Brazil created a record number of jobs for the month of January, increasing the odds that policy makers may start raising the benchmark interest rate as early as next month to keep inflation in check.
Latin America’s biggest economy created 181,419 jobs last month, led by manufacturers, compared with a loss of 101,748 jobs a year earlier, the Labor Ministry said in a report today in Rio de Janeiro.
Yields on interest rate future contracts due January 2011, the most traded on Sao Paulo’s BM&F exchange, rose 1 basis point, or 0.01 percentage point, to 10.25 percent. Traders bet the central bank will raise rates by at least a quarter point next month, according to Bloomberg estimates based on rate futures.
“This figure clearly reinforces the view that the economy is expanding at a strong pace,” Pedro Tuesta, senior economist for Latin America at 4Cast Inc., said in a phone interview from Washington. “It increases the odds that the central bank may start raising rates in March.”
According to the median forecast in a central bank survey of about 100 analysts published yesterday, faster economic growth, fueled by domestic demand, will prompt policy makers to raise the benchmark interest rate in April from a record low 8.75 percent for the first time since September 2008 to keep inflation in check.
“Brazil is on track to reach an all-time high in job creation in 2010,” Labor Minister Carlos Lupi told reporters. “If there is an interest rate increase this year, it will be very small,” Lupi said.
Brazilian companies will continue to hire more workers throughout the year, driven by forecasts that the country will post “strong” growth in 2010, Aurelio Bicalho, an economist at Itau Unibanco, Brazil’s biggest non-state bank, said in an e- mailed comment.
Gross domestic product will expand 5.8 percent this year, after growing 0.2 percent last year, according to central bank estimates.
The government-registered job creation number is a balance of posts created minus job dismissals. Registered jobs, or so- called formal work, assure employees a range of benefits such as unemployment insurance, bonuses and retirement payments by the government.
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.
Nortel Networks Corp. pensioners reacted with disgust on Friday to reports of new lavish bonuses for the company’s top executives.
It was yet another blow to Nortel’s distressed pensioners, retirees and long-term disabled former employees, who have dealt with financial uncertainty since the former Canadian tech darling declared bankruptcy in January.
“It seems so aberrant, in terms of the executive of the company awarding themselves really, really rich pay raises for doing the job of taking the company apart,” said Tony Marsh, who retired from Nortel in 2000 after 30 years.
“Those of us who built the company up, into arguably the world’s No. 1 telecom company, could never have dreamed of such riches,” Marsh added.
An internal Nortel file “outlines a new compensation scheme for 72 Nortel executives that will see them get a total of $7.5 million U.S. on top of their current salaries in 2009,” according to CBC News.
The company has argued that bonuses are necessary to keep executives aboard what is essentially a sinking ship following Nortel’s filing for bankruptcy protection and the subsequent selling off of the company’s assets.
Nortel would not comment on details of the plan. It issued a statement saying: “As Nortel works through the highly complex tasks of this restructuring, it is critical to have the right specialist resources in place … Any steps taken around these individuals has been within the context of a previously approved compensation plan, taken in consultation with the creditor committees, external legal counsel and the Canadian Monitor.”
Earlier, former CEO Mike Zafirovski claimed $12.3 million (U.S.) for back pay and bonuses. In March, some 100 executives were awarded $45 million in retention bonuses.
The company’s divisions are being auctioned off in a process dragged out by bankruptcy court approvals. Retirees are worried that when Nortel’s various global divisions are entirely sold off, they will be stuck with even less than they are now, which is not much, Marsh said.
Federal Reserve Chairman Ben S. Bernanke said removing the central bank from bank supervision and tampering with its political independence would “seriously impair” economic stability in the U.S.
“A number of the legislative proposals being circulated would significantly reduce the capacity of the Federal Reserve to perform its core functions,” the Fed Chairman said in a commentary released yesterday on the Web site of the Washington Post. The measures “would seriously impair the prospects for economic and financial stability in the U.S..”
Bernanke has presided over the most expansive use of Fed powers since the Great Depression. While the 55-year-old Fed chairman has said he averted a financial meltdown, lawmakers have voiced concern about taxpayer-sponsored bailouts and proposed the most sweeping dismantlement of Fed authority since the creation of the institution in 1913.
Bernanke’s commentary is his first comprehensive answer to proposals in the House and Senate that would limit the Fed’s supervisory powers and exert more political oversight in the setting of interest rates. The issues are likely to be discussed when he faces the Senate Banking Committee on Dec. 3 for a hearing on his nomination to a second term as chairman.
“Congress has a lot of public support for an attack on the Fed,” Allan Meltzer, a Fed historian and professor at Carnegie Mellon University in Pittsburgh, said in an interview Nov. 23. “They bailed out everybody in sight.”
Lax Supervision
Senate Banking Committee Christopher Dodd, a Democrat from Connecticut, has criticized the central bank for lax supervision and introduced legislation this month that would strip bank oversight from the Fed and create a single bank regulator. Dodd would also limit the central bank’s ability to loan to individual companies.
“There is a strong case for a continued role for the Federal Reserve in bank supervision,” Bernanke said. “Because of our role in making monetary policy, the Fed brings unparalleled economic and financial expertise to its oversight of banks.”
The Fed chairman pointed to capital adequacy tests the Fed performed in May which helped restore confidence in the banking system. The Standard and Poor’s 500 Financials Index has increased 34 percent since May 1, outperforming the S&P 500 by about 10 percentage points.
Dodd and Representative Barney Frank, chairman of the House Financial Services Committee, want to take away the Fed’s rule- writing power on consumer financial products and give it to a new Consumer Financial Protection Agency.
‘Excessive Risk-taking’
“The Federal Reserve, like other regulators around the world, did not do all that it could have to constrain excessive risk-taking in the financial sector in the period leading up to the crisis,” Bernanke said. The Fed has reviewed its performance and “moved aggressively to fix the problems,” he added.
As the subprime mortgage crisis began to trigger losses in bank portfolios, Bernanke used emergency authority last year to purchase securities from Bear Stearns Cos. and facilitate its merger with JPMorgan Chase & Co.
The Fed chairman said that the government’s actions, while in some instances “distasteful and unfair,” were necessary to prevent “a global economic catastrophe that could have rivaled the Great Depression in length and severity.”
Bernanke pushed the Fed’s backstop lending beyond banks, setting up programs to support the commercial paper and asset- backed securities markets easy payday loan. The Fed Board approved the bank holding company applications of Goldman Sachs Group Inc. and Morgan Stanley, giving them access to the Fed’s loan window.
Propped Up Markets
The former Princeton University economist and Great Depression scholar has more than doubled the Fed’s assets to $2.21 trillion and become the lender of last resort to government bond dealers, banks, Wall Street firms and U.S. corporations. The central bank has also propped up markets for mortgage-backed and asset-backed securities that support credit to consumers, small businesses and commercial real estate.
A financial regulatory reform bill proposed by Frank, a Democrat from Massachusetts, would limit Fed emergency lending to broadly available credit programs.
The Frank bill preserves the Obama administration’s proposal to make the Fed the lead regulator of risk across the financial system.
The central bank’s independence is also under fire from both chambers of Congress. Frank’s committee advanced a proposal this month to remove a three-decade ban on congressional audits of Fed interest-rate decisions. The proposal was offered by Representative Ron Paul, a Republican from Texas, and based on a bill with more than 300 co-sponsors.
Less Independent
Bernanke said studies show that central banks independent of political influence tend to keep inflation and interest rates lower than their less independent counterparts.
“The general repeal of that exemption would serve only to increase the perceived influence of Congress on monetary policy decisions, which would undermine the confidence the public and the markets have in the Fed to act in the long-term economic interest of the nation,” Bernanke said.
Under the proposal by Dodd, commercial banks would lose their power to appoint directors of the 12 regional Fed banks. Instead, directors would be chosen by the Fed’s Senate-confirmed governors, and each board chairman would be appointed by the president of the United States and subject to Senate approval.
The proposal would increase political oversight of the Fed bank presidents, who are among the most vocal proponents on the Federal Open Market Committee for keeping inflation low.
‘Financial Stability’
“Now more than ever, America needs a strong, nonpolitical and independent central bank with the tools to promote financial stability and to help steer our economy to recovery without inflation,” Bernanke said.
Policy makers cut the benchmark lending rate to a range of zero to 0.25 percent almost a year ago and this month reiterated a pledge to keep the policy rate low for “an extended period.”
While the economy expanded at a 2.8 percent annual pace in the third quarter, unemployment jumped to 10.2 percent in October. The Fed’s challenge is to support growth without unleashing expectations of higher inflation prompted by aggressive monetary stimulus.
“The ultimate goal of all our efforts is to restore and sustain economic prosperity,” Bernanke said. “Our ability to take such actions without engendering sharp increases in inflation depends heavily on our credibility and independence from short-term political pressures.”
Treasury Secretary Timothy Geithner defended the Obama administration’s economic record and dismissed a call for his resignation from the senior House Republican on the Joint Economic Committee.
Geithner blamed the policies of the Republican party and President George W. Bush for the financial crisis that pushed the nation into the deepest recession since the 1930s.
Republicans “gave this president an economy falling off the cliff,” Geithner told Representative Kevin Brady of Texas as the two men interrupted each other during a hearing today. “I can’t take responsibility for the legacy of crises you bequeathed the country.”
Gearing up for next year’s elections, Republicans are training their sights on Geithner, an architect of the Wall Street bailout as Treasury secretary and in his previous job as president of the Federal Reserve Bank of New York. A report issued earlier this week critical of Geithner’s handling of the rescue of insurer American International Group Inc. has also prompted calls for him to quit.
Today, the Treasury chief fired back, saying that by “any measure” of consumer or investor confidence, the economy is “substantially stronger today than when the president took office” in January.
The “worst financial crisis in generations” happened after “almost a decade, certainly eight years, of basic neglect of basic public goods, in health care, in education, in public infrastructure, in how we use energy,” Geithner said.
Economic Management
Brady told Geithner that a growing number of liberal Democrats as well as conservative Republicans think that he is handling the economy poorly.
“For the sake of our jobs, will you step down from your post?” Brady asked. “The public has lost all confidence in your ability to the do the job, and it is reflecting on your president.”
Another Republican on the panel, Representative Michael Burgess of Texas, told Geithner that he disagreed with Brady.
“I don’t think you should be fired,” Burgess told Geithner. “I thought you should have never been hired.”
Democrats on the panel defended Geithner .
“It just amazes me how there are some people here who are trying to pretend, and I think consciously and intentionally pretending, that the economic circumstances that we’re confronting, all of them, mysteriously materialized over the course of the last nine months or so, which is totally, completely false,” said Representative Maurice Hinchey, a New York Democrat.
White House Comment
The White House stepped in to defend the Treasury chief later in the day. “Secretary Geithner has helped steer the American economy back from the brink, and is now leading the effort on financial reform,” White House spokeswoman Jennifer Psaki said in an e-mailed statement. “His focus today — and ours — is on economic recovery and addressing the challenges the American people face every day.”
Earlier this week, former Republican congressman Rob Simmons, seeking a U.S. Senate seat from Connecticut, called on Geithner to resign over his role in the AIG bailout.
Simmons, who is bidding to challenge Democratic incumbent Christopher Dodd in the 2010 election, cited the report issued Nov. 16 by the watchdog of the $700 billion Troubled Asset Relief Program that faulted the New York Fed — with Geithner at its helm — for making “limited efforts” to protect taxpayer funds during last year’s rescue of AIG.
Dodd chairs the Senate Banking Committee, which is considering legislation to toughen oversight of the U.S. financial system.
In today’s hearing, Geithner also told lawmakers that the Treasury wants to end the TARP as soon as possible.
“We are working to put TARP out of its misery,” he said.
The Obama administration is moving “aggressively” to shut down “the programs that defined TARP at the beginning of the crisis,” he said.
The department has already completed its guarantee for money-market mutual funds and it has ceased making capital injections into large banks.
Treasury prices were lifted Tuesday as investors pulled back on the previous day’s gains on Wall Street, spurring demand for perceived safe haven assets.
"Bonds are trading on some weakness in the equity market today," said Bill Larkin, portfolio manager at Cabot Money Management.
Stocks fell from their highest level in 13 months on Tuesday as investors reacted to a stronger dollar. The greenback, which is also perceived as a safer investment, rebounded from 15-month lows Tuesday.
Going forward, Larkin said prices of longer-dated treasuries will turn lower and prices for short term bonds will rise as the Federal Reserve holds interest rates near zero.
"That market will start to anticipate higher future inflation," Larkin said. "Because the Fed is on the sidelines, there is more embedded risk that inflation will become a problem for longer-dated securities."
Investors are keeping a close eye on the Fed for any indication of when it will raise interest rates loan till payday.
"The Fed’s change from the current liquidity to tightening monetary policy and raising interest rates without choking the economic growth will be just as challenging as it was getting the economy going again," he said. "And the market will be focus on that change."
Bond prices. The benchmark 10-year note was up 3/32 to 10-14/32, and its yield fell to 3.33% from 3.34% late Monday. Bond prices and yields move in opposite directions.
The 30-year bond rose 17/32 to 102-6/32, and its yield eased to 4.25%.
The 2-year note edged higher to 100-15/32. Its yield fell to .77%.
The yield on the 3-month bill .07%
And the PM’s Indian audiences have reacted with jubilance.
"The south Asian tiger has awoken and the world is standing in awe," Harper told a business gathering at the posh Trident Hotel in Mumbai on Monday – and the audience rose to give the visiting statesman a standing ovation.
Yet for all its headline-grabbing dynamic growth this decade, India still has the world’s biggest poor population. At 400 million people, India’s destitute would, on their own, be the world’s third-most-populous country.
India ranks 45th in the latest Legatum Prosperity Index, which measures quality of life and economic progress in 104 nations accounting for 90 per cent of the world’s population.
It is held back by malnutrition affecting one in five Indians, an average life expectancy of just 53 years and a severely inadequate health care system. With a GDP of about $1 trillion (U.S.), this nation of 1.2 billion people still trails in size the $1.2 trillion (Canadian) economy of Canada.
It’s the nature of such friendly exchanges – and this one is long overdue – that pleasantries dominate the conversation.
And in that context it was admirable of Harper to complain that while "between us, our combined GDP is well on the way to $4 trillion … at the moment we are only doing $5 billion worth of business per year."
That’s equal to five days’ trade between Canada and the U.S. "Where we are today is not where we ought to be," Harper said.
In fact, both nations are in catch-up mode in what has long been a relationship of mutual disdain. Canada recently boosted from five to eight its permanent trade missions in India. The Harper government has sponsored 11 ministerial visits to India, whose GDP growth will far outstrip that of the West over the next few years.
India’s largest firms at last are taking on multinational status. The century-old Tata family empire has acquired the former British Steel and the Jaguar and Land Rover brands. Names such as Reliance, another old-line conglomerate; ICICI Bank, which operates in Canada; and IT giant Infosys, which now has a branch in Mississauga, are becoming familiar to North American business clients low cost payday loans.
A handful of Canadian firms have established toeholds in India, including Sun Life, Bombardier, SNC-Lavalin, Cameco and Bank of Nova Scotia.
Yet, the larger picture is one of stalled initiatives.
Talk of a free-trade pact has been just that. A deal to protect foreign investors from bureaucratic meddling in each country is stalled, apparently over Indian fears of tainted Canadian meat products. A civilian-nuclear materials export program announced in January remains in limbo, long after the U.S., Britain and other nations signed such agreements.
There is no annual ritual of Team Canada political-business missions to south Asia, as there were under Jean Chretien in China, the other emerging economic superpower, and the one that has always claimed much more of Canada’s attention in matters of diplomacy and business.
Annual Canadian corporate investment in India trails that of Sweden, Belgium and even Bermuda. Despite the presence in Canada of about a million people claiming Indian descent, Canadian universities have enrolled just 4,000 Indian students. Australian universities have 80,000 Indian students.
Yet India also is home to the world’s largest middle class, at about 300 million people. There’s no question that with expected heady economic growth of 5.75 per cent next year, India and China are leading the world out of the global recession. There are euphoric local predictions of an Indian economy surpassing that of the U.S. in size by mid-century.
But real progress in Canada’s potentially crucial relationship won’t come from PM photo-ops with Indo-Canadian heartthrob Akshay Kumar, which the PMO spent weeks lining up.
It will require a sustained, low-key effort by notoriously unadventurous Canadian firms to understand the Indian market.
That won’t happen until Canadian entrepreneurs grasp that India’s economic growth is destined to be far more dynamic than North America’s for decades, and that the easier trip south will gradually yield less rewarding returns on investment.
Central banks will be net buyers of gold this year as they diversify away from the U.S. dollar, global commodities investment fund BlackRock said on Monday in comments that helped drive bullion to fresh record highs.
BlackRock is one of the world’s largest fund managers, boasting a total $1.4 trillion under management across all asset classes. It is manager and adviser to the U.S. Federal Reserve and its views can influence the direction of global markets.
Evy Hambro, who runs two of the world’s largest commodities funds, BlackRock World Mining Fund and Gold & General Fund, gave an upbeat outlook for gold during a media briefing in Australia.
His forecast for net central-bank purchases of gold this year would, if met, mark the first year in two decades when the world’s central banks bought more gold than they sold. They have been net sellers of gold each year since 1988.
“The most recent break-out in the gold price in U.S. dollars has caused most gold prices to start trending higher at the same time,” Hambro said, adding that investors were now looking for gold to rise in other commodities as well as U.S. dollars.
“When you start to see the price rising in a range of different currencies, it is a clear sign of a very strong market to come,” he added.
Spot gold stood at $1,123.70 as of 0216 GMT after touching $1,126.30 per ounce, a record, compared with the notional New York close of $1,118.50, helped higher by Hambro’s bullish outlook, according to financial broking group IG Markets.
The previous record was $1,122.85 marked on November 12.
Bullion was also gaining on renewed appeal as a hedge against the U.S. dollar’s weakness and inflation risks.
In other currencies, gold has not reached new highs since early 2009. In Australian and Canadian dollars and the South African rand, it peaked in February.
But Hambro said investors were now “looking for price rises across all currencies” as central banks build up their gold holdings and global supplies tapered off.
“Gold’s role is gathering a lot more attention in terms of risk diversification,” he said.
Hambro also said that the high level of gold production in China, which has replaced South Africa as the world’s biggest producer, was not sustainable, pressuring world supply.
China’s gold production rose 13.49 percent in the first half of 2009 from a year earlier to 146.505 metric tons, according to the Ministry of Industry and Information Technology.
Hambro also said U.S. demand for commodities was starting to show signs of recovery. This, along with stronger Asian demand, set the stage for a prolonged bull market, he added.
British Airways’ pension fund deficit could yet scupper its planned merger with Spain’s Iberia, as the UK airline still has to agree the size of the multi-billion pound shortfall with the fund’s trustees.
Iberia, which on Friday posted a bigger than expected nine-month operating loss, agreed with BA on Thursday to create a group with a combined market value of $7 billion as they continue to battle the worst industry downturn in decades.
But BA’s pension deficit was one of the main stumbling blocks in the 16-month merger talks and was a key negotiating point for Iberia, which is reserving the right to back out of the deal if the funding hole turns out to be bigger than the 3 billion pounds ($5 billion) which analysts have forecast.
BA pension trustees undertook a triennial review of the pension scheme earlier this year but the results have yet to be announced, with BA saying it expects to agree a figure with the trustees in the next two to three months.
“The market will be looking at the discount rate used by BA’s trustees to calculate its pension liabilities. You’d expect them to use a favorable one to help push the deal through though, especially since the deficit is bigger than its market value right now” a London-based analyst said.
“There’s still a risk that the deal will fall through. It’s all hanging on BA’s negotiating weight with the trustees over its pension,” a Madrid-based equities sales trader said.
By 1200 GMT Iberia’s shares were 2.4 percent lower at 2.16 euros, after Thursday’s 12 percent gain, while BA was 1.4 percent higher at 217.8 pence.
Some analysts said they were surprised that the terms of a deal had even been announced before the pension issue has been resolved faxless payday loan.
Analysts believe BA could insure all or part of its liabilities through a buy-out deal with a specialized insurer or hedge specific risks such as the longevity of pensioners through a swap deal or pledge contingent assets such as its real estate.
The new company will combine British Airways’ strong position in Europe-to-North America traffic with Iberia’s Latin American business, and will potentially be reinforced by a planned alliance with AMR Corp’s American Airlines.
So far the deal looks set to give BA shareholders 55 percent of the new company, effectively giving it control, but the balance of power remains in question and could shift in Iberia’s favor depending on the outcome of BA’s talks with trustees over its pension deficit.
The BA-Iberia format mirrors the ground-breaking 2004 merger of Air France and KLM, which airline industry executives describe as a back-office merger designed mainly to slash costs.
Under this model, the airlines would maintain their own fleets and networks, which operate under the banner of national traffic rights, but would be owned by a common holding company.
“This is a five-year plan to get through the crisis and generate cash, and then BA will firmly take the driving seat,” said Enrique Quemanda, Chief Executive of boutique investment firm ONEtoONE.
The pair, who have targeted annual synergies of about 400 million euros by the end of the fifth year, will combine BA’s strong position in north Atlantic traffic with Iberia’s Latin American business, which will potentially be reinforced by a planned alliance with American Airlines.
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