securities have lowered home-loan rates and bolstered the housing market. The Fed has held the door open to extending the program if the economy weakens. Some analysts fear that once the program ends, mortgage rates could rise, hurting the recovery in housing and the overall economy. Rates on 30-year mortgages averaged 4.93 percent this week, Freddie Mac reported. Unwinding the Fed’s stimulus is the biggest challenge for Bernanke in his second term, which began Feb. 1. Moving too soon could short-circuit the recovery. Waiting too long could unleash inflation and feed a speculative asset bubble. More insights into the Fed’s strategy will likely come when Bernanke testifies on Capitol Hill next week. David Rosenberg, chief economist at money manager Gluskin Sheff in Toronto, says the Fed’s decision to bump up the emergency lending rate for banks is psychological but still packs a punch. “The Fed is moving toward a new strategy of draining liquidity from the system,” he says. “Will the Fed be raising the Fed funds rate soon? No. But what happens when it stops buying mortgages or even starts selling? That could have a material impact on mortgage rates.” ___ AP Business Writers Bernard Condon and Tim Paradis in New York contributed to this report.

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Ontario Teachers’ Buyout Unit Gives Blackstone, KKR a Run for Their Money

February 17, 2010

By Jason Kelly Feb. 18 (Bloomberg) — Even as the economy slid into the recession, Jim Leech was making private-equity deals. In 2008, he picked up Chilean utility Saesa Group. Last year, he bought a $211 million stake in Bristol International Airport in the U.K. Now Leech is pursuing a $6.2 billion hostile bid for Australian toll-road operator Transurban Group . If completed, it would be the largest buyout since the credit markets collapsed almost three years ago and financing for such deals evaporated. There are reasons Leech never had to step away from the negotiating table. He doesn’t have to rely on borrowed money, and he doesn’t need to court investors. He has plenty — almost 300,000, in fact. They are the teachers of the Canadian province of Ontario, and as chief executive officer of their C$87 billion ($83 billion) pension fund, Leech is charged with protecting their retirements. That sets him apart from dealmakers at Blackstone Group LP , Carlyle Group and KKR & Co., three of the largest private-equity firms in the U.S., Bloomberg BusinessWeek reported in its March 1 issue. “Even when other private-equity firms were on the sidelines, we were there,” Leech said in an interview at Ontario Teachers’ headquarters in Toronto. Most public pension funds, such as California Public Employees’ Retirement System, hire outside money managers to pick investments. The Ontario Teachers’ Pension Plan directly makes about 60 percent of its private-equity deals. It has acquired or taken stakes in almost 300 companies in the past two decades. Simmons Bedding Co., the General Nutrition Centers Inc. vitamin chain and the Toronto Maple Leafs professional hockey team all belong in part to the educators of Ontario. The teachers paid cash for Aquilex Corp., an Atlanta-based industrial-cleaning company, three weeks after the fall of Lehman Brothers Holdings Inc. in September 2008. The Teachers’ Model Retirement funds including Canada Pension Plan Investment Board are starting to invest directly in private equity like Ontario Teachers’, whose returns have kept pace with those of the big buyout firms. Canada Pension, the country’s second- largest public retirement-fund manager, is Ontario Teachers’ partner on the Transurban bid. “We operate more like Goldman Sachs Asset Management” than a pension fund, said Mark Wiseman , who left Ontario Teachers’ to help Toronto-based Canada Pension develop a private-equity strategy. Stichting Pensioenfonds ABP of Heerlen, Netherlands, Europe’s second-largest retirement plan, owns a portfolio of companies including Imagem Music Group, the music publisher. Australian pension funds are buying up infrastructure assets such as bridges and toll roads. Potential U.S. Appeal Direct investment may also become more attractive to pension funds in the U.S., where state and federal authorities are investigating relationships between big retirement plans and their outside money managers. Private investment firms paid at least $125 million to middlemen to help win lucrative contracts from Calpers, according to a report by the pension fund. “The motivations to go direct are higher than they’ve ever been,” said Colin Blaydon , director of the Center for Private Equity & Entrepreneurship at Dartmouth College’s Tuck School of Business in Hanover, New Hampshire. “It’s a much cleaner structure with less potential for conflicts.” Brad Pacheco , a spokesman for Calpers in Sacramento, California, said the fund “has acted quickly, adopting a strict policy to require disclosure about placement fees and sponsoring a bill that would end contingency-fee arrangements.” Competitive Returns Leech’s strategy of keeping leverage in check and holding assets for the long haul has kept the fund competitive with the Blackstones and KKRs of the world. Since its inception in 1990, Ontario Teachers’ private-equity arm has earned an average of 19.6 percent a year. That’s in line with returns at the top buyout firms, according to government filings. The private-equity unit lost 13 percent in 2008 while the average fund dropped at twice that rate, according to London- based researcher Preqin Ltd . About 40 percent of Ontario Teachers’ private-equity assets are managed by outside firms, including many of the same ones it teams up with to make deals. Almost all of the infrastructure investments, such as the airports and utilities, are identified and managed by a separate in-house team that Leech split out when he became CEO. The Ontario plan, which also holds stocks, bonds and so- called alternative assets such as real estate, made a bad bet on fixed income in 2008 and its entire portfolio declined 18 percent, its worst year. Calpers, which oversees $206 billion and is the largest public pension fund in the U.S., lost 26 percent in the same year. Imitating Wall Street Ontario Teachers’, the largest single-profession pension fund in Canada, began dabbling in private equity one year after New York-based KKR ’s landmark leveraged buyout of RJR Nabisco Inc. in 1989. Back then, the pension fund was invested entirely in low-yielding Canadian bonds and was having a hard time making returns sufficient to meet benefit payments. Claude Lamoureux , then the fund’s CEO, decided to try operating more like a Wall Street money manager. The pension fund’s first buyout, in 1991, was a bust. It paid $15.75 million for White Rose Crafts & Nursery Sales and planned to expand the business. Within a year the company filed for bankruptcy, and Ontario Teachers’ lost its investment. The failed acquisition is immortalized at the pension fund’s headquarters. Four vertical four-foot-high metal sheets listing Ontario Teachers’ deals hang on what is called the Wall of Fame and Shame in a conference room. 50 Internal Managers “We could’ve said, ‘Well, we drilled a dry hole’ ” and ditched the do-it-yourself private-equity plan, said Leech, a 62-year-old former banking and energy executive who joined the pension fund in 2001. “The amazing part is that there is a wall at all after that experience.” Today a team of 50 in-house money managers, whose paychecks compare to those of Wall Streeters, considers potential investments. The fund made a push into emerging markets in 2005, initiating a crash course for managers dubbed Project Atlantis. The managers took 10-day trips to Turkey, Brazil and South Africa, meeting with government officials, financiers and business owners. At a cocktail party in 2006 they chatted with Eike Batista , the Brazilian billionaire. One year later, Ontario Teachers’ bought a 15 percent stake in one of his mining companies, LLX Logistica SA. In 2007, Leech and his successor as head of private equity, Erol Uzumeri , reorganized the group by industry specialties. The structure helps Ontario Teachers’ assess potential deals long before companies become available. Tracking AIG Three years ago, the financial services team began to study the insurance business. It met with top executives and dissected the operations of large insurers, including New York-based American International Group Inc. When AIG’s Canadian mortgage business became available after the U.S. government bailout in late 2008, the team knew it was interested. After a year of work, the AIG purchase was announced on Jan. 5. Like many private-equity owners, Ontario Teachers’ operates like a mini-conglomerate. The acquisition of Atlanta-based Simmons Bedding for $760 million in January, made along with Ares Management LLC, fit with another Ontario Teachers’ holding, National Bedding Co., the maker of Serta mattresses based outside of Chicago. When Leech was considering buying GNC in 2007, he called executives at the real estate developer Cadillac Fairview Corp., which the fund had bought in 1999. Leech said he asked whether Cadillac Fairview wanted GNC in its malls and whether the vitamin retailer paid its bills on time. “They have a good outlook on how to run the business, and they’re not engulfed in the day-to-day,” said Joseph Fortunato , CEO of Pittsburgh-based GNC. “They’ve been a pretty ideal owner.” Maple Leafs Cadillac Fairview, based in Toronto, has paired up with the pension fund’s Maple Leaf Sports & Entertainment unit to build a multiuse development that includes the Maple Leafs’ arena. Maple Leaf Square, a $500 million, 1.8 million-square-foot project, will feature a boutique hotel, condominiums and a retail area. Ian Clarke , Maple Leaf Sports’ executive vice president in charge of business development, said he is seeking to meld the excitement of game day — a giant high-definition television screen will show games live in the plaza outside the Toronto arena –with shopping. A Few Regrets As with private-equity firms, Ontario Teachers’ has made moves it regrets. In 2007, it put together an investor group, including Merrill Lynch & Co.’s buyout unit, to make a $43 billion bid for BCE Inc. , Canada’s largest telephone company. The deal immediately began to unravel, and Ontario Teachers’ and its partners ultimately walked away, citing an auditor’s report that BCE would end up insolvent because of the debt it would have had to take on. BCE and the would-be acquirers are now fighting over a $1.1 billion breakup fee. “It was a product of a euphoric time,” said Leech. That Ontario Teachers’ wasn’t destroyed by the froth leading up to the financial collapse goes back to the biggest difference between the fund and traditional private-equity firms: their investors. The managers are constantly reminded of whose money they are looking after. Retired teachers often stop by the headquarters to pick up their benefit checks; executives talk about extended family members who are pensioners. With retirees soon to equal active fund participants, dealmaking and returns will become more critical. “We have to look at an investment strategy that responds to the situation,” Leech said. “It’s just the math.” To contact the reporter on this story: Jason Kelly in New York at jkelly14@bloomberg.net

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Canadian Corporate Bonds Outperform U.S. as Spreads Diverge: Canada Credit

February 11, 2010

By Chris Fournier and Theophilos Argitis Feb. 11 (Bloomberg) — Canada’s corporate bonds are diverging from those in the U.S. as investors bet that the nation’s banks are insulated from worsening government finances that threaten to slow the global economy and create more losses for financial institutions. The extra yield investors demand to buy debt issued by companies in Canada instead of government securities is unchanged this month at 123 basis points, while so-called spreads on U.S. bonds widened 9 basis points to 190 basis points, or 1.9 percentage points, according to Bank of America Merrill Lynch indexes. The difference in spreads reached 67 basis points this week, the most since Dec. 14. Canada’s financial system was named the soundest in the world for two consecutive years by the Geneva-based World Economic Forum. None of the nation’s banks collapsed or sought a bailout during the seizure in credit markets, as the U.S. spent more than $400 billion to support institutions, including American International Group Inc. and Citigroup Inc. “We’re still getting a lot more cash into our market and demand is overwhelming supply,” said Robert Follis , the managing director of corporate bond research in Toronto at Bank of Nova Scotia, Canada’s third-largest lender. “Our exposure to the more volatile financials is lower than in the U.S.” Bank of America Corp. in Charlotte, North Carolina, and New York-based Citigroup had their credit outlooks cut to “negative” from “stable” by Standard & Poor’s on Feb. 9. Bond Returns Canada’s company bonds have returned 2.04 percent this year, including accrued interest, compared with 1.11 percent in the U.S., Merrill Lynch’s indexes show. The average yield is 3.77 percent, below the 4.69 percent in the U.S. Elsewhere in credit markets, Canada sold C$3.2 billion ($3 billion) of three-year bonds yesterday at an average yield of 1.875 percent. Yields on the nation’s short-term debt are higher than those in the U.S. on speculation the Bank of Canada will need to raise interest rates faster than the U.S. Federal Reserve as Canada’s economy rebounds. Canada’s two-year note maturing in 2012 yields 1.35 percent, compared with 0.875 percent for a similar U.S. security. The Bank of Canada left the target overnight interest rate at a record low 0.25 percent in January and reiterated a pledge to hold it there through June, barring a change in the inflation outlook. The rate to exchange, or swap, floating- for fixed-rate payments for five years rose to 2.69 percent yesterday from 1.88 percent a year ago. The rate can be used to gauge expectations for future interest rate movements. Raising Forecasts Economists are raising their growth forecasts for Canada’s economy, as businesses in the U.S. and Canada build up inventories and record low rates fuel demand for homes. Canadian Finance Minister Jim Flaherty on Feb. 2 said the economists he consulted before next month’s budget boosted their growth estimates to 2.6 percent, from 2.3 percent in September. Statistics Canada reported Feb. 5 the country gained almost three times as many jobs as expected in January. Canada’s economy gained 43,000 jobs last month after losing 2,600 positions in December, Statistics Canada said in Ottawa. The median forecast of 22 economists in a Bloomberg News survey was for an increase of 15,000. The unemployment rate dropped to 8.3 percent from 8.5 percent. While U.S. President Barack Obama has proposed a new bank tax and banning banks from owning proprietary trading operations, hedge funds and private-equity funds, Flaherty has rejected imposing similar measures. Corporate borrowing costs globally have been rising amid concern worsening government finances will slow the global economy and make it harder for companies to meet debt payments. Canada, already with the lowest debt levels in the Group of Seven, plans to return to balanced budgets over the “medium term,” Flaherty has said. To contact the reporters on this story: Chris Fournier in Montreal at cfournier3@bloomberg.net ; Theophilos Argitis in Ottawa at targitis@bloomberg.net

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Dow Closes Below 10,000 For First Time In 3 Months

February 8, 2010

NEW YORK — The Dow Jones industrial average closed below 10,000 for the first time in three months Monday on nagging concerns about debt loads in Europe. The Dow, down almost 104 points, had its 10th triple-digit move in 16 trading days. Shares of big banks pulled the market lower, extending a slump that has led to four straight weekly losses. Mounting deficits in weaker European economies including Greece, Portugal and Spain have raised questions about the health of the global financial system. That compounded concerns about growth in China and proposed U.S. bank regulations took the market down from a 15-month high reached in January. Greece’s finance minister said Monday the government is preparing to boost some taxes to shore up its finances. But civil servants opposed to cutbacks have pledged to strike on Wednesday. Brett Hryb, a portfolio manager with MFC Global Investment Management in Toronto, said the latest concern is that the financial troubles in a country like Greece, whose economy is small compared with the rest of Europe, will spill into other countries. “Clearly Greece itself is nothing. It’s just a blip. It’s what the contagion could be,” he said. Monday’s drop extends the stumble the market began in mid-January. At that time, China announced plans to contain economic growth and the Obama administration proposed rules to restrict trading by large financial institutions. The Dow fell 103.84, or 1 percent, to 9,908.39. On Thursday, the Dow traded below the psychological barrier of 10,000 for the first time since November. It hadn’t closed below that mark since Nov. 4. and first closed above 10,000 in March 1999. The Dow is still up 51.3 percent since last March. The broader Standard & Poor’s 500 index fell 9.45, or 0.9 percent, to 1,056.74, while the Nasdaq composite index fell 15.07, or 0.7 percent, to 2,126.05. Bond prices edged higher, pushing yields lower. The yield on the benchmark 10-year Treasury note was flat at 3.57 percent from late Friday. The dollar fell against other major currencies, while gold rose. Crude oil rose 70 cents to settle at $71.89 per barrel on the New York Mercantile Exchange. Questions about the global economy have interrupted a 10-month climb in stocks, which hit 12-year lows last March. The Dow is down 817 points, or 7.6 percent, from its recent high of 10,725.43 on Jan. 19. Jerry Webman, chief economist at OppenheimerFunds Inc., said he doesn’t expect that problems with rising debt loads in Europe will cascade into other parts of the world’s economy, but he remains cautious. “Right now, when anybody says the word ‘contained’ I start to tremble,” he said, referring to his skepticism about those who downplay worries about Greece and other countries with rising deficits. Webman is also concerned by the shrugs that have greeted corporate earnings reports. Three out of four of the companies in the S&P 500 index that have reported results for the fourth quarter have posted stronger sales and profit numbers than analysts forecast, according to Thomson Reuters. “The market is obviously not that enthusiastic about these good bottom-line and good top-line numbers,” Webman said, adding that he sees that as a reason to be concerned about the direction of stocks. In earnings news, the toymaker Hasbro Inc. said its profit surged 77 percent in the fourth quarter while drugstore chain CVS Caremark Corp. said its earnings rose 11 percent. The results beat analysts’ estimates. Hasbro jumped $3.91, or 12.7 percent, to $34.71, while CVS rose $1.65, or 5.3 percent, to $32.72. Among financials, Bank of America Corp. fell 52 cents, or 3.5 percent, to $14.48, while Britain’s HSBC Holdings PLC fell $1.07, or 2.1 percent, to $50.31. Three stocks fell for every two that rose on the New York Stock Exchange, where consolidated volume came to 4.2 billion shares compared with 6.5 billion Friday. The Russell 2000 index of smaller companies fell 6.49, or 1.1 percent, to 586.49. Britain’s FTSE 100 rose 0.6 percent, Germany’s DAX index gained 0.9 percent, and France’s CAC-40 rose 1.2 percent. Earlier, Japan’s Nikkei stock average fell 1.1 percent.

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Toyota Faces Canada Class-Action Suit Claiming Prius Defect, Law Firm Says

February 5, 2010

By Margaret Cronin Fisk Feb. 5 (Bloomberg) — Toyota Motor Corp. , the world’s largest automaker, was sued in Canada in a class-action case claiming defects in the braking system of its Prius and Lexus hybrid vehicles, a law firm said. Merchant Law Group said it filed a claim today in Victoria, British Columbia, against the automaker on behalf of Canadian owners of 2010 Toyota Prius and Lexus HS250h hybrids. The lawsuit , which seeks reimbursement of purchase prices or payment equal to a loss in resale value, claims the vehicles’ brake systems are defectively designed because they shut off brake power to save energy. “The energy reclaiming nature of these vehicles as part of braking makes them dangerous for use,” attorney Tony Merchant said in a statement sent to Bloomberg. “As the vehicle switches to the brake pad system, there is a lapse where the vehicle has no braking power.” Toyota is facing at least 30 class-action , or group, lawsuits in the U.S. and Canada connected to multiple recalls over sudden acceleration of its vehicles. More than half of these lawsuits blame Toyota’s electronic throttle control system for these events. The Canada hybrid lawsuit isn’t connected to those cases. Quebec Lawsuit The Merchant firm in Regina, Saskatchewan, said it also sued Toyota Canada Inc. and Toyota North America and that it filed a separate claim today in Quebec. Sandy Di Felice, director of external affairs with Toyota Canada in Toronto, said the company hasn’t been served and isn’t aware of either lawsuit. Toyota has been investigating reports that Prius owners driving at low speeds on bumpy or icy roads may experience moments in which the car continues to coast for about a second after the brakes are applied because of the anti-lock brake system. The company said this week that it changed the design of Prius brake software at the end of January to correct the situation. The carmaker said it is considering steps dealers can take for current Prius owners, including exchanging some parts. There has been no recall of the 2010 Prius or Lexus HS250h announced in the U.S. and Canada. The case is Marklely v. Toyota Canada Inc., 10-0540, Supreme Court, British Columbia (Victoria). To contact the reporter on this story: Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net .

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Medical Care Technologies Inc. Announces Appointment of New CEO

January 12, 2010

LONDON–(Marketwire – January 12, 2010) – Medical Care Technologies Inc. ( OTCBB : MDCE ) today announced that Ning C. Wu has joined MDCE as its new President, Chief Executive Officer, and Chief Financial Officer effective immediately. Ms. Wu is a seasoned entrepreneur with over 25 years’ experience in both the public and private sectors. Since 1995, in Toronto, Ontario, Ms. Wu served as Partner and Chief Executive Officer of GroupIT, a private information technology and services firm specializing in complete internet-intranet design, web database development, E-business and secure technology support to private, public and government sectors in Canada.

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Dollar No Match for Aussie, Loonie Approaching Parity as Commodities Rally

January 11, 2010

By Oliver Biggadike and Candice Zachariahs Jan. 11 (Bloomberg) — The biggest monthly rebound in the Dollar Index since January means faster gains for Australia’s and Canada’s currencies as the recovering U.S. economy boosts demand for their commodities. The Canadian and Australian dollars will strengthen to trade at parity with the greenback or better together in 2010 for the first time in 34 years, appreciating at least 2.6 percent and 7.4 percent, three of last year’s four best forecasters for both currencies say. Traders are favoring the so-called loonie and Aussie over the dollar on the Chicago Mercantile Exchange even while betting more than ever on the Dollar Index advancing. Accelerating U.S. growth will spur demand for Canadian oil and natural gas as China’s expansion boosts purchases of Australian iron ore and coal, pushing both currencies higher, said Sacha Tihanyi , a foreign-exchange strategist in Toronto at Bank of Nova Scotia. The loonie and Aussie both rose last week even as the People’s Bank of China took steps to curb lending. “The global economy is going to strengthen, and the recovery is going to broaden out from what has so far been a China-, Asia-led global recovery,” said John Kyriakopoulos , head of currency strategy in Sydney at National Australia Bank Ltd., the most accurate predictor for both currencies last year. “We’re forecasting parity for the Aussie dollar, and we actually think the Canadian dollar will go through parity” by March, he said. The bank is the most bullish of last year’s most accurate forecasters on the two currencies, predicting gains of about 11 percent for each by Sept. 30. Most Since 2007 The Australian dollar rose 0.7 percent to 93.16 U.S. cents as of 2:15 p.m. in Sydney and was 2009’s third-best performer among the 16 most-traded currencies. Canada’s loonie, nicknamed for the aquatic bird on its dollar coin, advanced 0.4 percent to C$1.0260, after gaining the most since 2007 last year. IntercontinentalExchange Inc.’s Dollar Index — a gauge against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona — has rallied 3.7 percent since Nov. 25 after a 16.7 percent slide from 2009’s March 5 closing high. Three of the four best loonie forecasters in 2009 — National Australia, Royal Bank of Scotland Group Plc, JPMorgan Chase & Co. — predict parity by June 30; the other, Canadian Imperial Bank of Commerce, sees it there by Dec. 31. As for the best Aussie predictors, National Australia says that currency will equal the greenback by March 31; CIBC sees it there by year-end; JPMorgan estimates it will be stronger than parity in the second quarter and Commonwealth Bank of Australia is calling for it to stop 2 cents short of one U.S. dollar. Biggest Gains Of the most active currencies, the Aussie, loonie, Brazilian real, Norwegian Krone, South African rand and New Zealand dollar, known as commodity currencies, posted 2009’s biggest gains against the dollar. The Reuters/Jefferies CRB Index of raw material prices had its best performance since 1979, gaining 23.5 percent. History shows that a U.S. recovery coincides with increases in commodities, the Aussie and loonie. After the U.S. came out of the 2001 recession, the currencies rose 48 percent and 23 percent, respectively, in the two years ending with 2003 as the world’s biggest economy expanded almost 6 percent. After falling 31 percent in 2001, the Standard & Poor’s GSCI Index of 24 commodities rose 39 percent and 11 percent in the next two years. The Australian and Canadian dollars have rallied about 49 percent and 27 percent from last year’s lows as U.S. growth rebounded to 2.2 percent in the third quarter after shrinking 6.4 percent in the first. Economic Forecasts The U.S. economy’s expansion will accelerate to 2.6 percent in 2010, compared to 3.1 percent for Australia and 2.55 percent for Canada, according to the median estimates in Bloomberg economist surveys. Goldman Sachs Group Inc. predicts the S&P GSCI Enhanced Total Return Index of commodities will gain 17.5 percent this year. “A lot of the Canadian dollar gains up to now have been happening in the absence of strong growth in the U.S.,” said Tihanyi of Bank of Nova Scotia. “Through this year, you’re going to see growth come back to what you might see in a normal year, and along with that you’re going to see a pickup in trade and demand for Canadian products.” Canada’s third-largest lender forecasts parity by June 30. The Canadian dollar rose versus the greenback for a fourth day on Jan. 5, when the U.S. Commerce Department reported that automakers increased sales in December. The loonie climbed again the next day for its longest winning streak in two months. Record Lending The Canadian and Australian dollars are gaining support from the global recovery as China’s central bank tries to curb record lending. The nation may have exceeded its 8 percent growth target for 2009 by 0.5 percentage point, said Zhang Xiaoqiang , deputy head of the National Development and Reform Commission, in a Jan. 5 statement. Commonwealth Bank of Australia , among the five most- accurate forecasters for the Aussie and loonie, expects both currencies to end 2010 short of parity after peaking in the second quarter as Federal Reserve interest-rate increases add to the greenback’s appeal. Median Bloomberg survey forecasts see the Australian dollar falling 3.4 percent by Dec. 31 as the Canadian currency drops 5 percent. “The U.S. dollar will strengthen in anticipation of rate hikes,” said Richard Grace , chief currency strategist in Sydney at Commonwealth Bank. Canadian policy makers will warn traders against pushing the loonie higher to prevent damage to the economy, said Sebastien Galy , a foreign-exchange strategist at BNP Paribas SA in New York. ‘Pretty Vociferous’ “The problem with the Canadian dollar is the reaction function of the central bank; they’ve been pretty vociferous about talking down the currency,” Galy said. Seven days after the loonie reached C$1.0207 on Oct. 15, its closest brush with parity since July 2008, Bank of Canada Governor Mark Carney said action to weaken the currency “is always an option.” Within two weeks, it fell 6.1 percent to a one-month low of C$1.0870. Measured in U.S. cents, Canada’s dollar hit 97.97 before falling to 92. For the Aussie, the risk is a pause in rate increases. Reserve Bank of Australia Deputy Governor Ric Battellino described its monetary policy on Dec. 16 as “back in the normal range” because lenders had raised rates more than the policy makers had. Weighing on Aussies “Any paring back of those interest-rate hike expectations will weigh on the Aussie,” said Sue Trinh , a senior currency strategist at RBC Capital Markets in Sydney, who sees the currency peaking at 93 U.S. cents. “A sooner and stronger-than- expected recovery in the U.S. is going to benefit Canada more than the likes of Aussie.” Currency strategists have pushed up first-quarter forecasts for the Australian dollar, with the median prediction now at 93 U.S. cents, from 65 cents in March, more than estimates for the New Zealand dollar, real, krone, ruble and Canadian dollar. Futures traders are becoming more bullish about the loonie and Aussie even as they increase bets on the U.S. dollar, data from the U.S. Commodity Futures Trading Commission show. Contracts profiting from gains against the greenback outnumbered bearish wagers by more than 40,000 on each currency last week, the most in five weeks for the Aussie and 10 for the loonie . Investors had an unprecedented 51,050 bets that the Dollar Index would rise as of Dec. 29, according to the CFTC data. Even after such wagers fell to 48,623 last week, bullish contracts outnumbered bearish ones by more than 5 to 1, the most since March, when the dollar started last year’s slide. Major Exports Canada sits on the largest pool of oil reserves outside the Middle East. The nation is also the world’s third-largest exporter of natural gas after Russia and the U.S., according to the Energy Information Administration. Australia is the biggest shipper of iron ore and coal . Merchandise exports to China, the nation’s largest trading partner, grew 29 percent in 2009’s first 11 months from the same period in 2008. Australia also sells gold, crude oil and liquefied natural gas. The Aussie and the loonie last traded at parity together in 1976, before the November election of a secessionist Parti Quebecois government in Quebec helped trigger “a protracted selloff” in the Canadian dollar, according to James Powell’s “A History of the Canadian Dollar” on the Bank of Canada’s Web site. Past Parity The loonie most recently had the same value as an American dollar in July 2008 after rising to that level in September 2007 for the first time in three decades. It hit its strongest level of 90.58 Canadian cents per U.S. dollar two months later. The Aussie last reached parity in 1982, before the government allowed it to float freely the following year. With the U.S. dollar showing renewed strength, Barclays Plc’s wealth management unit is advising investors to maximize returns on bets that the Aussie and loonie will rise along with commodity prices by purchasing the currencies with yen. “If you had to pick a country in the world that’s most short of commodities, it’s Japan,” said Aaron Gurwitz head of global investment strategy at Barclays Wealth in New York. To contact the reporter on this story: Oliver Biggadike in New York at obiggadike@bloomberg.net ; Candice Zachariahs in Sydney at czachariahs2@bloomberg.net .

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Shrinking U.S. Labor Force Keeps Unemployment Rate From Climbing Above 10%

January 8, 2010

By Bob Willis and Courtney Schlisserman Jan. 8 (Bloomberg) — An exodus of discouraged workers from the job market kept the U.S. unemployment rate from climbing above 10 percent in December, economists said. Had the labor force not decreased by 661,000 last month, the jobless rate would have been 10.4 percent, say economists including David Rosenberg at Gluskin Sheff & Associates in Toronto and Harm Bandholz at UniCredit Research in New York. “The actual unemployment rate is higher than shown by the official numbers,” Bandholz said. About 1.7 million Americans opted out of the workforce from July through December, representing a 1.1 percent drop that marks the biggest six-month decrease since 1961, figures from the Labor Department showed today in Washington. The share of the population in the labor force last month fell to the lowest level in 24 years. December’s 10 percent unemployment rate was unchanged from the previous month, matching the median forecast of economists surveyed by Bloomberg News. It was shy of the 26-year high of 10.1 percent reached two months earlier. The so-called underemployment rate — which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking — rose to 17.3 percent in December from 17.2 percent, today’s report showed. The number of discouraged workers, those not looking for work because they believe none is available, climbed to 929,000 last month, the most since records began in 1994. Length of Unemployment The backdrop to the disillusionment is that it’s taking longer and longer to find work, economists said. Workers were unemployed for 29.1 weeks on average last month, the most since records began in 1948. “Longer-term unemployment is one of the biggest problems,” said Bandholz. “Payroll declines will come to a halt in the next couple of months, but the people who are unemployed are having problems getting a job and it’s getting tougher by the month.” The U.S. unexpectedly lost another 85,000 jobs in December after revised figures showed payrolls climbed by 4,000 the month before, today’s report from the Labor Department showed. The November gain was the first since the economic slump began in December 2007. “Workers seem to be particularly discouraged by this recession,” said Chris Rupkey , chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. Participation Rate The participation rate , or the share of the population in the labor force, fell to 64.6 percent in December, the lowest level since 1985, from 64.9 percent. The labor force will probably grow this year as the economy continues to expand and Americans believe jobs will be easier to get. That will mean the unemployment rate will head higher because there won’t be enough jobs available to satisfy the demand for work. “The exodus from the labor force can’t contain the unemployment rate indefinitely,” said Ryan Sweet , a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “We expect unemployment to resume rising over the next few months, peaking near 10.5 percent in the third quarter.” Federal Reserve policy makers, while noting stabilization in the labor market, have expressed concern about unemployment and poor job prospects. That’s one reason policy makers will keep the benchmark interest rate near zero longer than most anticipate, said John Ryding . Fed ‘On Hold’ “We continue to believe that the Fed will leave monetary policy on hold throughout 2010 in light of the high level of un- and under-utilized labor resources,” Ryding, chief economist at RDQ Economics in New York, said in a note to clients. The median forecast of economists surveyed by Bloomberg News last month projected the first rate increase would come in the third quarter of this year. Treasury two-year notes today gained the most in three weeks following the worse-than-expected payroll numbers. The notes’ yields dropped below 1 percent. President Barack Obama on Dec. 8 proposed additional spending on the nation’s transportation system, tax credits to spur hiring by small businesses and incentives to make homes more energy efficient in a second round of efforts to cut the jobless rate. “We’re going to have to work harder to create jobs.” U.S. Labor Secretary Hilda Solis said in an interview today on Bloomberg Television. “This is a very stubborn recession.” To contact the reporters on this story: Bob Willis in Washington bwillis@bloomberg.net ; Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

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Shrinking Labor Force Keeps U.S. Unemployment Rate From Rising Above 10%

January 8, 2010

By Bob Willis and Courtney Schlisserman Jan. 8 (Bloomberg) — An exodus of discouraged workers from the job market kept the U.S. unemployment rate from climbing above 10 percent in December, economists said. Had the labor force not decreased by 661,000 last month, the jobless rate would have been 10.4 percent, say economists including David Rosenberg at Gluskin Sheff & Associates in Toronto and Harm Bandholz at UniCredit Research in New York. “The actual unemployment rate is higher than shown by the official numbers,” Bandholz said. About 1.7 million Americans opted out of the workforce from July through December, representing a 1.1 percent drop that marks the biggest six-month decrease since 1961, figures from the Labor Department showed today in Washington. The share of the population in the labor force last month fell to the lowest level in 24 years. December’s 10 percent unemployment rate was unchanged from the previous month, matching the median forecast of economists surveyed by Bloomberg News. It was shy of the 26-year high of 10.1 percent reached two months earlier. The so-called underemployment rate — which includes part- time workers who’d prefer a full-time position and people who want work but have given up looking — rose to 17.3 percent in December from 17.2 percent, today’s report showed. The number of discouraged workers, those not looking for work because they believe none is available, climbed to 929,000 last month, the most since records began in 1994. Length of Unemployment The backdrop to the disillusionment is that it’s taking longer and longer to find work, economists said. Workers were unemployed for 29.1 weeks on average last month, the most since records began in 1948. “Longer-term unemployment is one of the biggest problems,” said Bandholz. “Payroll declines will come to a halt in the next couple of months, but the people who are unemployed are having problems getting a job and it’s getting tougher by the month.” The U.S. unexpectedly lost another 85,000 jobs in December after revised figures showed payrolls climbed by 4,000 the month before, today’s report from the Labor Department showed. The November gain was the first since the economic slump began in December 2007. “Workers seem to be particularly discouraged by this recession,” said Chris Rupkey , chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. Participation Rate The participation rate , or the share of the population in the labor force, fell to 64.6 percent in December, the lowest level since 1985, from 64.9 percent. The labor force will probably grow this year as the economy continues to expand and Americans believe jobs will be easier to get. That will mean the unemployment rate will head higher because there won’t be enough jobs available to satisfy the demand for work. “The exodus from the labor force can’t contain the unemployment rate indefinitely,” said Ryan Sweet , a senior economist at Moody’s Economy.com in West Chester, Pennsylvania. “We expect unemployment to resume rising over the next few months, peaking near 10.5 percent in the third quarter.” Federal Reserve policy makers, while noting stabilization in the labor market, have expressed concern about unemployment and poor job prospects. That’s one reason policy makers will keep the benchmark interest rate near zero longer than most anticipate, said John Ryding . Fed ‘On Hold’ “We continue to believe that the Fed will leave monetary policy on hold throughout 2010 in light of the high level of un- and under-utilized labor resources,” Ryding, chief economist at RDQ Economics in New York, said in a note to clients. The median forecast of economists surveyed by Bloomberg News last month projected the first rate increase would come in the third quarter of this year. Treasury two-year notes today gained the most in three weeks following the worse-than-expected payroll numbers. The notes’ yields dropped below 1 percent. President Barack Obama on Dec. 8 proposed additional spending on the nation’s transportation system, tax credits to spur hiring by small businesses and incentives to make homes more energy efficient in a second round of efforts to cut the jobless rate. “We’re going to have to work harder to create jobs.” U.S. Labor Secretary Hilda Solis said in an interview today on Bloomberg Television. “This is a very stubborn recession.” To contact the reporters on this story: Bob Willis in Washington bwillis@bloomberg.net ; Courtney Schlisserman in Washington at cschlisserma@bloomberg.net

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Canada Unexpectedly Lost 2,600 Jobs in December, Paced by Transportation

January 8, 2010

By Greg Quinn Jan. 8 (Bloomberg) — Canada unexpectedly lost jobs in December, led by transportation and public administration, keeping the jobless rate close to the highest in more than a decade. Employment fell by 2,600 last month, after a November gain of 79,100, Statistics Canada said today in Ottawa. The unemployment rate was unchanged at 8.5 percent, close to an 11- 1/2 year high of 8.7 percent set in August. The median forecast of 22 economists surveyed by Bloomberg was for a 20,000 gain in employment and an unchanged jobless rate. The country lost 239,700 jobs last year, the first decline since 1992, and 323,400 jobs since employment peaked in October 2008. Prime Minister Stephen Harper said job creation will be the most important indicator of an economic recovery, speaking in a Canadian Broadcasting Corp. interview this week. The country’s first recession since 1992 ended in the third quarter last year, and the Bank of Canada has pledged to keep its key lending rate at a record low 0.25 percent through June to sustain demand. The decline of 274,600 jobs in goods-producing industries in 2009 was only partly offset by a gain of 34,900 in service industries. Setting the Stage “I would still look past” the job decline, Derek Holt , economist at Scotia Capital in Toronto, said in a telephone interview. “It’s largely just volatility before we set the stage for sustained job growth going into 2010.” Government stimulus packages around the world should have their maximum effect this year, boosting demand, Holt said. The Canadian dollar appreciated 0.2 percent to C$1.0321 per U.S. dollar at 8:54 a.m. in Toronto, compared with C$1.0347 yesterday. Full-time employment fell by 2,400 in December, while part- time jobs decreased by about 200, Statistics Canada said. Transportation and warehousing companies fired 23,900 workers, and public administration employment fell by 21,600. Health care jobs rose by 35,300. Linamar Corp. said Dec. 3 it will close a plant with 134 workers in Batawa, Ontario. The Guelph, Ontario-based company manufacturers automobile parts. Manufacturers eliminated 9,700 jobs in December and 190,800 in 2009, or four out of every five jobs lost nationwide. Average hourly wage growth accelerated to 2.4 percent in December from a year ago, Statistics Canada said, compared with 2.3 percent in the previous month, the slowest since March 2007. “Even with the setback, it’s looking increasingly likely that August marked the peak in the unemployment rate,” said Doug Porter , deputy chief economist with BMO Capital Markets in Toronto. “Compared to past recessions, that’s a very mild peak. It’s way below the 13 percent we hit in 1982.” Canada’s unemployment rate is 1.5 percentage points less than the 10 percent mark reported by the U.S. today, along with an unexpected job loss of 85,000. Over the last three decades, Canada’s unemployment rate has been on average 2.5 percentage points higher than the U.S. rate. To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net .

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China Begins ‘Early Stage’ of Interest-Rate Increase on Asset Bubble Risk

January 7, 2010

By Bloomberg News Jan. 8 (Bloomberg) — China’s central bank began to roll back its monetary stimulus for an economy poised to become the world’s second-biggest this year, seeking to reduce the danger of asset-price inflation after a record surge in credit. The People’s Bank of China yesterday sold three-month bills at a higher interest rate for the first time in 19 weeks. The central bank has kept its benchmark one-year lending rate at a five-year low of 5.31 percent after five reductions in the last four months of 2008, and in the first 11 months of 2009 allowed a record 9.21 trillion yuan ($1.4 trillion) of new bank loans . “It’s a signal toward the commercial banks, because the commercial banks allocate their lending at the start of the year — it’s a signal not to overindulge,” said Alaistair Chan , an economist with Moody’s Economy.com in Sydney. “They’re going to tighten in various ways,” including using the benchmark rate and required capital reserve ratio for banks, he said. China’s policy makers are seeking to sustain a rebound in its economic growth , driven by fiscal stimulus and looser credit that spurred a construction boom, without stoking prices of stocks and property. Along with higher rates and an increase in banks’ reserve ratio, officials are projected to allow the yuan to appreciate this year after preventing gains since July 2008. China will seek to slow new bank lending to 7.5 trillion yuan this year, the China Securities Journal said yesterday, citing an unidentified person. Withdrawing Funds The PBOC offered 60 billion yuan of three-month bills at a yield of 1.3684 percent, 4 basis points higher than at last week’s sale, it said in a statement yesterday. The central bank is set to withdraw 137 billion yuan from the financial market this week, the most since the week ended on Oct. 23, according to data compiled by Bloomberg News. “The move is best seen as an early stage of interest-rate increases,” Barclays Capital economists Peng Wensheng and Jian Chang wrote in a note to clients today. Higher bill rates will influence the cost of credit between banks, and “help to prevent a rebound in bank lending, expected in the first few months of 2010, from becoming ‘excessive,’” they wrote. Central bank Governor Zhou Xiaochuan this week reiterated government warnings that investment in industries with excess capacity and in redundant infrastructure projects could threaten banks’ loan quality. The PBOC will guide credit, seeking to avoid volatility in lending, Zhou said in an interview dated yesterday on the Web site of China Finance, a central bank publication. Investment in duplicated projects or industries with overcapacity could “pose a risk to the quality of banks’ loans,” Zhou said. Growth Outlook Yesterday’s announcement spurred concern among some traders that higher borrowing costs may damp economic growth in China, projected by the International Monetary Fund to accelerate this year to 9 percent from 8.5 percent in 2009. Stocks fell across Asia, and oil and copper also declined. The MSCI Asia Pacific Index of regional stocks fell 0.5 percent and oil for February delivery slid 0.7 percent after 10 days of gains. Copper for three-month delivery dropped 0.7 percent. The Shanghai Composite Index fell 1.9 percent, led by Bank of China Ltd. and Industrial & Commercial Bank of China Ltd. PBOC moves to tighten policy “are likely to cause transient profit-taking pressures on markets occasionally as investors have become hooked on easy and cheap money,” RBC Capital Markets emerging-market analysts, headed by Nick Chamie in Toronto, wrote in a report. “However, given it’s a confirmation of an improving growth outlook, any pullback should be within the context of a typical early cycle policy adjustment phase.” Not Bursting Any efforts to rein in lending probably won’t weigh on economic growth, and productivity will keep a lid on inflation, Mark Mobius , who oversees $34 billion of developing-nation assets at Templeton Asset Management Ltd., said in an interview yesterday in Singapore. China’s property market isn’t about to crash, he said. “The Chinese will act rationally and they’re not going to kill the market,” Mobius said. “There’s still a lot of savings in China.” The investor said he plans to increase holdings in Chinese stocks by purchasing shares that benefit from consumer demand, including developers and raw-material suppliers. The central bank said that policy makers need to support “relatively fast” economic growth while managing inflation expectations, in a Jan. 6 statement after an annual work meeting. The government is projected to report later this month that gross domestic product rose 10.5 percent in the fourth quarter of 2009 from a year before, according to the median of 39 estimates in a Bloomberg News survey. The pace would be the fastest since the first three months of 2008. — Aki Ito , Christopher Anstey, Chen Shiyin . Editors: Chris Anstey , Stephanie Phang To contact Bloomberg News staff for this story: Aki Ito in Tokyo at +81-3-3201-8182 aito16@bloomberg.net

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China Begins `Early Stage’ of Interest Rate Increase to Cut Bubble Danger

January 7, 2010

By Bloomberg News Jan. 8 (Bloomberg) — China’s central bank began to roll back its monetary stimulus for an economy poised to become the world’s second-biggest this year, seeking to reduce the danger of asset-price inflation after a record surge in credit. The People’s Bank of China yesterday sold three-month bills at a higher interest rate for the first time in 19 weeks. The central bank has kept its benchmark one-year lending rate at a five-year low of 5.31 percent after five reductions in the last four months of 2008, and in the first 11 months of 2009 allowed a record 9.21 trillion yuan ($1.4 trillion) of new bank loans . “It’s a signal toward the commercial banks, because the commercial banks allocate their lending at the start of the year — it’s a signal not to overindulge,” said Alaistair Chan , an economist with Moody’s Economy.com in Sydney. “They’re going to tighten in various ways,” including using the benchmark rate and required capital reserve ratio for banks, he said. China’s policy makers are seeking to sustain a rebound in its economic growth , driven by fiscal stimulus and looser credit that spurred a construction boom, without stoking prices of stocks and property. Along with higher rates and an increase in banks’ reserve ratio, officials are projected to allow the yuan to appreciate this year after preventing gains since July 2008. China will seek to slow new bank lending to 7.5 trillion yuan this year, the China Securities Journal said yesterday, citing an unidentified person. Withdrawing Funds The PBOC offered 60 billion yuan of three-month bills at a yield of 1.3684 percent, 4 basis points higher than at last week’s sale, it said in a statement yesterday. The central bank is set to withdraw 137 billion yuan from the financial market this week, the most since the week ended on Oct. 23, according to data compiled by Bloomberg News. “The move is best seen as an early stage of interest-rate increases,” Barclays Capital economists Peng Wensheng and Jian Chang wrote in a note to clients today. Higher bill rates will influence the cost of credit between banks, and “help to prevent a rebound in bank lending, expected in the first few months of 2010, from becoming ‘excessive,’” they wrote. Central bank Governor Zhou Xiaochuan this week reiterated government warnings that investment in industries with excess capacity and in redundant infrastructure projects could threaten banks’ loan quality. The PBOC will guide credit, seeking to avoid volatility in lending, Zhou said in an interview dated yesterday on the Web site of China Finance, a central bank publication. Investment in duplicated projects or industries with overcapacity could “pose a risk to the quality of banks’ loans,” Zhou said. Growth Outlook Yesterday’s announcement spurred concern among some traders that higher borrowing costs may damp economic growth in China, projected by the International Monetary Fund to accelerate this year to 9 percent from 8.5 percent in 2009. Stocks fell across Asia, and oil and copper also declined. The MSCI Asia Pacific Index of regional stocks fell 0.5 percent and oil for February delivery slid 0.7 percent after 10 days of gains. Copper for three-month delivery dropped 0.7 percent. The Shanghai Composite Index fell 1.9 percent, led by Bank of China Ltd. and Industrial & Commercial Bank of China Ltd. PBOC moves to tighten policy “are likely to cause transient profit-taking pressures on markets occasionally as investors have become hooked on easy and cheap money,” RBC Capital Markets emerging-market analysts, headed by Nick Chamie in Toronto, wrote in a report. “However, given it’s a confirmation of an improving growth outlook, any pullback should be within the context of a typical early cycle policy adjustment phase.” Not Bursting Any efforts to rein in lending probably won’t weigh on economic growth, and productivity will keep a lid on inflation, Mark Mobius , who oversees $34 billion of developing-nation assets at Templeton Asset Management Ltd., said in an interview yesterday in Singapore. China’s property market isn’t about to crash, he said. “The Chinese will act rationally and they’re not going to kill the market,” Mobius said. “There’s still a lot of savings in China.” The investor said he plans to increase holdings in Chinese stocks by purchasing shares that benefit from consumer demand, including developers and raw-material suppliers. The central bank said that policy makers need to support “relatively fast” economic growth while managing inflation expectations, in a Jan. 6 statement after an annual work meeting. The government is projected to report later this month that gross domestic product rose 10.5 percent in the fourth quarter of 2009 from a year before, according to the median of 39 estimates in a Bloomberg News survey. The pace would be the fastest since the first three months of 2008. — Aki Ito , Christopher Anstey, Chen Shiyin . Editors: Chris Anstey , Stephanie Phang To contact Bloomberg News staff for this story: Aki Ito in Tokyo at +81-3-3201-8182 aito16@bloomberg.net

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