Financial life in a big town

Bills that would change intrastate access charges — the fees phone companies charge each other for their customers’ in-state long-distance calls.

HB1750 > Introduced by Rep. Timothy Jones, R-Eureka — This one has already passed the House and has been sent to the Senate. It would reduce intrastate charges by 50 percent over 10 years. Exempts companies with fewer than 25,000 lines. Contains no explicit approach for companies to make up any revenue lost.

SB698 > Introduced by Sen. John Griesheimer, R-Washington — Would lower rates by 50 percent over five years. Companies serving high-cost areas would be allowed to raise their rates to make up the lost revenue.

SB 785 > Introduced by Sen. Kurt Schaefer, R-Columbia — Would reduce rates by 45 percent, but would offset those losses through a state universal service fund, supported by fees on companies that provide Internet-based phone service and mobile radio service. The act also exempts companies with fewer than 25,000 lines.

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MONDAY

StatsCan: Releases November international security transactions.

TUESDAY

Bank of Canada: Interest rate announcement.

StatsCan: Releases leading indicators for December.

WEDNESDAY

StatsCan: Releases December consumer price index, November manufacturing sales, travel between Canada and other countries.

Earnings: Danier Leather reports second-quarter results.

THURSDAY

Earnings: MDS Inc. and Viterra report their fourth-quarter results.

StatsCan: Releases November wholesale trade figures.

FRIDAY

StatsCan: Releases November retail sales.

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The U.S. government posted a deficit of $91.9 billion in December, nearly double the shortfall of a year earlier and marking the government’s 15th straight month in the red, the Treasury Department reported Wednesday.

The shortfall brings the total deficit for the first quarter of fiscal year 2010 to $388.5 billion, up from $332 billion during the same period last year.

It was the second consecutive December the government spent more than it took in. In December 2008, the deficit was $51.8 billion.

While December’s deficit was less than the $120.3 billion in November, that’s no reason to celebrate. The government typically rings up a surplus in December as year-end bonuses boost high individual withholding and as companies make quarterly income tax payments.

The deficit remained high in the first three months of the fiscal year because while spending was down by $3.6 billion from the same period last year, tax revenue fell even more, dropping by $59.7 billion as individual income and payroll taxes declined.

Interest paid on the debt in December was $104.6 billion — 34% of federal outlays for the month.

"No surprises, the government obviously continues to run a very large deficit," said Gus Faucher, director of macro economics at Moody’s Economy short term personal loan.com. "But that’s necessary as a response to the recession and the financial crisis."

The Treasury estimates the annual deficit will climb to $1.502 trillion for the full fiscal year 2010, up from $1.42 trillion in 2009.

Debt ceiling: For the long term, many economists are less concerned about monthly and annual deficits, focusing instead on the enormous accumulation of national debt and its rapid upward trend.

"We want to have a big deficit now because that’s helping to stimulate the economy, said Faucher. "The concern is about the longer run."

That’s especially true after Congress raised the debt ceiling again. The new limit for the amount of debt the Treasury is allowed to have, passed in the last days of 2009, was set at $12.394 trillion, up $290 billion from the previous level of $12.104 trillion. Depending on the state of the economy, this should provide the government relief until mid-February.

As of Monday, the country’s total public debt was $12.285 trillion, $109 billion below the debt limit. 

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Hoya Corp. kept its Pentax camera plant north of Tokyo open as rivals steadily moved factories overseas to cut costs, yet it couldn’t compete as the yen surged against the dollar and euro during the global recession.

The company paid suppliers and workers in yen, sold products in dollars and euros, and converted revenue into yen. Six straight quarterly losses prompted Hoya in June to close the last domestic Pentax plant, in Tochigi prefecture, as the yen rallied against the dollar.

“The rise in the yen is definitely one of the biggest triggers that convinced us to accelerate our move offshore,” said Hiroshi Hamada, Hoya’s chief operating officer. “There was no reason to keep high-cost manufacturing in Japan.”

Lens-maker Hoya is one of 13 companies — including Komatsu Inc. and Panasonic Corp. — shutting or downsizing Tochigi factories in the past year. The strengthening yen, weakening domestic demand and second-highest corporate taxes among major economies are spurring the exodus of manufacturers to Vietnam, the Philippines and China, companies and analysts say.

Hoya rose 2 percent to 2,570 yen at the close trading in Tokyo, outpacing the 1.1 percent gain on the benchmark Nikkei 225 Stock Average. Shares of the Tokyo-based company have gained 55 percent in the last 12 months.

About 740,000 Japanese manufacturing jobs disappeared last year through November, the statistics bureau said. More than a third of factory capacity sits idle, trade ministry figures show.

‘Breaking Point’

Japan’s industrial output is 19.8 percent below its pre- recession peak, with the country shipping 35 percent fewer goods in November than the peak of 7.6 trillion yen ($82 billion) in March 2008.

“Corporate Japan is voting with its feet,” said Jesper Koll, now head of equity research at JPMorgan Chase & Co. in Tokyo. “They’re going overseas. The hollowing out of Japan is being turbo-charged.”

Profits from overseas operations at Japanese companies exceeded domestic earnings for the first time in fiscal 2008, said the Japan External Trade Organization, a government-funded organization focused on luring investment. Foreign operations generated 52.5 percent of earnings, according to JETRO’s analysis of 890 listed companies.

The yen surged 14 percent since Lehman Brothers Holdings Inc. filed for bankruptcy protection in September 2008, the most among 16 major currencies tracked by Bloomberg. It reached a 14- year high of 84.8 against the dollar on Nov. 27. The yen gained 20 percent against the euro since January 2008.

No Incentives

A stronger currency erodes the value of repatriated earnings and makes Japanese exports more expensive for foreign buyers.

Overseas markets are more lucrative as domestic demand slips because of declining wages — down 14 percent since a 1997 peak — and an aging, shrinking population. More than 20 percent of Japanese are over 65, and the population will decrease by 3.2 percent this decade, according to the National Institute of Population and Social Security Research.

Japan’s 39.5 percent corporate tax rate for large firms is second-highest behind the U.S.’s 40.8 percent, according to the Finance Ministry.

“There’s less incentive to keep, stay or do business in Japan, especially the factories,” said Masafumi Yamamoto, chief foreign-exchange strategist at Barclays Capital in Tokyo instant payday loans completely online. “That movement should continue.”

Last month’s 7.2 trillion yen government stimulus package didn’t promote long-term growth, said Yasukazu Shimizu, senior market economist at Mizuho Securities Co. in Tokyo.

Komatsu, Panasonic Leave

Manufacturing is 40 percent of Tochigi’s economy –twice the national average. Before the recession started in November 2007, there were three job openings for every two applicants, according to the Labor Ministry.

Now there are three applicants for every opening in the prefecture, about an hour from Tokyo on the bullet train.

Komatsu, the world’s second-biggest maker of construction equipment behind Caterpillar Inc., closed a dump-truck assembly plant there. China surpassed Japan as Komatsu’s biggest market for construction and mining machinery in the quarter ended June 30.

Komatsu forecasts full-year profits of 35 billion yen as sales decline by 6.5 percent.

Consolidating Operations

Panasonic Communications Co., subsidiary of Tokyo-based Panasonic Corp., the world’s biggest maker of plasma TVs, shut its fax-machine factory in June. The parent company says cost cuts, including 15,000 jobs, will help narrow a net loss for the current fiscal year to 140 billion yen from the earlier estimate of 195 billion yen.

“We wanted to increase efficiency,” Panasonic spokesman Akira Kadota said. “It made sense to consolidate our operations.”

Shuttered shops abound in Utsunomiya, a city of 500,000 where Tochigi’s government established an unemployment center. The converted storefront advised more than 12,000 people since April, manager Chiaki Yashiro said.

“There isn’t anything out there,” said Yuuji Takashi, 53, who lost his job at a car parts-maker early last year. “They’re sending it all to China.”

Toyota City, Japan-based Toyota Motor Corp., which makes more than half of its cars abroad, plans to suspend one domestic assembly line and add capacity in China and India, its fastest- growing markets. Domestic passenger car sales are down 25 percent since the 1990 peak of 5.1 million, according to the Japan Automobile Dealers Association.

Yen Tips Scale

The surging yen helped tip the scales, Toyota Vice President Takeshi Uchiyamada said in October.

“We’re affected by the exchange rate,” Toyota spokesman Paul Nolasco said. “We deal with that by building as much of our product as close to our customers as possible.”

The Pentax factory peaked in the 1970s, with 1,500 workers making 35-millimeter, single-lens reflex cameras. Hoya’s Hamada moved all camera production offshore helping the company’s Pentax division to return to profit with operating income of 1.19 billion yen last quarter. Continuing to manufacture in Japan was “stupid,” according to Hamada.

“It was a waste,” he said.

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American Water Works Co., the largest investor-owned U.S. water utility, purchased O’Fallon, Mo.-based Environmental Management Corp. Terms weren’t disclosed.

Environmental Management, which manages water and sewer projects in the United States and Canada. The company has about 300 employees, including 84 in the St payday loans. Louis area, and recorded 2008 revenue of $50 million.

The company, founded in 1980, was owned by the Linde Group, a German conglomerate.

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Finance Minister Dwight Duncan’s plan to avoid controversy with the first part of his pension reform legislation has not been a total success.

Some say his proposals to protect all workers laid off by companies go too far. After all, many pension plans are poorly funded and many companies are struggling. But others say he did not go far enough.

Duncan’s proposal in legislation tabled Wednesday would require enhanced payments starting in 2012 to anyone whose age and years of service total 55, but who has yet to qualify for early-retirement benefits. Until then, only those laid off in significant numbers would continue to enjoy such protection.

One former oil company executive argued in an email that the expansion of protection is out of step with the rest of the world and a danger to benefits of those already fired.

He noted Duncan is to meet other finance ministers in Whitehorse next Thursday to talk about expanding and standardizing pension coverage, not hastening the elimination of generous, traditional pension plans enjoyed by less than a fifth of private-sector workers.

But benefit consultants and actuaries support Duncan’s proposal, because he partly offset the cost of widening protection for laid-off workers by removing a costly, controversial and ill-defined requirement to partially wind up pension plans and divide surplus funds at the time of a significant layoff.

They think it is fair that Ontario (along with Nova Scotia) requires special treatment for long-service and older workers laid off from companies that promised qualifying employees a pension from an earlier age than 65.

"It is a very perverse thing when you fire someone at 54 to deny them what they were going to get at 55," says actuary Malcolm Hamilton of Mercer, the international benefits consulting firm. "You hold out a big promise, then you snatch it away from them."

Companies would still be able to deny workers the substantial value of an early-retirement benefit if they quit voluntarily or were fired for cause.

Multi-employer plans, and jointly sponsored plans in the public sector, could opt out of enhancing payments to those whose age and service total 55 easy payday loans.

Some benefits consultants argue limiting enhanced payments to laid-off workers is unfair to those laid off at an earlier age, and those who voluntarily leave.

James Pierrot, a lawyer with Towers Perrin, says "what we recommended to the Ministry of Finance is, if you are going to broaden entitlement to early retirement benefits, what is magical about having 55 points?

"Why not have employees earn early-retirement subsidies in proportion to their years of service? That would be much more fair than having a cut-off. Why should a person with 54.9 points not get it? It’s silly."

That said, Pierrot says it’s also odd to entrench rights under pension legislation that would more properly be included with minimum severance requirements in employment standards legislation.

Ian Edelist, an actuary with Eckler Ltd. and member of a task force on pensions formed by actuaries, said the cost of requiring that laid-off workers with 55 points be allowed to qualify for early retirement benefits would vary from plan to plan.

The cost would not be as large in plans where a high percentage of members has already retired as those with few retirees.

But he agreed with Hamilton and Pierrot that Ontario’s special requirements for laid off workers are not a primary reason for employers halting or phasing out traditional defined-benefit plans. Nor, say the consultants, will Ontario’s reforms be a big impediment to harmonization of pension legislation on more important issues.

The big issue for existing pension plans – on which Ottawa recently took the lead with proposed legislative changes – is giving employers an incentive to build a rainy-day buffer without facing demands to share surplus funds with plan members.

A much bigger issue for Ottawa and the provinces will be agreeing on how to ensure more workers get included in a low-cost, professionally managed pension plans.

jdaw@thestar.ca

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A growing chorus of Democratic lawmakers and liberal economists are pushing hard for a tax on stock trades to pay for job creation.

By levying a small fee when stocks, futures, swaps, options and other securities are bought and sold, supporters of the tax believe the government can take in between $120 billion and $240 billion annually. That money could be used to fund additional government stimulus to help put the nearly 16 million unemployed Americans to work.

"Financial transactions number in the many trillions of dollars every year, so if you take a small fraction of that, you are going to be raising a lot of money," said Ann Lee, economics professor at New York University. "That can be used for things like paying down debt or creating jobs."

But the idea faces staunch opposition among Republicans and even from some Democratic lawmakers. Treasury Secretary Tim Geithner has also voiced his disapproval of the idea.

There are handful of different proposals in play, and the first bill surfaced in mid-November from a group of seven House Democrats, led by Rep. Peter DeFazio, D-Ore. The legislation is called "Let Wall Street Pay for the Restoration of Main Street Act."

The bill, which is still in the draft stages, would tax each stock transaction at 0.25% and futures, swaps and credit-default swaps at 0.02%. The bill’s sponsors estimate that it can raise about $150 billion per year, half of which could be set aside in a "job creation reserve" for Congress to allocate in the future.

"We know Main Street is suffering and a restored Wall Street should now share in its recovery with everyone else," Rep. DeFazio said in a letter to colleagues.

To ensure that the law targets speculators and not pension funds or retirement investors, the tax would be refunded for tax-favored retirement accounts such as 401(k) plans and education and health savings accounts. Additionally, the tax would not apply to the first $100,000 of a trader’s annual transactions.

House Speaker Nancy Pelosi, D-Calif., and Majority Leader Steny Hoyer, D-Md., have both said they are open to discussing such a plan, though neither said whether they support the DeFazio bill.

Support growing

Such a tax is not unprecedented. The United States used to tax all stock sales and transfers at 0.2% to 0.4% from 1914 to 1966.

England currently levies a tax on stock sales and transfers at 0.5%, which brings in about $40 billion a year. But the U.K.’s top financial services regulator Adair Turner said in September that Britain should also tax "socially useless" transactions like derivatives and swaps. Prime Minister Gordon Brown supports Turner’s proposal and presented it at last month’s G-20 meeting.

In the United States, a financial transactions tax has also gained support in recent weeks from Nobel Prize-winning economists Paul Krugman and Joseph Stiglitz. Krugman, who is attending Thursday’s "jobs summit" at the White House, argued in a recent New York Times op-ed that the tax would curb the excessive market speculation that led to last fall’s credit crisis, and the fees would not have any noticeable effect on long-term investors payday loan.

The left-leaning Economic Policy Institute on Monday announced its own plan to create 4.6 million jobs in a year by levying a tax on stocks and other financial items. The EPI said the government should spend an additional $400 billion on stimulus aimed at job creation, and estimated that those funds could be repaid within 10 years from the proceeds of a financial transactions tax.

"The tax has serious revenue potential," said Josh Bivens, economist at EPI. "No one likes taxes, but on the menu of taxes, this one makes the most sense."

Unlike Krugman, Bivens argued that the tax would have very little impact on trading because the proposed fee is so negligible. But if it does have an impact, Bivens said it would be beneficial, reducing short-term speculative trades that lead to excess market volatility.

Bill faces tough opposition

If the DeFazio bill advances to a vote, it will face an uphill battle. A letter to colleagues by Democratic Representatives Michael McMahon, D-N.Y., Carolyn Maloney, D-N.Y., and Debbie Halvorson, D-Ill., urged Congress to oppose the legislation. They argued the tax would raise credit costs, depress stock prices and force investors to flock to overseas markets. It would ultimately hurt the middle class as well "by punishing more than 90 million American investors."

Republicans and conservative economists agree with the assessment that the bill would inadvertently tax everyday Americans, arguing that banks would simply transfer the transaction fees to their customers. They also say targeting stock transactions means targeting the middle class, especially if a proposal is adopted that does not exclude retirement funds from the tax.

"People who support it see this as a way to hit evil banks and rich people, but the problem is that most stocks and bonds are not bought by rich people but by pension funds," said David John, senior research fellow at the right-leaning Heritage Fund. "To say the tax would be counterproductive would be putting it mildly."

Even some of those that support the tax conceded that it could put a stranglehold on the financial sector.

"Part of the reason why Geithner isn’t supporting it is that it will hurt folks in the financial industry in the short-term," said NYU’s Lee. "Anyone engaged in heavy trading isn’t going to like this proposal, and it could mean more job losses in that sector."

As a result, supporters like Lee and Bivens say the tax won’t likely pass through Congress while the economy is still struggling to rebound.

"I agree that the next two years are no time to do any serious tax increases," said Bivens. "We will need the revenue in the long run, but it will be hard to see it pass in the short term." 

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George Weston Ltd. executives say they’re still hunting for acquisitions, but hinted the company could be closer to making a move after months of searching for the right fit.

"Obviously a lot of values have gone up in a lot of companies, but not many in our space," chairman and president Galen Weston Sr. told analysts in a conference call on Tuesday.

"There’s probably going to be stuff coming due from a number of sources. We are scouring the nation, north and south, to ensure that nothing passes us by which we feel would be appropriate for us."

North America’s largest baked goods maker reported that its third-quarter net earnings dropped 52 per cent to $86 million, or 56 cents per share, for the quarter ended Oct. 10.

That was down from a year-ago profit of $180 million, or $1.29 per share, largely because of foreign exchange losses.

Revenue totalled $9.78 billion for the quarter, down about $100 million from $9.88 billion last year. Analysts had expected revenue of $9.90 billion, according to Thomson Reuters.

Toronto-based Weston said most of its revenue came from Loblaw, a publicly traded grocery retailer that it controls.

Its Weston Foods sector, which includes the baking business, accounted for just $502 million of revenue, down 26 per cent from a year before.

George Weston has been selling assets in recent years in an attempt to tighten its focus. Last year, the company sold its Neilson dairy business to cheese maker Saputo for $465 million and its U.S. fresh baked goods division to Grupo Bimbo for $2 cash advance loan.5 billion (U.S.).

Since those sales, the company has said it would use the $3.3 billion in cash, along with $1.6 billion in short-term investments, to make an acquisition, but that it didn’t feel pressure to make a play quickly.

Excluding discontinued operations following the sale of Weston Food’s dairy and bottling operations at the end of last year and its U.S. fresh bread and baked goods business early this year, Weston’s overall net income was $71 million or 44 cents a share in the third quarter.

George Weston said its net earnings in the most recent quarter took a beating from a 58 cent charge per common share related to unrealized foreign exchange losses.

In last year’s third quarter, spanning a 16-week period ended Oct. 4, 2008, Weston’s net earnings from continuing operations was $119 million, or 81 cents per share, while net earnings including discontinued operations was $180 million. or $1.29.

But the company said that excluding the foreign exchange losses and other items, its performance in the third quarter was "strong" compared with last year.

George Weston said brand and product development efforts continue while plant and distribution optimization and other cost-cutting measures remain a priority.

It said the sale of its dairy and bottling operations in the fourth quarter of 2008 negatively impacted sales growth by about 26 per cent, but foreign currency translation positively impacted sales growth by about 2 per cent.

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Retailers are thinking beyond Cyber Monday — a holiday marketing promotion many push for the Monday after Thanksgiving — and trying to spin their discounts into Cyber Weekends or even Cyber Weeks.

Target, Walmart, Toys R Us and others will be running online sales throughout the holiday weekend, with additional sales on Nov. 30, or Cyber Monday. J.C. Penney will offer online sales for items such as clothes and electronics on Monday and Tuesday, and Walmart.com will offer deals starting Monday through Dec. 4.

Retailers are planning more promotions this year, as opposed to last year, when the sudden consumer spending downturn sent online sales down 3 percent, the first decline on record.

The National Retail Federation said Monday that nearly 9 out of 10 retailers plan specific Cyber Monday deals, up slightly from about 84 percent last year. Deals on specific products, one-day sales and free shipping are expected to be the most common promotions.

While the day after Thanksgiving is known as Black Friday, historically the point when retailers start to turn a profit, the following Monday has become known as Cyber Monday, when sellers look to lure holiday shoppers online, either from work or home.

ComScore analyst Andrew Lipsman expects free shipping deals to be key, as companies this year are planning their promotions more carefully so there will be less discounting.

"Psychologically, consumers need to get some sort of a deal on almost every transaction, and free shipping tends to be pretty compelling," Lipsman said.

Lipsman is expecting "marginally positive" online sales growth compared with a year ago.

The Monday after Thanksgiving is typically one of the top 10 busiest online shopping days, but it’s not the busiest day. Last year it was the third-busiest day since a late Thanksgiving holiday led to pent-up demand.

This year Thanksgiving also falls late in November, and Lipsman expects the date to rate similarly high.

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Continental European stock markets which have recently lagged are set to outperform the United States and the UK, with consumer stocks, financials and exporters leading the way.

Fund managers and analysts said the most growth will come from the German and French markets, with Credit Suisse expecting Germany to be the best play on global recovery.

The analysts said consumer stocks will gain from a rise in domestic spending, financials will be boosted in a virtuous circle of rising liquidity levels, and exports will do well as demand from emerging markets overshadows a stronger currency.

“The German DAX .GDAXI and French CAC .FCHI should outperform the UK and the U.S. equity market in the medium term,” said David Hussey, head of pan-European Equities at MFC Global Investment Management.

“Valuations on a range of metrics are more attractive and growth prospects are better, with greater demand for exports from emerging markets than for comparable U.S. companies. The consumer in continental Europe is generally less leveraged than in the UK and U.S. and housing is more affordable.”

On valuation grounds, continental Europe offers investors better value. On a forward P/E basis, it trades at a 8 percent discount to global markets.

So far, the French CAC and the German Dax have only risen 1.3 percent and 1.9 percent respectively this quarter, while the FTSE .FTSE, the S&P 500 .SPX and the Dow Jones industrial average .DJI have risen 4.1 to 7.1 percent.

CONSUMER TO SPEND

Although some economists expect U.S. GDP growth to outperform next year over Europe, Credit Suisse said leading indicators show U guaranteed approval cash advance loans.S. and European growth will be broadly at the same level.

However, lower household debt levels in core Europe than in the United States and UK will put the European consumer in a better position. European Cental Bank figures show 2008 gross debt outstanding is 94.1 percent of gross disposable income in the euro zone compared to 129.8 percent in the U.S.

“The European consumer is going to be stronger than the U.S. as the savings rates are historically higher, the debt levels are lower so they are starting at a better place,” said Hussey.

French shoppers defied expectations in September by spending more than they did the previous month on everything from cars to toasters and televisions.

“Consumer stocks can really do well really driven by domestic demand and financials as a geared play for the overall economy,” said Andrew Goodwin, fund manager of the SVG European Focus Fund at SVG Investment Managers.

Fund managers like financials because if there is to be a recovery, a recovery in the banking sector is set to drive it through the increased provision of liquidity to corporates and consumers.

Although analysts do not expect a complete consumption boom in Germany, they see much less downside risk than in other economies. They said it does not have the high debt levels and overheated real estate problems of other countries, so there is more potential for upside. 

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