If you’ve been confused about how to invest your money lately, you are not alone.
Some of the stars of Wall Street, such as Pimco bond fund king Bill Gross and hedge fund manager John Paulson, got it wrong recently. Even the professionals acknowledge that typical investing disciplines don’t fit this unprecedented era in the markets.
Getting it right depends on looking behind a veil of secrecy in China as investors try to figure out whether they can count on emerging markets to propel growth. And it means anticipating political actions that could help or harm the economy in Europe and the U.S.
This is new terrain for fund managers, who are typically evaluating businesses rather than political strategy sessions. And it comes at a time when risks are extraordinary. The U.S. economy is in a malaise, and investors are worried that a failure to solve Europe’s debt issues could infect the financial system and unleash a global recession.
With the situation in Europe unlikely to provide clarity, and U.S. corporate leaders voicing caution as they announce recent earnings, I asked four Chicago-based fund managers how they are navigating this difficult environment. All think the U.S. will avoid another recession. But they agree their crystal balls are cloudy.
Chris Shipley, manager of the Northern Trust Large Cap Fund, has used the convulsions in the stock market to add solid companies to his portfolio while cutting exposure to weaker ones.
“You need to be cautious how you position,” he said. “I do not expect an easy or quick resolution” to the threats in the economy.
Yet, despite that, he thinks investors have been overly nervous, selling stocks so aggressively that they have become overly cheap. Prices are attractive, he said, assuming that European bank problems do not lead to a credit crisis in Europe that infects U.S. banks and the global economy. He believes the chances of that are remote.
He has been selling weaker financial stocks and deploying money instead in those he considers the strongest: companies with good balance sheets, modest debt and consistent earnings.
Investors can look at how companies reacted in the 2007 and 2008 economic slowdown to identify those where earnings held up best, he said.
The stock market’s recent harshness on weak and strong companies produced an opportunity to add strong financial companies such as JPMorgan and technology companies at good prices, he said. He has not been eager to buy companies that make consumer staples. Necessities are considered a defensive move, one preferred by investors amid nervousness, and Shipley said they were relatively expensive now.
According to Morningstar, the most resilient companies in the third quarter were growth companies, especially those in consumer services and utilities, which declined less than 5 percent. Industrial, energy, and basic material stocks declined more than 16 percent, and financial services dropped 19.3 percent.
Besides financial companies, Shipley noted, energy and industrial companies and those that make basic materials have been hammered, but he has not been anxious to buy those stocks yet.
Those cyclical stocks do well in growing rather than slowing economies. He said it was still too difficult to forecast how much China would slow. Some have argued that too much speculation there could end badly, and the government has been trying to tame inflation without slowing growth too much.
“My base case is that growth (in the U.S.) will be positive,” about 2 to 2.5 percent over the next 12 months.
Olin Corp., an ammunition and chemicals maker based in Clayton, reported third-quarter profit of $47.2 million, or 58 cents per share, compared with $31.8 million, or 40 cents, in the corresponding period of 2010. Sales rose to $550.2 million from $432.8 million. Results included pretax restructuring charges of $4.1 million associated with converting the Charleston, Tenn credit score., chlor alkali plant to membrane technology and moving Winchester centerfire ammunition manufacturing from East Alton to Oxford, Miss.
The nation’s second-largest cable company, Time Warner Cable, says its third-quarter earnings slipped 1 percent even as its revenue rose.
Time Warner Cable Inc. said Thursday that its net income fell to $356 million, or $1.08 per share. That’s down from $360 million, or $1 per share, in the same period a year earlier.
Revenue grew 4 percent to $4.91 billion from $4.73 billion.
Analysts polled by FactSet were expecting earnings of $1.13 per share on revenue of $4.95 billion.
Time Warner Cable says its residential services revenue climbed 2 percent to $4.3 billion. Business services revenue jumped 35 percent to $387 million. A growth in the number of high-speed data subscribers helped boost results.
Advertising revenue fell 3 percent to $216 million.
The Italian government and a broad European plan to save the euro were at risk on Tuesday, with Premier Silvio Berlusconi locked in a high-stakes battle with coalition partners to muster support for emergency growth measures demanded by the EU.
Markets are looking to the EU’s grand plan _ promised in time for a leaders’ summit on Wednesday _ for a turnaround in the debt crisis that will avert a potential global recession.
But it risked being delayed, yet again, as governments failed to agree on details. Berlusconi’s government, meanwhile, showed little sign of meeting the EU’s demands for reforms, a prerequisite for the grand plan to go ahead.
The summit of EU leaders, meant to be a confidence-building day, risked going down as another failure in Europe’s fight to stem its two-year-long debt crisis.
EU officials say they will not present their comprehensive plan if Italy doesn’t agree to new economic measures they demanded Sunday. But Berlusconi has so far been unable to get his key ally in parliament, the Northern League, to swallow an increase in pension age. The Northern League says it will alienate their constituency of workers in the productive north.
Northern League leader Umberto Bossi conceded the government is at risk.
“Let’s say the situation is difficult, very dangerous,” he told reporters in Rome.
Berlusconi has survived scandals, court cases and dozens of confidence votes, but experts say the economic plan he needs to get approved will be one of the most critical tests yet of his grasp on the country’s leadership.
“Berlusconi has an immovable object at home which is Bossi and the Northern League, and an unstoppable force abroad which is the European Union, so he’s in a very, very difficult position,” said James Walston, a political science professor at American University in Rome.
A Cabinet meeting to draft the emergency growth measures ended Monday evening in silence _ a clear indication of discord within the government majority.
The European Union wants Italy to raise its standard pension age from 65 to 67, change the legal system to encourage investment and pass other reforms to improve growth. All are measures that have been talked about for years in successive governments, but there has been little political will to see through the unpopular decisions.
Bossi has said the Northern League will not support any increase in the pension age.
But it’s a move that partners like Germany view as critical. Germany is raising its pension age to 67 for anyone born after 1964 and Chancellor Angela Merkel will have a hard time explaining to voters at home why Europe’s largest economy should be ready to help countries whose workers retire earlier.
A policy impasse this time could cost Berlusconi his power.
The failure of Berlusconi’s majority in parliament to pass a routine measure earlier this month shows just how tenuous his hold on power has become. Berlusconi survived with a vote of confidence, but the impression remained that his government is weaker than ever _ and could fall on any test.
Ratings agencies have cited the government’s inaction and failure to draft growth measures as reasons for downgrading Italy’s growing debt, now euro1 easy payday loans.9 trillion ($2.64 trillion), nearly 120 percent of GDP and the second highest in the eurozone after Greece.
Despite the ratings agencies’ lack of faith in Berlusconi, analysts in Italy caution that his ouster could bring months of political deadlock until a new parliament is elected. It would be up to Italy’s President Giorgio Napolitano to decide to retain Berlusconi in power pending new elections, or install a technical government, which also would require the cooperation of parliament.
“I believe at this moment, a government crisis would be a disaster, because in the next months we have a huge quantity of debt that needs to be refinanced. A government crisis would destroy the market trust,” said Francesco Giavazzi, an economist at Milan’s Bocconi University.
The outgoing governor of Italy’s central bank, Mario Draghi, has already expressed concern that rising borrowing costs are threatening to eat up a chunk of the euro54 billion in austerity measures approved by parliament last month.
Italy’s fate is crucial to the eurozone because it is the bloc’s third-largest economy and would be too expensive to rescue.
To avoid that scenario, the EU is working on a three-part plan _ writing off more of Greece’s debt, raising ailing European banks’ capital levels so they can deal with those losses on Greek bonds, and boosting the bailout fund’s powers.
All three measures need to be agreed together in order to work, but it appeared that agreeing on the Greek writedowns and the bailout fund would take longer than expected.
The 10 EU countries that do not use they euro won’t sign off on the move to force banks to raise new capital without the other two parts of the plan in place. They insisted to call off a meeting of finance ministers, which was to iron out the technical details of the plan ahead of the leaders’ summit later in the day, according to European officials said. The spoke on condition of anonymity because the talks were confidential.
Without the finance ministers’ meeting, it is likely that the summit’s conclusions will remain vague.
“It’s a real mess once again,” one of the officials said.
The negotiations over easing Greece’s debt load center on talks with banks and other private investors to take losses of as much as 60 percent on their Greek bond holdings. Negotiators for the banks, however, have indicated that they will not accept losses of that magnitude.
Forcing losses onto banks could trigger big payouts of credit insurance and cause huge turbulence in global markets, analysts warn.
At the same time, two schemes to give the euro440 billion ($612 billion) European Financial Stability Facility more firepower _ by using it to guarantee bond issues from shaky countries like Italy and Spain and attract private sector capital _ also still lack detail and broad agreement.
____
Gabriele Steinhauser in Brussels and Eugenio Montesano in Rome contributed to this report.
Scratch the Timbits the next time you order that double-double. How about a nice slab of lasagna instead?
Tim Hortons announced Monday it
Buses, metro trains, trams and taxis were not running in the Greek capital Friday, snarling traffic as public transport workers striked for a second day in an unrelenting barrage of protests against government austerity measures.
Finance Minister Evangelos Venizelos criticized the repeated strikes and protests, which have included the take-over of government buildings and risk slowing reforms the country needs to qualify for bailout loans.
“This is a challenge at the heart of democracy,” the minister said in Parliament, adding that “the image there has been in the last few weeks is one of lawlessness,” and that blackmail was different from fighting for people’s rights.
Venizelos said the government was prepared to assume the political cost of pushing through unpopular but necessary austerity measures.
Taxi drivers on Friday joined the second day of a 48-hour public transport strike, leaving private cars and motorcycles as the only form of transport in the Greek capital, while lawyers walked off the job until Oct. 19 and customs officers for 10 days. On Thursday, power company unionists occupied the electricity company’s billing facility in an effort to prevent the issuing of electricity bills which include a new property tax.
A wave of strikes is expected next week, with seamen leaving ferries tied up at ports for two days from Monday and hospital doctors and teachers also walking off the job. The labor action is to culminate in a two-day nationwide general strike on Oct. 19-20. The second day will coincide with a vote in Parliament on new budget cuts, which includes reforms to the labor law.
The government has been imposing repeated rounds of austerity measures as it struggles to meet the requirements to qualify for funds from a euro110 billion ($151 billion) international bailout loan that is preventing it from defaulting on its debts. Its international debt inspectors have said the country will likely receive the next euro8 billion installment of the loans in early November.
Athens has said it only has enough money to pay salaries and pensions until mid-November.
Public servants are the main targets of the latest reforms that include across-the-board salary cuts and the suspension of 30,000 workers on the state payroll with reduced salaries. Pensioners will also see more cuts and salary earners will pay higher taxes, while parliament has already approved an emergency property tax to be charged starting this month through household and business electricity bills.
The new measures have led to widespread criticism not only from labor unions and opposition parties, but also from within the governing Socialist party, with some deputies implying they will not vote in favor of the bill on Thursday unless changes are made.
Venizelos said the country found itself in an “economic war.”
“We must defend ourselves,” he said. “Yes, unfortunately we must cut salaries and pensions, … yes, unfortunately we must impose greater taxes.”
Markets and analysts believe that a default by Greece is inevitable eventually, and some have raised the prospects of the country leaving the European Union’s joint currency, the euro. Both Greek and European officials have repeatedly insisted this is not on the cards.
Venizelos said such a prospect would be disastrous.
“An exit from the euro leads to poverty and the jungle,” he said in Parliament, and called on the opposition parties to support the government’s efforts to pull the country out of its crisis.
“We have an obligation to tell the people the truth about how dangerous, fluid, unclear the situation is,” he said. “We must be united when there is danger in order to be secure and sovereign.”
Venizelos criticized the repeated strikes and protests, which have included takeovers of government buildings, saying that “the image there has been in the last few weeks is one of lawlessness,” and that blackmail was a different thing from fighting for people’s rights.
The finance minister said the government was prepared to assume the political cost of pushing through unpopular but necessary austerity measures, and repeated that authorities were cracking down on tax evasion.
International Monetary Fund officials urged the Cyprus government to move fast with its austerity program to get a grip on its debts, after projecting that the island’s economy will contract next year.
IMF officials Wes McGrew and J. Erik Jan de Vrijer said Wednesday that the Cypriot economy will stagnate this year but shrink by one percent next year, while the fiscal deficit will grow to 7 percent of national income in 2011 before moderating to 4 percent in 2012.
Cypriot Finance Minister Kikis Kazamias disputed the IMF figures, telling told state TV late Wednesday that his ministry’s revised projections put growth next year at just above zero percent and the deficit at around 2.9 percent.
Kazamias last month forecast 1 to 1.5 percent growth next year and a deficit of around 6 to 6.5 percent in 2011 and 2.3 percent in 2012.
“A doom scenario is a lot worse than what you see here, and one of the things that we’re saying is the time to take action is now in order to avoid getting into a doom scenario,” Jan de Vrijer told a news conference at the end of a weeklong review of the island’s economy.
Buffeted by the ongoing eurozone crisis, Cyprus is finding it more expensive to borrow from international markets because of a string of credit rating agency downgrades due to the exposure of the country’s large banking sector to Greece.
That has stoked fears that the small island with a population of around 1 million and a euro17 billion ($23 billion) economy may be forced to seek a bailout from its partners in the eurozone, as Greece, Ireland and Portugal already have.
“We think that the situation at the moment is very serious. The fact that the government cannot access the capital markets is very, very serious and the risks to the banking sector compound that very much,” Jan de Vrijer said Online payday loans.
To finance its debt and stimulate growth, the Cypriot government is looking to finalize a 4 1/2 year, euro2.5 billion ($3.4 billion) loan agreement with Russia at a 4.5 percent annual interest rate. That’s much lower than markets are currently offering.
McGrew said it’s crucial that any such loan deal doesn’t weaken the resolve of the government to roll back spending and push through fiscal reforms.
Cyprus’ 2012 draft budget that Kazamias will submit to parliament late this week incorporates a euro840 million ($1.14 billion) package of spending cuts and tax increases, aimed at reducing the deficit.
Measures include slashing 1,100 public sector positions, rolling back social handouts by euro220 million ($299 million) and raising the sales tax from 15 to 17 percent for at least three years _ a move that is meeting resistance from opposition parties.
Jan de Vrijer said there is no wriggle room to discount the measures which need to be implemented fully.
“The first priority is for Cyprus to do all it can to avoid that these problems get out of hand,” he said.
“I think there is time and there is opportunity for the government to take really decisive and large action to avert the possibility of these problems getting worse and worse.”
Kazamias said there would be no hesitation to take additional austerity measures if necessary.
On Tuesday, the finance minister told lawmakers that the government is looking into opening tightly-regulated casinos to tap their revenue-generating potential, reversing it’s long-held opposition to any such move.
Surrounded by corn fields, bicycle routes and a nature reserve, the eight huge cooling towers of the Dukovany nuclear power plant have dominated the Czech countryside near the Austrian border for almost three decades.
Against the odds, the government has worked to keep it that way for many years to come.
Defying growing global skepticism over the use of atomic energy, it is planning to dramatically increase the country’s nuclear power production _ a move that would give the country a place among Europe’s most nuclear-dependent nations.
The Czech plan reflects a sharp division over nuclear use among European nations, and relations with neighboring countries that have decided to go nuclear free could be seriously harmed.
German Chancellor Angela Merkel’s government decided to phase out nuclear energy by 2022 following the March meltdown at Japan’s Fukushima plant, and Switzerland has followed suit. Austria abandoned nuclear energy after the 1986 Chernobyl nuclear disaster and strictly opposes the Czech nuclear program.
Other former Soviet bloc nations, now in the EU, are following the Czechs’ lead on nuclear power _ reflecting diverging economic needs between east and west.
Slovakia is currently building more nuclear facilities. And Poland has engaged in talks with French, U.S. and Japanese firms about know-how and technology for its first nuclear installation to be completed by 2030.
The Czechs argue nuclear energy is needed because it is a clean and cost efficient source.
They currently rely on six nuclear reactors _ four 440-megawatt reactors in Dukovany and two 1,000-megawatt reactors at another plant in Temelin located an hour’s drive north of the Austrian border _ for 33 percent of their total electricity. The government hopes to at least double that output.
“We consider increasing electricity production in nuclear plants from some 30 percent to about 60 percent by 2050,” Deputy Industry and Trade Minister Tomas Huner told the Associated Press.
“We have been mining uranium and there’s no doubt nuclear energy is irreplaceable for us in the long term,” said Huner, whose ministry has to present the new energy overhaul for the next 50 years to the government by year’s end.
A trio of big players _ U.S.-based Westinghouse Electric Co., a subsidiary of Japan’s Toshiba Corp., France’s state-owned nuclear engineering giant Areva SA and a consortium led by Russia’s Atomstroyexport _ are already bidding to win a lucrative multibillion tender to build two more reactors at the Temelin plant. The reactors are expected to be operational in the middle of the next decade.
The plant has been heavily protested by Austrian environmentalists who demand it be closed because of security concerns cheap credit report. Czech authorities insist both plants are safe and will have no problems passing so-called nuclear reactor stress tests currently being conducted across Europe after the Japanese disaster.
Opened a year before the Chernobyl disaster, Dukovany’s life was expected to expire in some 30 years. Germany is closing plants of the same age _ but the Czechs refuse to do that despite international pressure.
The nation’s biggest electricity source last year has already undergone a 26 billion koruna ($1.4 billion) overhaul aimed at increasing its output and improving control systems, as the plant gets ready to ask the nuclear authority for a license extension of at least 10 more years, plant spokesman Petr Spilka said.
At least one new 550-megawatt reactor is to be built at the Dukovany site and more places have been identified for new plants, Huner said.
Huner said a completely new 2,000-megawatt plant in the northeastern part of the country could be operational by 2060.
Unlike the Austrian and German publics, the Czechs support nuclear energy _ though they may not be happy to have a plant in their backyard.
Local environmentalists called the government plan “bizarre,” saying it would lead to the creation of an unpredictable energy sector.
“Such a heavy reliance on one dominant source of energy could be problematic,” said Martin Sedlak, an energy expert for the Friends of the Earth Czech Republic. “The investments into nuclear energy are economically too demanding and unpredictable.”
They are not alone.
Austrian Foreign Minister Michael Spindelegger has vowed to use any legal and political means to stop the Czechs, and his Environment Minister Nikolaus Berlakovich said his country considered the Czech plan “the wrong one” in the wake of Japan’s nuclear disaster.
“It can’t be that someone expands nuclear energy after Chernobyl and especially Fukushima,” Berlakovich told APTN. “Austria is interested in good neighborly relations with the Czech Republic. But in the interest of our people’s security we will also reserve all political and legal steps.”
The Czechs remain determined to go ahead.
“We consider that what happened in Fukushima did not, by any means, put into question the arguments for nuclear energy,” President Vaclav Klaus said at the U.N. last month. “These arguments are strong, economically rational and convincing. Nuclear power is a stable, legitimate, and in some countries, irreplaceable source of energy today.”
Sheila Mauricette was at work when a door-to-door seller came to her home. Now she
The Toronto stock market tumbled almost 400 points Tuesday, continuing a big two-day slide as nervous rumblings persist that another global recession could be coming.
The S&P/TSX composite index lost 362.66 points or 3.22 per cent to 10,889.17 as the possibility of a Greek debt default continued to rattle investors. The index had already hit its lowest level since last summer on Monday with a 375-point slide.
The junior TSX Venture Exchange fell 64.93 points to 1,324.46.
Investors have been concerned over the last couple of months about the slowing pace of economic revival, and the possibility that Greece might not be able to make key debt payments
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