Business and Finance

A product of Molson Coors Brewing Co. was the prize in a friendly wager between President Barack Obama and Canadian Prime Minister Stephen Harper over Sunday's men's ice hockey final between the U.S. and Canada at the Vancouver Winter Olympics.

Canada won the game and the gold medal in overtime, 3-2.

Obama had offered to buy Harper a case of Molson Canadian beer in the event of a Canadian victory quick cash. And Harper had wagered a case of Yuengling beer if the Americans had won.

Molson Canadian is a product of Molson Coors, which is headquartered in Denver and Montreal.

Yuengling is made by D.G. Yuengling & Son Inc. of Pottsville, Pa.

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Crammed into a small Detroit office filled with pipe fittings, hydraulic tubing, and a device that looks like a gas pump combined with a supercomputer, Dave Shaw sums up how his life has changed.

Tipping back in a cheap office chair, the former auto executive points beneath the folding table that is his desk. "We had a ton of people working for us," Shaw says, crossing his stocky arms over his chest. "Now you have to do it all yourself. See that trash can? If I want it emptied, I empty it myself."

Two of Shaw’s colleagues at Clean Emission Fluids grin knowingly. All three once worked for auto companies or their suppliers. Today, as Shaw says, they are wearing many more hats than they ever did working for the Big Three: They are engineering, assembling, and marketing a highly sophisticated biodiesel blending machine that they hope will propel their three-year-old startup to huge success.

The machine makes any biofuel easily available in whatever mixture of traditional diesel and alternative fuel a trucker or fleet might choose. The result is cleaner-burning engines. "We aren’t waiting for the auto industry to come save us," says Clean Emission CEO Oliver Baer, a ThyssenKrupp alumnus. "We’re going to save ourselves."

Clean Emission is one of 160 startups that are part of a nonprofit incubator in central Detroit called TechTown. Founded by Wayne State University in 2000, the research park set out to make technology and entrepreneurship an engine of economic growth in a city that depended too much on, well, engines. With the U.S. auto industry in a shambles, TechTown’s mission seems more critical than ever.

Detroit isn’t known today for its entrepreneurism — or its tech prowess. But TechTown’s neighborhood is surrounded by reminders of Detroit’s innovative, ambitious past: There are ornate buildings, many of them vacant, that formerly housed the headquarters of GM, its Cadillac division, and its suppliers. According to local lore, the third floor of TechTown was where GM engineers conceived and designed the iconic Chevy Corvette.

These days TechTown is bustling. Over the summer nearly 1,000 people registered to attend a series of classes aimed at educating would-be entrepreneurs Business Card Holders. Almost a quarter came directly out of GM, Ford (F, Fortune 500), and Chrysler, and almost half were between the ages of 35 and 55. TechTown hopes to create jobs by helping give birth to 400 new companies in the next three years, says Randal Charlton, executive director of the incubator.

Will they all succeed? Clearly not, but don’t dismiss Detroit just because it isn’t Silicon Valley. The area is rich in skilled electrical, mechanical, and software engineers, and Detroiters have deep expertise in some industries with growth potential, such as alternative energy (hello, electric cars), health-care technology (until 2008, Pfizer (PFE, Fortune 500) had one of its largest R&D centers in the region), and logistics and supply-chain management, thanks to its manufacturing roots.

Detroit’s would-be entrepreneurs also have something that many of their counterparts in California’s Mountain View and Sunnyvale lack: community spirit.

Don’t laugh. A lot of hotshot engineers and executives tend to be mercenary, readily relocating to the company — and region — that offers the best salary or the most stock options.

Not Greg Auner. "I was born and raised in Detroit," says Auner, a Wayne State professor and founding partner of Visca, a TechTown company that makes a handheld sensing device. Visca could be headquartered anywhere, but Auner is committed to staying in his hometown. "I am dedicated to this region and bringing about a rebirth here."

Civic pride also motivates Leah Robinson and Ashara Shepard, Ph.D. candidates and former schoolteachers who launched COOL School Technologies, a sort of educational Facebook. The women wanted to create a tool to help inspire and motivate students in Detroit, who don’t have the same auto industry job opportunities that their parents and grandparents had.

Then again, if Shepard and Robinson — and others in TechTown — are successful, Detroit’s next generation won’t miss those auto jobs; they’ll all be working for tech firms. 

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Confidence in the world economy dropped in February on concern worsening government finances in some European nations will derail the global recovery, according to a Bloomberg survey of users on six continents.

The Bloomberg Professional Global Confidence Index dropped to 54.9 from 66.6 in January, when the reading was at the highest level since the series began two years ago. The index exceeded 50 for a seventh month, which means there were more optimists than pessimists. The survey was conducted last week, before Germany and other European Union nations signaled they may help support Greece’s government finances.

Greece, Spain and Portugal are among European nations struggling to control widening budget deficits, prompting investors to dump the countries’ assets and question the sustainability of the recovery in the global economy. More than $4.5 trillion has been wiped from stocks worldwide since Jan. 14, while credit-default swaps have risen as investors seek protection against deteriorating European government finances.

“The situation in Greece and other European economies shows us that the global deleveraging process is not over and governments cannot continue the pace of stimulus they’ve been undertaking,” said Venkatraman Anantha-Nageswaran, global chief investment officer at Julius Baer & Co., which manages about $142 billion in assets. “We see global confidence fluctuating from month to month as growth disappoints.”

Group of Seven

The survey of 2,486 Bloomberg users was done between Feb. 1 and Feb. 5. Since the previous survey, China unexpectedly raised reserve requirement ratios for lenders, the Group of Seven finance ministers pledged to continue economic stimulus measures and a report showed the U.S. economy expanded at the fastest pace in six years last quarter.

“People aren’t concerned about the exit strategies from countries, they’re concerned about the total debt level,” said Chris Rupkey, chief financial economist at Bank of Tokyo- Mitsubishi UFJ Ltd. in New York who participated in this month’s survey. “The global economy is a little bit more unsteady than it was a month ago.”

The fallout from the budget crisis in Greece has led investors to become the most bullish on the U.S. dollar since November 2008. The dollar confidence index rose to 55.7 from 53.1 in January. Most survey respondents in Europe turned more pessimistic on the outlook for the euro, expecting it to weaken against its U.S. counterpart over the next six months.

‘Downside Risk’

“If people start worrying about a big developed economy as they did Greece, that could start to affect the global growth outlook,” said Nick Kounis, chief European economist at Fortis Bank Nederland NV in Amsterdam, and a regular survey participant ay day loans. “Credit concerns have remained well-contained for the big countries. That suggests so far the global economic outlook is not seriously affected by this, although there are big problems about public finances and it remains a downside risk.”

The confidence gauge for Western Europe fell to 49.8 from 55.5 last month, dropping below 50 for the first time since November. Greek Finance Minister George Papaconstantinou has struggled to convince investors that the government can push its deficit below the European Union’s ceiling of 3 percent of gross domestic product.

Germany is considering assistance for Greece after the country’s deficit threatened the stability of financial markets, two lawmakers from Chancellor Angela Merkel’s governing coalition said Feb. 9. The European Union is scheduled to hold a summit in Brussels today.

Greek Tragedy

“The officials need to give a clear indication that it’s not just about fire-fighting Greece but also putting forward a wider European bailout mechanism that is applicable to other countries that get into trouble,” said Fortis’s Kounis. “That could stem the confidence crisis and boost credibility.”

A measure of U.S. participants’ confidence in the economy fell to 41.3 this month from 54.4 in January. More Americans unexpectedly filed first-time claims for unemployment insurance even as the jobless rate dropped in January, while Federal Reserve policy makers are attempting to gauge whether the economy is strong enough for them to withdraw unprecedented stimulus.

“It’s a jobless recovery,” said Jonathan Basile, an economist at Credit Suisse Group AG in New York and a regular survey participant. “The U.S. economy is still going to expand, it’s just not going to expand as quickly as the fourth quarter. We’re a long way from acceptable levels of unemployment” of about 5 percent that the Fed is comfortable with, he said.

Asia’s index fell to 70.8 in February from 79.8, while the confidence gauge for Japan dropped to 40.6 from 44.1. Japan’s government must heed the warning on soaring debt loads stemming from the turmoil in Greece and concerns about the credit quality of some European countries shouldn’t be regarded as “a burning house on the other side of the river,” Bank of Japan board member Seiji Nakamura said Feb. 4.

Most Bloomberg users were less optimistic on the outlook for their equity markets in the next six months, with respondents in the U.S., the U.K. and Spain turning bearish. Survey participants in the U.S. and Europe remained confident short-term interest rates will rise in the next six months, the survey showed.

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Bank of America spent $4.4 billion last year on its Wall Street bankers , according to a person familiar with the matter.

The nation’s largest bank used 19% of the $23 billion in revenues it generated in 2009 within its markets and investment banking businesses to pay workers’ salaries benefits as well as year-end bonuses.

That works out to an average of about $440,000 per employee. The bank has roughly 10,000 workers in its markets and investment banking units.

Bob Stickler, a spokesman for Bank of America (BAC, Fortune 500), would not confirm the figures, although he said that the company tried to walk a fine line when it structured worker pay this year.

"We are trying to balance the need to pay competitively and to respond to concerns about the level of compensation on Wall Street," said Stickler.

Faced with a public backlash over outsized bonuses, many of the nation’s largest financial firms have incrementally lowered pay levels for traders and investment bankers.

Many institutions have offered workers less cash and more stock, in an effort to tie workers’ performance with the firm’s fortunes and the interest of shareholders.

The use of so-called "clawback" provisions, which would reclaim pay from workers whose actions may damage the firm’s long-term financial health, have also gained momentum recently.

The issue of compensation has haunted Bank of America for much of the past year after it was revealed that the firm paid $3.6 billion in year-end bonuses to Merrill Lynch workers for fiscal year 2008. The firm is currently facing two legal actions by the Securities and Exchange Commission over the matter.

Compared to some of its peers, the amount Bank of America spent on its Wall Street employees appeared to fall in the middle of the pack.

Last month, JPMorgan Chase (JPM, Fortune 500) said it spent $9.33 billion to compensate workers in its investment banking division. Divided among the nearly 25,000 individuals in this business, the average annual compensation per employee was nearly $380,000.

Goldman Sachs (GS, Fortune 500) also revealed during the latest earnings season it spent approximately $498,461 a person, if its compensation pool were divided evenly among the firm’s 32,500 employees. 

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Manufacturing expanded in January at the fastest pace since August 2004, indicating production gains that are spearheading the U.S. recovery may soon encourage companies to hire.

The Institute for Supply Management’s factory index rose to 58.4, exceeding the highest estimate in a Bloomberg News survey of economists, from December’s 54.9, figures from the Tempe, Arizona-based group showed. Readings greater than 50 signal expansion. A measure of factory employment rose to the highest level in almost four years.

“Manufacturing is growing, it’s going to continue to expand,” said Hugh Johnson, who manages more than $1.6 billion as chairman of Albany, New York-based Johnson Illington. His forecast of 58 was the highest in the Bloomberg survey. “Whether or not this continues to unfold will depend very heavily on final demand.”

Stocks rose after the report showed increased production may be laying the groundwork for the spending gains necessary for the expansion to be sustained. The strength in U.S. manufacturing is being accompanied by factory expansion from China to Europe, separate data also showed.

Another report today showed personal spending rose 0.2 percent in December, the third straight gain, according to the Commerce Department in Washington.

Incomes climbed 0.4 percent, exceeding expectations and propelled in part by government payments, the report said. Wages and salaries rose 0.1 percent after a 0.4 percent gain in November, showing job growth is needed to help drive consumer spending in coming months.

Employment Forecast

Employers last month may have added jobs for the second time in the last two years, according to the median estimate of economists surveyed by Bloomberg News. The Labor Department will report the figures on Feb. 5.

President Barack Obama’s $3.8 trillion fiscal 2011 budget, released today, puts an emphasis on job creation with $100 billion in additional stimulus spending, along with higher taxes for the wealthy in an attempt to narrow the deficit.

The factory index exceeded economists’ median forecast of 55.5, according to 67 projections in a Bloomberg survey. Estimates ranged from 53.5 to 58. Manufacturing accounts for about 12 percent of the economy.

The Standard & Poor’s 500 Index gained 0.9 percent to 1,082.96 at 12:12 p.m. in New York. The yield on the 10-year Treasury note rose basis points to 3.65 percent, according to BGCantor Market Data. A basis point is 0.01 percentage point.

European Manufacturing

The pace of global manufacturing is picking up in response to faster economic growth.

A manufacturing gauge for China climbed to a record in January as exports jumped, according to figures from HSBC Holdings Plc and Markit Economics. Growth in the 16-nation euro region’s manufacturing industry accelerated more than estimated in January, according to a separate report from London-based Markit Economics.

The U.S. ISM’s production index rose to 66.2 from 59.7 and the new orders index increased to 65.9, the highest since December 2004, from 64.8.

Manufacturers such as General Electric Co. are beginning to hire and factories are stepping up production after a record reduction in inventories in 2009. The employment index rose to 53.3 in January, the highest since April 2006, from 50.2 a month earlier.

“Manufacturers are now willing to hire,” Norbert Ore, chairman of the ISM survey, said in a conference call from Atlanta. “The more I look at the data, the more this looks like a typical recovery, that is, that we see very strong growth in the front end of it.”

Unfilled Orders

The report also showed more manufacturers reported increased exports and more said they were paying higher prices for raw materials. It took longer for customers to receive their goods, a sign of stronger demand, while orders waiting to be filled also increased. Inventories were being drawn down at a slower pace.

Factories benefited from increased orders after companies pared inventories last year by a record $125 billion.

Corporate spending on new equipment is also beginning to pick up. Texas Instruments Inc., the second-largest U.S. chipmaker, said it will spend almost $1 billion this year to expand three factories and open a fourth to fill orders.

Federal Reserve officials, who left the benchmark lending rate unchanged in a range between zero and 0.25 percent on Jan. 27, noted in their policy statement that “business spending on equipment and software appears to be picking up.”

GE Hiring

GE, whose power-plant equipment generates one-third of the world’s electricity, is hiring workers in energy, health care and rail transportation. It’s bidding to supply new passenger locomotives for Amtrak and in November announced a joint venture in China that would make high-speed rail locomotives that may add 200 U.S. jobs.

“We will create jobs in the United States that could not have been created any other way,” John Rice, chief executive officer of GE Technology Infrastructure, said of the rail programs in a Jan. 28 Bloomberg Television interview.

Construction spending declined in December more than anticipated, capping the worst year on record for the industry, separate Commerce Department figures showed. Outlays dropped 1.2 percent last month as homebuilding and commercial construction dropped.

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Greece should remain in the euro region where its problems “will be unequivocally easier to solve,” rather than allowing a new currency to devalue, pushing up inflation and interest rates, the central bank governor said.

A new currency would not be like “waving a magic wand,” George Provopoulos said in an article for the Financial Times. A weakened currency could increase the cost of imports, stoking inflation, and boost the cost of servicing public debt.

Concern that Greece’s government will struggle to tame the European Union’s biggest budget deficit this week pushed the yield premium investors demand to hold the nation’s debt instead of German bunds to the highest since the euro’s debut in 1999. Finance Minister George Papaconstantinou said yesterday that Greece won’t need a rescue package to reduce its debt.

“It will be immensely less costly for Greece to eradicate its problems from within the euro zone,” Provopoulos wrote. “Greece will not be tempted by these short-term options, but will undertake the necessary, bold adjustments.”

Greece’s debt has contributed to a slide in the euro against the U.S. dollar. The euro traded at $1.4124 at 3:01 p.m. in Sydney, close to its lowest level in almost six months.

‘Homer’s Sirens’

The idea of Greece leaving Europe’s monetary union “is based on flawed reasoning,” Provopoulos said fast cash online. “Those who suggest Greece might leave the euro zone are like Homer’s sirens.”

Prime Minister George Papandreou has said that the “unprecedented” crisis in Greece has led to “discussion on the euro, if the currency is stable.” He said there is “not one day to lose” in bolstering the nation’s finances.

Finance Minister Papaconstantinou denied a report yesterday in EuropeanVoice that EU officials were looking into a possible loan to help Greece tackle its deficit, the highest in the region at 12.7 percent of economic output. Amelia Torres, the spokeswoman for EU Economic and Monetary Affairs Commissioner Joaquin Almunia, said she wasn’t aware of any talks on a loan. A spokesman for the European Central Bank declined to comment.

Germany said it won’t support any EU loan to help Greece cut its deficit. “Greece must solve its problems through its own efforts,” German Finance Ministry spokesman Michael Offer said yesterday in an e-mailed statement.

While Greece’s problems are “extremely serious,” its economic future is “unwaveringly tied to the mast provided by the euro,” Provopoulos wrote in the Financial Times. “It will be unequivocally easier to solve these problems from within the euro area,” he said.

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Takuji Okubo, former senior director at Merrill Lynch Japan Securities Co. in Tokyo, has joined Societe Generale SA as its chief Japan economist.

Okubo starts work today for the Paris-based bank in the newly created position, Glenn Maguire, chief Asia-Pacific economist at Societe Generale in Hong Kong, wrote in an e-mail to Bloomberg News.

Okubo was employed at Merrill Lynch from 2007 to 2009 after working for Goldman Sachs Group Inc. in Tokyo.

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The biggest threat to Brazil’s economy next year is the acceleration of growth beyond 6.5 percent, Banco Safra de Investimento said.

“As long as growth estimates stay between 5.5 percent and 6.5 percent, it is still possible for the central bank to manage the growth-inflation issue,” Cristiano Oliveira, chief economist at Banco Safra, said in a telephone interview from Sao Paulo. “Above that, it will be difficult.”

Banco Safra — wholly owned by Joseph Safra, the world’s 62nd richest person, according to Forbes magazine — forecasts the central bank will raise the benchmark interest rate to 10.75 percent by the end of 2010 from a record low of 8.75 percent.

Consumer spending and capital expenditures will boost growth in Latin America’s largest economy to 5.6 percent next year, following an estimated 0.2 percent contraction in 2009, Oliveira said. Brazilian economists project a 5.1 percent expansion in 2010, according to a weekly central bank survey of about 100 financial institutions published today.

Increasing imports and profit remittances by multinationals to headquarters abroad will widen next year’s current-account deficit to “at least $54 billion,” Oliveira said. Brazilian economists expect a record $40.8 billion shortfall, according to the central bank survey.

The current-account deficit will be more than offset by $62 billion in foreign direct and portfolio investments, lifting the real to 1.65 per U.S. dollar by the end of next year, Oliveira said. The currency gained 1.2 percent at 1.7415 per dollar at 1:50 p.m. in New York, compared with 1.7630 on Dec. 24.

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The Toronto Stock market ended the session in positive territory after investors pulled up energy stocks in hopes that Exxon Mobil's US$31-billion acquisition of U.S. oil and gas company XTO Energy Inc. could mean other deals in the sector.

The S&P/TSX composite index closed 121.76 points higher to 11,545.69, with shares of nearly every major Canadian energy player higher.

The energy sector was up 2.2 per cent as investors speculated over other possible takeovers within the industry.

The January crude contract on the New York Mercantile Exchange closed the session down 36 cents to US$69.51 a barrel.

Meanwhile, Abu Dhabi's $10-billion bailout to Dubai gave markets a jolt of optimism. The debt repayments quelled fears that the emirate would default and signal a new round of broader credit problems.

"What we're seeing is continued small steps towards fixing in the financial system, towards strengthening the various places that are weak," said Kate Warne, Canadian markets specialist at Edward Jones in St. Louis.

"That certainly doesn't eliminate all the possible things that can go wrong, but every small step is a step in the right direction."

TSX gold stocks were up 1.5 per cent as the February bullion contract on the Nymex rose $3.90 to US$1,122.80 an ounce.

The base metals sector launched the biggest gain of the day, up 2.9 per cent as the March copper contract gained two cents to US$3.15 a pound.

The Canadian dollar gained 0.05 of a cent to 94.40 cents U.S., while the TSX Venture Exchange was up 7.97 points to 1,425.08.

On Wall Street, the Dow Jones industrial average moved up 29.55 points to 10,501.05. The Nasdaq composite index gained 21 guaranteed payday loan.79 points to 2,212.10, while the S&P 500 index climbed 7.7 points to 1,114.11.

Citigroup Inc. said it will pay back $20 billion in bailout money it received as part of the government's Troubled Asset Relief Program.

The New York-based bank was hardest hit by the credit crisis and rising loan defaults, receiving a total of $45 billion in government support. It only needs to pay back $20 billion because the remaining $25 billion was converted into a 34 per cent ownership stake in the bank earlier this year.

Statistics Canada reported that Canadian industries operated at 67.5 per cent of their production capacity in the third quarter, down marginally from 67.7 in the second quarter.

Also in the energy sector, Husky Energy Inc. (TSX: HSE) shares moved higher after the company said it plans to increase its capital spending by 20 per cent to $3.1 billion in 2010. Shares rose 1.6 per cent, or 48 cents, to $28.98.

Inter Pipeline Fund (TSX: IPL.UN) units gained 11 cents to $10.93 after the company announced it plans capital expenditures of more than $292 million next year, with most of it going toward its oil sands transportation segment.

TMX Group (TSX: X) shares were up 98 cents to $31.34 after it announced it will distribute trading data across U.S. and Europe on NYSE network under new data technology and distribution agreement.

Kirkland Lake Gold Inc. (TSX: KGI) said a borehole collapse widened net losses to $10.3 million for the quarter ended Oct. 31, and weakened revenues to $6.9 million, from $8.8 million last year. Shares rose 16 cents to $9.45.

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Not all credit card rewards programs are created equal, Denis Agar discovered a few years ago while trying to decide which card would give his family the biggest payback.

The 21-year-old student of urban planning ended up talking his dad into choosing the MBNA Starwood Preferred Guest MasterCard.

The card, linked to the Starwood hotel chain, paid out rewards worth as much as 6 per cent of the value of a hotel stay, a level far exceeding the industry average of 2 per cent.

Agar says the family did not use the hotel’s services much, except on holidays, but it still paid off because it came with so many bonus points and special offers. The card recently has been discontinued.

Agar decided to help others make the same informed decision. He created a chart based on card issuers’ publicly available information.

"You see the ad and it says `Earn points!’ And then you look at the fine print and it says (the rate is) 0.05 per cent (of the value of goods purchased)," Agar notes. That means for every $100 you spend, you get back 50 cents worth of free stuff, not a very good deal in his estimation No teletrack payday loans.

The chart is published on www.redflagdeals.com, Canada’s largest comparison-shopping site, with 2.2 million unique visitors a month. His review is limited to the top 20 no-fee cards that offer rewards programs.

His current top pick is the MBNA Smart Cash Card (it pays 3 per cent in points on the value of all grocery and gas station buys). He adds other good choices might better meet your shopping patterns or goals.

Some rewards are better value than others, he adds, because retailers set the reward cost based on the value to them as a business.

To maximize points, use your card everywhere and remember 200 points on one card is worth more than 100 points each on two cards.

Agar added new advice this year:

"Be mindful of the fact that Tim Hortons can probably swallow the credit card fees, but your local independent coffee shop might have a harder time with that."

Dana Flavelle

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