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Wednesday, August 31, 2011

After Steve Jobs, what now for Apple?

Since Steve Jobs' return to Apple Inc. in 1997 as CEO, the company has been on an unparalleled upswing, highlighted by the immense popularity of the iPad and iPhone.

Now, with Jobs no longer leading, Apple will have to prove it can keep its momentum. If the recent past is any indication, the company will continue to move forward.

Apple said late Wednesday that Jobs, 56, resigned from the CEO post, in a move that seems motivated by his ongoing, yet still unspecified health issues. Jobs had taken an indefinite medical leave in January, marking his third such leave in seven years. Jobs, who co-founded Apple in 1976, previously survived pancreatic cancer and received a liver transplant.

Taking on the role of board chairman, Jobs now passes the CEO role Tim Cook, 50, the company's chief operating officer. Cook had been acting CEO since January. For years, he has been running Apple's day-to-day operations, and he has long been seen as the natural successor.

He also served as Apple's leader for two months in 2004 while Jobs battled cancer and again for five-and-a-half months in 2009 when Jobs received a liver transplant. The company has thrived under Cook's leadership, briefly becoming the most valuable company in America earlier this month.

Cook is not nearly as recognizable as Jobs, who after returning from a 12-year hiatus in 1997 became the very public face of Apple, clad in his signature blue jeans, black turtleneck and wire-rimmed glasses when trotting out the company's iPhones, iPads, iPods at immensely popular and anticipated media events.

Though Jobs has looked increasingly frail, he emerged from his leave twice this year to tout products at such events: First, he unveiled the second version of Apple's iPad tablet computer in March. Then, in June, he resurfaced to show off Apple's iCloud music synching service.

But while Jobs is the most recognized person at Apple, he is not the only one responsible for the company's success. Many industry watchers believe that despite his importance, Apple will continue to innovate and not just survive, but thrive.

"Steve Jobs put in place at Apple a culture of innovation," Cross Research analyst Shannon Cross says.

And its innovation has translated to sales. With Cook running the company, Apple sold 9.25 million iPads during the most recent quarter, which ended in June, bringing sales to nearly 29 million iPads since they first began selling in April 2010. Apple also sold 20.3 million iPhones in the same period, which was millions more than analysts expected. The company's stock has risen 8 per cent since Jobs announced his most recent medical leave.

The iPad is one of many devices that has helped propel Apple's share price from $9 US in 2000 to almost $400 US today.The iPad is one of many devices that has helped propel Apple's share price from $9 US in 2000 to almost $400 US today. (Associated Press)

Cook's track record at Apple is strong. The first time he was in charge back in 2004, things went so well that Apple promoted him from executive vice-president to chief operating officer in 2005.

During the second time, which lasted from mid-January to the end of June 2009, Apple released a new version of the iPhone and updated laptop computers on schedule. The company also announced that its iTunes app store hit a major milestone: More than one billion apps were downloaded within the first nine months of its existence.

Apple's stock rose 62 per cent during that time, satisfying investors' concerns over Jobs' absence.

Cook, an Alabaman with short, grey hair and a broad, thin-lipped smile, has been an asset to Apple since his arrival in 1998. He is credited with tuning Apple's manufacturing process to solve chronic product delays and supply problems. His inventory management skills helped Apple build up its $73 billion hoard of cash and marketable securities — funds that it can use to keep its lead in the portable electronics market.

'Steve Jobs put in place at Apple a culture of innovation'—Apple analyst Shannon Cross

Like IBM, McDonald's or Ford, all of which lost visionary CEOs, Apple is not necessarily dependent on the immortality of the genius behind it, says Terry Connelly, dean of the Ageno School of Business at Golden Gate University in San Francisco.

"A company is dependent on its ability to institutionalize that genius in the corporate DNA," he says. "Apple shows every sign of having done that. We will see that when we see how Cook responds to competitive pressure."

And, as Cross points out, Cook won't be leading Apple alone. His supporting team includes Jonathan Ive, who oversees the elegant, minimalist design of Apple's products; Philip Schiller, the marketing chief; and Scott Forstall, who supervises the iPhone software.

"The bench at Apple is extremely strong," Cross says. "He has a good group of executives behind him."

And consumers — the group Apple really depends on to make its products popular — may not be that affected by the change.

Apple customers don't buy the company's products because of Steve Jobs, Gartner Research analyst Michael Gartenberg says, they buy Apple products because they're Apple products. Without Jobs, he believes the company's challenge will be the same as it was with him: continuing to find ways to raise the bar with its consumer electronics.

"Yes, this is quite some transition at the end of Steve's role and his time at Apple, but it doesn't mean Apple itself will fundamentally change," he says. "Certainly Apple's competition would be foolish to think this is a situation they could somehow capitalize on."

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Burst oil pipeline allowed to restart

Alberta's energy regulator has given the final green light for the pipeline that spilled millions of litres of oil in the province's north to resume shipping crude.

The Energy Resources Conservation Board said Plains Midstream Canada, which owns the Rainbow pipeline, has completed all reviews and can safely operate with some restrictions.

The pipeline ruptured on April 28, spilling 4.5 million litres of oil.

The leak was caused by stress on a cracked weld and the company has agreed to eventually excavate and inspect all sections of the pipeline containing similar welds, the energy board said.

Plains Midstream said it will restart the 772-kilometre, 44-year-old line between Zama, Alta., and Edmonton on Tuesday. The 60-centimetre pipe is capable of moving 220,000 barrels of crude oil per day.

The board said that initially the pipeline will only be allowed to operate at 75 per cent of its maximum operating pressure.

The Rainbow pipeline leak contaminated 3.2 hectares of beaver ponds and muskeg in a densely forested area, Plains Midstream Canada vice-president Mike Halihan said in May.

Alberta Premier Ed Stelmach criticized the company at the time for its poor communications with the public including the Lubicon Cree, who live near the leak site.

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Sino-Forest CEO resigns amid fraud investigation

Just days after the Ontario Securities Commission accused it of fraud and halted trading in its shares, the Chinese timberland company Sino-Forest has announced the resignation of its chairman and chief executive Allen Chan.

The regulator's move followed allegations by a short-seller earlier this summer that Sino-Forest exaggerated its revenue and timber holdings.

Sino-Forest owns timber holdings in China, but is listed on several North American stock markets. The stock has been in freefall since the allegations surfaced, and the company's attempts to calm investor fears have so far been ineffective.

The company said Sunday that William Ardell, who is investigating the allegations, has been named chairman. Judson Martin, currently vice-chairman, will become the new CEO.

The regulator said Friday that it had reason to believe Sino-Forest and certain officers and directors had misrepresented some of its revenue and/or exaggerated some of its timber holdings.

It also issued a cease-trade order for Sino-Forest shares, which have been battered by the allegations. They last traded Thursday at $4.81. Their 52-week range is $25.85 to $1.29.

Sino-Forest launched an investigation by an independent committee headed by Ardell earlier this year after the allegations were first made by short-seller and research firm Muddy Waters. The allegations have not been proven in court.

The company said last week that its investigation would take longer than the two to three months that was initially predicted and is now expected to be complete by the end of year.

"The three overriding priorities of the company are to complete the work of the independent committee, to co-operate with the OSC and to preserve shareholder value," Sino-Forest said Sunday.

The OSC had also initially ordered that Chan and four other executives resign, but later backed away from the requirement.

In addition to Chan's resignation, the company said it had placed three employees on administrative leave.

Sino-Forest sells timber and logs and manufactures downstream engineered-wood products.

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Tuesday, August 30, 2011

TSX buoyed by U.S. consumer data

The Toronto Stock Exchange was higher on Monday.The Toronto Stock Exchange was higher on Monday. Mark Blinch/Reuters

Signs that American consumers are spending more money and the possibility of more stimulus measures from the U.S. Federal Reserve pushed stock markets sharply higher on Monday.

The S&P/TSX composite index jumped 177 points to 12,504 with all sectors positive save for the gold sector, as the price of the metal dipped after two days of gains.

Research in Motion, Ltd. was one of the index's major movers, up more than 4 per cent to $29.98.

Stock markets made solid gains last week following steep losses the week before with the TSX rising 2.66 per cent and the Dow industrials up 4.3 per cent.

But market sentiment remains fragile and other economic indicators this week are expected to show slowing global growth. Investors will take in data Tuesday on how the Canadian economy performed during June. It is expected to show growth close to zero that month and for the second quarter.

American markets were up sharply after Fed chairman Ben Bernanke emphasized the positive elements of the American economy, saying the economy was headed for long-term growth. Bernanke did not announce any new stimulus measures in Friday's speech, but left open the possibility for further monetary action.

He also called on the U.S. government to do more to boost the economy.

"I think we're all of the mind where we're in a muddle along economy," said Jim Muir, director at Fraser Mackenzie.

Bernanke "is now recognizing that he can't, through monetary policy, cure long term problems. And so therefore the government will have to take some action and it's limited but as long as neither one of them does anything stupid, the markets are still convinced that things will gradually improve."

The Dow Jones industrial average climbed 254 points to 11,539. The Nasdaq composite index was up 82 points to 2,562 while the S&P 500 index gained 33 points to 1,210.

The Canadian dollar also benefited from the Fed chairman's comments, rising 0.43 of a cent to 102.30 cents US.

The TSX Venture Exchange rose 15.31 points to 1,767.63.

There was also relief that the storm that had been hurricane Irene wasn't as bad as feared. Irene caused widespread flooding and millions of Americans were without power. However a consulting firm predicted that insured damages would range between $2 billion and $3 billion US, lower than initially estimated and that was good for insurance stocks. Travelers Cos. ran up four per cent while AllState gained 7.05 per cent.

Investors were encouraged by a U.S. Commerce Department report showing consumer spending rose 0.8 per cent in July, better than the 0.5 per cent rise that economists expected. Personal income increased 0.3 per cent last month, slightly higher than the modest 0.2 per cent in June.

Commodity prices Monday were mixed, with oil prices higher. The October crude contract on the New York Mercantile Exchange gained $1.68 to US$87.05 a barrel, pushing the energy sector up 2.34 per cent. Suncor Energy gained 60 cents to $30.38 while Canadian Natural Resources climbed 99 cents to $35.83.

The base metals sector was ahead 3.4 per cent as copper prices declined one cent to US$4.09. Teck Resources was up 99 cents to $41.60 while First Quantum Minerals ran up 87 cents to $22.19.

Also improving investor sentiment Monday was news that Greece's second and third largest lenders, Eurobank and Alpha Bank, announced plans to merge in order to better withstand the country's acute financial crisis. The widely anticipated move would create Greece's biggest bank, and will see a 500 million euro investment from a Qatari investment fund, Paramount Services Holding Ltd.

The gold sector was down almost one per cent while the December contract on the Nymex lost $5.70 to $1,791.60 US an ounce. Goldcorp Inc. declined 58 cents to $50.40 and Barrick Gold Corp. faded 99 cents to $48.95.

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Monday, August 29, 2011

Bernanke offers no new stimulus

The chairman of the U.S. Federal Reserve, Ben Bernanke, offered no new stimulus for the American economy Friday, disappointing analysts and economists who had been hoping for measures to counter a slowing in growth.

In a speech during the bank's annual meeting in the resort of Jackson Hole, Wyoming, Bernanke did hint that Congress may need to act to stimulate hiring and growth.

The Fed chairman agreed that deficit reduction is necessary in the long-term, but added that future economic health could be undermined if hiring and growth are not strengthened now.

"Fiscal policymakers should not ... disregard the fragility of the current economic recovery," he said.

Bernanke also was critical of Congress' handling of this summer's battle over raising the debt ceiling. He said it disrupted the economy, and another episode like that could have long-term negative consequences.

To promote growth, Bernanke said the government must pursue tax, trade, and regulatory policies that encourage economic health.

Congress, however, has been focused on reducing the national budget deficits and less occupied with new spending to try to energize the economy. A plan lawmakers passed this month means annual deficits are expected to be reduced by $3.3 trillion US over the next decade through spending cuts.

Analysts noted the lack of new proposals in Bernanke's speech.

"He essentially hit the ball over to fiscal authorities and said, `There's only so much we can do,'" said Aneta Markowska, senior U.S. economist at Société Générale.

Bernanke left open the possibility of future action by the Fed, saying it "is prepared to employ its tools as appropriate to promote a stronger economic recovery."

He announced its monetary policy committee will expand its meeting in September from one day to two in order to study and discuss options to for additional monetary stimulus.

Markowska said the extension of the Fed's September meeting might suggest something new could be unveiled.

"Maybe that's a subtle signal they might announce something," she said.

The Fed chairman said record low interest rates will promote growth over time but that the weak economy requires further help in the short run.

His speech followed the release of a government report that the economy grew at an annual rate of just one per cent this spring and 0.7 per cent for the first six months of the year.

The report predicted only slightly healthier expansion in the second half.

Bernanke said he's optimistic that the job market and the economy will return to full health in the long run.

Most U.S. stocks fell sharply after the speech but later recovered. Late in the morning, the Dow was up 0.4 per cent, the S&P 500 was higher by 0.7 per cent and the Nasdaq rose 1.6 per cent.

Bernanke's speech comes at a critical moment for the economy. Some economists worry that another recession might be near.

Consumer spending has slowed. Home prices are depressed. Workers' pay is barely rising. Household debt loads remain high.

All that, compounded by Europe's debt crisis, has spooked the stock markets and unnerved consumers. Congress is focused on shrinking deficits and seems unlikely to back any new spending to try to energize the economy.

The Fed already announced on August 9 that it would keep short-term interest rates near zero through mid-2013.

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Sunday, August 28, 2011

Anti-oilsands sit-in urged for Ottawa

A group of prominent activists is calling for a sit-in to take place in Ottawa to protest Alberta's oilsands.

The civil disobedience is inspired by action in Washington, D.C., this week in which Canadian actress Margot Kidder and dozens of others were arrested.

The Council of Canadians, Indigenous Environmental Network and Greenpeace Canada hope to make the event "one of the largest acts of civil disobedience on the climate issue that Canada has ever seen," they say on the website set up to promote the event.

The Washington protesters are trying to convince the U.S. government not to approve TransCanada Corp.'s Keystone XL pipeline project, which would transport crude oil from Alberta to U.S. markets in Illinois and Oklahoma. The Keystone XL would be an extension of the existing line to Houston, TX.

The Canadian protest is set for Sept. 26, but there are no further details on what it will entail. The website warns participants will be risking arrest.

Maude Barlow, chair of the Council of Canadians, says the government needs a conversion plan to move to alternate energy sources.

“Tar sands mining has destroyed much of Alberta's water table and will put the fragile Ogallala Aquifer [the world's largest known aquifer] in peril. We join with the millions of Americans who oppose the expansion of this deadly industry," she said in a statement.

Alykhan Velshi, who runs a blog called ethicaloil.org that aims to promote Canadian oil, says the oilsands industry is improving, cutting carbon emissions and moving away from open pit mining. He says much of the oil around the world comes from countries with poor human rights records, so buying oil from Canadian companies is at least less money going to those countries.

"Obviously, groups like environmental organizations are free within our law to protest the oilsands. Certainly Canada is a country with free speech and they're exercising free speech," he said.

"I consider it unfortunate they're attacking Canada — a liberal democracy — and directing so few of their energies on Saudi Arabia and Venezuela.... I think their priorities are misplaced."

The U.S. State Department's environmental assessment on Keystone is due Friday.

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Markets eye Bernanke, European crisis

North American stock markets traded lower Thursday as traders debated whether U.S. Federal Reserve chairman Ben Bernanke would announce new economic stimulus measures in a key speech on Friday and worried about the latest developments in Europe's debt crisis.

In Toronto, the S&P/TSX composite index closed down 59.50 points, or 0.48 per cent, at 12,284.31.

In New York, the Dow Jones industrial average fell 170.89 points, or 1.51 per cent, to 11,149.82. The S&P 500 was down 18.33 points, or 1.56 per cent, to 1,159.27 while the Nasdaq composite index lost 48.06 points, or 1.95 per cent, to 2,419.63.

Gold prices reversed recent steep losses. December bullion closed up $5.90 US at $1,763.20 US an ounce.

Investors looking for a safe haven had pushed up the price of gold over the last few weeks to above $1,900 as stock markets turned volatile on worries that the U.S. could slip back into recession.

But profit-taking and higher margin requirements at exchange operator CME Group have pushed gold down more than nine per cent below Monday's latest record close.

Concerns that a second bailout for Greece could fall apart pushed up Greek bond yields and a sudden drop in Germany's stock market late in the session in Europe also spooked markets in North America.

The Canadian dollar slipped 0.02 of a cent to 101.34 cents US.

October crude rose 14 cents to finish at $85.30 US per barrel in New York as traders wondered whether Hurricane Irene, now in the Caribbean, head towards the U.S. east coast.

Analyst Tom Bentz with BNP Paribas Commodity Futures in New York thinks Irene is pushing up oil because of the possible problems that coastal flooding could cause for refineries and shipping. Refineries in Delaware, New Jersey, Pennsylvania and Virginia produce nearly eight per cent of U.S. gasoline and diesel fuel.

Irene is forecast to affect a broad area, from North Carolina to Eastern Canada, with flooding and winds as high as 190 kilometres an hour. Some forecasters think Irene could be the worst hurricane to hit the U.S. Northeast in 50 years.

U.S. gasoline futures rose 4.59 cents to end at $2.8017 a gallon.

S&P/TSX 3-month chartS&P/TSX 3-month chart

Bernanke will deliver a speech just after North American markets open at an economic conference in Jackson Hole, Wyo.

"If you're in Bernanke's shoes, on the one hand you sort of want to pacify the markets because that affects consumer confidence and the market is down quite a bit," said Luciano Orengo, portfolio manager at Manulife Asset Management.

"But at the same time, the economy, although it's slowing down, it is not that evident that we're in a recession or anything like that.

Germany's main index, the DAX, fell about 250 points in a matter of minutes to trade down more than four per cent before recovering somewhat. By the close it was down 1.7 per cent.

Analysts and traders could not immediately identify a reason for the slide. Thilo Mueller of MB Fund Advisory said there was no obvious news to send the market down so suddenly and that the drop came "like lightning out of a clear sky."

"No one has been able to give a rational explanation … I think this is not the last word, I am eager to see if there is a reasonable answer why so many shares plunged at the same time," Mueller told The Associated Press.

Other major markets followed the Dax's lead, with London's FTSE 100 index closing down 1.4 per cent and the Paris CAC 40 shedding 0.7 per cent.

Several European countries that banned short-selling have extended the prohibition until the end of September.

Dow Jones industrial 3-month chartDow Jones industrial 3-month chart

When concerns about European banks' exposure to Greek debt sent their stocks plummeting two weeks ago, market regulators in Belgium, France, Greece, Italy and Spain stepped in to prohibit traders from betting on the decline in a share's price.

On Thursday, the countries extended the ban and said they would reconsider it at the end of next month. Greece's ban expires in October.

Short-selling is a trade in which the investor borrows an asset and sells it in the hope of buying it back at a lower price to repay the loan, while pocketing the difference.

Before the German market went into reverse, American markets had jumped on news that Warren Buffett's Berkshire Hathaway will invest $5 billion US in Bank of America. The bank's shares closed up 66 cents, or 9.44 per cent, at $7.65 US, after gaining as much as $1.81 during the session.

Bank of America shares had fallen sharply recently as doubts rose about the bank's' capital position.

Shares in Apple Inc. closed down $2.46, or 0.65 per cent, at $373.72 US after Steve Jobs announced he was departing as the tech giant's CEO and passed the job to Tim Cook, the company's chief operating officer.

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Americans in Canada may be unknowing tax evaders

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Americans living in Canada are discovering that even if they haven't lived or worked in the United States in years, they're still required to fill out a U.S. tax return, and if they don't file returns by August 31, they could be facing some stiff financial penalties.

Christina Simmons is a U.S. citizen who has been living and working in Windsor, Ont., as a professor for more than 25 years. She didn't learn until recently that the IRS has been cracking down on Americans who don't file forms declaring what's in their bank accounts along with their U.S. tax returns.

"They're really enforcing it and there's going to be these really big fines if you don't do it," said Simmons. "I decided to get some help with it since I had never done the form before," she said.

The Internal Revenue Service website has a 22-page document to help Americans living abroad, but there are no easy answers to be found there and many don't even know they have to file in the U.S. — a law which has been in place for years.

The IRS has set up the Offshore Voluntary Disclosure Initiative, which is giving those who have broken the law, knowingly or not, a bit of a break.

Applicants have until Aug. 31 to voluntarily file taxes and banking information dating back to 2003 in exchange for less severe civil penalties.

"If it's an effort to solve the U.S. financial problems that's not going to help," said Simmons. "They just need to raise their tax rates which are incredibly low for the developed world, so that's what really bothers me. Canada, Europe, you know, people pay a lot more in taxes for good reasons."

Gordon Lee, a Windsor, chartered accountant said he has been helping clients meet the Wednesday deadline. What confuses people is that most countries base taxation on residency, but in the U.S. taxation is based on citizenship, said Lee — citizens have to file from whatever country they live in, for as long as they live.

"I think the undercurrent is they detest it," Lee said. "This is not what I do, telling people they have to pay penalties, but unfortunately the law is there and you better to pay the smaller penalties rather than the big penalties later."

Lee said the U.S. government wants a piece of what's in Canadian retirement savings accounts, bank and investment accounts.

"It's either five per cent, 12 and a half [percent], or 25 per cent depending on the circumstances," he said.

In 2006 there were almost 7,000 Americans living in Windsor. Lee said those who cross the border into Michigan could be getting stopped in the near future if they haven't paid their dues to Uncle Sam.

The chances of the IRS catching those who don't voluntarily file will go up in 2013 when a law requiring Canadian banks to share client information with the U.S. government takes effect.

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Saturday, August 27, 2011

Japan's PM Naoto Kan resigns

Japan's Prime Minister Naoto Kan announced Friday he was resigning after almost 15 months in office amid plunging approval ratings over his government's handling of the tsunami disaster and nuclear crisis.

In a nationally televised speech, Kan said he was stepping down as chief of the ruling Democratic Party of Japan, effectively ending his tenure as leader of the country. The decision was widely expected because in June, Kan had promised to quit once lawmakers passed three key pieces of legislation. The final two bills cleared the parliament earlier Friday.

The Democrats will vote Monday for a new leader, who will almost certainly become Japan's next prime minister — the sixth since 2006.

Former Foreign Minister Seiji Maehara is viewed as the front-runner to replace him. Finance Minister Yoshihiko Noda and Trade Minister Banri Kaieda are also viewed as contenders.

Looking back on his year and three months in office, Kan said he did all he could given difficulties he faced, including the disasters and a major election defeat in upper house elections last summer that left the parliament in gridlock.

"Under the severe circumstances, I feel I've done everything that I had to do," he said. "Now I would like to see you choose someone respectable as a new prime minister."

The 64-year-old Kan has seen his approval ratings tumble amid a perceived lack of leadership after the March 11 earthquake and tsunami and subsequent nuclear crisis. Survivors complain about slow recovery efforts, and radiation from the crippled Fukushima Dai-ichi plant has spread into the air, water and food supply.

Political infighting between the ruling and opposition parties also have discouraged the public. Recent polls show that his public support has fallen under 20 per cent.

Japan's new leader will take over a heavy load of tasks: rebuildling the country from the triple disasters, tackling a surging yen that is undermining the export-led economy and mapping out a new energy policy that is less reliant to nuclear power.

Kan's successor will also need to restore confidence in Japan's alliance with the U.S. Tokyo recently canceled Kan's U.S. visit for talks with President Barack Obama, expected in early September, due to the political uncertainty.

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OSC alleges fraud at Sino-Forest

The Ontario Securities Commission has stopped all trading in Sino-Forest shares, alleging fraud at the TSX-listed Chinese forestry company.

The regulator said Friday the company "appears to have engaged in significant non-arm’s length transactions which may have been contrary to Ontario securities laws and the public interest."

Sino-Forest's three-month stock chart on the TSXSino-Forest's three-month stock chart on the TSX (CBC)

The company has been under a cloud of suspicion since June when U.S. short seller and research firm Muddy Waters alleged the company was effectively a giant fraud. Among other things, the firm accuses Sino-Forest of shuffling timber holdings between various divisions in an attempt to inflate their actual value.

Sino-Forest owns timber holdings in China, but is listed on several North American stock markets. The stock has been in freefall since the allegations surfaced, and the company's attempts to calm investor fears have so far been ineffective.

Sino-Forest "appear to have misrepresented some of its revenue and/or exaggerated some of its timber holdings," the OSC said in the statement Friday

The regulator accuses officers and directors at the company of "engaging or participating in acts …which they know …perpetuate a fraud."

The OSC also ordered all of the company's directors and executives to resign their positions immediately.

The company's shares have been halted in Toronto, but the company's shares in New York dropped 65 per cent within seconds of the market opening.

More to come

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Friday, August 26, 2011

U.S. growth slows to 1% pace

The U.S. economy grew at a meagre one per cent annual pace this spring, a slower rate than previously estimated.

The downward revision will likely increase fears that the economy is at risk of another recession.

Fewer exports and weaker growth in business stockpiles led the Commerce Department to lower its estimate for the April-June quarter from its previous rate of 1.3 per cent growth. That means the economy expanded only 0.7 per cent in the first six months of the year.

Economists note that nine of the past 11 recessions since the Second World War have been preceded by a period of growth of one per cent or less. The weaker growth could rattle an already edgy stock market, which has lost 12 per cent of its value since July 21.

The report Friday shows the economy was barely expanding even before this month's stock market plunge. Economists worry that the Wall Street sell-off could cause consumers and businesses to pull back on spending and investment.

Stock futures fluctuated mildly after the report was released.

High gas and food prices have already eroded consumers' buying power. Spending increased only 0.4 per cent in the April-June period, the weakest growth since the final three months of 2009. The revision showed spending was a bit higher than the government's first estimate of 0.1 per cent growth.

People bought fewer long-lasting manufactured goods, such as autos and appliances. Those purchases fell 5.1 per cent this spring, the biggest drop since the final three months of 2008. That partly reflects a shortage of autos on many dealer lots after the March 11 earthquake in Japan. Consumers spending accounts for 70 per cent of growth.

Government spending contracted for the third straight quarter. And spending by state and local governments declined for the seventh time in eight quarters.

Federal Reserve Chairman Ben Bernanke will deliver a highly-anticipated speech later Friday in Jackson Hole, Wyo. Investors hope he will signal that the Fed will launch a new effort to boost the economy, but analysts don't expect anything ambitious.

The central bank has already cut the benchmark short-term interest rate it controls to nearly zero, and last week pledged to keep it there until mid-2013. But so far lower interest rates haven't helped: mortgage rates, for example, are already at record lows, and home sales are still falling.

Several dismal economic reports have suggested the economy worsened in the July-September quarter, sending the stock market lower. Manufacturing in the mid-Atlantic region contracted in August by the most in more than two years, a survey by the Federal Reserve Bank of Philadelphia found. A Richmond Fed survey released Tuesday and a New York Fed survey last week also pointed to slowdowns in those areas, although not as severe.

There have been some positive signs. The economy added 117,000 net jobs in July, twice the number added in each of the previous two months. Consumers spent more on retail goods last month than in any month since March. U.S. automakers rebounded last month to boost factory production by the most since the Japan crisis.

Most economists aren't forecasting a recession. JPMorgan Chase projects the U.S. economy will grow only 0.9 per cent this year and 1.7 per cent in 2012, much lower than the bank's estimates just a few weeks ago. Other economists have made similar downgrades.

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Royal Bank swings to $92M loss

Royal Bank of Canada posted a $92-million loss for its third quarter on Friday, its first quarterly loss in more than two years, mostly because of a writedown of U.S. retail banking operations that have been sold.

That amounted to a loss of 11 cents per share including discontinued operations, compared to earnings of 85 cents per share during the quarter a year ago.

Revenues, however, rose to $6.79 billion from $6.66 billion in the year-earlier period.

Excluding the discontinued operations, RBC had $1.57 billion of net income — up 13 per cent from last year. That amounted to $1.04 of diluted earnings per share from Royal's continuing operations.

Analysts had expected Canada's largest commercial bank to do better during the quarter, with a Thomson Reuters consensus estimate of $1.08 per share from continuing operations and $7.3 billion of revenue.

RBC's shares were trading down 1.2 per cent or 64 cents at $51.27 in pre-open trading on the New York Stock Exchange.

RBC's Canadian banking operations remained solidly profitable, with net income rising 12 per cent from the same time last year to $855 million.

But several other divisions experienced lower profits or underperformed analyst expectations.

RBC's wealth-management operations saw net income fall $6 million from a year ago to $179 million, while net income at the insurance operations was down $9 million to $144 million and international banking fell $5 million to $31 million,

In the third quarter, Capital Markets net income was $277 million, which was up $76 million from a year ago but down $130 million from RBC's second quarter of this year.

RBC said Capital Markets suffered from a deterioration in trading conditions during the third quarter that resulted in significantly lower trading revenue, primarily in its fixed-income businesses outside Canada.

Royal is the third major Canadian bank to report its third-quarter results.

Both Bank of Montreal and National Bank met or exceeded expectations.

RBC had already announced it would book a related to its sale of its U.S. regional retail banking operations to PNC Financial Services for about US$3.62 billion.

Royal Bank operates under the RBC Bank banner in the U.S., with more than 400 branches throughout North Carolina, South Carolina, Virginia, Georgia, Florida and Alabama.

The banks were formerly part of the Centura and other brands that were acquired by Royal starting a decade ago. However, the Canadian bank's rapid expansion struck a major hurdle when the U.S. housing bubble burst and hit mortgage markets hard in southern U.S. states where the former Centura bank operated.

Royal Bank is the country's largest bank by assets and market capitalization, and has 77,000 employees serving more than 18 million clients. The bank has operations across North America and 52 other countries.

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Monday, August 22, 2011

World stocks lose steam after German economy stalls

World stock markets lost steam Tuesday after Germany's economic growth came to a near-standstill in the second quarter, adding to fears that the global economy is slowing down.

Oil prices hovered near $87 a barrel in Asia. The dollar was higher against the yen and the euro.

European shares tumbled in early trading after data showed that Germany, Europe's biggest economy, grew just 0.1 per cent in the second quarter, sharply below expectations. Britain's FTSE 100 fell 1.4 per cent to 5,275.73. Germany's DAX dropped 2.6 per cent to 5,866.26 and France's CAC-40 lost 2.2 per cent to 3,168.14.

Wall Street was also headed for a lower opening, with Dow Jones industrial futures down one per cent to 11,293 and S&P 500 futures down 1.3 per cent at 1,182.30.

The U.S. economy also is growing at a far slower rate than previously thought. The Federal Reserve last week decided to keep interest rates extremely low for two more years, saying it expected the economy to remain weak for that period.

Meanwhile, figures Monday showed Japan's economy contracted further in the second quarter in the wake of March's devastating earthquake and tsunami.

Earlier in the day, Asian shares traded higher on the heels of a round of corporate deals in the U.S. that lifted Wall Street higher.

Japan's Nikkei 225 index rose 0.2 per cent to close at 9,107.43.

South Korea's Kospi jumped 4.8 per cent to 1,879.87 following a public holiday, with steelmaker POSCO soaring 7.4 per cent.

Benchmarks in the Philippines, Malaysia and New Zealand were also higher.

Hong Kong's Hang Seng lost 0.2 per cent to 20,212.08. Australia's S&P/ASX 200 slipped 0.8 per cent to 4,247.30 as Westpac Banking Corp. tumbled 4.4 per cent and dragged down other financials.

Australian flagship carrier Qantas Airways dipped 0.3 per cent after it announced plans to cut up to 1,000 jobs as part of a major shake-up of its international business.

'There are still a lot of uncertainties that are keeping investors on the sidelines.'—Kwong Man Bun, COO, KGI Securities in Hong Kong

Mainland Chinese shares snapped a five-session winning streak as investors cashed in on recent gains.

The Shanghai Composite Index lost 0.7 per cent to 2,608.17 and the Shenzhen Composite Index lost 0.7 per cent to 1,166.84.

"The market might be just correcting after investors think things over, but the loss today after yesterday's gain means there is no strong momentum of support," said Yang Yining, an analyst at Capital-edge Investment & Management Co. in Shanghai.

Asian technology shares got a boost from news Monday that Google is buying wireless phone maker Motorola Mobility for $12.5 billion US in cash, the largest deal ever for Google. Japanese memory chip maker Elpida Memory Inc. rose 5.1 per cent. Samsung Electronics gained 6.1 per cent and Hynix Semiconductor was up 3.8 per cent.

The Google announcement, along with several other acquisitions announced in the U.S. the same day, helped restore confidence in risky assets because such deals are interpreted as a sign that companies are more confident about the future.

But analysts were cautious about reading too much into Tuesday's stock gains.

"It's still too early to say whether this is a reversal of the previous downward trend. There are still a lot of uncertainties that are keeping investors on the sidelines," said Kwong Man Bun, chief operating officer at KGI Securities in Hong Kong.

The Dow rose or fell by at least 400 points on four straight days last week for the first time ever amid fears the U.S. economy could slide back into recession.

Higher oil and gold prices also helped the Toronto Stock Exchange post a strong advance Monday, buildng on gains made during last week's wild swings on global markets.

The S&P/TSX composite index closed up 141.41 points, or 1.13 per cent, at 12,683.61. The heavily-weighted energy sector rose 1.5 per cent on the strength of higher oil prices. September oil gained $2.50 to close at $87.88 US a barrel on the New York Mercantile Exchange.

S&P/TSX composite index 1-month chartS&P/TSX composite index 1-month chart The TSX financial index was 1.0 per cent higher.

Golds advanced as bullion futures surged $15.20 US an ounce to $1,755.50 an ounce.

But more swings could come this week.

Leaders of France and Germany meet Tuesday to discuss Europe's debt problems. Spain and other countries have borrowed so much that they may need help to repay their bills.

Japan's Nikkei 225 index rose 0.2 per cent to 9,101.53. Hong Kong's Hang Seng gained 0.4 per cent to 20,343.39, as a visit by Chinese Vice Premier Li Keqiang raised hopes for an announcement from Beijing that would be favourable to the territory.

South Korea's Kospi jumped 4.5 per cent to 1,873.22 following a public holiday, with steelmaker POSCO soaring 7.7 per cent.

Benchmarks in Singapore, Indonesia and Malaysia were also higher.

Australia's S&P/ASX 200 slipped 0.7 per cent to 4,253.80 as Westpac Banking Corp. tumbled 4.4 per cent and dragged down other financials. Australian flagship carrier Qantas Airways rose 1.4 per cent after it announced plans to cut up to 1,000 jobs as part of a major shakeup of its international business.

Mainland Chinese shares and Taiwan's TAIEX were also lower.

The Dow Jones Industrial rose for the third day in a row Monday, closing up 1.9 per cent at 11,482.90. The Standard & Poor's 500 index rose 2.2 per cent to 1,204.49.

Benchmark oil for September delivery was down 53 cents to $87.32 a barrel in electronic trading on the New York Mercantile Exchange.

Crude surged $2.50 to settle at $87.88 on Thursday.

In London, Brent crude for October delivery was down 46 cents to $109.38 per barrel on the ICE Futures exchange.

The euro dropped to $1.4425 from $1.4451 in late trading in New York. The U.S. dollar strengthened to 76.83 yen from 76.78 yen, while the Canadian dollar added 1.11 cents to 102.05 cents US.

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Cellphones becoming essential multi-tool, toy

More than one quarter (27 per cent) of cellphone users said they had experienced a situation where they had trouble doing something because they did not have their phone at hand, showing just how dependent on the devices people have become.More than one quarter (27 per cent) of cellphone users said they had experienced a situation where they had trouble doing something because they did not have their phone at hand, showing just how dependent on the devices people have become. Reuters

Americans are increasingly relying on their cellphones for far more than voice calls, but people often find mobile internet services frustrating to use, a recent survey reports.

A study of 1,194 adult cellphone owners by the Washington, D.C.-based Pew Research Center, released Monday, found that in addition to using cellphones for communication:

51 per cent of cellphone owners used their phone to get information they needed right away.42 per cent used their cellphone for entertainment when they were bored.13 per cent pretended to use their phone to avoid interacting with people around them.

More than one quarter (27 per cent) of cellphone users said they had experienced a situation where they had trouble doing something because they did not have their phone at hand, and only 29 per cent ever turned off their phone for a period of time to get a break from using it, showing just how dependent on mobile devices people have become.

"For many Americans, cellphones have become an essential tool and playtime toy," said Aaron Smith, author of the report, in a statement. Smith is a senior research specialist at the Pew Center's Internet & American Life Project.

The study found that In the past year, there has been a large increase in the activities that people use their phone for:

54 per cent have used their cellphone to send a photo or video, a huge jump from 36 per cent in May 2010.22 per cent have used their cellphone to post a photo or video online, up from 15 per cent a year earlier.44 per cent have used their cellphone to access the internet, up from 38 per cent in May 2010.26 per cent have used their cellphone to watch a video, up from 20 per cent.38 per cent have used their cellphone to send email, up from 34 per cent.

However, the survey results suggested that cellphones were not always equipped to meet users' growing needs, expectations, and range of uses:

20 per cent of cellphone users said they had experienced frustration because their phone was taking too long to download something.16 per cent had trouble reading something on their phone because the screen size was too small.10 per cent said they had trouble entering a lot of text on their phone.

Overall, 83 per cent of American adults own a cellphone, including 94 per cent of those between the ages of 18 and 29. About 35 per cent of Americans have a smartphone.

The study involved 1,522 interviews done on landline phones and 755 by cellphone in English and Spanish between April 26 and May 22. The overall results are considered accurate within plus or minus two percentage points, while results related to cellphone owners only are accurate within plus or minus three percentage points, 19 times out of 20.

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Sunday, August 21, 2011

Google launches high-stakes bid for Motorola Mobility

Google 3-month trading chartGoogle 3-month trading chart

Google is buying cellphone maker Motorola Mobility for $12.5 billion US in a blockbuster deal that will see the search engine giant acquire Motorola's vast array of patents and turn Google into a mobile-phone maker.

The deal is by far Google's biggest acquisition to date. It will pay $40 per share in cash, a huge 63 per cent premium to Motorola's closing price on Friday. The $12.5-billion price will consume almost a third of Google's cash hoard.

Google makes the popular Android operating system that powers about 150 million cellphones around the world.

Motorola is one of dozens of manufacturers that makes cellphones that run on the Android platform, in direct competition with Research In Motion's BlackBerry, Apple's iPhone and Microsoft's Windows mobile operating system for smartphones.

"Motorola Mobility's total commitment to Android has created a natural fit for our two companies," Google CEO Larry Page said in a statement. "Together, we will create amazing user experiences that supercharge the entire Android ecosystem for the benefit of consumers, partners and developers."

There's no question that a driving force behind Google's purchase is Motorola's valuable cache of 17,000 patents on phone technology. It has more than 7,000 patent applications pending.

Motorola Mobility 3-month trading chartMotorola Mobility 3-month trading chart

Google recently lost out in a bidding war with a consortium led by rivals Apple, RIM and Microsoft for 6,000 patents held by bankrupt Nortel Networks.

Google has charged that Apple, Microsoft, Oracle and others have gone on a patent-buying spree to try to force Google to pay them a rich licensing fee for every Android-equipped device sold. Google is facing a raft of lawsuits that allege that Google's Android system stole patent-protected technology from rival tech companies.

"Our acquisition of Motorola will increase competition by strengthening Google’s patent portfolio, which will enable us to better protect Android from anti-competitive threats from Microsoft, Apple and other companies," Page said in a Google blog post.

Shares of rivals Research In Motion and Nokia jumped by about eight and 16 per cent, respectively, as traders speculated that takeover offers for those two companies, which both have rich patent portfolios, could also attract premium bids.

National Bank Financial analyst Kris Thompson estimated that RIM's patents could now be worth $10 billion and said speculation on their value could lift RIM's share price in the short term.

“We believe Google’s acquisition of [Motorola Mobility] will set a floor-value for RIM’s shares around current levels,” Thompson wrote in a research note.

The deal also marks a major turning point in Google's strategic plan. Until now, it has largely confined itself to software development. Now, it also becomes a major manufacturer of telecom hardware.

What the deal won't change, according to Google, is the company's commitment to Android as an open platform.

"Motorola will remain a licensee of Android and Android will remain open," said Page. "We will run Motorola as a separate business."

Motorola Mobility was split off from the rest of Motorola in January. Motorola made the first commercial portable cellphone in 1983.

Motorola Mobility's shares soared $13.63 to $38.10 US Monday on news of the takeover offer, which requires regulatory approval.

The biggest shareholder beneficiary of this deal is billionaire activist investor Carl Icahn, who owns more than 11 per cent of Motorola Mobility. He had long urged Motorola to sell off its valuable patents.

Some analysts said Google's expansion into the cellphone manufacturing world could complicate relations with some Android partners who will suspect that Motorola will get a better deal from its new parent.

"Google will move from the position of partner to that of competitor to Android handset manufacturers, potentially placing significant strain on the Android ecosystem," Ovum analyst Nick Dillon wrote in a Monday note. He thinks some cellphone and tablet makers will switch to other software platforms if they detect the slightest evidence of favouritism.

But Google CEO Page pledged to treat all Android partners fairly. "Many hardware partners have contributed to Android’s success and we look forward to continuing to work with all of them to deliver outstanding user experiences," he wrote.

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Prentice failed to sell cap-and-trade scheme to Alberta

A former Conservative cabinet minister attempted to convince Alberta politicians to accept a more stringent regulatory approach to curbing climate change in 2009, newly released documents show.

Then-federal Environment Minister Jim Prentice met with Alberta Premier Ed Stelmach and provincial Environment Minister Rob Renner in Calgary on Sept. 11, 2009 to discuss the idea of getting the province involved in a national system.

"I think you would agree with me that encouraging businesses and individuals to change behaviour requires appropriate price signals," a briefing note, which outlines "points to register" with the Alberta government, reads.

"We believe that a carefully designed cap-and-trade system will send the appropriate price signals to encourage changes and ultimately help reduce emissions."

Cap-and-trade is designed to force businesses that produce greenhouse gas-causing emissions to find efficiencies.

The system would put limits on the amount companies are able to pollute. Those that are over the limit would then have to buy credits from those who are under.

The documents were prepared by bureaucrats with Environment Canada, the federal department responsible for climate change policy, and obtained by The Canadian Press under the Access to Information Act.

The federal Conservatives once supported a national cap-and-trade system but have since taken a different tack.

"Canada's climate change plan is to reduce emissions through a sector-by-sector regulatory approach, not through cap-and-trade," Environment Canada spokesman Mark Johnson said in an email.

This sector-by-sector approach includes working towards bringing in "tighter standards" for cars and light trucks manufactured after 2017 and regulating coal-fired electricity generation, he said.

Johnson did not directly respond to questions about the 2009 meeting and declined a request for an interview.

Prentice evidently failed to convince the Alberta government to participate, as it has yet to agree to a national cap-and-trade system.

Stelmach has long been an opponent of adopting such a scheme nationally.

"A national policy that achieves desired emissions reductions needs to be flexible enough to account for the different economies, emission profiles and reduction challenges of each province," Cameron Traynor, a spokesman for the premier, said in an email.

The Alberta government was also opposed to cap-and-trade when the meeting took place in 2009, said Traynor.

The federal government would need to get Alberta on side before it could implement a regulatory approach to reducing emissions on a national scale, said Sierra Club executive director and environmentalist John Bennett.

Prentice "would need the support of Alberta to go back to cabinet and say 'We can have a cap-and-trade system in Canada,"' he said.

"Without them, no way would the rest of the cabinet do anything that would affect the oil sands."

Alberta industry members are the largest emitters, he said, meaning they would need to buy credits from those who emit less.

That would likely result in "significant" money being transferred from Alberta to other parts of the country, a 2007 report by CIBC World Markets showed.

The Alberta government would react negatively to any regulatory structure that transfers wealth from one region to another, said Traynor.

Bureaucrats were optimistic Prentice would be able to convince Alberta to sign on to the federal government's regulatory agenda in 2009, the documents show.

Alberta previously opposed a cap-and-trade system "for potentially limiting growth in the oil and gas sector and resulting in the transfer of wealth to other provinces," the briefing notes said.

"However they have recently indicated greater support for a cap."

In November 2010, a little over a year after the meeting took place, Prentice announced that he would be resigning from government to take a job with CIBC.

He declined any further comment on the matter Friday through a spokesman.

Prentice was meeting with the Alberta politicians to "identify synergies" between the approaches of the two levels of government to combating climate change, the notes said.

They were also going to discuss Canada's preparations for an international conference on climate change negotiations.

Representatives from countries around the world gathered in Copenhagen in December 2009 to try to reach an international agreement that would cut down on greenhouse gas emissions.

Prentice faced criticism from environmentalists at the conference who believed the Conservatives failed to play a meaningful role in developing global reduction targets.

Environmentalists gave Canada the dubious "Fossil of the Day" distinction on more than one occasion during the conference.

Ontario and Quebec criticized Alberta during the talks for being unwilling to shoulder its share of the burden in reducing greenhouse gas emissions.

The federal government previously said it is going to wait for the United States to adopt a national regulatory regime that would combat climate change and then harmonize Canada's system with what lawmakers south of the border decide.

That doesn't appear to be happening any time soon, though.

U.S. President Barack Obama has put his environmental agenda on hold for the moment, claiming he doesn't have enough support in Congress for it to pass. He says he would prefer to implement a cap-and-trade system.

The Canadian government will only align with the United States "where appropriate," said Environment Canada's Johnson.

Prentice expressed frustration with Alberta's attitude toward reducing greenhouse gas emissions in October 2009 -- about a month after the meeting with Stelmach took place.

The minister told U.S. Ambassador David Jacobson he was prepared to unilaterally impose regulations on the province, said a cable to Washington released by Wikileaks in December 2010.

Alberta has had a cap-and-trade system in place for a few years now but environmentalists complain it is not reducing emissions enough to make a substantial difference in curbing climate change.

It's in place provincially, however, so industry members transfer wealth only within the province. Companies can also choose to pay into a fund that provides money to help develop more environmentally friendly technology that they can later use.

The system is also based on the intensity of emissions, meaning that as businesses expand, their emissions can continue to grow.

The province has invested more than $100 million in clean energy technology, said Traynor.

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Saturday, August 20, 2011

Kraft, Sara Lee locked in wiener war

The two largest hot dog makers in the U.S. have taken their legal beefs to federal court, where a judge will determine whether Oscar Mayer or Ball Park franks broke false-advertising laws in an effort to become top dog.

As the bench trial got under way Monday in Chicago, U.S. Magistrate Judge Morton Denlow cast his eyes across the Chicago courtroom, where half a dozen attorneys were at opposing tables, and said, "Let the wiener wars begin."

The battle pits Chicago-area companies Sara Lee Corp., which makes Ball Park franks, against Kraft Foods Inc., which makes Oscar Mayer, in a case that could clarify how far companies can go when boasting that their product is better than a competitor's.

'Don't we have here a couple of big hot dog companies just saying they are the best? Is there something more unusual going on here than what goes on every day?'—U.S. Magistrate Judge Morton Denlow

Despite the light-hearted remark by the judge, attorneys for the food makers struck a serious tone.

"There's never been anything of this scope . . . in the entire history of hot dogs," said Sara Lee's attorney, Richard Leighton, about what he described as Kraft's false and deceptive ad claims about making a better-tasting frank.

Sara Lee had fired the first volley in a 2009 lawsuit singling out Oscar Mayer ads that brag its dogs beat Ball Park franks in a national taste test. Leighton argued the tests were deeply flawed, including by serving the hot dogs to participants without buns or condiments.

"They were served boiled hot dogs on a white paper plate," he complained. He added that Sara Lee's hot dogs may well have tasted too salty or smoky eaten sans buns.

Kraft filed its own lawsuit in 2009, alleging that Sara Lee ran false and deceptive ads including a campaign in which Ball Parks are heralded as "America's Best Franks." The ad further asserts that other hot dogs "aren't even in the same league."

Another focus of the trial is Kraft's claim that its Oscar Mayer Jumbo Beef Franks are "100 per cent pure beef." Sara Lee says the claim is untrue, cast aspersions on Ball Park franks and damaged their sales.

Kraft defends the "100 per cent pure beef" tag, saying its intent was to state that the only meat used is beef. Some industry hot dogs include a mix of turkey, pork, chicken or other meats. Kraft further argues that the "pure beef" label is justified because surveys show a perception among some consumers that hot dogs contain "mystery meats."

Denlow interrupted Sara Lee's attorney several times in his opening statements.

"Don't we have here a couple of big hot dog companies just saying they are the best?" Denlow said at one point. "Is there something more unusual going on here than what goes on every day?"

Leighton responded that Kraft's alleged manipulation of the taste test and how it then based a massive advertising campaign on it in 2009 made the case unique.

At another point, Denlow said one could argue Sara Lee engaged in similar practices, including by basing its claims of being the No. 1 hot dog by citing in its ads an award given to Ball Park franks by 10 leading chefs in San Francisco.

"And how would 10 chefs in San Francisco know what the best hot dog is when they have never been to Chicago or tasted a Chicago hot dog?" Denlow said, cracking a smile.

The judge broached that subject again later, alluding to a rule among connoisseurs in the city never to put ketchup on a Chicago-style hot dog.

When Leighton suggested those participating in the Kraft hot dog tests should also have had the option of squirting ketchup on their dogs, Denlow interrupted, saying "That's an area of great debate."

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Europe's central bank spent most ever on bonds

The European Central Bank revealed Monday that it splashed out 22 billion euros ($31 billion Cdn.) last week — more than it has ever done before — propping up the bond markets of Italy and Spain.

News of the big bond purchases came a day before the leaders of Germany and France meet to discuss the debt crisis that has engulfed Europe for over a year and a half.

Speculation that German Chancellor Angela Merkel and French President Nicolas Sarkozy would be considering proposals for the euro zone to issue jointly guaranteed government debt appear to have been dashed, though.

Tuesday's meeting in Paris comes after a week or two of turmoil in financial markets, which was partly blamed on Europe's sprawling government debt crisis, which threatened to engulf economic heavyweights such as Italy and Spain.

Fears that the euro zone's third and fourth largest economies may find it too expensive to service their debts triggered the ECB's intervention in the bond markets.

France, itself, was caught in the crossfire last week, with investors worrying about the financial health of the country's banks in particular and whether the country would be the next country after the U.S. to lose its triple-A credit rating.

France and Germany, which together account for almost half of the euro zone's economic output, are once more taking the centre stage in pushing for reforms aimed at pulling the bloc out of its debt crisis.

"That is and remains a path of consolidation, of reform, strict adherence to a reworked stability pact that also includes sanctions," Merkel's spokesman Steffen Seibert said.

The discussions will centre on "measures for better agreement of financial policies," paving the way for enhanced economic governance, he added.

Officials for both Merkel and Sarkozy said Monday that jointly guaranteed eurobonds would not be on the agenda.

Eurobonds would be a major step toward the bloc's economic integration, and are billed by supporters as an overnight solution to the crisis. Italy, Greece, Belgium and Luxembourg are among the nations calling for eurobonds.

However, Germany has been adamantly against their creation.

Finance Minister Wolfgang Schaeuble reiterated his opposition when he told German news magazine Der Spiegel that eurobonds were out of the question as long as the currency zone's 17 nations still run their own budget policy.

Different interest rates for euro zonenations, he added, were needed to provide "incentives and the possibility of sanctions to enforce solid financial policy."

Schaeuble acknowledged that the EU must, and will, beef up its response to the crisis to assist the heavily indebted nations, but that "there won't be a collectivization of debt or unlimited assistance."

Merkel has long ruled out eurobonds, and Economy Minister Philipp Roesler joined the chorus Monday, describing jointly guaranteed debt as "the wrong way" out of the crisis.

"Eurobonds would mean that everybody shares the same interest burden which would be a punishment for (financially) sound nations," he was quoted as saying by German news agency dapd.

"We cannot want this for Germany and for all other good states."

With Europe still scrambling to come up with measures that appease the markets, the European Central Bank has been taking a more central in dealing with the crisis, that has already seen Greece, Ireland and Portugal bailed out.

Analysts think a large chunk, if not all, of the 22 billion euros spent last week was used to prop up the bond prices of Italy and Spain, who had seen their borrowing costs ratchet up sharply in the preceding weeks.

The ECB's purchases were the biggest weekly amount the bank has made under the emergency measure, exceeding the 16.5 billion euros it laid out when it started buying Greek government debt in May, 2010.

While stocks took a pounding last week, the program boosted Italian and Spanish bonds, pushing their prices up and interest yields — which move in the opposite direction — down.

High bond yields were what drove Ireland, Portugal and Greece to seek bailouts from the European Union and the International Monetary Fund.

The bank is temporarily shouldering the burden of fighting the crisis until national parliaments approve new powers for the European Union's bailout so it can buy government bonds or help recapitalize banks if necessary.

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Friday, August 19, 2011

Tech mergers rise in Canada

The number of mergers and acquisitions in Canada's technology sector was up substantially in the second quarter, according to a report by consultants Ernst & Young.

The firm said Monday that Canadian companies inked 30 technology deals in the second quarter — sixth-most in the world — up from 21 deals in the same quarter of 2010.

Canadian companies spent about $240 million to acquire foreign companies in cross-border deals, while Canadian firms sold about $480 million worth to foreigners.

The report was issued on the same day as a blockbuster takeover shook up the technology world, with Google announcing it would buy Motorola Mobility for $12.5 billion US.

Ernst & Young described the increase in deals during the quarter as a "surge" and attributed it to innovation in social media, cloud computing, smart mobility, Internet and mobile video, and smart grid and solar energy.

"New waves of innovation...are driving large and small deals across the globe," Tony Ianni, the company's head of corporate finance in its advisory services sector said in a statement.

"Interest in the technology sector continues to rise as information technology evolves into an increasingly valuable component of all products and services," says Ianni.

Canada outranked technology heavyweights Japan and Taiwan when it came to the number of deals, but American, British, Chinese, German and French companies made more deals.

"Canada saw the second-highest number of cross-border deals, behind the United States — an uptick in volume and value we've seen developing over the last several quarters," Ianni said.

"But the question on everyone's mind is whether deal-making will lose momentum or continue to overcome increasing divergence between buyers and sellers over valuation, geopolitical unrest and global debt issues."

Ernst & Young said the average value of global technology deals grew to $52 million, from $30 million in the same quarter last year.

Big-ticket deals worth $1 billion or more and cross border transactions played a big part in driving up the total value, the firm said.

After the quarter ended, a consortium that included Apple Inc., Ontario-based Blackberry maker Research In Motion Ltd., Microsoft Corp. and Sony Corp. agreed to pay $4.5 billion for a collection of 6,000 patents from Nortel Networks, a bankrupt Canadian maker of telecommunications equipment.

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Commodities drive TSX higher

Higher oil and gold prices helped the Toronto Stock Exchange post a strong advance Monday, building on gains made during last week's wild swings on global markets.

The S&P/TSX composite index closed up 141.41 points, or 1.13 per cent, at 12,683.61. The heavily-weighted energy sector rose 1.5 per cent on the strength of higher oil prices. September oil gained $2.50 to close at $87.88 US a barrel on the New York Mercantile Exchange.

The TSX financial index was 1.0 per cent higher.

Golds advanced as bullion futures surged $15.20 US an ounce to $1,755.50 an ounce.

In New York, the Dow Jones Industrial Average ran ahead 213.88 points, or 1.90 per cent, to 11,482.90, erasing all of its losses since the Standard and Poor's downgrade of the U.S. credit rating on Aug. 5. But the S&P/TSX is still down two per cent since the end of July and the Dow is 5.4 per cent below its level then.

The Canadian dollar added 1.11 cents to 102.05 cents US.

Several large corporate deals helped to increase investor confidence.

Early Monday morning, TD Bank announced it would purchase the Canadian credit card business of MBNA Canada from Bank of America Corp., which has about $8.5 billion in receivables .

TD said the price included a "modest premium" of about $100 million on top of the value of MBNA Canada's $8.5 billion of credit card receivables.

S&P/TSX composite index 1-month chartS&P/TSX composite index 1-month chart

Google announced plans to acquire wireless phone maker Motorola Mobility for $12.5 billion US.

As well, Time Warner Cable Inc. said it will pay $3 billion in cash for Insight Communications Co., which has more than 750,000 cable customers in the U.S. Midwest.

In the energy industry, offshore driller Transocean Ltd. said it will buy Aker Drilling of Norway for $1.43 billion in cash.

Companies across the United States have a record amount of cash that they have accumulated since the recession ended. They have increased their cash reserves every quarter for more than two years, and businesses in the S&P 500 index had a total of $963.3 billion US at the end of March, according to the most recent data from Standard & Poor's.

"A calmer tone has settled over the markets after last week's turmoil," said Jane Foley, an analyst at Rabobank International.

Bargain hunters continued to buy after last week's rout picked up speed as worries grew about Spain, Italy and France getting caught up in the European debt crisis and amid fears that the U.S. economy would slide back into recession.

"You might have these moments of quiet, but the debt crisis in Europe did not go away," said John Hailer, chief executive for the U.S. and Asia of Natixis Global Asset Management.

"Our issues with the debt, with what our tax policy is going to be going forward, our unemployment did not go away."

"We are probably going to have to look at some very different levels of volatility than what a lot of investors grew up with over the last 25 to 30 years," he said.

European markets were positive with London's FTSE closing up 0.6 per cent, France's CAC ahead 0.8 per cent and Germany's DAX up 0.4 per cent.

Europe's debt crisis will also be in the spotlight this week, particularly on Tuesday when French leader Nicolas Sarkozy and German Chancellor Angela Merkel meet, and second-quarter euro zone growth figures are published.

"The Franco-German summit on Tuesday in Paris will be a major focus for financial markets this week, especially coming so shortly after what has been a very tumultuous week for France in financial markets," said Jan Dubsky, euro area economist at the Royal Bank of Scotland.

Of particular interest will be what the two leaders say about the viability of a eurobond as a potential solution to Europe's debt crisis, which has already seen three euro zone countries get bailed out. With a eurobond, the 17 countries that use the euro would jointly issue debt.

In Asia, stock markets rose Monday as data showed the economy of earthquake-battered Japan shrank at an annualized rate of 1.3 per cent in the April-June quarter, much better than the 2.6 per cent many economists had forecast.

Japan's Nikkei 225 index closed up 1.4 per cent at 9,086.41 while Hong Kong's Hang Seng index shot up 3.3 per cent to 20,260.10.

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Thursday, August 18, 2011

Security and trade tops for Toews, Napolitano chat

Public Safety Minister Vic Toews talked border security and trade at a Monday meeting with his counterpart, U.S. Secretary of Homeland Security Janet Napolitano.

Canada and the United States have been negotiating a perimeter security agreement, which the government says would enhance trade and security.

Toews and Napolitano reiterated the goals of the talks and said they're making progress, but that they aren't done yet.

Canadian ambassador to the U.S. Gary Doer sounded cautiously optimistic about the talks.

"You can't put your hands in the air until the puck's in the net. It's not in the net, but we're making great progress," Doer said.

'You can't put your hands in the air until the puck's in the net.'—Gary Doer, Canadian ambassador to the U.S.

"We also mentioned specifically the role that privacy commissioners would play, both in the United States and Canada, to ensure that information that is used is used appropriately," he said.

Napolitano said most Canadians would be surprised at how consistent the privacy environment is between Canada and the U.S.

The meeting also looked at the next generation of joint operations, she said, pointing to the example of putting law enforcement officials on each other's ships.

"We're looking at expanding that basic concept to other areas where we can do more by way of joint law enforcement operation, intelligence gathering … and joint policing, particularly along the border region," Napolitano said.

"Obviously these are areas that require a bit of fleshing out, but are evidence of our mutual intent that this border not be thickened, but that it be made more efficient."

They also announced an upcoming meeting between Prime Minister Stephen Harper and U.S. President Barack Obama this fall. No specific date was announced.

The talks are based on a joint declaration by Harper and Obama last February. They said the talks would look at addressing security threats early, making trade easier, integrating cross-border law enforcement, and improving critical infrastructure and cyber-security.

Brian Masse, NDP associate critic for the U.S.–Canada border, said the talks are happening in a vacuum, and letting the public submit comments on a website isn't enough of a dialogue. He also said there are no goals to measure against.

"How is it lowering wait times, how is it improving efficiency for the loss of Canadian privacy and the increased cost?" he said.

"We've seen them increase paperwork and other types of measures," he said, pointing to administrative fees for exporters and the requirement of a passport for Canadians travelling to the U.S. "There's a series of things that have been introduced over the years under the auspices of improving security."

Increased security over the past 10 years has slowed traffic crossing between the two countries, referred to as a thickening of the border.

Toews and Napolitano last met in Washington, D.C., in June.

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GM Canada creates $2.5 B health care trust fund

General Motors of Canada Ltd. will put $2.535 billion into a trust fund to finance health care costs for its retirees, the Globe and Mail reports.

The fund is expected to save GM Canada billions of dollars because retiree health care costs will be taken off its books.

But it means reduced benefits for about 30,000 retirees and surviving spouses of GM workers.

GM Canada has reached an agreement with representatives of its unionized retirees to finance the fund with an initial cash payment of $1 billion, plus another $1.535 billion in contributions between 2014 and 2018.

The creation of the trust fund to pay for dental care, glasses and other health benefits was a condition of the $10.8 billion contribution the federal and Ontario governments made to the bailout of GM Canada's parent company, General Motors Co.

The agreement with the retirees is subject to approval by courts in Quebec and Ontario, but it is opposed by a group of retirees from the company's massive operations in Oshawa, Ont.

"The contributions by GM Canada to the Auto Sector Retiree Health Care Trust will not be sufficient to maintain the retiree health care benefits at their current levels," says an information package prepared for retirees.

"Consequently, it is expected that benefits will have to be reduced or otherwise modified to ensure that the available funds will be sufficient to look after the needs of current and future retirees for their lifetimes."

Estimates done by actuaries for the retirees show the value of the plan represents between 77 per cent and 84 per cent of the value of the existing coverage, which was financed by GM Canada and adjusted according to contracts negotiated with the Canadian Auto Workers.

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MPs call Flaherty to talk about world economy

MPs on the finance committee have called Finance Minister Jim Flaherty to testify Friday about the state of the world economy.

The MPs met Monday night to decide whether to call witnesses to talk about how Canada should respond as the U.S. and European markets hit turbulence.

They're also inviting Bank of Canada governor Mark Carney, though it's not clear whether his schedule will permit him to appear.

Opposition and government MPs debated whether they should call private sector economists.

Shelly Glover, parliamentary secretary to the minister of finance, argued that the only people the committee needs to hear from are Finance Minister Jim Flaherty and a senior official from the Bank of Canada, which sets monetary policy. She said hearing from Flaherty and Carney would reassure Canadians.

"The finance committee must remain a serious forum. And I'm concerned today that the finance committee might go down a path of no return," she said.

Liberal finance critic Scott Brison says the committee needs to give Canadians, including investors, information about the global financial crisis. Brison says they should hear from top economists and department of finance officials about where they see the situation going and what the impact could be on Canada, which has been relatively unaffected.

"The reality is there's a range of potential outcomes of the current turmoil," said Brison.

NDP finance critic Peggy Nash said opposition MPs on the committee want to hear from independent economic experts.

"There are alternatives for Canada in terms of economic policy. And we'd like to hear from some experts about what our government should be doing. Are there other options for our government?" she said.

The federal budget right now is focused more on deficit reduction, Nash said.

"We were critical of that. We thought the jobs issue was one that should have been focused on, and if there is a slowdown with our major trading partners, what will be the impact on the decision the government has taken, do they have flexibility in terms of what they are looking at, and what are independent experts thinking?"

Opposition MPs requested the discussion under a rule that allows four or more MPs on a committee to force a meeting.

Brison and Liberal Deputy Leader Ralph Goodale called for a meeting on the U.S. debt crisis at the end of July. Democrats and Republicans came to a last-minute deal to avert the crisis, but world markets have been in turmoil ever since.

Brison requested a committee meeting for the first week of August, but didn't have enough opposition support to force one until the NDP agreed last week.

The NDP sent a news release Monday morning calling for the meeting, which was scheduled last Friday. It lists their MPs but leaves off Brison. Brison and four NDP MPs co-signed the letter to the committee clerk requesting the meeting.

"I think during difficult times Canadians are relying on us to avoid petty politics," Brison said. "The reality is that we proposed this idea, they opposed it, and now they're saying they invented it."

Nash said that when the Liberals first requested the meeting, no one expected the wild swings in the stock market or that Standard & Poor's would downgrade the U.S. credit rating.

"It takes four MPs to request a meeting and we did that last week. We did request a meeting and because we requested a meeting, we're having a meeting," she said.

"Canadians want to know about government policy, how we can best protect ourselves during government uncertainty and that's what we're focused on. I don't think we're trying to play politics or claim credit … I think all of the opposition is united in that."

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Wednesday, August 17, 2011

Warren Buffett calls on 'mega-rich' to pay more taxes

Billionaire investor Warren Buffett is calling on his "mega-rich" friends to pay more in taxes, saying they've been protected too long from the government.

"My friends and I have been coddled long enough by a billionaire-friendly Congress," Buffett wrote in an op-ed piece in the New York Times. "It's time for our government to get serious about shared sacrifice."

Buffett said investment managers like himself can classify their income as carried interest, meaning they pay only a 15-per-cent tax rate.

"These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places," he wrote.

He said the mega-rich pay income taxes at a rate of 15 per cent on most of their earnings but pay practically nothing in payroll taxes. But he said the middle class pay somewhere in between 15 per cent and 25 per cent and also pay heavy payroll taxes.

Buffett said tax rates should be raised for those making more than $1 million and an additional increase for those who make $10 million or more.

"Most wouldn’t mind being told to pay more in taxes as well, particularly when so many of their fellow citizens are truly suffering," Buffett said.

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Oil spill near Scottish coast 'significant'

Royal Dutch Shell estimates 1,300 barrels of oil have spilled into the North Sea off Scotland's coast.

Glen Cayley, technical director of Shell's European exploration and production activities, said Monday the amount is a "significant spill" in the context of annual amounts of oil spilled in the North Sea.

He says the flowline to the Gannet Alpha platform is now leaking around five barrels a day. The leak began last week.

Cayley says he expects waves to disperse the oil sheen and he does not expect it to reach the shore. The platform is still operating.

Shell says the spill covers a surface area of 31 kilometres by 4.3 kilometres at it largest point.

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Tuesday, August 16, 2011

Qantas Airways to slash 1,000 jobs

Qantas Airways Ltd. said Tuesday it plans to cut up to 1,000 jobs as part of a major shakeup of its international business that will include the launch of a new Asia-based airline.

The flagship Australian carrier, which is struggling to offset losses from its international operations, will buy between 106 and 110 Airbus A320 aircraft, and retire older planes as part of the five-year plan.

It will also defer the delivery of six Airbus A380 superjumbo planes for up to six years.

The changes are expected to affect around 1,000 jobs, Qantas said.

Qantas International has forecast a loss of $210 million US for the 2011 financial year due to competition and costs that the airline says are 20 per cent higher than its key competitors such as Emirates.

CEO Alan Joyce said the changes were needed to ensure the airline's profitability.

"Qantas International is a great airline with a proud history," Joyce said in a statement. "But it is suffering big financial losses and a substantial decline in market share. To reverse that decline, we need fundamental change."

Under the plan, Qantas will invest in a new premium airline in Asia that will operate under a different name. It will also launch a budget airline in Japan to be called Jetstar Japan in partnership with Japan Airlines Co. and Mitsubishi Corp.

Unions immediately condemned the move, with the Australian Council of Trade Unions accusing the airline of showing "blatant contempt for its loyal work force."

"This is one of the darkest days in the history of Qantas," ACTU secretary Jeff Lawrence said in a statement. "Today, Qantas management has turned its back on Australia and on Australian jobs to head down the path of a race to the bottom that would see a large section of its workforce employed on the pay and conditions of developing countries."

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TD buys MBNA's Canadian credit card business

TD Bank Group is acquiring MBNA's Canadian credit card business from Bank of America in a deal that will substantially increase TD's presence in the Canadian consumer credit card business.

MBNA Canada is the largest issuer of MasterCard in Canada. The acquisition of MBNA's Canadian account portfolio will add 1.8 million active MasterCard accounts to TD's existing four million Visa credit card accounts.TD 3-month chartTD 3-month chart

TD Bank CEO Ed Clark said the deal includes "a modest premium" of about $100 million above the value of the assets. MBNA Canada has about $8.5 billion in credit card receivables in its Canadian credit card portfolio.

"With this one transaction, we will rapidly increase our outstanding balances and move from having a fast-growing yet under-penetrated credit card business to establishing TD as one of the top credit card issuers in Canada," Clark said in a conference call.

"This franchise brings new customers to TD, provides attractive additional options for our customers and is a great complement to our existing high-growth credit card business."

TD said the deal is expected to close in the fiscal first quarter of 2012. TD said the MBNA acquisition would add five cents to its adjusted earnings per share in fiscal 2012 and 10 cents in fiscal 2013.

TD also said it would issue up to eight million shares because of the "significant amount of macroeconomic uncertainty," TD chief financial officer Colleen Johnston said.

MBNA's credit card business was acquired by Bank of America in 2006.

Bank of America has recently been selling off its credit card businesses in several countries as it transitions out of the international credit card business.

"While the credit card remains a fundamental core product for our U.S. customers, an international consumer card business under another brand is not consistent with that strategy," Bank of America CEO Brian Moynihan said.

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Sunday, August 14, 2011

Commerce Index Up 1% In June, More Sluggish Growth To Come

Jul. 13 2011 - 1:26 pm | 128 views | 0 recommendations | LOS ANGELES, CA - NOVEMBER 13: Trucks drive n... Commerce picked up in June - Getty Images via @daylife

A real-time index measuring the road movement of goods across the U.S. via the consumption of diesel fuel rose 1% in June after two consecutive months of losses, indicating that industrial production and second quarter GDP growth will be modest at most, while showing that no real drivers of growth appear set to “pick up the baton”.

Much more accurate than a survey, the Pulse of Commerce Index (PCI) rose a meager 1% in June, leading the index’s chief economist, Ed Leamer, to call it a “tease.”  While the PCI recovered after two consecutive months of declines, Leamer explained it shows “more of the same sluggish growth” as markets are completely in the dark as to what’s going to happen next.

The PCI, prepared by Ceridian and UCLA’s Anderson School of Management, provides a real-time look at the state of commerce by tracking the volume and location of diesel fuel being purchased by trucks.

Markets have been over-responsive to news lately, according to Leamer, who noted “you get a week of bad news, everyone runs from equities into bonds, then a week of decent news and everyone runs from bonds to cash, and then a week of good news sends everyone back into equities, this makes for a crazy market.”

The last substantial driver of growth was inventory restocking in late 2009 and early 2010, said Leamer, noting that “it is very hard to identify what component will pick up the baton” and take the U.S. economy forward.  As consumer deleveraging continues, big ticket items that fuel economic expansions, like cars and houses, are facing lower demand. (Read No Recovery Possible While U.S. Consumer Continues Deleveraging).

High energy prices have eaten into consumers’ purchasing power, who are already suffering from a weak labor market.  “There is no question that energy contributed, and maybe determined this latest drag on growth,” said Leamer. (Read Oil Prices: Brent-WTI Spread Above $22 And Here To Stay).

A growing labor market supports positive feedback loops that fuel consumption and create jobs.  But, with the construction sector devastated due to an oversupplied market and the ever-present foreclosure pipeline, and manufacturing jobs on a downtrend since the early 1990’s given globalization and technological advancement, job markets are “setting a post-war record for sluggishness.” (Read Job Cuts Accelerated In June With Government Leading The Donwsizing).

The PCI indicates that second quarter GDP will grow 1.8% on an annualized basis.  The first estimate of the Commerce Department is set to be released on Jul 29.  Industrial production, expected on July 15, is expected to be modest, at 0.17% according to the index.

A few sectors have been performing well on the jobs front, Leamer said.  Durable manufacturing, especially the auto sector, had experienced a substantial rebound since Detroit’s Big Three, General Motors, Ford, and Chrysler, were put on their knees.  Above trend growth was also observed in mining and utilities, noted Leamer. (Read Jobs Report Sucked, But S&P 500 Will Finish Year Up 8% To 10%).

Still, the index is a further indication that the U.S. economy remains in a soft patch.  In his address to Congress, Chairman Ben Bernanke told policymakers that the recovery continues at a lower than expected rate and that further monetary stimulus, or QE3, is not off the table.  While Bernanke was accurate to say inflation and the effects of supply chain disruption in Japan would prove to be transitory, he still holds on to his prediction that economic activity will pick up in coming quarters.  According to the PCI, it doesn’t seem like the next couple of quarters will show much growth at all. (Read Bernanke Fights Ron Paul In Congress: ‘Gold Isn’t Money’).


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