Safe you Finance

BOSTON — Playing it safe paid off in 2008 for Tom Forester and David Ellison, two standout mutual fund managers in a year when winning meant losing less money than the competition.

Forester’s eponymous Forester Value Fund (FVALX) focused on stocks that typically do well in recessions to roughly break even for the year, declining just 0.82 percent through Tuesday — easily making it the top-performing large-cap value fund of the year, according to Morningstar Inc. data. The second-place Copley Fund was down nearly 17 percent, which was still well above the average decline in the category of 38 percent.

Ellison’s FBR Small Cap Financial Fund (FBRSX) also stood out in 2008, ranking No. 2 among financial sector funds. It shed just 10 percent of its value, easily beating the category’s average decline of 45 percent.

If the economy is poised to turn around, Forester and Ellison might do well to heed the contrarian investment maxim that yesterday’s winners are likely to be tomorrow’s losers.
But the two managers — both of whose funds carry Morningstar’s five-star ranking — aren’t yet ready to budge from the approaches that served them so well in 2008. Neither sees enough positive economic news to merit shifting from investments that typically do OK in recessions to those more likely to gain when conditions improve.

"I’ll probably be in some of the same stocks for the first six months or so of 2009," said Forester, whose recent success has drawn new clients and boosted his fund’s assets more than fivefold since the start of 2008, to $55 million. "And then as I see things getting better, I’m going to shift out of the real defensive things, and get more constructive on the more cyclical stocks that can grow quite well as we come out of this period."

The fund’s top five holdings as of Sept. 30 included Kraft Foods Inc., Johnson & Johnson and H.J. Heinz Co. — three companies that managed to outperform broader markets for the year, with their shares all losing less than 20 percent cash advance no fax. Other 2008 investments included Wal-Mart Stores Inc. and McDonald’s Corp., which draw budget-conscious consumers during hard times.

Forester also spent 2008 easing out of financial stocks with heavy exposure to the mortgage meltdown, and unloading energy holdings before skyrocketing oil prices reversed course.

While Forester used much of his fund’s cash holdings to snap up low-priced stocks in the third quarter, Ellison continues to keep plenty of money on the sidelines. About 40 percent of his $179 million fund’s assets are in cash, and Ellison said he doesn’t plan to use much of it until he sees signs that the slide in home prices and surge in job cuts are about to end.

The former bank teller has managed his small-banking specialty fund since its inception 12 years ago. While smaller banks generally weren’t as exposed to mortgage troubles as much as larger rivals, Ellison took pains to find the small banks with the least risk. Shares of his fund’s top holding, Paramus, N.J.-based Hudson City Bancorp., were up about 4 percent for the year.

Now, the key for both Ellison and Forester is figuring out when to adjust their strategies as markets eventually build momentum for an expected rebound.

Forester expects that to happen around mid-2009, when he hopes to move out of defensive stocks and into industrial and technology companies whose business tends to move in tandem with the economy.

Ellison is confident his small bank investment niche will continue to perform relatively well, but he doesn’t believe big profits are just around the corner for small banks. There are too many uncertainties in the economy, and currently low borrowing rates for everything from mortgages to auto loans will pressure all banks’ bottom lines. So for now, Ellison hopes to keep plenty of cash on the sidelines.

"I think unaffordable mortgages are still going to chew on the economy for a while," he said.

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Federal regulators are moving to sell the remnants of failed IndyMac Bank before year-end, mopping up from the second-largest bank failure this year.

It was unclear whether the government would sell it off as a whole or in pieces. IndyMac had about $32 billion in assets when it was seized by the FDIC. Its collapse is expected to cost the federal bank insurance fund $8 payday loan.9 billion. Final bids for its assets were due Dec. 15.

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Shares in China Construction Bank (0939.HK: Quote, Profile, Research, Stock Buzz)(601939.SS: Quote, Profile, Research, Stock Buzz), the country’s most valuable lender, slid more than 4 percent on Monday even after Bank of America (BAC.N: Quote, Profile, Research, Stock Buzz) poured cold water on a local newspaper report it planned to unload its stake in the Chinese bank at a discount.

The No. 3 U.S. bank, which owns 19.13 percent of Construction Bank, aims to sell 3-6 billion of the Chinese lender’s Hong Kong shares at a discount of 13-17 percent to its Friday close, raising up to $3 billion, the Apple Daily cited unidentified market sources as saying.

Both the U.S. firm — which is slashing up to 35,000 jobs over three years to save $7 billion and offset an erosion of business from a global economic downturn — and a source close to Construction Bank, denied the report.

The source, who declined to be identified due to the sensitive nature of the issue, told Reuters the report was simply untrue but gave no other details.

Several local fund managers contacted by Reuters also said they had not received any information relating to the possible sale of Construction bank shares.

“It is not true,” Bank of America spokesman Robert Stickler said in an emailed reply to Reuters questions.

Still, the Chinese lender’s stock fell as much as 4.4 percent in the morning. Analysts said investors believed Bank of America, which is set to fold in Merrill Lynch (MER.N: Quote, Profile, Research, Stock Buzz) via a merger valued at $20.5 billion, would eventually reduce its ownership in the state-run bank in future.

“There is a possibility that Bank of America might sell its shares in CCB before the end of the year to capture the rise in CCB shares since the end of October,” said Y advance payday loans.K. Lee, analyst at Core-Pacific Yamaichi. “That’s the main reason why CCB is down.”

“Bank of America needs more money because it is facing difficulties in its home market. Its delinquency ratio is rising,” he added.

MATTER OF TIME

Speculation that Bank of America would unload part of its stake in China’s largest property lender, has surfaced sporadically and many analysts say it’s just a matter of time.

The report comes about a month after Bank of America actually nearly doubled its stake in the Chinese firm, which investors — shell-shocked by a year-long market slide — feared signaled the U.S. lender was preparing to sell some of its pre-existing holdings in the bank to bolster its capital base.

Bank of America, which is facing increasing troubles at home, was barred from selling those newly acquired shares until August 29, 2011, but holdings it had bought previously were released in November from a three-year lock-up period, allowing them to be sold at any time.

Bank of America paid $3 billion for a 9 percent stake in CCB in June 2005, and invested another $1.9 billion this July. Despite a sharp slide in Chinese share prices this year, that $4.9 billion total investment was worth $14.5 billion as of September 30, almost tripling in value, Bank of America has said.

But just last week, Construction Bank president Zhang Jianguo told reporters he believed Bank of America would not sell shares of China’s top property lender in the near term, citing his own communications with the U.S. firm. 

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WASHINGTON — The latest evidence of the deepening recession, already the longest in a quarter-century, came Wednesday in a pair of reports that found little relief in sight.

The U.S. service sector shrank far more than expected in November, as employment, new orders and prices plunged, hurting retailers, hotels and airlines. Meanwhile, the Federal Reserve said Americans hunkered down heading into the holidays, forcing retailers to ring up fewer sales and factories to cut back on production.

The Institute for Supply Management’s closely watched gauge of activity in service industries, where most Americans work, showed that for every company adding jobs, eight cut payrolls last month. That ratio led some economists to boost their forecasts for layoffs for November to levels not seen since the early 1980s.

"This is consistent with payrolls falling by about 500,000" for the month, said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y. "Let’s hope it is very wrong."

Analysts expect the nation’s jobless rate, when announced Friday, will hit 6.8 percent, on its way to a reading that they project could be closing in on 9 percent a year from now.

The view was equally gloomy in the Fed’s beige book — the latest snapshot of business activity compiled by the Fed from its 12 regional banks. It reported that "overall economic activity weakened across all Federal Reserve districts" since October.

The beige book reported that retailers were bracing for a weak holiday shopping season, manufacturing activity had slowed sharply and bank lending was contracting as the financial sector endures its worst crisis in seven decades.

Many analysts expect the Fed, which cut interest rates by a full percentage point last month, to cut rates by a half-point at its policymakers’ last meeting of the year on Dec. 16. In cutting rates, the Fed is trying to help stimulate lending and halt the economy’s slide.

A panel for the National Bureau of Economic Research on Monday said the country has been stuck in a recession since last December. At 12 months, the recession is already the longest since a severe 16-month slump in 1981-82 fast cash advance. Many economists say the downturn ultimately will set a record for the post-World War II period.

"I am looking for this recession to last 18 months, ending in June," said David Wyss, chief economist at Standard & Poor’s in New York.

In another report, the Labor Department said productivity, the amount of output per hour of work, rose at an annual rate of 1.3 percent in the July-September quarter. That was slightly higher than the 1.1 percent increase initially reported a month ago. And it was better than the 0.9 percent rise economists had expected.

Wage pressures rose at an annual rate of 2.8 percent. That was the biggest jump since a 4.5 percent rate in the fourth quarter of last year, but it fell below the 3.6 percent advance originally reported.

The Fed monitors productivity and wages to make sure inflation isn’t getting out of hand. But analysts say worries about the deepening recession would trump any inflation concerns in the minds of Fed policymakers.

The ISM report said its services sector index fell to 37.3 in November from 44.4 in October, far below the reading of 42 analysts had expected. Of the 18 industries in the survey, including warehousing, real estate, restaurants and wholesale trade, only one — health care and social assistance — reported growth.

One reason labor costs have eased is that companies have been aggressively laying off workers as demand has fallen. Job losses through October this year have totaled 1.2 million. More than half that figure came since August as the economy’s downward spiral accelerated.

Economists predict wages will remain depressed as job losses grow. Productivity growth probably will turn negative in the current quarter and the first three months of 2009 before beginning to rebound, said Nariman Behravesh, chief economist at IHS Global Insight. He forecast that productivity growth for next year will be a weak 0.9 percent.

Analysts had expected a big downward revision in productivity for the third quarter given that overall output, as measured by the gross domestic product, was revised to show a decline of 0.5 percent at an annual rate. That was a bigger drop than the 0.3 percent decrease originally reported. But the drop in output was outpaced by an even bigger decline in hours worked.

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With all three Detroit-based automakers in dire straits and seeking a Washington bailout, the moment finally has arrived for a radical reinvention of America’s domestically owned auto industry. Which means letting the Detroit Three reorganize under bankruptcy protection, from which several smaller, more nimble and competitive firms would emerge, no longer prisoner to Detroit’s hidebound, century-old decision-making traditions.

To bail out Detroit is not to rescue the U.S. auto industry, despite how the CEOs of General Motors Corp., Ford Motor Co. and Chrysler LLC continue to misrepresent the federal bailout they seek.

For more than two decades, there have been two U.S. auto sectors. There is the familiar Detroit Three (no longer the Big Three), which are corporate cripples after decades of mismanagement.

And there are the much healthier U.S. operations of Asian and European automakers that employ millions of Americans turning out Hondas, Toyotas and BMWs, sooner or later to be joined by Chinese and Indian makers. The foreign-based firms already operate 16 vehicle assembly plants and dozens of parts plants from Alabama to Ohio to Ontario.

Led by GM, Detroit is again a holdout against progress, arguing for the continuation of a failed status quo, just as it resisted everything from today’s life-saving three-point seatbelts to fuel-efficiency standards to the devastating (to Detroit) recent shift in consumer demand to small cars from gas-guzzling sport utility vehicles and heavy trucks.

Detroit arguably stands alone in chronically failing to "get it" since its laudable introduction of enclosed passenger cabins and automatic transmissions before most of today’s motorists were born.

One way or another, Detroit has been cosseted by taxpayers and motorists since the ill-fated Chrysler bailout of 1979; followed by the Reagan-era "voluntary" quotas imposed on imports, which did not deter American consumers from paying the resulting higher prices for better-built Hondas and Toyotas; followed by repeated abeyance or postponements of fuel-efficiency standards the feds sought to impose on Detroit.

The ill-fated 1979 Chrysler bailout, which secured that company’s viability for just two decades, signalled the larger GM and Ford that they also were "too big to fail" and needn’t abandon their complacent ways. The import quotas inspired first the Asian rivals and later the Europeans to leapfrog that barrier by making in America most of the vehicles they sell in America. And granting Detroit leave from onerous fuel-efficiency standards enabled the foreign-based competition to gain a competitive advantage by complying with or exceeding the U.S. mandates.

Detroit’s sense of exceptionalism has not diminished.

Rick Wagoner, GM’s chief executive, was on Capitol Hill last Thursday making a pitch for taxpayer assistance in financing its proposed merger with Chrysler – this after Detroit had secured in September $25 billion (U.S.) in federal funds to finance development of fuel-efficient vehicles.

Yes, you read that correctly. Developing products necessary to ensure their future, as foreign-based firms have long since done with their own money, is something Detroit has to be paid public money to do.

At a moment when Washington is trying to come up with the scratch to keep imperilled homeowners from losing their homes, the Detroit makers further propose that the additional bailout funds they seek – a rumoured $10 billion in GM’s case – be carved out of the $700 billion bank bailout fund that U pay advance in 24 hour.S. lawmakers rightly criticize for failing to provide for homeowners as well as Wall Street banks and brokerages.

As if chutzpah weren’t enough – GM’s finance arm, GMAC LLC, which has lost $9.1 billion in the past two years as a mortgage-lending enabler in the historic collapse of the U.S. housing market – Detroit is also stooping to coercion.

GM has lost an almost incomprehensible $70 billion (U.S.) since the end of 2004, while the U.S. economy was still healthy, and yesterday reported a $2.5-billion third-quarter loss.

Barack Obama backer Roger Altman, the former Clinton-era Treasury official forced to quit under an ethical cloud, and now a top adviser to GM in its merger talks with Chrysler, warned the Obama economic team publicly last week that the collapse of any of the Detroit Three "would be a difficult way for a new administration" to take office.

Reading from the same scare-tactics script, John Snow, a mediocre if generously compensated CEO of U.S. rail giant CSX before becoming George W. Bush’s second, invisible, Treasury secretary, and now chair of Chrysler owner Cerberus Capital Management LP, told CNBC that Washington must ensure "that a vital industry like autos, which is such a big part of the overall economy, doesn’t lead us into a deeper and harsher downturn."

Any bailout of GM, enabling it to purchase Chrysler, would be a bailout of the short-sighted dealmakers at private-equity firm Cerberus in their exquisitely ill-timed bet on Chrysler in buying the firm from Daimler AG last year, only to see Chrysler’s fortunes further plummet after the deal.

Detroit has been a significant destroyer of jobs and shareholder value for the past decade, and sporadically in decades past, as well. Worse, its sclerotic decision-making has helped hold America back from technological leadership in one of the world’s major industries.

As the cockpit of capitalism, banking is an essential service whose seize-up this September required a bailout by global governments. The auto sector is not as important, and the Detroit Three no longer account for more than a fraction of that sector.

And the latest straw GM is grasping at, a combination with Chrysler, proves again how lacking in smarts is the existing troika of Detroit CEOs. A GM already burdened with too many brands (eight) merged with Chrysler’s three brands would require a years-long shedding of jobs and closing of excess plant capacity in search of the "synergies" that former Chrysler owner Daimler found so elusive in its sorry nine-year-long ownership of the firm.

If an Obama who last week pledged to make aid to Detroit a top priority is serious about change, he will rule out a Detroit bailout. Or he and Congress will effectively nationalize Detroit, deploying a team of experts to preside over the dismantling of these firms that for generations have lacked the managerial acuity of founders William Durant and Alfred Sloan of GM, Henry Ford and Walter P. Chrysler.

David Olive writes on business and political issues. He can be reached at dolive@thestar.ca

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Welder Robert England has been out of work since his former employer Dana Canada shut its plant in St. Mary’s last summer.

"Everyone says: `Go West.’ These days anything is worth a try," said the 34-year-old father of two, who welded Ford-150 frames at the plant near London for the past seven years.

Armed with a stack of resumés and high hopes, he and wife Melanie visited the Workwest career caravan in Mississauga yesterday with their 4-year-old son and daughter, 2, in tow, looking for work in Alberta’s oil patch.

Ontario’s manufacturing sector has been getting hammered lately thanks to the ailing auto industry, the weakening economy and a stronger loonie that’s only recently slid back – just not in time for those like England.

A dozen Western Canadian employers at the job fair are chomping at the bit to recruit Ontarians struggling in a tighter job market and eager to sign on as civic planners, labourers, firefighters, transit drivers, electricians, sandblasters, health-care professionals – you name it.

"One of the oil field companies told us the jobs pay $50 an hour. It’s hard work, but that makes it worth moving a family of four out there," said England.

Hundreds of others of various ages and training toured the booths yesterday to see what the West and its storied economic boom have to offer them.

Workwest, the Calgary-based company running career fairs for the past two years in Ontario, said despite the recent doom and gloom on world markets, most of B.C., Alberta, Saskatchewan and Manitoba continue to thrive, and have yet to feel the fallout Ontario has same day cash advances.

"We burned out our labour pool a long time ago. Even with oil at $64 a barrel instead of $150, these companies are still doing well and projects need to be built," said Workwest president Ray Edwardson.

Gary Griffin and his father Brad drove in from their Haliburton home and found it was worth the three-hour trip. They were thrilled to hear a recruiter for the City of Calgary Fire Department say they’re looking for 200 new firefighters next year and another 200 the year after.

"It’s difficult to get a job here. They had 800 applicants for the Barrie fire department when I applied," said Gary, 19, who recently graduated from Georgian College’s firefighter program and would love to move to Calgary.

"A young guy like me, I’ve got nothing to lose moving out west," agreed Brandon Chaston, 24, who has struggled to find work in Hamilton after getting a degree in environmental sciences.

Windsor resident Ranjan Subramaniam told exhibitors he’s looking for a job in information technology, noting his area has been hard-hit by job losses.

"I lost a job in January because of the U.S. housing crisis," said the 26-year-old, who worked in the banking industry in IT. "I don’t mind going where the jobs are."

The job fair continues today from 9 a.m. to 6 p.m. at the International Centre at 6900 Airport Rd. For information about employment opportunities go to Workwest.ca.

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Philip Morris International said Wednesday its third-quarter profit rose 20.6% as sales climbed and a weak dollar boosted results.

The results led the company to reaffirm its full-year profit forecast for 2008.

The world’s biggest non-governmental cigarette maker reported net income for the quarter of $2.1 billion, or $1.01 per share, compared with $1.73 billion, or 82 cents per share, a year ago.

Philip Morris International Inc. (PM) - which sells Marlboros outside the U.S. and has offices in Lausanne, Switzerland and New York - said revenue rose 22% to $17.37 billion. Sales rose 23.6% in Eastern Europe, the Mideast and Africa; 17.3% in Europe; 14.9% in Latin America and Canada; and 11.7% in Asia.

Excluding one-time costs, the company said it earned 93 cents per share in the quarter, beating a consensus Wall Street estimate low fee cash advance. The weak dollar added 8 cents per share to the results and tax items added another 8 cents.

Analysts surveyed by Thomson Reuters, who typically exclude one-time costs, expected earnings of 90 cents per share on revenue of $6.57 billion.

The company reiterated that it would earn $3.32 to $3.38 in 2008. It earned $2.79 a share in 2007.

During the quarter, the company completed its acquisition of Canadian cigarette maker Rothmans Inc. 

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Gas prices continued their decline one day after falling below $3 a gallon for the first time in nearly nine months, according to a daily survey of credit card swipes released Sunday.

The average price of unleaded regular fell to $2.95 a gallon, down 3.7 cents, according to the Daily Fuel Gauge Report issued by motorist group AAA. Prices have fallen more than 30 cents a gallon in the last week and 90 cents, or 23%, in the last 32 days.

The current national average is $1.16, or 28%, off the record high price of $4.11 that AAA reported July 17.

The last time the average price for a gallon of regular unleaded gasoline dropped below $3 a gallon was Jan. 25, when it reached $2.99.

Alaska has the most expensive gas, with prices averaging $3.90. The cheapest gas is found in Oklahoma, with prices averaging $2.54.

The decline comes as hurricane season winds down and oil prices drop over concerns that a prolonged economic slump would curb demand for energy savings account payday advance.

Oil prices rose above $74 a barrel in premarket trading Monday after settling Friday at $71.85 a barrel in New York. The rebound comes ahead of an expected production cut by the Organization of Petroleum Exporting Countries.

The cartel, which controls two-thirds of the world’s oil supplies, is set to hold an emergency meeting that begins Oct. 24 in Vienna.

OPEC ministers have expressed concern over the rapidly declining price of oil. Chakib Khelil, OPEC’s president, said Sunday that members are considering a "substantial" cut and that the oil market is oversupplied by about 2 million barrels a day.

A barrel of crude has lost roughly half its value since hitting an all-time high above $147 a barrel in July.  

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Michael Sroka dreamed up a day-trading website for sports fans while still in high school, and the concept will finally come to fruition with the launch of OneSeason.com.

The website, scheduled to debut on Wednesday, offers U.S. fans the chance to buy shares in such athletes as basketball star LeBron James and golfer Tiger Woods. The aim is to make a profit from trades, much like investors do when betting on the stocks of General Electric Co or Cisco Systems Inc.

At OneSeason, users can trade real money based on the performance of athletes, teams, leagues and other sports personalities. The idea came to Sroka, 27, at his Winnetka, Illinois, high school.

“Daydreaming in my economics classroom, I mashed together my two favorite things, which were sports and trading,” he told Reuters in a telephone interview.

Designed to appeal to sports fans, investors and gamblers, OneSeason allows users to build a portfolio — the company prefers “sportfolio” — of shares in athletes.

The shares, called “synthetic ownership interests,” are delineated with ticker symbols, just like real stocks cash advance loans. So Los Angeles Lakers all-star guard Kobe Bryant will have shares with the ticker “KOBE” when issued.

The value of those shares is determined by market demand influenced by onfield play, off-field behavior, fan opinion and future prospects, Sroka said. While OneSeason represents a first, it comes as Internet users grow comfortable with dealing in intangible assets.

“People have become much more comfortable with virtual goods and digital assets,” Sroka added. “In the past five years, people have also become much more comfortable with financial transactions online.” 

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Nokia (NOK1V.HE: Quote, Profile, Research, Stock Buzz) is well prepared for Google’s (GOOG.O: Quote, Profile, Research, Stock Buzz) high-profile foray into the mobile phone business thanks to years of development experience and millions of phones on the market, a senior Nokia official told Reuters.

Details of Google’s plan to enter the mobile software market are expected on Tuesday when T-Mobile USA (DTEGn.DE: Quote, Profile, Research, Stock Buzz) displays the first phone based on Google’s Android platform in New York, sources familiar with the plan have said.

In response to Google’s impending entry into the market, world’s top cellphone maker Nokia said in June it would buy out the remaining shareholders of UK-based smartphone software maker Symbian for $410 million, then give the software to not-for-profit organization and make it royalty-free.

“I think that the fact there is a mature platform that is being introduced in an open source environment kind of changes the game,” said David Rivas, head of technology management at Nokia’s S60 business, the platform that runs on Symbian.

“The choices up until then were: You could go with proprietary and mature, or you could go with immature and free paydayloans. Now there is a choice that is free and mature,” Rivas said.

Nokia, Motorola (MOT.N: Quote, Profile, Research, Stock Buzz), Sony Ericsson (6758.T: Quote, Profile, Research, Stock Buzz)(ERICb.ST: Quote, Profile, Research, Stock Buzz) and others will contribute assets to the not-for-profit Symbian Foundation, which unites handset makers, network operators and communications chipmakers to create an open-source platform.

Rivas pointed to the 226 million Symbian phones that had been sold by end-June, saying they gave Symbian an advantage over the new platforms of Google and Apple (AAPL.O: Quote, Profile, Research, Stock Buzz).

“All developers tend at the end of the day to look for something that has impact in the context of volume,” Rivas said. 

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