The U.S. dollar’s gains may end in the middle of 2010 as central banks shy away from adding greenbacks to their reserves and the Federal Reserve raises rates at a slower pace than investors expect, Barclays Plc said.
Long-term demand for dollars is set to weaken after the currency’s share of global reserves added in the third quarter slid to less than 30 percent, a decline “unprecedented in a period of U.S. dollar weakness,” Barclays said in a note to clients. The dollar stemmed 11 months of declines versus the 16 most-traded currencies in December, gaining against all but two, after investors increased bets the Fed will remove monetary stimulus next year as the economy recovers.
“We see the dollar strengthening in the first six to nine months of 2010 when the focus is on liquidity withdrawal and tightening of rates,” said Steven Englander, chief U.S. currency strategist at Barclays in New York, in a telephone interview. “Once the market gets past this initial fear of tightening, the reality will be that the Fed isn’t going to be tightening very fast and we’ll see dollar selling again.”
The Dollar Index — which measures the currency against the euro, yen, pound, Canadian dollar, Swiss franc and Swedish krona — has dropped 4.2 percent this year. It has climbed 4.1 percent in December and traded at 77.928 as of 9:28 a.m. in Tokyo. The U.S. dollar has registered its biggest declines against the Brazilian real, Australian dollar and South African rand dropping by more than 25 percent this year against each.
Global Reserves
Global reserves probably gained by about $180 billion in the third quarter with U.S. dollar-denominated reserves accounting for about $50 billion or less than 30 percent, Barclays estimated, using data from the International Monetary Fund and U.S. official reports.
The bank adjusted for changes in the value of currencies over that period to capture “actual buying and selling, rather than passive gains and losses” Englander wrote in the note.
The dollar declined against all but the yen among the 16 most-active currencies this year. That prompted China and Russia, holders of the world’s biggest and third-biggest currency reserves, to express concern about their U payday loans with no faxing.S.- denominated investments.
“Emerging market central banks are selling their local currencies and buying U.S. dollars to prevent appreciation of their currencies,” Englander said. “They’re avoiding having a bigger concentration of U.S. dollars in their portfolio by turning around and selling dollars against the euro and other currencies.”
Canadian Dollars
Canada’s Finance Minister Jim Flaherty said this week that China, may be poised to buy Canadian dollars as it seeks to shield its $2.3 trillion worth of reserves against the U.S. dollar’s decline. Russia’s central bank said last month it will add Canadian dollars to its reserves and may include more currencies to reduce its dependence on the U.S. dollar.
Declines in the greenback mostly stalled this month as traders bet on a 48 percent chance that Fed Chairman Ben S. Bernanke will increase the target rate for overnight lending between banks by June. Policy makers will end most emergency lending programs and debt purchases by March because of “improvements in the functioning of financial markets” and stabilizing labor markets, the Federal Open Market Committee said on Dec. 16.
Unemployment, Retail
Reports this month showed the U.S.’s jobless rate unexpectedly fell, retail sales beat forecasts and purchases of existing homes rose to the highest level in almost three years in November. Benchmark rates are as low as zero percent in the U.S. compared with 8.75 percent in Brazil and 3.75 percent in Australia. They are 0.1 percent in Japan and 1 percent in the Euro region.
Barclays forecasts that the Federal Reserve will begin raising rates at the end of the third quarter of next year, while the European Central Bank’s tightening cycle will begin at the start of 2011. The Fed’s target rate will reach 2 percent by the end of 2011, Englander said.
Barclays on Dec. 10 forecast the euro will fall to $1.40 in six months before rallying to $1.45 by the end of 2010. The euro traded at $1.4333 today.
WASHINGTON–The U.S. economy grew at a 2.2 per cent pace in the third quarter as the recovery got off to a weaker start than previously thought. But all signs suggest the economy will end the year on a stronger footing.
The commerce department’s new reading on gross domestic product for the July-to-September quarter was slower than the 2.8 per cent growth rate estimated a month ago. Economists had predicted this figure would remain the same in the final estimate of the quarter’s GDP – the value of all goods and services produced in the United States.
The main factors behind the downgrade were that consumers didn’t spend as much, commercial construction was weaker, business investment in equipment and software was softer and companies cut back more on their stockpiles of goods.
Even so, the economy managed to return to growth during the quarter, after a record four straight quarters of decline. That signalled that the deepest and longest recession since the 1930s had ended and the economy had entered a new fragile phase of recovery.
Despite the lower GDP reading, many analysts still think the economy is on track for a better finish in the current quarter.
Tuesday’s report showed consumer spending grew at a 2.8 per cent pace, slightly weaker than the 2.9 per cent rate previously estimated and one of the factors behind the lower overall reading.
Retail sales, though, showed momentum in October and November. That raised hopes that holiday sales would fare better than last year’s season, the worst in nearly four decades.
The economy is probably growing at nearly 4 per cent in the October-to-December quarter, analysts say. A few peg it closer to 5 per cent. If they’re right, that would mark the strongest showing since 5.4 per cent growth in the first quarter of 2006 – well before the recession began. The government will release its first estimate of fourth-quarter economic activity on Jan. 29.
Question: How do REITs work? And is it prudent to have them in a diversified retirement portfolio? –M. C., Indianapolis, Indiana
Answer: After going from rock stars of the investing world during the real estate boom to candidates for a VH1"Where Are They Now" episode the last two years, REITs are generating some interest again.
Gee. Could it have anything to do with the fact that, after slumping badly in 2007 (-17.8%) and 2008 (-37.3%), REITs have been on a bit of a roll again with a year-to-date return of more than 25% through mid-December?
Well, whatever has spurred your interest, the answer to your first question is that REITs, or real estate investment trusts, are essentially companies that own and operate income-producing properties that could range from office buildings to hotels to malls to apartment buildings or a combination of these or other facilities.
Since you can buy many REITs just like stocks, investing in them allows you to gain exposure to the real estate market without the hassle of having to buy, manage and sell actual bricks and mortar. And because for tax reasons REITs must distribute 90% or more of their taxable income to shareholders annually as dividends, many investors looking for steady income from their investments also gravitate toward REITs.
As for whether it’s prudent to include REITs in a diversified retirement portfolio, I’d say the answer depends on why you’re buying them.
If you’re considering REITs now because you think their recent gains might be a prelude to another real estate feeding frenzy, I would urge extreme caution. Much of the REIT rebound this year is what you might call a "relief" rally. Things were looking so bad both in terms of property values and availability of financing in the commercial real estate market earlier this year that many REITs were knocked down to Armageddon prices. As investors came to believe that maybe conditions weren’t quite so horrendous and that the correction in REIT values had perhaps been overdone, REITs enjoyed a nice little pop.
But the residential and commercial real estate markets still face daunting challenges. That’s not to say that REITs don’t have the potential to deliver decent returns from here. Indeed, some have been able to raise capital that may allow them to pick up properties at bargain-basement prices. I think it would be foolish, though, to buy into REITs expecting them to retrace their recent trajectory.
But if you want to invest a portion of your retirement savings in REITs as part of a long-term strategy to improve your portfolio’s performance by enhancing its diversification, then I’d say yes, it could be prudent to find a place for them quick guaranteed personal loans. That’s because research shows that adding a small helping of REITs to an already diversified portfolio may be able to slightly boost returns without increasing volatility.
Be aware, however, that this approach assumes you’ll invest a modest portion of your assets in REITs and that you’ll hold them during good and bad periods. And to get the full benefit of the additional diversification they offer, you must be willing to rebalance periodically so REITs continue to account for the same percentage of your portfolio that you set originally.
That means you’ll probably be selling off part of your REIT stake after years in which they’ve soared (like 2003 and 2004), and adding to it after lousy years (like 2007 and 2008). If you don’t have the discipline, or the stomach, to do this, then adding REITs probably isn’t such a hot idea.
Keep in mind too that while REITs’ dividends can be a plus for investors looking to draw income from their retirement portfolio, those dividends can be cut in hard times. Some REITs did exactly that during the financial crisis. What’s more, a December 2008 "revenue procedure" from the IRS gave REITs the option of paying out up to 90% of their dividends in stock rather than cash this year. I think it’s fair to say most income investors would prefer hard currency to more shares of stock. It’s unclear whether, one way or another, REITs will have access to that option again in the coming year.
You should also know that, unlike payouts from most companies, REIT dividends do not generally qualify for the 15% maximum tax rate for qualified dividends. So if you do opt for REITs, you may want to hold them in a tax-advantaged retirement account such as an IRA or 401(k).
All things considered, though, I think REITs can still play a role in a well-rounded retirement portfolio. But unless you know how to analyze the prospects for individual REITs, I’d recommend investing in them through a mutual fund or ETF that owns a diversified portfolio of REITs. You can find both on our Money 70 list of recommended funds.
Bottom line: If you want to make REITs part of your long-term investing strategy for your retirement savings, go ahead. Just be sure to take a prudent approach, as I’ve outlined.
Federal Reserve Chairman Ben S. Bernanke and his colleagues may indicate the U.S. recovery is gaining strength while repeating a pledge to keep the benchmark interest rate almost at zero for an “extended period.”
The Federal Open Market Committee gathers as growth in the final quarter of 2009 accelerates to more than 4 percent, the fastest pace in almost four years, according to analysts’ forecasts. The FOMC will probably discuss how to eventually withdraw unprecedented programs to revive credit, including purchases of $1.43 trillion in housing debt, economists said.
Fed officials in a statement today may try to head off any investor expectations the improving economy will prompt them to raise interest rates early next year. While acknowledging that job losses are easing after last month’s drop in the unemployment rate, the FOMC may reaffirm that tight credit and weak income growth are among the risks to the recovery.
“The last thing they want is for people to expect that tightening is closer,” said Laurence Meyer, vice chairman of Macroeconomic Advisers LLC in Washington and a former Fed governor. “They are going to increase their confidence about the sustainability of the expansion, but not become materially more optimistic about growth next year.”
The FOMC is scheduled to issue its statement at around 2:15 p.m. after the end of its two-day meeting.
“Assuming they don’t drop ‘extended period,’ market reaction will probably be limited,” said James O’Sullivan, chief economist at MF Global Ltd. in New York.
Changed Forecasts
Macroeconomic Advisers raised its forecast for fourth- quarter growth last week to a 4.2 percent annual pace from 3.1 percent, while Credit Suisse and JPMorgan Chase & Co. increased its estimate by 1 percentage point to 4.5 percent. Retail sales in November climbed twice as much as economists expected, while exports rose to the highest level in 11 months, government figures showed.
“The Fed has to fight two battles: supporting economic growth and showing the market it is concerned about potential inflation later on,” said Sung Won Sohn, former chief economist at Wells Fargo & Co. and now an economics professor at California State University-Channel Islands in Camarillo, California. “Balancing inflation and economic growth and the communications related to that will be their most difficult challenge.”
Fed funds futures on the Chicago Board of Trade indicated yesterday a 53 percent chance that the FOMC will raise its main lending rate by at least a quarter-percentage point by its June meeting, compared with 35 percent odds a month ago.
Fulfill Mandate
Any expectation by investors that monetary policy tightening will occur sooner would complicate efforts by policy makers to reduce the 10 percent unemployment rate, said former Atlanta Fed research director Robert Eisenbeis, now chief monetary economist at Cumberland Advisors Inc saving account payday loan. in Vineland, New Jersey.
“They have a huge problem, and the risk is real,” he said. “It will take extraordinary growth for three years to significantly eat into the unemployed who have lost their jobs.”
U.S. payrolls have fallen by 7.2 million since the start of the recession in December 2007, and a growing population means more jobs must be created to restore full employment. The FOMC projects the unemployment rate will be between 9.3 percent and 9.7 percent in the fourth quarter of 2010, according to forecasts released after its November meeting.
Policy makers will probably also continue to debate the usefulness of selling assets as part of the so-called exit strategy from the unprecedented expansion of credit, Fed watchers said. Central bank officials have tested the use of reverse repurchase agreements to drain some of the cash the Fed has pumped into the economy.
Main Lending Rate
The Fed has kept the benchmark lending rate at a range from zero to 0.25 percent during the past 12 months and has adopted asset purchases as its main policy tool. Since March, the FOMC has said “exceptionally low” rates are likely warranted for “an extended period.”
Bernanke and New York Fed President William Dudley, who serves as vice chairman of the FOMC, signaled in speeches last week that they favored keeping the language.
The U.S. economy faces “formidable headwinds,” including a weak labor market and tight credit, that will probably generate a “moderate” pace of expansion, Bernanke said.
Growth will probably decline next year from the 3 percent to 3.5 percent pace likely in the last six months of this year, “mostly because some of the current sources of strength are temporary,” Dudley said.
‘Pretty Fragile’
“The economy is still pretty fragile,” said Dean Croushore, a former Philadelphia Fed economist who is now chair of the economics department at the University of Richmond in Virginia. “Because inflation has remained low and growth is positive, but not overly strong, the Fed has time to think about how to reduce the excess amount of liquidity in the market.”
The central bank will probably continue to describe inflation as “subdued” and inflation expectations as “stable,” economists said. The Fed’s preferred price measure, which excludes food and fuel, climbed 1.4 percent in October from a year earlier.
NEW YORK–Google appears to be preparing to market its own smartphone, a move that would intensify the company’s rivalry with Apple Inc., whose iPhone dominates the high-end smartphone market.
On Friday, Google distributed a new phone running its own Android operating software to many of its employees. On the messaging service Twitter, some Google employees described the device as a "Google phone," renewing speculation that the company is getting ready to release a mobile phone with its own brand.
Google employees who asked not to be identified confirmed recently that the company was indeed developing new hardware and software for Android phones and coming up with new ways to get those phones into the hands of consumers, but they would not give more details. One Google employee said the new phone was designed by Google No teletrak payday loan.
The Wall Street Journal reported on its website that Google would sell the phone directly to consumers rather than through carriers. The move, if confirmed, would signal a more aggressive effort by Google to become a force in mobile devices.
On Saturday Google acknowledged on a corporate blog that it was indeed distributing a new class of Android phones to employees to experiment with new features.
Mario Queiroz, a vice-president of product management, said, "This means they get to test out a new technology and help improve it."
Jamie Naessens thought so. She used her credit card to get a free sample of a tooth whitener advertised as cheaper than visiting a dentist.
"A friend of mine on Facebook posted about a product she was happy with that she got for free," she says. "Her account was hacked, but I didn’t know until later."
She went to the website, www.premiumwhitepro.com, and agreed to pay $1.95 (U.S.) to cover shipping costs. But a confirmation email showed $11.90 charged to her credit card.
"We charge an extra $9.50 for international orders," she was told after calling the Colorado-based company for a live chat on the night she did the transaction.
Only when she asked to cancel did she find out that accepting the trial order could have trapped her in a monthly shipping program.
"If you don’t cancel, you will be billed $87.62 for the product and you’ll then become a PremiumWhite Celebrity Member," the website says.
Naessens cancelled the trial order, but the company insisted the $11.90 shipping charge was non-refundable. Luckily, she had a screen shot of her live chat and sent it to her credit card issuer, President’s Choice Financial.
She also cancelled her credit card and asked for a new one to be issued with a new number.
Erin Gray, a President’s Choice spokeswoman, said customers have to take precautions against online scams.
"Ms. Naessens was reimbursed for the charge she incurred from the company," Gray said. "By taking the extra step of closing her card and opening a new one, she should avoid further charges related to the online offer.
"Should the company proceed with charging the card again, we will certainly work with Ms. Naessens to find a resolution (including adjusting the charge)."
Complaints about recurring charges by merchants often have the same result No teletrack payday loans. Customers have to call their credit card issuer every month and file a dispute.
This happens despite guarantees by Visa and MasterCard against unauthorized purchases made in a store, over the phone or online.
Naessens feels a little foolish, but a lot wiser, about how credit card companies operate.
"I have always considered myself a fairly smart consumer. However, I’ve been humbled recently.
"I feel that credit card issuers are not committed to changing the system to protect consumers.
"It is true that the issuer has promised to work with me in the future. However, that is not the same as making a promise to reverse any future charges, even though I did everything I could possibly do, given the situation.
"The very fact that suspect merchants can resubmit the charges is unacceptable — and once again, the consumer is victimized."
Naessens had one more surprise. She joined a security group at Facebook to share her experience.
But she couldn’t comment online without verifying her Facebook account. This meant having to provide her cellphone number, so she could be sent a text message with a security code.
"I’d already compromised my credit card number. I wasn’t going to do that with my cellphone number," she says.
Internet user beware. A free sample is a common come-on for monthly shipments of vitamins or cosmetics. And if you complain, the company will say you agreed to the terms and conditions before placing your order.
Next week, we’ll wrap up this Sunday series on fraud before tackling something new in the new year.
eroseman@thestar.ca
WASHINGTON – House Democrats headed into the final stretch on a long-awaited Wall Street regulation bill Friday after fending off an effort to kill a proposed U.S. consumer agency that is a central feature of the legislation.
The sweeping regulatory overhaul aims to address the myriad conditions that led to last year's financial crisis.
Test votes during two days of debate indicate that Democratic support for the underlying legislation will hold in final passage.
Before the final vote Friday, House members rejected by a vote 223-208 an amendment that would have killed a proposed Consumer Financial Protection Agency. The agency would consolidate consumer lending regulations and enforcement that is now split among several banking regulators.
A bipartisan coalition had proposed keeping the consumer powers within each regulator and creating an oversight council. The U.S. Chamber of Commerce lobbied heavily to kill the agency and ran national television ads against it. Consumer groups said it was essential to the overall regulatory package.
In a separate vote Friday, Democratic leaders failed to revive legislation that would let bankruptcy judges rewrite mortgages to lower homeowners' monthly payments. The measure was rejected by a 241-188 .
The House previously passed bankruptcy-mortgage legislation, but it failed in the Senate.
Democrats hoped that by inserting the provision in the regulatory legislation they would have had another opportunity to make it law. Aiding homeowners through bankruptcy had been a key feature of President Barack Obama's foreclosure fighting proposal, but the president did not push for it.
Banks and credit unions have lobbied against the bankruptcy measure. They say it would force a flood of bankruptcy filings and ultimately drive up mortgage rates paperless payday loans.
Late Thursday, scores of Democrats voted with Republicans on amendments that eroded the reach of proposed regulations on complex derivatives trades.
Democratic attempts to toughen the legislation failed.
Though not major setbacks, the votes illustrated the difficulties facing House Financial Services Chairman Barney Frank and the Obama administration as they seek to pass the most ambitious rewrite of financial regulations since the New Deal of the 1930s.
The Chamber has been an aggressive opponent of the legislation, running television ads against the proposed consumer agency and pressuring lawmakers to vote to eliminate it and to ease the derivatives regulations.
The legislation still imposes restrictions on derivatives, aiming to prevent manipulation and bring transparency to a $600 trillion global market. An amendment by New York Democrat Scott Murphy, adopted 304-124 Thursday night, exempted businesses that trade in derivatives, not as financial speculators, but to hedge against market fluctuations such as currency rates or gasoline prices. The amendment also provided an exception for businesses that are considered too small to be a risk to the financial system.
A Democratic effort to make more companies subject to derivatives regulation failed 279-150.
For Democrats, the votes split along turf lines. All but a few of the Democrats on the House Agriculture Committee voted for the broader exception. The Agriculture Committee oversees commodities trading and had recommended less restrictive derivatives rules, but the final bill did not include them.
CARACAS–A senior minister and close confidant of Venezuelan President Hugo Chavez resigned Sunday in a growing banking scandal that has triggered a purge of businessmen with ties to the government.
In a move likely to win him support, Chavez said he had accepted the resignation of Science and Technology Minister Jesse Chacon, whose brother was arrested Saturday following the closure of the bank he headed.
"Yesterday Jesse Chacon asked if the best thing for the government would be that he offered his resignation and I said I believe so. He will have to leave the government," Chavez said in his weekly television show where other ministers were among the audience.
Chacon took part in a 1992 coup that sought to bring Chavez to power and both men were jailed for their actions. He has held numerous posts under Chavez.
Police have also arrested Giuzel Mileira, the director of the Banco Real, bringing to eight the number of bankers in custody.
Another banker with government ties fled to Miami, Chavez said.
Those detained include a businessman who made more than one billion dollars partly by selling corn to government-subsidized supermarkets.
Venezuela last week closed the seven small banks for regulatory breaches including capitalization problems and unexplained funds, causing market turmoil as Chavez threatened to nationalize the financial system.
Most analysts agree that Chavez is unlikely to risk instability through a widespread nationalization of the country’s best-capitalized and profitable banks.
The rise of a new mega-rich elite during his decade in office has been a liability for Chavez, who wants to build a socialist society in Venezuela and took office in 1999 promising to end corruption.
The arrest of executives widely considered to be corrupt is likely to be popular with Chavez’s supporters before legislative elections in September.
More detentions are expected because authorities have issued 27 warrants including nine requests to Interpol for international arrests.
Reuters News Agency
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