A U.S. Securities and Exchange Commission lawyer warned about irregularities at Bernard Madoff’s financial management firm as far back as 2004, The Washington Post reported on Thursday, citing agency documents and sources familiar with the investigation.
Genevievette Walker-Lightfoot, a lawyer in the SEC’s Office of Compliance Inspections and Examinations, sent emails to a supervisor saying information provided by Madoff during her review didn’t add up and suggesting a set of questions to ask his firm, the report said.
Several of the questions directly challenged Madoff activities that turned out to be elements of his massive fraud, the newspaper said.
Madoff, 71, was sentenced to a prison term of 150 years on Monday after he pleaded guilty in March to a decades-long fraud that U.S. prosecutors said drew in as much as $65 billion.
The Washington Post reported that when Walker-Lightfoot reviewed the paper documents and electronic data supplied to the SEC by Madoff, she found it full of inconsistencies, according to documents, a former SEC official and another person knowledgeable about the 2004 investigation payday loan no faxing.
The newspaper said the SEC staffer raised concerns about Madoff but, at the time, the SEC was under pressure to look for wrongdoing in the mutual fund industry. Walker-Lightfoot was told to focus on a separate probe into mutual funds, the report said.
One of Walker-Lightfoot’s supervisors on the case was Eric Swanson, an assistant director of her department, the Post reported, citing two people familiar with the investigation.
Swanson later married Madoff’s niece, and their relationship is now under review by the SEC inspector general, who is examining the agency’s handling of the Madoff case, the Post reported.
Swanson, no longer with the agency, declined to comment, the Post said.
SEC spokesman John Nester also declined to comment, citing the ongoing investigation by the agency’s inspector general, the newspaper said.
(Writing by JoAnne Allen; Editing by Eric Walsh)
It began 41 years ago when a meandering drive through then-rural south St. Louis County landed Orville Roy at the Chrysler assembly plant in Fenton.
Recently discharged from the Marine Corps, Roy decided to fill out an application. A job offer came two days later and, with it, a legacy was born.
Eventually, three of Orville Roy’s sons, a daughter-in-law and a grandson, Michael Roy Jr., would follow him through the Fenton plant gates.
"It’s been our living, our livelihood," said Michael Roy Sr., 48, Orville’s son.
No more.
On July 10, Michael Roy Jr. and 600 other Chrysler workers will punch their time cards and go down in history as the final shift at a location that has turned out the automaker’s products for a half-century.
"There’s no middle class anymore," said Michael Roy Sr., forced to retire from Chrysler in December due to medical problems. "The middle class is gone."
That may be an overstatement from a former worker angered and betrayed by what he sees as the failure of the United Auto Workers and Chrysler to protect local production jobs now outsourced to Mexico and Canada.
But it still rings true for families, like the Roys, who have come to view assembly line positions at Ford, General Motors and Chrysler as a birthright.
Multigeneration families employed by and loyal to a single car manufacturer have long been "part and parcel of the automobile business," said Michael Smith, director of the Walter Reuther Library at Wayne State University and an expert on the labor movement. "That’s why the auto crisis is so devastating."
Matthew Diemer, an assistant professor of counseling at Michigan State University, said it may be premature to declare the "death" of a tradition of children following parents and grandparents into blue-collar manufacturing jobs.
"But maybe," he allows, "what we’re seeing is the death knell."
COMPLICATED OPTIONS
The bell tolled for the Roy family on April 30, the day Chrysler announced it was laying off what remained of Fenton’s Dodge Ram pickup truck work force. (The company halted minivan production at the Fenton location last year.)
After work that afternoon, 24-year-old Michael Roy Jr. and his mother, Cheryl Roy, repaired to a local tavern to consider a series of complicated options.
In mid-May, Cheryl Roy, made her up her mind. An autoworker for 14 years, she rejected a possible transfer to a Chrysler facility in either Illinois or Michigan and took a company buyout.
Cheryl is collecting severance benefits, searching for a job and staying at the family home in Arnold to care for her husband, Michael Sr., who retired following diagnosis of amyotrophic lateral sclerosis — Lou Gehrig’s disease.
Also looking for work, Michael Roy Jr. wonders what the future holds for a young man who aspired to retrace the footsteps of his grandfather and father.
"I’m good with my hands," he said. "And if you’re good with your hands, what can you do now?"
The official answer: Move from the production of goods and services dependent on nonrenewable resources to the production of environmentally sustainable commodities. Manufacturing the blades used in power-generating wind turbines is a commonly cited example.
State and national leaders across the nation, including Missouri Gov. Jay Nixon, contend that so-called "green jobs" represent the next wave of American manufacturing.
Michael Jr. knows that getting a foothold in the clean energy work force means going back to school. A few credits shy of an associate’s degree, he walked away from his education to accept an offer of a part-time Chrysler job that he saw as a stepping stone to full-time employment personal loans no credit check.
Strapped by declining income as he helps tend to his father, Michael cannot afford, in terms of either time or money, to return to his studies at Jefferson Community College.
Smith agrees that Michael’s best hope rests in furthering his education,
A former autoworker himself, Smith laments that the days when a union membership card served as a portal to a middle class lifestyle are slowly disappearing.
"The jobs that dad and grandpa had, that didn’t require anything more than a high school education, are no longer around," Smith said. "Even auto working is not just about putting on hubcaps anymore. It’s a lot more sophisticated."
ITS OWN REWARD
That was not the case when Orville Roy, now 80, began working his way through various administrative departments, including payroll, in 1968.
"In the old days, if you knew somebody and you wanted to get hired, all you had to do was ask for a recommendation," he said.
All the better if that acquaintance happened to be a blood relative.
Putting aside their disappointment that jobs once performed in Fenton are now held by workers in Canada and Mexico, Michael Sr. and Cheryl Roy acknowledge their family of six has done all right by the nation’s No. 3 domestic automaker.
"We have four kids that wanted to play sports and take dance classes and do all sorts of things," said Cheryl. "Somebody had to pay for it."
Until Cheryl went to work in the pickup plant in 1995, that somebody was her husband, who had started as a "floater" in the chassis department 11 years before.
"I worked on the line, and that was punishment," said Michael Sr.
"I’ve shoved in engines, I’ve thrown tires and I’ve thrown bumpers," said Michael Sr., lapsing into autoworker jargon to describe the tasks he performed at Fenton. The "punishment" of the line, though, had its own reward: By the time Michael Sr. retired late last year, he was earning $29.95 an hour, plus the heralded UAW benefit package.
There was also the intangible benefit, Michael Jr. noted, of spotting a Dodge Ram on the road and thinking, "I made that truck."
TUG OF TRADITION
Michael Jr. never matched his father’s salary.
Nor, because his tenure paralleled Chrysler’s shrinking market share, was Michael Jr. ever offered a full-time position at the plant.
Michael Jr. can lay claim, however, to a dubious distinction: He worked both the last day and night shift to produce a minivan at the South Plant and, later, was assigned to the last North Plant night shift to build a pickup.
Michael Jr. was circumspect last week as he reflected on the irony of a callback has placed him on a shift that will soon assemble the final Chrysler product ever built in Fenton.
"It’s frustrating," Michael Jr. said. "But (unlike his dad and grandfather) I haven’t put my whole life into it."
Resolved that the time has come for him to move forward, the son of Michael Roy Sr. and grandson of Orville Roy nonetheless feels the tug of the tradition that began on a long ago leisurely drive that wound up, improbably, at a car factory.
"I was kind of hoping," Michael Jr. said wistfully, "that my grandkids would work there."
OTTAWA–A new poll suggests more than one in three Canadians plan to take advantage of the federal government’s home-renovation tax credit.
More than eight in 10 questioned in the Harris-Decima/Canadian Press survey said they were aware of the program, under which eligible applicants can receive a tax rebate of as much as $1,350 if they invest up to $10,000 in renovations on their home.
"Unlike many new tax policies, which only get noticed by accountants and actuaries, the government of Canada has successfully communicated the introduction of the home-renovation tax credit to Canadians," said Harris-Decima’s senior vice-president, Jeff Walker.
"This program appears to be helping stimulate the economy as well."
Nationally, 82 per cent of respondents were aware of the home-renovation tax credit, while 17 per cent said they were unaware. Those under age 35 and those with annual incomes below $60,000 were least likely to know of the tax credit car insurance.
Overall, 35 per cent of respondents said they planned on taking advantage of the program, while 60 per cent said they would not.
The ratio of those who planned to take advantage of the program increased with income.
More than half of those earning more than $100,000 a year (51 per cent) responded positively, compared with 41 per cent of those making between $60,000 and $100,000 and just 27 per cent of those earning less than $60,000.
Respondents west of Ontario were the most likely to be taking advantage of it.
Some 1,000 Canadians were surveyed June 18-21, with a margin of error of plus or minus 3.1 percentage points, 19 times in 20.
The Canadian Press
The Toronto stock market closed slightly higher today as a late-day burst in financial stocks cancelled out declines in energy and gold stocks.
The S&P/TSX composite index moved 33.91 points higher to 10,389.76 on top of two days of strong, triple-digit advances.
The Canadian dollar was up 0.15 of a cent to 86.64 cents US.
Despite the gains of the S&P/TSX index over the past three days, momentum from the spring rally that started in mid-March has been slowing but the Toronto market managed a gain of 102 points for the week.
As the first half of 2009 draws to a close, investors are growing more nervous about whether the economy can bounce back later this year.
At its peak June 11, the rally had taken the TSX to the 10,714-mark, up 41 per cent from the trough on March 9 and almost 20 per cent year to date.
"And we haven't had a big pullback really – the rally is getting tired but that doesn't mean it's over," said John Johnston, chief strategist for the Harbour Group at RBC Dominion Securities.
"I would suspect that there's over the next three months a little more downside than upside. But that downside is part of a healthy rebound in the market."
Today, the financial sector was the biggest gainer, up 1.85 per cent with Scotiabank (TSX: BNS) ahead $1.19 to $43.
The Toronto market's energy sector was down 2.3 per cent with the August crude contract in New York falling $1.07 to US$69.16 a barrel. EnCana Corp. (TSX: SU) lost 77 cents to $56.81.
Shares in market heavyweight Potash Corp. (TSX: POT) sustained only a minor loss after the company cut its earnings guidance, citing lower-than-expected sales volumes as customers delay purchases and lower realized prices for phosphate fertilizers.
Potash shares fell 39 cents to $107.66, after falling as low as $103.66 during the session.
The TSX Venture Exchange rose 8.54 points to 1,111.59.
U.S. stocks were mainly lower after the Commerce Department said personal spending, incomes and savings all rose in May. What troubled investors was that the savings rate soared to a 15-year high of 6 payday advance.9 per cent, while spending rose by a modest 0.3 per cent.
The Dow Jones industrial average declined 34.01 points to 8,438.39, losing 101 points or 1.2 per cent on the week.
The Nasdaq composite index was up 8.68 points to 1,838.22, supported by Palm Inc. a day after the company reported a fourth-quarter loss that was narrower than expected. The company also highlighted strong demand for its Pre smartphone and its shares rose $2.20 or 15.7 per cent to US$16.22.
The S&P 500 index dipped 1.36 points to 918.9.
The gold sector was another source of weakness, down two per cent as the August gold contract on the Nymex gained $1.50 to US$941 an ounce. Goldcorp Inc. (TSX: G) faded 80 cents to $41.54.
In other corporate news, Shaw Communications Inc. (TSX: SJR.B) shares were ahead 22 cents to $19.77 after the company reported third-quarter profit of $132 million or 31 cents per share, up slightly from year-earlier net income of $128 million or 30 cents per share. Quarterly revenue rose nine per cent to $861 million.
Semiconductor company Mosaid Technologies Inc. (TSX: MSD) reported Thursday an increase in fourth-quarter profits compared with a year ago as revenue grew six per cent. The semiconductor company said it earned $5.6 million compared with a profit of $5.4 million a year earlier. Its shares declined 26 cents to $14.99.
The Sobeys grocery chain gave a strong push to revenue growth in the latest quarter at Empire Co. (TSX: EMP.A), although the diversified holding company's real-estate and investment activities proved to be a drag on profitability. Empire's overall net income for the quarter fell to $63.6 million, down from $66.5 million in the fourth quarter of fiscal 2008 and its shares stepped back $1.12 to $45.20.
Swiss bank UBS AG announced that it expects to raise 3.8 billion Swiss francs (US$3.5 billion) through a capital increase and forecasts a loss for the second quarter. In New York, its shares fell 69 cents to US$12.18.
Palm Inc posted a narrower-than-expected fiscal fourth quarter loss on Thursday, and highlighted strong demand for its just-unveiled Pre smartphone.
Palm’s shares rose more than 14 percent in after-hours trading.
Executives said early signs were promising for the Pre, which will compete head-to-head with Apple Inc’s iPhone and Research in Motion’s BlackBerry and which Palm hopes will lead the company out of persistent losses.
Palm said demand for the Pre was exceeding its expectations. The device is expected to enhance margins at the company, which in past years has steadily relinquished market share to rivals.
Avian Securities’ Matthew Thornton estimated Palm booked revenue for 70,000 Pre units in the May quarter, which ended May 29. He said that, along with a more favorable tax rate and lower-than-expected operating expenses, helped the company blow by Wall Street estimates.
“We’re successfully ramping supply to meet demand that is strong and growing,” Chief Executive Officer Jon Rubinstein told analysts on a conference call, referring to the Pre.
The device, which went on sale at the beginning of June, has garnered generally favorable reviews. Analysts estimate Palm has shipped about 150,000 units so far.
The Pre’s impact will be more fully reflected in the current quarter, because of its June launch date. Sprint Nextel Corp is the exclusive U.S. carrier for the device.
Palm said it could turn cash-flow positive in the second-half of fiscal 2010 and reassured analysts that its capital position was sufficient, which Thornton called the “most interesting takeaways payday loan online.”
The company posted a net loss applicable to common shareholders of $105 million, or 78 cents a share in the fiscal fourth-quarter ended May 29, compared with a loss of $43.4 million, or 40 cents a share, in the year-ago period.
Excluding items, Palm’s loss was 40 cents a share, compared with an average analyst estimate for a loss of 65 cents a share, according to Reuters Estimates.
Revenue fell 71 percent to $86.8 million. The Wall Street estimate was for revenue of $80.3 million.
Palm pioneered the market for handheld devices in the 1990s, but it has fallen behind competitors like Apple and Research in Motion, which were quicker to roll out models with popular applications.
The Pre, featuring Palm’s new WebOS, is now entering a market chock-full of other competitors from Nokia to HTC. A new iPhone 3GS launched last Friday and sold more than 1 million units in the first three days.
Rubinstein, appointed chief executive days after the Pre was launched to the public, pointed to a rapid shift to smartphones from standard mobile phones, creating a market big enough for all.
This spring was kinder to the St. Louis housing market, and sales are starting to pick up.
But just a little. There’s a long way to go before things reach full bloom.
Sales of existing houses in the 11-county St. Louis region reached their highest level in eight months, according to data compiled by the Post-Dispatch. That echoes national figures released Tuesday by the National Association of Realtors showing the second straight month of increased sales and spurring hopes that the housing market has at least hit bottom.
Still, sales are well below last year’s figures, and median prices continue to slide as bargain-hunters snap up deals.
Market-watchers report a spike in interest from first-time house buyers, lured by low interest rates and the government’s $8,000 tax credit. Yet that isn’t translating into more sales at higher price points as many homeowners are choosing to stay put rather than buy something more expensive.
Until that changes, it’s hard to see the housing market gaining much ground, said Geoff Hewings, a professor of regional economics at the University of Illinois.
"The modest recovery in housing prices and sales has been constrained by job losses in the economy as a whole," he said. "A sustained housing recovery is still not in sight."
Still, there’s more activity, said Al Suguitan, president of the Greater Gateway Association of Realtors in Glen Carbon. More houses are being listed. More people are coming to open houses. More contracts are pending health insurance. But that’s typical for this time of year, and it’s hard to know what it signals.
"It’s kind of a mixed bag right now," he said. "We’re right in the middle of the activity, so we can’t really see what’s happening around us."
St. Louis appears to be lagging the nation as a whole. Sales here fell 16 percent from May of last year, compared to 3.6 percent nationwide, according to the National Association of Realtors. Prices, however, fell less sharply, down 10 percent or less in most local counties and 16.8 percent nationwide.
The strongest large county in the region remains St. Charles, where sales were off just 6.2 percent year over year.
Joe Sahrmann, an agent with Coldwell Banker Gundaker in St. Charles, says his office actually has seen sales increase over the last year, and has had a strong May and June. Buyers, he said, are more confident. "People were waiting to buy, and they didn’t know why they were waiting."
That confidence bodes well. But it’s fragile, economists say. If unemployment keeps climbing, it could sideline more potential buyers. The same holds true for interest rates, which have crept up in recent weeks, though they remain low by historical standards.
The Associated Press contributed to this report.
A new website wants consumers to browse virtual shelves of everything from diapers to shampoo, a move that if successful would mark a major shift in the way most Americans buy household products.
The sector faces hurdles heading online since products such as toilet paper are ones people often need in a hurry and many items are bulky or heavy, which means high shipping costs for items with relatively low price tags.
Also, consumers buy items from several different manufacturers, so selling directly from company websites would be inconvenient.
But founders Brian Wiegand and Mark McGuire said their site, Alice.com, could help manufacturers maintain their brand identity as they battle to retain thrifty consumers who are buying more store-branded goods from retailers such as Target Corp and Wal-Mart Stores Inc.
The categories manufacturers are in, the value they can offer in this economy and how they are already selling their products at stores are issues companies are considering when thinking about whether to sell through more online channels, said Herb Walter, Consumer Packaged-Goods and Retail Advisory Partner of PricewaterhouseCoopers’ Retail & Consumer practice.
“It is a viable option, it is one that is being experimented with,” said Walter. “At least for the foreseeable future it’s got to have a value label next to it.”
With Alice.com, manufacturers get to set their own prices and receive all of that revenue. The site makes money by giving the companies spending data, advertising space and distributing samples for them to targeted customers.
Manufacturers pay the site to handle logistics including free shipping on all orders, which must have at least six items instant cash advance.
Wiegand said Alice.com aims to capture 250,000 customers in the first year.
This is the fourth partnership for Wiegand and McGuire, who most recently sold Jellyfish.com to Microsoft Corp in 2007. Jellyfish.com was rebranded as Bing cashback, a service consumers can use to save money when they shop online.
The duo compared Alice.com to Netflix Inc since the new site will remind shoppers to reorder, much like Netflix sends the next DVD in a customer’s queue. And working off the popularity of networking sites such as Facebook and MySpace, customers can review products and tell others what they buy.
GO ASK ALICE
The name is in one way a nod to the housekeeper Alice on the 1970s U.S. hit television show “The Brady Bunch,” and had the sound of a consumer-oriented brand, the founders said.
Alice.com will compete with Drugstore.com, Diapers.com, Amazon.com Inc and others already selling many of the items it stocks. The site is launching with more than 6,000 products such as shampoo, soap, coffee and pet food. Alice.com aims to be different by acting as a platform for manufacturers to communicate directly with consumers.
Alice.com has commitments from five of the top 10 consumer products companies but would not disclose whether specific players such as Procter & Gamble Co and Unilever have signed up.
The trucking sector is a barometer of economic health. When the economy is thriving, manufacturers and retailers are shipping more goods overland. When it suffers, 18-wheelers are parked and their engines idled.
Looking for signs of economic recovery? Just ask a trucking firm.
"We’re still waiting for a rebound, to be honest," said Mike Nichols, vice-president of sales and marketing at Vaughan-based J.D. Smith and Sons Ltd., which has been operating in Ontario for 90 years.
The company has 150 diesel-powered trucks of various sizes, which are hired out on a per-delivery basis or contracted longer-term to customers that want their own dedicated fleet without actually purchasing one.
Both parts of the business are suffering, Nichols said. "There’s definitely been a big slowdown."
It’s reflected in diesel fuel prices. After peaking in Toronto at $1.45 a litre last June, diesel prices have fallen more than 38 per cent to less than 90 cents a litre. Some stations are charging as little as 84 cents.
"The situation has reversed itself," said Spencer Knipping, a petroleum analyst at Ontario’s Ministry of Energy and Infrastructure. He was referring to the price of diesel fuel relative to regular unleaded gasoline, which last June was 10 cents less than diesel.
Yesterday, most major gasoline retailers in the city were charging $1.03 per litre for regular unleaded, or 15 cents more than diesel.
According to Statistics Canada, gasoline demand in Ontario increased 2.2 per cent in the first quarter of 2009 compared with the year-ago period, while diesel demand fell 12 per cent in the same period. It’s a trend supported by the 20 per cent plunge in wholesale industrial power consumption in Ontario during the first quarter.
"In a recession, diesel is typically hit harder than gasoline," said Jane Savage, president of the Canadian Independent Petroleum Marketers Association.
She said refineries are designed to produce a certain amount of diesel and gasoline and it’s difficult and expensive to quickly reconfigure a facility to produce more of one and less of another.
When economic activity drops, demand for diesel drops in transportation and in industries such as forestry and mining. The resulting surplus of diesel supply leads to lower prices relative to gasoline.
When diesel prices spiked last year, Savage said, there was a lot of speculation in the market that demand for the fuel would climb because of growing popularity of diesel-engine vehicles among consumers business cards sale.
"A number of car companies have come out with 2009 and 2010 model years with diesel engines," she said, adding that this trend could spark another run-up in diesel prices once the economy begins to recover. "The new diesel technology in cars is fairly impressive, and we think it will take hold as far as pushing up demand for diesel fuel in North America."
The bankruptcy filings at General Motors Corp. and Chrysler LLC, which along with Ford Motor Co. Ltd. have kept diesel vehicles from gaining hold in Canada and the United States, could open a door to foreign suppliers eager to introduce diesel models to North American car buyers.
That, however, would require a healthier economy. Confident that a recovery is around the corner, speculators over recent weeks have been pumping up the price of oil. Futures have more than doubled this year to around $70 (U.S.) a barrel. July delivery of light, sweet crude closed down $1.82 yesterday to $69.55 on the New York Mercantile Exchange.
Money has poured into oil markets recently as the U.S. dollar fell against the euro. Investors for months have used crude as a hedge against inflation, betting that oil prices will likely increase as the economy improves and global supplies start to shrink.
But reality is beginning to set in, at least when it comes to the U.S. economy. The U.S. Department of Energy reported yesterday that gasoline inventories rose 3.39 million barrels to 205 million last week, the largest jump since January. Daily demand for fuels is 6 per cent lower than a year ago.
This means pump prices will likely stay at current levels through the Canada Day and Fourth of July weekends. "Gas prices should back off a bit after that,” said Phil Flynn, an analyst at Alaron Trading Corp.
Diesel prices may follow.
As long as economic activity remains down, diesel is expected to sell at a big discount compared with gasoline, at least until trucking firms like J.D. Smith start pumping more.
With files from Associated Press
European Union leaders spotted the first signs of a “sustainable economic recovery” from the worst recession since World War II and started planning to roll back budget deficits piled up to combat the financial crisis.
The 27 government heads today said the looming end of the slump means it is time to start hatching an “exit strategy.” They also agreed to overhaul financial regulation after banking supervision failed to contain the crisis sparked in the U.S. housing market.
“It is important that consolidation keeps pace with economic recovery,” the leaders said in a statement after a two-day summit in Brussels. “There is a clear need for a reliable and credible exit strategy.”
The EU leaders’ outlook is more upbeat than that struck last week at a meeting of Group of Eight finance ministers, which ended with a statement noting “signs of stabilization in our economies.” U.S. Treasury Secretary Timothy Geithner said at those talks that “it’s too early to shift toward policy restraint.”
The expression of official optimism pushed the euro higher and prompted declines in European government bonds. The currency was up 0.1 percent at $1.3909 at 4:15 p.m. in Brussels.
Extra spending by European governments will pump 5 percent of gross domestic product into the 27-nation economy in 2009 and 2010, helping restore growth after this year’s estimated 4 percent contraction, according to EU forecasts. “The significant measures taken by governments and central banks are contributing to limiting the negative effects of the downturn and helping to safeguard jobs,” according to the statement.
Credit Crisis
The leaders agreed to their most sweeping overhaul of financial regulation, sharpening scrutiny of banks and risks after spending billions propping up lenders in the credit crisis. They backed the creation of agencies to unify oversight of banks, insurers, investment firms, credit-rating companies and hazards in the broader economy.
The accord gives the EU its most centralized power over financial firms even after U.K. Prime Minister Gordon Brown won a compromise to scale back some of the authorities’ power to override national decisions involving public money. The region’s governments and central banks are on the hook for more than 3.7 trillion euros ($5.2 trillion) of guarantees and funding.
Concerned that Britain’s economy might need another shot in the arm, Brown objected to a draft text that said “further budgetary stimulus would not be warranted” and got the phrase expunged from the final communiqué no teletrack payday loans.
Budget Deficits
German Chancellor Angela Merkel has pushed for governments to start cutting budget deficits, which will rise to an average of 6 percent of GDP in 2009 from 2.3 percent last year, the EU forecasts. Economic data released this month suggest the region is starting to pull out of the slump.
In Germany, Europe’s largest economy, investor sentiment rose more than economists forecast to a three-year high this month, the ZEW Center for European Economic Research in Mannheim said this week. Euro-area business and consumer confidence increased to the highest in six months in May, and the service and manufacturing industries contracted at a weaker pace.
The International Monetary Fund, the Washington-based lender with 185 member nations, raised its forecast for global economic growth in 2010 to 2.4 percent from 1.9 percent, a person familiar with the matter said on June 11. John Lipsky, the IMF’s first deputy managing director, said today that the fund expects to revise its growth forecasts “modestly upward” to reflect signs that the global slowdown is moderating.
Economic Growth
Underscoring investor expectations of a revival in economic growth, Europe’s Dow Jones Stoxx 600 Index gained 0.9 percent to 207.55. The MSCI World Index of developed-nation stocks has added 40 percent since March 9 and crude-oil futures have jumped 61 percent this year.
Taylor Wimpey Plc, the U.K.’s largest homebuilder, said today that its British order book surged 73 percent from the end of last year as buyers returned to the housing market and prices stabilized. Praktiker AG, Germany’s second-biggest home- improvement retailer, said on May 27 that revenue has rebounded in its domestic market since the end of March.
Still, other data suggest the recovery is fragile and uneven. Retail sales in the U.K., Europe’s second-biggest economy, unexpectedly dropped in May for the first time in three months, the Office for National Statistics said today.
Coming economic “data will most likely be mixed, confirming that activity is stabilizing at a very low level,” said Marco Annunziata, chief economist at Unicredit MIB in London. The reports are “unlikely to give unequivocal support to the idea of a strong V-shaped recovery, especially given the residual fragility of the financial sector.”
Icelandic lawmakers will today start debating budget cuts needed to bridge a 20 billion kronur ($157 million) gap and ensure continued payments of a bailout, the prime minister’s adviser said.
The parliament in Reykjavik aims to approve the measures by July 1, Hrannar Bjorn Arnarsson, a political adviser to Johanna Sigurdardottir, said in an interview yesterday. The Cabinet this week agreed to generate an extra 10.4 billion kronur by raising taxes, with expenditure cuts making up the rest.
Failure would jeopardize a $155 million tranche of an International Monetary Fund loan needed to rebuild the economy. Iceland on June 6 agreed terms for a $5.44 billion loan from the U.K. and the Netherlands to settle internet Icesave accounts held in failed lender Landsbanki Islands hf. The country has yet to settle separate bank creditor claims of $80 billion.
“There’s no shortage of political will to do what’s necessary,” said Paul Rawkins, a senior director at Fitch Ratings in London. “On the contrary, the government is very keen to put the program into place. The implementation risk is therefore quite low.”
Fitch rates Iceland BBB- with a negative outlook, one notch above junk. “Public debt is rising quite fast and the cost of bank restructuring promises to exacerbate this,” Rawkins said. “We’re waiting for all these things to fall into place before we complete our review of the rating.”
Growing Debt
The cuts will be “widely spread,” Finance Minister Steingrimur Sigfusson said in an interview yesterday. “The largest single cut will be in road construction, the second largest being the welfare system. The total cuts will amount to 10 billion kronur. In total, spending cuts and tax increases will amount to more than 20 billion kronur.”
Iceland will run a 177 billion kronur budget deficit this year, equivalent to 12 no fax cash advances.6 percent of gross domestic product, the Finance Ministry said in May. Government debt will grow to 1.5 trillion kronur, or 103 percent of the economy, it said.
The country came under IMF administration at the end of last year after seeking a $2.1 billion loan from the Washington- based Fund to avert a default following the failure of its biggest banks. The economy will contract 11 percent this year, the central bank estimates, the most since the island gained full independence from Denmark in 1944.
Worst Happened
“The worst that could happen has already happened in Iceland insofar as the banking system has imploded, the currency has collapsed and the economy is headed for a steep recession,” Rawkins said.
Fitch still rates Iceland as investment grade because the country has yet to default on its sovereign debt, Rawkins said.
“Domestic debt markets continue to function, but public debt sustainability is going to become an issue,” he said.
Iceland imposed capital restrictions at the end of last year, meaning non-resident investors holding about 700 billion kronur in assets are locked into their holdings.
“The quicker they can resolve the capital controls, the better,” Rawkins said. “There will come a point when they need access to international capital markets.”
The central bank has said it targets a gradual removal of controls within two years.
“A realistic timeline for removing capital controls may be 2010,” Rawkins said. “I don’t think there’ll be any sign of the economy starting to recover until the beginning of 2010.”
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