Financial life in a big town

As the U.S. economy continues its downward spiral, economists are warning that the relative strength Canada has shown so far will likely be the "last hurrah."

Any remaining hopes that the fallout from the collapse of the U.S. housing market could somehow be contained grew dimmer yesterday. Another volley of dismal economic news cast doubt on recent efforts to shore up battered credit markets and revive consumer and business confidence, just as world leaders gathered at an emergency summit in Washington.

Topping the list of bad news yesterday was a record 2.8 per cent plunge in U.S. retail sales in October as consumers, concerned about their jobs, dramatically curbed their spending.

In another sign that retailers should brace for a tough holiday shopping season, another closely watched indicator, the Reuters/University Michigan survey of U.S. consumer sentiment, remained near a 28-year low despite rising slightly in November.

U.S. consumer fears are already being borne out in that country’s job market. The parade of layoffs continued yesterday as Sun Microsystems Inc. said it plans to cut as many as 6,000 jobs as sales of its server computers plunge.

Those job cuts come on top of other major layoffs announced recently across financial services, the auto industry and other sectors, and appear to augur badly for the U.S. jobless rate, which hit a 14-year high of 6.5 per cent in October.

Evidence mounted this week that the U.S. contagion is spreading quickly to other parts of the world. The European Union said yesterday that the 15 countries that use the euro are officially in recession, after their economies shrank for the second straight quarter. The news came a day after the Organization for Economic Co-operation and Development said its members, representing the world’s developed economies, appear to be in recession.

"Financial markets remain under severe strain," U.S. Federal Reserve chair Ben Bernanke said yesterday.

So far, at least, Canada appears to be weathering the storm better than most creditscores.

"We’re certainly going into it in a lot better shape than we’ve gone into the prior two serious recessions, in the early 1990s and the early 1980s," said Douglas Porter, deputy chief economist at BMO Capital Markets. He pointed to strong government balance sheets, "relatively healthy" corporate balance sheets, a strong banking sector and financial markets that "are closer to functioning normally than in most other economies."

But "despite all those positives, the fact of the matter is that we still export a huge portion of our output to the U.S., and we cannot escape the pull on the U.S. economy completely – there’s just no way," Porter said. "We’ve certainly hung in there better than the U.S. economy right up to and including October, but I think the weakness in the U.S. is just so pervasive, as shown by the October retail sales results, that it will seep into the Canadian economy more broadly."

A TD Economics research note echoed those concerns yesterday, calling recent upbeat indicators "Canada’s last hurrah."

"Given the data that has come out of the U.S. in the last few weeks, this strength is not likely to hold up through the last quarter of the year," economist James Marple wrote.

In a troubling sign that Canada’s housing market is softening, the Canadian Real Estate Association reported yesterday that the number of homes sold through the Multiple Listing Service plunged 14 per cent in October to the weakest level since July 2002. The drop suggests "a major downshift in consumer psychology," CREA chief economist Gregory Klump said.

With files from the Star’s wire services

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British bank Barclays Plc is raising 7.3 billion pounds ($12.1 billion) from investors from Qatar, Abu Dhabi and elsewhere to allow it to avoid taking UK government rescue cash, it said Friday.

The fundraising is being made through a range of complex capital instruments, which could see Middle East investors owning about one-third of the bank.

An issue of reserve capital instruments (RCIs) will pay annual interest of 14 percent until June 2019. Warrants representing billions more pounds could also be issued.

Britain’s second biggest bank is raising up to 3.5 billion pounds from Sheikh Mansour Bin Zayed Al Nahyan, a member of Abu Dhabi’s royal family. That could give him a 16.3 percent stake in the bank.

Barclays shares initially jumped after the news as investors welcomed the bank’s ability to raise cash in tough markets and an adequate trading update, but later eased back. At 0930 GMT they were unchanged at 205-1/4 pence after touching 228p.

The bank said group profit in the first nine months of this year was “slightly ahead” of the same level a year earlier.

It took a net writedown of 129 million pounds from credit market writedowns for the third quarter, but said 1 billion pounds of gains on debt it carries were reversed in October.

Barclays is raising up to 2 billion pounds from Qatar Holding and 300 million from Challenger, an investment vehicle of a member of Qatar’s royal family freecreditreport. That could leave Qatar Holding a 12.7 percent stake and Challenger with 2.8 percent.

Barclays’ investor base has been transformed in the past two years, as it has raised funds from investors in China, Singapore and Japan as well as the Middle East and the bank expects to benefit commercially from the links as well as getting cash.

“There has been a significant shift in the availability of capital and economic power in the world over the last five years and we’re ensuring we’re aligned with those changes,” said John Varley, Barclays chief executive.

AVOIDING TAXPAYER CASH

The bank is seeking to raise up to a further 1.5 billion pounds from the sale of MCNs (mandatorily convertible notes) with existing and other investors.

Asked on a conference call whether Barclays has enough capital to avoid more fundraising, Varley said: “Yes, we have what we need.”

Barclays earlier this month turned down an offer of government funds under Britain’s 400 billion bailout package and said it would raise capital privately.

Rivals Royal Bank of Scotland, Lloyds TSB and HBOS have agreed to take up to 37 billion pounds of taxpayers’ funds to help rebuild balance sheets hit by the credit crisis and prepare for possible recession. 

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SIOUX FALLS, S.D. — The United States added nearly 1,400 megawatts of new wind energy capacity during the second quarter of 2008, providing enough electricity to power more than 400,000 homes, according to an industry report released Wednesday.

The American Wind Energy Association said new wind turbines this year will generate some 7,500 megawatts of additional electricity, far surpassing the 5,249 megawatts installed in 2007.

Wind power accounted for more than one-third of the new electric generating capacity installed in the U.S. in 2007, and the industry is projected to grow at a 45 percent pace for the second straight year, said Randall Swisher, the association’s executive director.

"We’re past the point of wind being a marginal player," Swisher said.

A financial bailout package passed by Congress and signed by President George W. Bush earlier this month provided an eight-year extension of investment tax credits for the solar industry but gave just a one-year extension of production tax credits for the wind industry.

Swisher said wind advocates were disappointed they couldn’t secure a more long-term policy, but the industry will work with the next administration on a stable five-year tax credit extension and a federal renewable energy standard internet payday loans.

The government, utilities and financiers also will have to come together to build a nationwide network of high voltage lines that will provide a backbone so the country can fully access its wind potential.

"In 2009, energy will be front and center with the new Congress and the new administration," Swisher said. "Both McCain and Obama have made that clear."

Swisher said the credit crisis and overall economic downturn undoubtably will have some effect on the capital-intensive industry, but it’s too early to predict to what extent.

He said capital in the near-term clearly will cost more and be more difficult to get, but other factors provide a bit of a silver lining. Transportation costs are continuing to come down, and steel prices have dropped significantly in the last few months. A wind turbine, by weight, is 89 percent steel, Swisher said.

Industry growth also is occurring on the manufacturing side. Eight new wind turbine component manufacturing facilities opened in the U.S. this year, nine were expanded and 19 new facilities were announced, according to the trade group.

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Intel (INTC.O: Quote, Profile, Research, Stock Buzz) will continue to invest in products and technologies even though it sees that a U.S. financial meltdown is likely to affect the emerging markets that are crucial for its growth, its chairman said on Tuesday.

“I think you’d have to be prudent and assume that if the financial marketplace melts down there’s going to be some impact but nobody’s predicting that, nobody knows how big it’s going to be,” Chairman Craig Barrett told Reuters journalists.

“The only thing we can do is look at that part of our future destiny that we can control, and that’s our investment in the future, in the products we create and the technologies we create,” he said on a visit to Reuters.

“We’ve always had the attitude that you have to make that investment in good times and bad,” he said. “It’s R&D, capital, marketing-intensive, and we’re just like a blind greyhound, we just continue to race down the track.”

Of its $38.3 billion 2007 revenue, the world’s biggest chipmaker spent $5.8 billion on research and development and $5 billion on capital items such as property, plants and equipment overnight payday loans.

“You can’t save your way out of a recession, you have to invest your way out, and so we’ve always kept a rainy day plan to accommodate that,” Barrett said, adding that Intel had a financial cash cushion of about $10 billion for that purpose.

Barrett said Intel’s creditworthiness meant it should be able to make acquisitions if the chance arose, even given the current turmoil in financial markets.

Intel has an A+ credit rating from Standard and Poor’s. 

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St. Louis area casinos saw business climb 4.8 percent in August, according to figures released this week by Missouri and Illinois gaming regulators.

Local gamblers spent $91.3 million at the region’s six casinos, up from $87.2 million in the same month last year payday loans. As has been the case all year, much of the gain was driven by the new Lumi

Oil prices ended lower Thursday, reversing an early spike, as traders sized up a potentially devastating blow to production from Tropical Storm Gustav and reacted to a decline in natural gas prices.

U.S. crude for October delivery rose as much as $2.35 a barrel to touch $120.50 in early trade before retreating to settle at $115.59 a barrel, or $2.56 lower.

The Department of Energy said it is monitoring the situation in the Gulf and stands ready to dip into the Strategic Petroleum Reserve, an emergency repository of 700 million barrels of oil that the government controls.

"The Strategic Petroleum Reserve is a key safeguard to provide an added layer of protection for the American people during the event of a severe disruption of oil supply," the agency said in a statement.

Oil platforms in and around the Gulf of Mexico account for more than a quarter of U.S. oil production.

If production rigs are damaged by the storm, crude oil supply would be pinched. Andrew Lebow, an energy analyst at MF Global, said he believes the government would step in to mitigate any short-term supply loses. "The government will be a lot quicker to release crude oil out of the strategic petroleum reserve, should we lose any production."

Such a move from the government would bring comfort to the markets, said Lebow.

Natural gas: Tumbling natural gas prices also weighed on crude prices. Natural gas prices were down more than 8% after the Energy Information Administration reported natural gas supplies in storage jumped by 102 billion cubic feet in the week ended Aug. 22, putting supplies of natural gas 2.6% above the five year average of supplies in storage. Natural gas settled down more than 6%.

The report "sent natural gas down and crude is following," said Amanda Kurzendoerfer, commodities analyst at Summit Energy. "We have seen sometimes they do move together."

The natural gas report "is highlighting that we are going to have ample natural gas for this winter," said Lebow. In some cases, natural gas can be used in exchange for petroleum-based products, said Lebow.

Jim Rouiller, senior energy meteorologist at Planalytics, a firm that predicts how weather will impact businesses, said crude prices were ready to fall because they had already been pushed higher Wednesday in anticipation of the storm.

Another factor in Thursday’s price decline was a stronger dollar.

Watching Gustav: Oil prices zig-zagged as the market watched the path of Gustav, according to Neal Dingmann, senior energy analyst at Dahlman Rose & Co.

The majority of crucial rigs are located between the Houston Shipping Channel and New Orleans, and so the price of oil moved quickly as traders anticipated where Gustav would hit land, he said.

"As the projected path inwards changes," said Dingmann, "you have people’s bets change." The last week in August is a popular vacation week, and so light trading volume also pushes the price of oil around more dramatically, said Dingmann.

Meteorological forecasters said it was too soon to know the storm’s exact path. But the National Hurricane Center’s projection models show Gustav heading toward Louisiana through the oil-rich region of the Gulf of Mexico by Sunday afternoon.

Gustav, once a Category 1 hurricane, weakened after it passed over Haiti and the Dominican Republic. The storm now threatens to intensify and become a hurricane again.

It doesn’t necessarily take destructive hurricanes to cause major disruptions to oil drilling in the Gulf, however.

"The makeup of a storm can have all the difference," said Alaron Trading senior market analyst Phil Flynn easy payday loan. "Slow moving storms have a tendency to churn up underground pipelines, so you don’t need a Category 5 to do a lot of damage."

Evacuations: Already on Wednesday, Royal Dutch Shell PLC (RDS) evacuated 400 staff from its off-shore oil rigs, according to Robin Lebovitz, a spokesperson for the company. It plans on bringing 270 more personnel ashore Thursday and it said it would complete a full evacuation by Saturday.

Shell said it expects that production at its east and west Gulf of Mexico platforms will be hampered as early as Thursday.

On Thursday, Shell asked consumers to conserve fuel because "during a hurricane, temporary and sporadic supply interruptions may be unavoidable." In a statement, the company assured customers that it is prepared for the inclement conditions, but Shell asked consumers to "maximize fuel supply."

In addition, a recorded message on an information hotline at British Petroleum (BP) said the company was evacuating non-essential personnel from their offshore oil rigs.

ConocoPhillips (COP, Fortune 500) will remove 20 non-essential personnel from a platform in the central Gulf of Mexico, according to a statement. The company plans to remove another 58 personnel from the platform by Saturday, as Gustav approaches.

Timeline: The average hurricane halts oil drilling production for more than a week, according to the American Petroleum Institute. Rig workers are forced to evacuate two to three days before the storm hits, and as soon as it’s safe to return, they have to check for damage before they can restart production.

The U.S. Department of the Interior estimates that 3,050 of the Gulf of Mexico’s 4,000 platforms and 22,000 of the 33,000 miles of Gulf pipelines were in the direct path of Hurricanes Katrina and Rita in 2005. The cyclones, both of which reached Category 5 strength, destroyed 113 offshore oil and natural gas platforms and damaged 457 pipelines.

Since then, the industry began making changes to the structures. The Interior Department in April 2008 imposed more stringent design and assessment criteria for both new and existing structures located within particular Gulf of Mexico areas.

For example, drilling rigs moored to sea floor in the Gulf had been attached with eight lines, and are now required to be moored with 12 to 16 lines. New rigs are built higher out of the water than ones that were built previously, and old rigs were strengthened, according to Andy Radford, a policy advisor at API.

"We have learned from Katrina and Rita," said Lebow. "The infrastructure is a little bit stronger."

Refineries: While the oil rigs have been strengthened, however, refineries are vulnerable. The last new U.S. refinery was built in 1980, according to Lebow.

Oil refineries clean and process crude into usable products, like gasoline and heating oil. With 41% of the nation’s refinery capacity in the Gulf Coast region, according to Lebow, a storm has real potential to disrupt distribution of gas and send prices at the pump higher.

Damage to refineries could create more long-term problems. "Refineries are a lot more complex," said Lebow. "It can take many days, sometimes weeks to get a refinery working again" after significant damage. "Some refineries took years to get back online after Katrina." 

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Lehman Brothers Holdings Inc. shares bounced from its lows Thursday after an analyst upgraded his rating on the investment bank to "Buy," and believes it now has become a "hostile takeover candidate."

Ladenburg Thalmann analyst Richard X. Bove believes that Lehman Brothers (LEH, Fortune 500) management values the company at a premium, and would be willing to sell at the right price. He believes that a "deep pocket buyer" could emerge to buy the nation’s fourth-biggest investment bank.

"So the market is at a stand-off," Bove said in a note to clients. "Investors are unwilling to accept any positive view of the company; management is unwilling to sell out at a deeply distressed value. The stage is set for a hostile bid to take over the whole company."

Immediately after the note was published, Lehman Brothers shares - down about 6% earlier in the session - bounced higher. Shares of the company were down 9 cents at $13.64 in afternoon trading. The stock has traded between $12.02 and $67.73 over the past year.

Before the opening bell in New York, shares were initially under pressure after another analyst increased his third-quarter loss estimate and slashed his price target for the investment bank, projecting yet another tough quarter of write-downs.

In a note to clients issued Wednesday night, Citi Investment Research analyst Prashant A. Bhatia also said he saw a "lower probability" that the New York-based investment firm would sell its Neuberger Berman business or raise capital in the near term.

Several Wall Street analysts have been speculating about a possible sale of all or a portion of Lehman’s asset-management business.

"Even under the potentially more stringent rating agency guidelines related to the amount of preferred securities in the capital mix, we anticipate that Lehman can absorb over $3 billion of after-tax losses without adding more common equity," Bhatia wrote in a research note.

He lowered his third-quarter estimates on Lehman, predicting a "difficult operating environment, characterized by lower client-related trading volumes and losses on hard-to-sell assets."

Bhatia widened his projection of a quarterly loss to $3.25 per share from a previous forecast of a loss of 41 cents per share free credit reports. Wall Street analysts expect a profit of 12 cents per share, according to a poll by Thomson Reuters.

The analyst also axed his price target to $35 from $50. Nevertheless, he rates Lehman Brothers as a "Buy."

Bhatia said he expects Lehman to take fresh asset related write-downs of $2.9 billion during the most recent quarter.

"Based on further deterioration in several indices, we expect further write-downs, primarily related to mortgage assets," he wrote.

Investment banks have been struggling with mounting losses and write-downs on bonds and debt backed by mortgages. As mortgages increasingly have defaulted over the past year, the value of bonds backed by the troubled loans has declined.

Banks have been forced to cut the value of their holdings or sell their investment at losses. 

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Plane maker Boeing Co (BA.N: Quote, Profile, Research, Stock Buzz) has seen a string of order deferrals in the United States this year as the airline industry battles challenges such as high fuel costs, a senior executive said on Wednesday.

Randy Tinseth, Boeing Commercial Airplanes Vice President for Marketing, said the delays also featured one total cancellation, but the issue was limited to the U.S market — which accounts for 10-11 percent of its sales.

“We have seen deferrals in the U.S. market as the airlines look to make significant capacity reductions, but we are pleased to have regional diversity .. We have not seen deferrals in other regions,” he told reporters.

Boeing shares were up 0.5 percent at $66.45 at 12:08 p.m. EDT.

Airline fuel costs have soared this year alongside record oil prices above $140 a barrel, forcing several airlines to cut capacity and hike fuel charges protect margins.

But Tinseth said Boeing did not expect the tough climate to last — predicting the value of the new plane market to grow in the long term.

Bowing said the group now valued the market for new commercial planes at $3.2 trillion to 2027 cash advance. That is up from a $2.8 trillion 20-year forecast provided last year.

“The forecast takes into account the industry’s near term challenges, including a slowing worldwide economy (and) surging fuel prices .. This year’s forecast is rooted in today’s realities, but also recognizes the nature of a long term outlook,” Tinseth said. 

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OTTAWA–The federal government recorded a $1.2-billion budgetary deficit in March, likely trimming its surplus for the just-completed fiscal year to $10.2 billion.

The Finance Department says the deficit last March was half what the government experienced in March 2007, when it spent $2.4 billion more than it earned.

The department also says preliminary accounting points to a $10.2-billion surplus for the 2007-08 financial year that ended March 31, the exact amount forecast in Finance Minister Jim Flaherty's budget in February.

The federal government's revenues were up $1 billion, or 5.2 per cent, in March, largely as a result of higher receipts in taxes from individuals cheap payday loans. Program expenses were flat.

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Stocks will face major obstacles to extending their gains next week if the price of oil continues to break records, as fears about inflation and the discretionary spending power of the embattled American consumer are forced into the spotlight.

The gyrating price of oil has been a significant factor in the price of stocks in the past week. Oil rose to a record $127.82 a barrel on Friday, after Goldman Sachs, the most active investment bank in energy markets, forecast a continued spike in prices through the end of the year, due to thin supply.

“The idea that oil could rise a lot further before it reaches a tipping point is really slipping into investors’ psyche,” said Bucky Hellwig, senior vice president at Morgan Asset Management, in Birmingham, Alabama.

Earnings from a handful of major retailers, including Target (TGT.N: Quote, Profile, Research), could shed more light on how much the rising costs of fuel and food and deteriorating home prices are affecting consumer spending paydayloans. Investors also will be keeping a keen eye on inflation data.

“If oil prices continue to move up, with Memorial Day coming up, I think traders and investors will be very cautious,” said Subodh Kumar, chief investment strategist at Subodh Kumar & Associates in Toronto.

The Memorial Day holiday in the United States typically marks the start of the summer driving season.

For the week, the Dow Jones industrial average gained 1.9 percent, while the Standard & Poor’s 500 Index .SPX advanced 2.7 percent and the Nasdaq Composite Index .IXIC climbed 3.4 percent.

At the close on Friday, the S&P 500 was within 3 percent of being in the black for the year, while the Dow needs to gain about 2.2 percent and the Nasdaq about 4.8 percent.  

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