Finance Blog number 1

In the wake of recessionary conditions, television company Belo Corp. is reporting a promising trend on the advertising side of the business.

Dallas-based Belo (NYSE: BLC) presented at the Barclays Capital High Yield Bond and Syndicated Loan Conference on Thursday.

During the presentation, Belo President and Chief Executive Officer Dunia Shive said first-quarter spot advertising revenue is better than expected and is “pacing up in the mid-teens no fax cash loans.”

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ST. LOUIS — Holly Cunningham is expanding her business. Angela Watson is rebuilding her life.

Both are happening here, on the fourth floor of the St. Patrick Center, where holiday orders for goodies such as Lemon Heaven cookies and Holly Dolly dessert bars pour in.

It’s the busiest time of the year for Cunningham’s Hollyberry Baking Co., and she has turned to the region’s biggest provider of homeless services to help meet the demand.

St. Patrick is the only homeless services agency in the country to operate an in-house business incubator. In October, the agency opened a licensed commercial kitchen at the incubator and has since doubled its number of tenants, including the popular treat baker.

Cunningham, a Webster Groves mom, admits that it seemed an unlikely fit for her suburban business. Before taking the plunge, she said she gave her biggest sales pitch ever to employees, certain they would have trepidation about working downtown in a building that caters to transients.

She even ran the idea past some of her customers, making sure she wasn’t going completely off track. Support was overwhelming from both employees and customers, she said.

Watson is one of the four St. Patrick Center clients Cunningham has hired. Living in a women’s shelter and enrolled in a recovery program for drug addiction, Watson says the work experience and paycheck will help her get back on her feet and have job skills to get her permanent employment.

"I take life a day at a time," Watson said, as she packed fresh-baked dessert bars into clear plastic bags. "I’m a go-getter."

For Cunningham, the new kitchen at St. Patrick Center serves a dual purpose for her 11-year-old business. She can expand without the expense of adding on to her current business in case the uptick is only temporary. And she can tap into a ready-made work force that has been trained through various programs the center offers.

In turn, the social service agency has a new partner to hire those who many employers shun. In a climate of high unemployment, being homeless — often with a drug addiction or criminal record — makes finding work that much more challenging.

Cunningham and her employees train and supervise the St. Patrick clients working in the center’s kitchen.

"Having an established company here gives us a better grasp of food manufacturing and food distribution," said St. Patrick Center CEO Dan Buck.

St. Patrick Center received a $3.5 million federal grant to renovate two floors of its building at 800 North Tucker Boulevard, including space for a business incubator, which opened last year and now has 15 companies renting space. The businesses share a reception area and conference rooms, with access to office equipment such as a copy machine and postage meter. They pay for office space based on square footage.

The National Business Incubation Association says St. Patrick stands alone nationally as the only known center specifically catering to the homeless that has started an in-house business incubator.

"People are going to pay attention to this, especially given the current economic climate," said Corinne Colbert, spokeswoman for the association, which estimates there are 1,100 incubators in the country.

The U.S. Commerce Department’s Economic Development Administration, pleased with St. Patrick Center’s success, last month awarded the agency an additional $250,000 grant. It will be used to help buy more equipment for the culinary suite, which replaced a seldom used wood shop no fax cash advance. With the additional equipment, seven companies will be able to share the space, including two catering companies, a barbecue-sauce manufacturer, gourmet-popcorn maker and a company that specializes in whole-grain products including frozen waffles. In addition to startups, St. Patrick Center continues to look for established businesses such as Hollyberry to expand into the incubator.

"We’re encouraging companies to expand with a social conscience," Buck said.

The kitchen is a more practical work area than the wood shop, Buck said. Construction jobs are down, but there is always a need for food service and food production, he said.

"It’s an economic sector that is actually hiring," said Buck.

Outside the culinary suite, other businesses are using the St. Patrick incubator to grow their futures. Heaven Sent is one of them.

While in prison for dealing drugs, Lamond Allen repaired the dining hall’s stoves and refrigerators. That tinkering came in handy when his 7 1/2 year sentence ended two years ago.

With the help of St. Patrick Center, Allen got into a program that certified him in HVAC work. With that training, he started Heaven Sent, a building maintenance business.

He currently has a contract with the U.S. Department of Housing and Urban Development to clean up and make safe foreclosed homes, including checking for gas leaks.

Allen has two employees, one an ex-con who went through the same training program as Allen, and another living in transitional housing.

"My whole focus is giving someone a chance," Allen said. Moving his business from his home into St. Patrick Center has helped him navigate the various trappings of a new business including legal, financial and insurance needs. If there is any question on how to run a business, the staff at the incubator, headed by Jan DeYoung, is there to lend a hand.

"They’re my lifeline," Allen said. And through the incubator, he has begun building relationships with other businesses. For example, he hired A.U. Innovative Land Management for a hauling job.

Cathey Allen and Ren

Sheikh Mohammed bin Rashid Al Maktoum wanted to turn Dubai into a global hub for finance and tourism, the next London or Hong Kong. To help execute his vision, the ruler relied heavily on Dubai World, the web of state-owned companies that includes everything from DP World, which operates 49 ports across the globe, to property developer Nakheel to investment arm Istithmar World.

Unlike Abu Dhabi, the wealthy emirate to the southwest, Dubai had little oil production to fuel its efforts. Instead, lenders poured more than $100 billion into Dubai, at least $34 billion of which went to Dubai World. Now, Dubai World is at the center of the mess in the emirate, Bloomberg BusinessWeek reported in its Dec. 14 issue. Executives at the holding company are scrambling to renegotiate $26 billion in debt, which the government said it may not back.

The clock is ticking: Roughly $3.5 billion of the debt comes due on Dec. 14. “Dubai World is an example of too big to fail but also too big to guarantee,” says Rachel Ziemba, a senior analyst at Roubini Global Economics, a research firm. Dubai World declined to comment.

Regardless of the outcome, Dubai World may have to temper its global ambitions. Already, advisers are assessing the portfolio to figure out what holdings can be sold to raise cash. The conglomerate likely will retain control of its infrastructure assets such as the ports, which are the emirate’s crown jewels. But its global real estate and retail holdings may be auctioned off to the highest bidder. Abu Dhabi may go after some pieces in exchange for bailout money, say analysts.

‘Sovereign Halo’

The blurry lines between Dubai World, the corporate entity, and Dubai, the sovereign state, only make the restructuring process more unpredictable than that of a typical private company. In the end, the fate of Dubai World may be determined by the families that have governed the region for over a century, rather than investment bankers on Wall Street.

“This may just come down to one sheikh calling another,” says a senior adviser, who’s currently working with Dubai World.

Dubai World’s debt might never have hit such unsustainable levels if bankers had peeked behind the curtain. But most figured the emirate, or its neighbor Abu Dhabi, would bail out the businesses if they ran into financial trouble. The belief was so strong that both lenders and Dubai World executives referred to the “sovereign halo” around the enterprise.

“Lenders weren’t looking too hard into what entity was actually backing the debt,” says Eckart Woertz, an economist at the Gulf Research Center in Dubai. “There was an implicit sovereign guarantee, which the government didn’t discourage.”

‘Bowl of Spaghetti’

Internal documents only underscored that notion. Dealmakers that worked with creditors relied on a highly complicated, labyrinthine chart detailing Dubai World and all its related entities.

“It’s a bowl of spaghetti in terms of their corporate structure,” says a top U.S. executive with extensive dealings in the region. “There are so many different companies and companies within companies.”

But the document pointed to one reassuring thing: The Dubai government owned 100% of Dubai World. Lenders that did try to dig into the organization got a fuzzy picture. Dubai World didn’t typically disclose its complete portfolio or provide financials to any of its creditors.

“The banks understood that regular, fully audited reports from Dubai World were simply not available and not to be asked for,” says Chris Turner, a former director of risk and asset management at Istithmar World.

‘Jelly to a Wall’

He estimates that Western banks gave Dubai World at least $15 billion in 2006 and 2007 without looking at the numbers. Turner, who was found guilty in absentia of embezzlement last month, maintains his innocence in the matter: “I fully intend to litigate and defend my actions in a court of good standing” outside of Dubai.

Even Dubai World didn’t know exactly what it owned, according to Turner. In 2007 he started to build a list of all the real estate holdings at Istithmar World, including their current value. His team spent almost a year on the project, a task that Turner said should have taken a few months. Some loan documents and sale agreements were found in a file cabinet in an office that had been empty for months.

“Being a risk officer there was like nailing jelly to a wall,” he says paydayloans.

RBS, HSBC Loans

In a recent report on the debt restructuring published by Moody’s Investors Service, the credit rating company refers to the “limited availability of information regarding the consolidated finances and debt burdens of state-owned enterprises.”

Despite the lack of transparency, Dubai World had no problem borrowing money. British financial firms, including Royal Bank of Scotland and HSBC, arranged about $4.4 billion of the conglomerate’s loans, according to a report by Bank of America Merrill Lynch. HSBC and Royal Bank of Scotland declined to comment.

Dubai World used the cash to fund a flurry of purchases. But dealmakers did so at the height of the credit boom, paying a premium for their global aspirations. The company shelled out $665 million for two New York hotels, the W Union Square and the Mandarin Oriental, whose sale prices each broke a local record of $1 million per guest room, according to Real Capital Analytics. It also has a 50% stake in CityCenter, a resort and casino development on the Las Vegas Strip that’s opening this month.

“They defined the peak of the real estate bubble,” says Dan Fasulo, managing director of Real Capital Analytics.

‘Burning Through Cash’

Now pieces of the portfolio may be sold to pay off creditors. A group of outside advisers is working with Dubai World to assess the damage and figure out the next steps. For example, AlixPartners, a New York restructuring firm, is dealing with the various businesses owned by Dubai World on potential divestitures and layoffs.

“The advisers will review Dubai World’s portfolio, focusing on assets where there is still equity that can be sold as well as those that are burning through cash,” says Fasulo.

In a statement, the conglomerate said Port & Free Zone World (the parent of DP World), Infinity World Holding, and Istithmar World would be excluded from the debt restructuring because of the units’ “stable financial footing.”

CityCenter, the largest-ever privately financed construction project in the U.S., may be one of the easiest assets for Dubai World to sell. The $8.5 billion project has a relatively small debt load. That could make it more appealing to prospective buyers than other assets in the conglomerate’s portfolio.

Vultures Circle

Some properties may be wrested from Dubai World’s control. Troubled loans backed by the W Union Square will be auctioned this month. The winner could use them to gain control of the luxury hotel, according to Real Capital Analytics.

The Mandarin, which is suffering from the slump in travel, may not have enough money to cover debt payments, say analysts. If the hotel does fall behind, pieces of the debt may be up for grabs, too.

Already, opportunists are circling. Private equity firms, such as Los Angeles’ Colony Capital and Starwood Capital in Greenwich, Conn., are checking out real estate, according to people familiar with the matter. Hedge fund Perry Capital, which owns debt backed by Barneys New York, has been approached by investors, including Toronto department store Holt Renfrew, about a takeover of the retailer.

Dubai World will have to be cautious not to unload assets too quickly in the current environment.

Cherry-Picking Assets

“Any desperate fire sale would further limit the amount of cash they can raise,” says Ziemba of Roubini Global Economics.

Regardless, Dubai World faces some steep losses on any sales. The company paid $1 billion for Barneys in 2007. Earlier this year bankers valued the retailer at less than half that.

Abu Dhabi likely will keep close watch on the process. The emirate, which has agreed to provide as much as $15 billion in financial support to Dubai, may offer additional funds to its profligate neighbor.

There may be strings attached this time. Some analysts think the capital of the United Arab Emirates may ask for equity in some assets, cherry-picking those that fit within its own regional dreams. That could include parts of the infrastructure assets, including the ports.

“Abu Dhabi is standing by Dubai, but it won’t be giving a blank check,” says Philipp Lotter, a senior vice-president at Moody’s. “It has drawn a line in the sand.”

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Sales of newly built homes fell unexpectedly in September after rising for five straight months, according to government figures released Wednesday.

The Commerce Department said new home sales fell 3.6% to a seasonally-adjusted annual rate of 402,000 last month, from a downwardly revised rate of 417,000 in August. It was the first time new home sales declined since March.

Economists surveyed by Briefing.com had expected September new home sales to rise to a rate of 440,000 units.

"We’re attributing most of the decline to the potential expiration of the new home-buyer tax credit," said Adam York, an economist at Wells Fargo. "It’s getting harder to buy a house and no one wants to close after the credit expires," he added.

In addition to relatively low prices and attractive mortgage rates, the housing market has been supported in recent months by a temporary government tax credit for first-time homebuyers.

The tax break. The credit can be worth up to $8,000 for eligible buyers,but is set to expire at the end of November. Congress is expected to extend the credit, but the terms are still being debated.

Most economists believe that the drop in September’s new home sales was driven primarily by the tax credit’s timetable — but not all of them agree.

Mark Zandi, chief economist at Moody’s Economy.com, contends that first-time homebuyers are more likely to buy an existing home than a new home, which suggests that the tax credit is less of an issue for new home sales.

Zandi attributed the increase in new home sales over the past five months to low interest rates and more aggressive FHA lending. And he adds that these recent increases haven’t been spectacular. "All we can say is the new home market is stabilized."

Foreclosures still loom best payday advance. Wednesday’s report highlighted concerns about the long-term outlook for the housing market, which remains challenged by rising unemployment and a glut of foreclosed properties on the market.

A separate report showed Wednesday that applications for home loans, considered a leading indicator of sales, fell for the third week in a row last week.

The Commerce Department report showed the median sales price jumped to $204,800 in September from $195,200 the month before. The average sales price rose to $282,600.

The price increase echoed an industry report released Tuesday that showed home prices in 20 major markets rose for the fourth month in a row during August.

Meanwhile, the estimated number of new homes for sale at the end of last month fell to 251,000 units on a seasonally adjusted basis. That’s down from 262,000 unsold homes last month and was the lowest level since November 1982.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, said the drop in housing inventory means the market is moving towards a better balance of supply and demand. "But the tax credit story is the key element right now," he added.

He said that the credit’s looming expiration will probably mean that home sales will fall again in October and, depending upon where the legislation stands, in November as well.

At the current sales pace, it would take 7.5 months to sell through existing inventory, according to the report. That’s up from the previous month, when the there was about 7.3 months of inventory on the market.

– CNN senior writer Jeanne Sahadi contributed to this report.  

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U.K. unemployment rose by the least in a year and fewer people signed on for jobless benefits than economists forecast as the recession eased.

The number of people seeking work in the three months through August rose by 88,000, the smallest increase since the quarter through July 2008, the Office for National Statistics said in London today. Claims for jobless benefits rose by 20,800 in September, less than the 24,500 median forecast in a Bloomberg News survey of 28 economists.

Prime Minister Gordon Brown is trying to revive the economy in time for an election due by June 2010 as opinion polls show his Labour Party trailing the opposition Conservatives. Gross domestic product, which has dropped for five quarters, may have stopped shrinking during the three months through September, curbing job losses.

“The slower rise is welcome but I wouldn’t get too excited,” said Colin Ellis, an economist at Daiwa Securities SMBC and a former central bank official. “I still think we will see unemployment going through 3 million next year.”

The pound extended gains against the dollar after the report. The U.K. currency traded at $1.6005 as of 10:11 a.m. in London, from $1.5925 yesterday.

The unemployment rate in the three months through August as measured by International Labour Organisation standards was 7.9 percent, the statistics office said. That compares with 9.6 percent in the euro region, 9.8 percent in the U.S. and 5.5 percent in Japan.

Job Cuts

Alliance & Leicester, a unit of Banco Santander SA, announced the closure of its Heritage House site and the loss of 200 jobs across two Leicester sites in England, the Communication Workers Union said yesterday in a statement.

Overall unemployment was 2.47 million in the quarter through August, a drop of 1,000 from the three months through July. The total claimant count rose to 1.63 million in September, the highest since April 1997.

Labour advanced in a survey by Populus Ltd. after ministers attacked bankers and the rich, narrowing the Conservatives’ lead over the government. Labour had the support of 30 percent of voters compared with 40 percent for the opposition, according to the survey for the London-based Times conducted from Oct. 9 to Oct. 11.

‘Significant Slowing’

“We’re seeing a significant slowing in the rate of increase of unemployment,” Employment minister Jim Knight said on Sky News. “We expect it to continue to rise for some months yet. That’s why we need to continue spending. If we choke off that investment as the Conservatives are proposing could make that level rise to 5 million. We should be borrowing now to invest to make sure we move to growth. It’s a big problem for young people.”

The U.K. economy shrank 0.6 percent in the second quarter, less than previously estimated, and the National Institute of Economics and Social Research said last week gross domestic product stopped falling in the three months through September.

Signs of recovery are allowing some companies to limit job losses. General Motors Co.’s U.K.-based Vauxhall unit, which employs more than 5,000 people, will suffer no compulsory job losses following its planned takeover by Magna International Inc. of Canada, the Unite union said yesterday.

Average earnings excluding bonuses grew an annual 1.9 percent in the quarter through August, the lowest since at least 2001, the statistics office said. Including bonuses, they increased by 1.6 percent.

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Federal Reserve Bank of Kansas City President Thomas Hoenig said the central bank should start raising interest rates “sooner rather than later,” and such tightening wouldn’t derail the U.S. economic recovery.

“Even if we were to start immediately, much time would pass before incremental increases could be considered tight or even neutral policy,” Hoenig said yesterday in a speech in Denver. “I would not support a tight monetary policy in the current environment, but my experience tells me that we will need to remove our very accommodative policy sooner rather than later.”

Hoenig’s comments parallel those by Fed Governor Kevin Warsh, who said on Sept. 25 the Fed may need to tighten “with greater force than is customary,” and Richmond Fed President Jeffrey Lacker, who said on Oct. 1 that rates may need to be raised even with unemployment near 10 percent.

“We all know that the neutral rate is not zero,” said Hoenig, who doesn’t vote on monetary policy this year. “Equally obvious to me is that a rate of 1 or 2 percent is not tight monetary policy. It is still very accommodative.”

In contrast, New York Fed President William Dudley said this week the central bank needs to focus in the near term on keeping rates low, citing concern inflation could slow too much.

The Federal Open Market Committee said last month the U.S. economy has “picked up” following the deepest recession since the 1930s. Officials slowed the purchase of $1.45 trillion in mortgage-backed securities and housing debt, while pledging to keep the benchmark interest rate near zero for an “extended period.”

Economy Shrank

Economic growth will average 2.6 percent in the second half of this year, according to a Bloomberg News survey of economists last month. The world’s largest economy shrank at a 0.7 percent annual rate from April through June, the best performance in more than a year, according to government figures.

The U.S. jobless rate climbed to 9.8 percent in September, from 9.7 percent in August, the Labor Department reported on Oct. 2. That brings total jobs lost since the recession began in December 2007 to 7.2 million, the most since the Great Depression.

“We are in recovery,” Hoenig said at a forum hosted by the bank’s Denver branch. Stimulus to the economy will probably “prevent a double-dip recession.”

“Consumer confidence is rebounding, and we are starting to see improvement in business and manufacturing,” he said. “Additionally, yield spreads between low-risk assets, such as Treasuries, and higher risk assets are narrowing.”

Almost Zero

The Fed lowered its main interest rate almost to zero in December, switching to asset purchases and credit programs as the main policy tools. Chairman Ben S. Bernanke is leading plans to buy $1.25 trillion of mortgage-backed securities and as much as $200 billion of federal agency debt by March, along with $300 billion of long-term Treasuries by October.

Hoenig also called for Congress to address the problem of creating a resolution mechanism for banks that are so large they could, in the event of failure, damage the financial system. A proposal before Congress for a regulatory overhaul is inadequate, he said.

“The proposal does not adequately address the too-big-to- fail problem in that it still provides too much latitude to rescue failing firms,” he said. “It confirms the practice of addressing failure of the largest firms in an ad hoc manner with individuals rather than the rule of law deciding which firms get rescued and which do not.”

Rescue Firms

Hoenig, the Kansas City Fed’s president since 1991 and the longest-serving Fed policy maker, said large U.S. banks have carried lower capital ratios than their smaller rivals because investors assumed the government will rescue big financial institutions that fail.

“My view is that we do not have to subsidize or ‘learn to live with’ the financial oligarchy that exists,” he said in his speech.

“You can’t keep them from failing,” Hoenig said in response to an audience question. “The unintended consequences of this are just devastating.”

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The Bank of Japan’s Tankan survey will probably show this week that the economic recovery is too weak to convince companies to invest.

Large firms plan to cut capital spending by 9 percent this year, little changed from estimates made three months ago as the nation was emerging from a recession, economists predict the Oct. 1 report will show. Sentiment among big manufacturers is expected to gain for a second period after March’s record low.

Toyota Motor Corp., which has benefited from worldwide government efforts to boost consumption, is still producing a third fewer cars than it is able to build. Bank of Japan Governor Masaaki Shirakawa said this month that while the economy is showing “signs of recovery,” he’s not confident that demand will hold up.

“Whatever the improvements, the absolute level of economic activity is extremely low, much lower than in the initial stage of previous economic recoveries,” said Kiichi Murashima, chief economist at Nikko Citigroup Ltd. in Tokyo. “Plans for business investment should remain very weak.”

Gains in the yen are compounding exporters’ woes by making their products more expensive and eroding the value of profits earned abroad. The Japanese currency climbed to 89.17 per dollar at 11:40 a.m. in Tokyo after earlier reaching an eight-month high of 88.24. The Nikkei 225 Stock Average dropped 2.4 percent.

Pare Spending

Companies in the central bank’s June survey said they plan to pare spending 9.5 percent this year.

The Tankan index of sentiment among large makers of cars, electronics and other goods will rise to minus 33 from minus 48 in June, analysts forecast. The improvement would only restore the index to a level on par with that during the depths of the 2001 recession. The index fell to a record low of minus 58 in March. A negative number means pessimists outnumber optimists.

“It’s not a question of getting happy, it’s a question of getting less miserable,” said Richard Jerram, chief economist at Macquarie Securities Ltd. in Tokyo. “Financial markets have stabilized, financing is clearly available and you have some sense of where final demand is going.”

Japan’s export markets are showing signs of picking up. Federal Reserve Chairman Ben S. Bernanke said this month the “recession is very likely over” and the Fed last week indicated the economy has improved enough to allow some emergency lending programs to be scaled back.

Toyota’s U.S. sales rose for the first time since April 2008 in August, buoyed by the government’s “cash for clunkers” program. The automaker will likely raise global production this year by half a million vehicles to meet demand for its Prius hybrid and replenish inventories, the Nikkei newspaper reported last week.

Toyota Output

Even with the increase, output will be one third below the 10 million units that Toyota is able to build. The company forecasts a 450 billion yen ($5 billion) loss this year.

Growth in China, which this year surpassed the U.S. as Japan’s biggest export customer, has also been a boon to manufacturers. Sharp Corp. says subsidies to encourage spending on household appliances will help boost its China sales about 3 percent this year.

About 40 percent of Japan’s factory capacity still sits idle after five months of production increases, weighing on corporate profitability and giving companies little reason to invest or hire. Some $2 trillion in global stimulus measures, coupled with replenishment of inventories, are only providing a temporary boost to sales.

“This is not what will drive the economy into sustainable growth,” said Martin Schulz, senior economist at Fujitsu Research Institute in Tokyo. “There isn’t much original demand from the market side, from the household side, or from the corporate side.”

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Financial markets are likely to remain buffeted by uncertainty over government policy despite an unprecedented pledge by the world’s top finance officials to cooperate as the global economy emerges from recession.

At a meeting in London at the weekend, finance ministers and central bankers from the Group of 20 nations said fiscal and monetary policy would stay expansionary as long as needed to ensure recovery.

That assurance could support fresh risk-taking in the markets this week, providing a moderate boost to global equities and prompting sales of the U.S. dollar in favor of higher-yielding currencies such as the Australian dollar.

For the first time, the G20 officials said there should be some coordination of policies to avoid destabilizing economies when governments eventually start winding down costly stimulus schemes launched during the crisis.

This was important for long-term investors, who fear volatility in the currency and interest rate markets if some cash-strapped countries cut back fiscal spending and hike interest rates much sooner than others.

But the G20 did not explicitly address big issues blamed for imbalances in the global economy, such as the value of China’s yuan. That raised questions over how much political will the group can really muster to coordinate policies.

And in some ways, the G20 seemed less united than it did when it met at the height of the crisis in April. While the April meeting produced a broad consensus on reform to financial regulation, the latest meeting bickered inconclusively over issues such as curbing excessive pay packages for bankers.

If the G20 has trouble setting common rules to regulate the finance industry, it may find it impossible to agree on sharing the fiscal burden of engineering a sustained economic recovery cash advance payday loan.

“The spirit of coordination is confidence-boosting, but in reality withdrawing fiscal stimulus will be difficult to coordinate,” said Lena Komileva, head of market economics for major developed economies at money broker Tullett Prebon.

“Investors still fear an uncoordinated exit could create stealth competition and contribute to increased volatility in government bond yields. It may be the fiscal equivalent of competitive currency devaluation.”

GROWTH

As the G20 met, there were fresh signs of improvement in the economic outlook. Documents obtained by Reuters showed the International Monetary Fund had revised up its forecast for the world economy this year and next.

It now forecasts a contraction of 1.3 percent in 2009, a bit better than its April forecast of a 1.4 percent shrinkage, and growth of 2.9 percent in 2010, revised up from 2.5 percent previously.

But the strengthening outlook carries its own risks; facing less pressure to cooperate urgently to avoid a global economic collapse, G20 nations may focus more on narrow national interests as they plot “exit strategies” from stimulus steps.

That may explain why G20 policymakers said almost nothing specific at the weekend about the “cooperative and coordinated exit strategies” which they promised. Instead, they merely said they would work with the International Monetary Fund and the Financial Stability Board, an international forum, to develop such strategies. 

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Canada recorded a surprise job gain in August, the first in four months, suggesting the country is emerging from its first recession since 1992.

Employment rose by 27,100, Statistics Canada said. The jobless rate increased to 8.7 percent from July’s 8.6 percent, the highest since January 1998, as the labor force grew faster than employment. Economists surveyed by Bloomberg predicted a job loss of 15,000 and unemployment at 8.8 percent.

“This is very typical of what you see as the economy is emerging from a recession,” said Sheryl King, head of Canadian economics and strategy at Merrill Lynch Canada in Toronto. “We’ll take it.”

The Canadian currency appreciated as much as 1.2 percent to C$1.0887 per U.S. dollar, the biggest intraday advance since Aug. 27, before trading at C$1.0936 at 9:22 a.m. in Toronto, from C$1.1019 yesterday. One Canadian dollar purchases 91.45 U.S. cents.

The unexpected gain may help Conservative Prime Minister Stephen Harper fend off attacks from opposition parties seeking to oust him over his handling of the economy. Parliament resumes Sept. 14, and Liberal Leader Michael Ignatieff said three days ago his party will no longer support the government.

Part-Time Jobs

The employment gain was led by 30,600 part-time jobs, while full-time positions declined by 3,500. Retailers and wholesalers hired 21,200 people and financial and real estate companies added another 17,500.

The job report is also the last major piece of data due before the Bank of Canada’s Sept. 10 interest-rate decision. Governor Mark Carney said in July the economy started growing again this quarter, and committed to keeping his key lending rate at a record low 0.25 percent through next June if the inflation outlook doesn’t change. The jobless rate will likely keep rising even as the economy resumes growth, Carney said.

“Our customers continue to be prudent,” Pat Finelli, chief marketing officer of Pizza Pizza Royalty Income Fund, said on an Aug. 7 earnings call. “Ontario and Alberta’s economies continue to suffer from job losses and low discretionary income.”

U.S. Report

The U.S. jobless rate in August jumped to 9.7 percent, the highest since 1983, and employers cut another 216,000 jobs. Rising unemployment underscores Treasury Secretary Timothy Geithner’s judgment that it’s “too early” to start exiting from the unprecedented stimulus measures helping stabilize the economy.

Canadian average hourly wages rose 3.3 percent in August from a year earlier, the slowest advance in more than two years, Statistics Canada said today business card.

Manufacturing employment fell by another 17,300 in August, bringing the total loss over the prior 12 months to 231,300, or 12 percent, Statistics Canada said.

Manufacturers have been among the hardest hit by the recession and the effects of a stronger currency. U.S. orders of lumber and automobiles have been slashed, and Bank of Canada Deputy Governor Timothy Lane said Aug. 25 that persistent strength in the country’s currency is an “important risk” to the economy. A stronger currency makes factory goods less competitive.

“I don’t think it does anything material to alter the Bank of Canada’s path” on interest rates, said Derek Holt, economist at Scotia Capital in Toronto.

Construction Rebound

Other companies made up for the factory job losses in August. Employment at private companies rose by 49,200, while government jobs fell 11,500 and self-employment declined by 10,600.

Construction employment rose by 12,100 and professional and scientific services jobs rose 10,400.

Harper’s government expects a record C$50.2 billion budget deficit this year, on higher infrastructure expenditures, jobless benefits and aid for the auto industry. Ignatieff and New Democratic Party Leader Jack Layton have said Harper must also further loosen requirements for unemployment benefits to allow more to qualify.

Unemployment will peak at 9.3 percent in the first quarter of 2010, according to a Bloomberg News survey. That suggests joblessness may reach a lower peak than the 12.1 percent rate set in November 1992 during the country’s last recession.

Most job losses tied to the current slowdown came in the first few months after employment peaked late last year, Statistics Canada said today. Of the 387,000 firings since October, about 357,000 happened in the next five months.

The labor market has “reversed itself,” said Paul-Andre Pinsonnault, an economist with National Bank Financial in Montreal, one of four economists out of 21 surveyed who correctly predicted job creation. “The labor market recovery will be sustained.”

Statistics Canada said Aug. 31 that the economy shrank at a 3.4 percent annualized pace in the second quarter. The economy will grow at nearly a 1 percent pace this quarter, accelerating to 2.9 percent by the second quarter of next year, according to economists surveyed by Bloomberg News.

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Economic policy makers from the Group of 20 nations gathering this week in London are finding that their drive to prevent the next financial crisis may be jeopardized by their success in countering the current one.

Stock markets are rebounding, with the MSCI World Index of 23 developed nations gaining 59 percent since March 9, when it reached its lowest level since 1995. Signs of economic revival are also appearing in countries such as the U.S. and the U.K. after the worst slumps since World War II.

The rally is sapping the political push to impose tougher regulations on financial-services companies. While that might help earnings for New York-based Citigroup Inc., the third- largest U.S. bank, and Barclays Plc, the U.K.’s second-biggest lender, it may also leave the global economy susceptible to a fresh cycle of boom then bust.

“We’re getting a recovery, so dealing with the true problems is going to be more difficult,” said Raghuram Rajan, a former chief economist at the International Monetary Fund who is now a professor at the University of Chicago. “The risk is that we’re just going to tool around until the next crisis.”

U.S. Treasury Secretary Timothy Geithner, Bank of England Governor Mervyn King and other G-20 finance ministers and central bankers meet Sept. 4 and Sept. 5 to prepare for the Pittsburgh summit of leaders three weeks later. They are convening five months since their governments blamed “major failures” in supervision as one of the “fundamental causes” of the worldwide credit crunch and vowed to “strengthen financial regulation to rebuild trust.”

Global Growth

That drive is now in jeopardy as the crisis ebbs. The IMF plans to raise its global growth forecast to “just below” 3 percent for 2010 from its 2.5 percent estimate of July, Jorg Decressin, a division chief in the lender’s research department, said yesterday. Banks are regaining lobbying strength, and other political goals such as health-care reform in the U.S. have captured the attention of legislatures. International differences, including over how to restrain bonuses, are also undermining the G-20’s united front.

Central bankers are already pressing governments not to slow the pace. “It would be a catastrophe not to draw all the lessons from the present crisis in terms of regulation,” European Central Bank President Jean-Claude Trichet told a symposium in Jackson Hole, Wyoming, on Aug. 21.

‘Radical Restructuring’

“Much remains to be done,” Bank of Israel Governor Stanley Fischer told attendees the same day. The former Citigroup vice chairman suggested the global banking system may need to undergo “radical restructuring,” perhaps by imposing limits on the size of individual financial companies.

Fischer also recommended that banks be forced to set aside more capital and central banks be given the power to monitor financial systems.

“What I’m very worried about is the recovery is going to come and the political will is going to disappear to actually repair the system,” said Stephen Cecchetti, head of the monetary and economic unit at the Bank for International Settlements in Basel, Switzerland, which serves as a bank for central banks.

Financial institutions may be the winners of a regulatory impasse because their profits would be spared, said Simon Johnson, a former chief IMF economist who is now a senior fellow at the Peterson Institute for International Economics, a Washington-based research organization.

Sweeping Overhaul

President Barack Obama in June proposed the most sweeping overhaul of the U.S. financial-regulatory system in 75 years, calling for the creation of an agency to monitor mortgages and other consumer products and tighter oversight of the country’s biggest banks and institutions.

Congressional passage of his revamp would have a “material” effect on bank earnings, said Andrew Laperriere, a Washington-based managing director at International Strategy & Investment Group, an institutional brokerage. The MSCI World Financials Index has jumped 132 percent since its low of 35.01 on March 9.

Unless steps are taken to reduce complexity and leverage in financial markets, “we’re going to have a replay of what has just happened over the last few years,” said Richard Bookstaber, a former trader at New York-based Morgan Stanley, the sixth-biggest U.S. bank by assets.

Fastest Pace

He warned in 2007 that risks in the markets were becoming unmanageable. Since then banks, brokers and insurers have racked up more than $1.6 trillion of writedowns and credit losses, data compiled by Bloomberg show, and the world economy fell into recession.

Financial firms are showing signs of reverting to their old ways, Johnson said. Zurich-based Credit Suisse Group AG, Switzerland’s second-largest bank, and Scotia Capital, the investment-banking unit of Bank of Nova Scotia, Canada’s third- largest bank, are among those increasing lending to buyers of high-yield company loans and mortgage bonds at what may be the fastest pace since the crisis began.

Still, stocks fell around the world this week on concern that their rally has outpaced the prospects for earnings and economic growth. U.S. stocks dropped for a third day yesterday, the longest losing streak for the Standard & Poor’s 500 Index since June, amid worry banks will post more losses.

In the U.S., Obama’s plans face resistance from lawmakers, overseers and the banking industry.

Risk Regulator

Federal Reserve Chairman Ben S. Bernanke, Federal Deposit Insurance Corp. Chairman Sheila Bair and other regulators have opposed giving up their consumer-protection powers under an administration plan to set up a new agency to police financial products. Banks have also opposed the new regulator, arguing it would add a layer of expense to their operations and raise borrowing costs for customers and companies.

“The industry has gotten really organized since the crisis began to ease,” said Johnson, who is also a professor at the Massachusetts Institute of Technology in Cambridge.

A number of lawmakers, including Christopher Dodd, a Connecticut Democrat and chairman of the U.S. Senate Banking Committee, have voiced unease about another administration proposal to give the Fed powers overseeing systemic risks. Dodd has said he is leaning toward giving that power to a council of regulators.

“There’s no chance reform gets done this year,” said Laperriere, noting the breadth of changes proposed by the administration. “It’s not very likely it gets done in the current Congress,” which concludes at the end of 2010, he said.

National Money

It also may take more than a year for the European Union to unify market oversight in its 27 nations. While leaders agreed in June to sharpen scrutiny of banks, the EU’s executive arm must now draft legislation that then goes to the European Parliament and individual governments.

The risk watchdog the EU has proposed will lack powers to enforce its warnings and won’t automatically be run by the ECB as originally planned. The U.K. has won a compromise to prevent the panel from making decisions involving national money.

Executive pay is an area of disagreement that may become a point of contention at this week’s meeting of financial officials from China, India, Canada and other G-20 countries. German Chancellor Angela Merkel and French President Nicolas Sarkozy are urging the G-20 to impose tougher limits on bank bonuses.

Bonus Pools

France will suggest curbing bonus pools as a percentage of a bank’s revenue, imposing a ceiling on payments or taxing them, a finance ministry official told reporters yesterday. U.K. Prime Minister Gordon Brown sees a cap as difficult to enforce, the Financial Times reported yesterday, citing an interview.

“Bonus payments are the thing that quite rightly drives a lot of people up the wall,” Merkel said in Berlin on Aug. 31 with Sarkozy beside her. The two leaders said they want the G-20 to limit the size of banks and tighten capital rules.

France drew criticism from U.S. analysts and investors last week by announcing it won’t hire financial firms unless they follow their French counterparts and apply rules that include a three-year deferral on two-thirds of bonus payments.

“We’re in a tug of war between national political pressures and the desire to coordinate,” said Charles Dallara, managing director of the Washington-based Institute of International Finance, which represents the world’s biggest financial firms. “Right now the nationalist forces have the upper hand.”

Regulatory ‘Fragmentation’

He said that may lead to regulatory “fragmentation,” with supervisors trying to “protect their own backyard” and making the global system less stable in the process.

The longer the delay in adopting reforms, the more likely the drive will be dominated by politicians as opposed to “technocrats,” said Mohamed El-Erian, chief executive officer of Newport Beach, California-based Pacific Investment Management Co., manager of the world’s largest bond fund. In that case, reforms may end up being too “blunt,” he said.

“The run-up to the Pittsburgh G-20 meeting has attracted little attention,” said El-Erian, a former IMF official. “There is a risk that, after a successful London meeting in April, the G-20 process may lose momentum.”

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