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| Market News: News Archive : Morning News Call Week ending |
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Oct 30, 2009
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FRIDAY, OCTOBER 30 , 2009, CANADIAN EDITION
TOP STORIES
• Miranda Technologies Q3 profit falls 86 pct
• Costs bite into Tim Horton's results
• Alcatel posts loss, says market still tough
• Cogeco Q4 profit jumps 56 pct
• Norbord posts narrower-than-expected Q3 loss
• Domtar posts adj EPS of US$1.32
BEFORE THE BELL
Toronto's main stock index may open lower on Friday as commodity prices eased after a rally on Thursday. Investors would also keep an eye on GDP by industry measure, which is expected to rise 0.1 percent in August. Wall Street is also set to open lower ahead of data on personal consumption and consumer sentiment. European and Asian shares were mixed. Oil prices fell towards US$79 a barrel following a 3 percent jump in the previous session.
COMPANIES REPORTING RESULTS
• Atco Ltd. (ACOx). Expected to report Q3 earnings of 67 cents a share, according to Thomson Reuters I/B/E/S
• Canadian Utilities (CU). Expected to report Q3 earnings of 50 cents a share
STOCKS TO WATCH THIS MORNING
• Canadian Hydro Developers Inc. (KHD). The renewable energy company terminated an agreement to acquire a 4,400 megawatt offshore wind prospect, the company said on Thursday.
• Canfor Corp. (CFP). The softwood lumber producer reported narrower-than-expected third-quarter loss on Thursday, helped largely by a foreign exchange gain, and said it will take curtailments at most of its sawmills over the Christmas period.
• Centerra Gold Inc. (CG). The company on Friday reported third-quarter EPS of 9 U.S. cents, on revenue of US$158.8 million.
• Cogeco Cable Inc. (CCA). The company said on Thursday it raised its quarterly dividend by 17 percent to 14 cents a share.
• Cogeco Inc. (CGO). The cable and telecommunications company posted a 56 percent jump in fourth-quarter profit on Friday on strong performance of its cable operations. Separately, the company raised its quarterly dividend by 25 percent to 10 cents a share on Thursday.
• Cossette Inc. (KOS). The homegrown advertising agency on Thursday urged shareholders to wait until its board reviewed a sweetened takeover offer from a North American private equity group before tendering their stock.
• Domtar Corp. (UFS). The company on Friday reported third-quarter adjusted EPS of US$1.32, on sales of US$1.4 billion.
• Eldorado Gold Corp. (ELD). The company on Thursday reported third-quarter earnings of 8 U.S. cents a share, on revenue of US$82.6 million.
• Fairfax Financial Holdings Ltd. (FFH). The company, which deals in property and casualty insurance and reinsurance, said on Thursday its third-quarter profit jumped 20 percent, due primarily to improve underwriting profit.
• Genworth MI Canada Inc. (MIC). The residential mortgage insurer on Thursday reported third-quarter earnings of 67 cents a share.
• GLG Life Tech Corp. (GLG). The company on Friday reported third-quarter EPS of 2 cents, on revenue of $14.8 million, which rose 349 percent. The company forecast full year sales in range of $44 million to $53 million
• Heroux-Devtek Inc. (HRX). The aerospace and industrial manufacturer on Friday reported second-quarter EPS of 11 cents, on sales of $76.6 million, and said it is still not anticipating any significant sales growth for fiscal 2010.
• IESI BFC Ltd. (BIN). The waste management company on Thursday reported third-quarter earnings of 22 U.S. cents a share, before items, on revenue of US$268.4 million.
• IGM Financial Inc. (IGM). The mutual fund manager said on Thursday its third-quarter profit skidded 16 percent amid falling revenue. The company said quarterly profit was $167.4 million or 63 cents a share, compared with $198.7, or 75 cents a share, a year ago.
• Imperial Oil Ltd. (IMO). The oil producer and refiner on Thursday reported third-quarter profit, which fell 61 percent on lower prices for oil and natural gas and weaker refining results.
• MDC Partners Inc. (MDZa). The company said on Thursday its third-quarter revenue declined about 5 percent to $134.6 million.
• MGM Energy Corp. (MGX). The company on Thursday reported third-quarter loss of 2 cents a share.
• Miranda Technologies Inc. (MT). The broadcast equipment maker reported an 86 percent drop in third-quarter profit, hurt by foreign exchange losses, a restructuring charge and higher expenses amid weak market conditions.
• Norbord Inc. (NBD). The building products maker reported on Friday a third-quarter loss of 16 U.S. cents, on net sales of US$192 million.
• Strongco Income Fund (SQP_u). The manufacturer and distributor of engineered systems and equipment on Friday reported third-quarter EPS of 2 cents, from continuing operations, on revenue of $74.6 million, which fell 24 percent.
• Tim Hortons Inc. (THI). The company on Friday reported third-quarter EPS of 34 cents, on revenue of $563.6 million, which rose 10.7 percent.
ECONOMIC CALENDER
08:30 GDP by industry mm for Aug: Prior 0.0% Expected 0.1%
CORPORATE EVENTS
08:30 IESI-BFC Ltd. (BIN). Q3 earnings conference call
08:30 Fairfax Financial Holdings (FFH). Q3 earnings conference call
08:30 MDC Partners Inc. (MDZa). Q3 earnings conference call
09:00 Miranda Technologies Inc. (MT). Q3 earnings conference call
09:30 IGM Financial Inc. (IGM). Q3 earnings conference call
10:00 Heroux-Devtek Inc. (HRX). Q2 earnings conference call
10:30 Genworth MI Canada Inc. (MIC). Q3 earnings conference call
10:30 Tim Hortons Inc. (THI). Q3 earnings conference call
11:00 Cogeco Cable Inc (CCA). Q3 earnings conference call
11:00 Centerra Gold Inc. (CG). Q3 earnings conference call
11:00 Cogeco Inc. (CGO). Q3 earnings conference call
11:00 Norbord Inc. (NBD). Q3 earnings conference call
11:00 Domtar Corp. (UFS). Q3 earnings conference call
11:30 Eldorado Gold Corp. (EGO). Q3 earnings conference call
12:00 Canfor Corp. (CFP). Q3 earnings conference call
ANALYST RECOMMENDATIONS
• Bombardier (BBDb) rating raised to outperform from market perform at Raymond James
• Dalsa Corp. (DSA) rating cut to hold from buy at Genuity
• Lundin Mining (LUN) price target cut to $5.30 from $5.70; rating buy at Genuity
• Martinrea International (MRE) price target raised to $11 from $9.75; rating buy at Genuity
• Westernzagros Resources (WZR) rating cut to underperform from market perform at Raymond James
EXDIVIDENDS
• Aastra Technologies Inc. (AAH). Amount $0.15
Note: All values in Canadian currency, unless otherwise stated
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
Pharma, insurers see bigger hit with U.S. House bill
Drugmakers would take a bigger hit under healthcare legislation unveiled in the U.S. House of Representatives on Thursday, while insurers would face mandatory rebates and the loss of their antitrust exemption.
Despite a carefully crafted deal with the White House and senators earlier this year, House lawmakers want pharmaceutical companies to pay more through rebates for Medicare patients also enrolled in the government's Medicaid program for the poor.
And while they also want to close the gap in drug coverage for elderly and disabled Medicare patients -- a move that could get more people to take their medications -- House leaders would require the nation's health secretary to negotiate lower drug prices under the program.
Insurers, already expected to take the biggest whack under any health reform measure, saw most of their worries realized with the House bill eliminating the industry's exemption to antitrust laws and targeting their profits.
The measure forces insurance companies to give customers rebates if less than 85 percent of enrollees' fees is spent on actual health care.
The much-anticipated public option also could give insurers stiff competition by keeping prices down with reimbursements potentially as low as Medicare rates as well as requiring providers to opt out against accepting patients with the public plan coverage. The bill also allows for a cooperative insurance exchange for consumers to compare plans.
While the drug and insurance sectors would take a hit, most healthcare companies also would see their income dented, especially when it comes to government reimbursement.
"Pretty much for every industry, provisions are worse in the House bill than in the Senate," said Ipsita Smolinski, an analyst for investors at Capitol Street.
At the same time, the bill would increase the number of Americans with insurance by 36 million, the Congressional Budget Office estimated. That would bring new customers for drugmakers, insurers and other providers of health services and products.
The broader S&P Health Care Sector index closed up nearly 1 percent, trailing the 2.25 percent increase for the overall market. Health insurer stocks ended sharply higher on Thursday, helped in part by Aetna Inc's encouraging third-quarter earnings report.
Drugmakers and insurers are expected to fight back against the provisions, especially as Senate leaders prepare to release their own bill as soon as next week.
"Unfortunately, some people are unrealistic in the expectations of what our industry can contribute to healthcare reform without triggering catastrophic job losses and driving critically important (research and development) overseas," said Ken Johnson, a spokesman for the Pharmaceutical Research and Manufacturers of America.
America's Health Insurance Plans President Karen Ignagni said that the government public insurance option "would cause millions of people to lose their current coverage" while other consumers could see benefit cuts or higher costs.
For hospitals, the picture appeared somewhat murkier. A greater number of insured patients would help offset losses from mandatory care hospitals provide in emergency rooms, but they would also face lower government reimbursement and possible higher device costs.
Clinical laboratories, hospice providers and other sectors will see their reimbursements cut based on a rate that the American Clinical Laboratory Association said could be between about 1.1 and 1.4 percent annually.
Still, some sectors emerged relatively unscathed, most notably biotech drug companies that were able to maintain a 12-year period of protection from generic rivals.
Devicemakers, which had seen a US$4 billion-a-year tax in a Senate version of the bill, were able persuade House lawmakers to cut the tax in half and delay it back until 2013.
That delay gives device companies time not only to prepare for it but also "where possible, attempt to pass on at least a portion of the tax through price increases," J.P. Morgan analyst Michael Weinstein said in a note.
--- Susan Heavey and Lisa Richwine, Reuters
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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Oct 29, 2009
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THURSDAY, OCTOBER 29, 2009, CANADIAN EDITION
TOP STORIES
• Barrick Gold posts net loss on US$5.7 billion charge
• Brookfield reports lower funds from operations
• Newmont's Q3 profit doubles, beats estimate
• Cott Corp Q3 profit rises
• Procter & Gamble profit tops expectations
• Motorola sees better-than-expected Q4 profit
• UK's Mandelson says close to Magna-GM finance deal
BEFORE THE BELL
Toronto’s main stock index could open higher on Thursday on rising commodity prices. On the macro front, producer prices is expected to decline 0.2 percent and raw material prices is seen down 0.7 percent, according to Reuters polls. Wall Street is also set for a higher open after four days of losses in the S&P 500 as reassuring corporate profits spurred optimism ahead of data expected to show the U.S. economy resumed growing in the third quarter. European markets were mixed with Britain's FTSE 100 down on downbeat results from Royal Dutch Shell. Asian shares were down. Oil rose to trade about US$77.66 a barrel.
COMPANIES REPORTING RESULTS
• Dalsa Corp. (DSA). Expected to report Q3 earnings of 3 cents a share, according to Thomson Reuters I/B/E/S
• Fairfax Financial Holdings (FFH). Expected to report Q3 earnings of US$13.95 a share
• Genworth MI Canada Inc. (MIC). Expected to report Q3 earnings of 63 cents a share
• IESI-BFC Ltd. (BIN). Expected to report Q3 earnings of 19 U.S. cents a share
• IGM Financial Inc. (IGM). Expected to report Q3 earnings of 63 cents a share
• Lundin Mining Corp. (LUN). Expected to report Q3 earnings of 7 U.S. cents a share
STOCKS TO WATCH THIS MORNING
• Agnico-Eagle Mines (AEM). The gold miner said on Wednesday it posted a US$17 million net loss in the third-quarter, as it absorbed a US$23 million foreign exchange-related charge and dealt with production issues at its new mines.
• Barrick Gold Corp. (ABX). The gold producer reported a third-quarter net loss on Thursday as it absorbed a US$5.7 billion charge to unwind gold hedges, but the Canadian miner said core earnings rose, helped by higher gold prices.
• Brookfield Properties (BPO). The landlord said on Thursday that its third-quarter funds from operations fell slightly from a year earlier, when it benefited from the sale of a Toronto office building. The company said funds from operations dipped to US$151 million, or 34 U.S. cents a share, from US$152 million, or 38 U.S. cents a share, a year earlier.
• Canadian Oil Sands Trust (COS_u). The company, which has the biggest stake in Syncrude Canada Ltd, said on Wednesday third-quarter earnings fell 59 percent as oil prices tumbled from last year's heights and production dipped. Still, the company increased its quarterly distribution by 10 cents to 35 cents a unit, a move it said reflected recent gains in oil prices and in production at Syncrude, which averaged 312,000 barrels a day in the third quarter.
• Cash Store Financial Services Inc. (CSF). The company said on Wednesday it increased quarterly dividend by 54 percent per common share.
• Consumers Waterheater Income Fund (CWI_u). The company on Thursday reported third-quarter revenue of $46.1 million.
• Corel Corp. (CRE). Vector Capital, a private-equity firm, said on Wednesday it has launched a bid to take the software maker, Corel, private. Vector Capital, through the Corel Holdings Limited Partnership that its affiliate controls, said it would offer US$3.50 per share. Vector already holds 68.2 percent of the company's shares, according to Thomson Reuters data.
• Cossette Inc. (KOS). Cosmos Capital Inc, a private equity firm made up of U.S. and Canadian investors, late on Wednesday said it would make an all-cash hostile bid for the advertising company Cossette.
• Cott Corp. (BCB). The soft-drink maker reported a third-quarter profit that topped expectations on Thursday, helped by a strong performance from its British operations and a thirst for private-label products.
• Fancamp Exploration Ltd. (FNC). The company said on Wednesday it is offering 3 million flow-through shares at a price of 50 cents per unit.
• Inmet Mining (IMN). The company said on Wednesday it had entered an option agreement giving South Korea's LS-Nikko Copper the right to acquire a 20-percent interest in Inmet's Cobre Panama copper deposit in Panama.
• MacDonald, Dettwiler & Associates (MDA). The real-estate data and space technology provider said on Wednesday third-quarter profit rose even as revenue dropped, helped by an accounting gain.
• Mercer International Inc. (MRIu). The company posted on Wednesday a narrower third-quarter loss, aided by strengthening pulp prices and strong demand from China, and said it remains optimistic on the short-term outlook for pulp prices.
• Magna Inc. (MGa). Britain's Business Secretary Peter Mandelson said on Thursday that Britain was closer to agreeing a financing package to support the auto parts maker takeover of General Motors' British operations.
• Mullen Group Ltd. (MTL). The company reported on Wednesday third-quarter FFO of 46 cents a share, on operating income of $45.9 million
• Newmont Mining Corp. (NEM). The gold producer said on Thursday its third-quarter profit doubled on higher gold prices and sales, handily beating Wall Street estimates.
• Nuvo Research Inc. (NRI). The drugmaker reported on Wednesday third-quarter loss of 1 cent a share, on sales of $2.6 million.
• Provident Energy Trust (PVE_u). The company said on Wednesday it sold Lloydminster Heavy Oil assets for $87 million.
• Samuel Manu-Tech Inc. (SMT). The packaging and metal processing company posted on Wednesday a narrower-than-expected third-quarter loss helped by cost reduction initiatives and increased demand from the automotive market.
• Seafield Resources Ltd. (SFF). The company said on Wednesday Eduardo Baer has been removed from the positions of chairman and CEO of the company, effective immediately, and will be succeeded by Anthony Roodenburg.
• Sierra Wireless (SW). The mobile modem maker reported a third-quarter loss on Wednesday as the cost of sales and research and development mounted and revenue inched lower.
• Teck Resources (TCKb). The base metals miner said on Wednesday its third-quarter profit rose 44 percent, helped by a $311 million debt-related foreign exchange gain and higher coal sales volumes.
• TransAlta Corp. (TA). The Canada's biggest publicly traded power generator said on Wednesday it is selling $375 million of stock to pay down debt it took on to finance its acquisition of Canadian Hydro Developers (KHD).
• West Fraser Timber Co. (WFT). The softwood lumber producer said on Wednesday it will permanently close the unprofitable Eurocan paper mill in British Columbia and cut 535 jobs.
• Zarlink Semiconductor Inc. (ZL). The company posted on Wednesday lower second-quarter results, hurt by a non-cash foreign exchange charge, and provided third-quarter revenue view below estimates.
ECONOMIC CALENDER
08:30 Producer prices mm for Sept: Prior 0.5% Expected -0.2%
08:30 Producer prices yy for Sept: Prior -6.7%
08:30 Raw materials mm for Sept: Prior 3.7% Expected -0.7%
08:30 Raw materials yy for Sept: Prior -26.4%
CORPORATE EVENTS
09:00 Barrick Gold (ABX). Q3 earnings conference call
09:00 Cott Corp. (COT). Q3 earnings conference call
10:00 Consumers Waterheater Income Fund (CWI_u). Q3 earnings conference call
10:00 Mercer International (MEIu). Q3 earnings conference call
11:00 Agnico-Eagle Mines Ltd. (AEM). Q3 earnings conference call
11:00 Brookfield Properties Corp. (BPO). Q3 earnings conference call
11:00 Mullen Group Ltd. (MTL). Q3 earnings conference call
11:00 Teck Resources Ltd. (TCKb). Q3 earnings conference call
12:00 Cash Store Finl Svcs Inc. (CSF). Q1 earnings conference call
12:30 Lundin Mining Corp. (LUN). Q3 earnings conference call
17:00 Dalsa Corp. (DSA). Q3 earnings conference call
ANALYST RECOMMENDATIONS
• Agnico-Eagle Mines (AEM) price target cut to $78 from $83; rating hold at Genuity
• MDA (MDA) target price raised to $39 from $36; kept market perform rating at Raymond James
• Marathon PGM (MAR) price target raised to $1.80 from $1.70; rating outperform at Blackmont
• Mullen Group (MTL) target price raised to $18.50 from $17; kept outperform rating at Raymond James
• Nexen (NXY) price target raised to $28 from $24; rating equal-weight at Barclays
• Sierra Wireless (SWIR) price target raised to $12 from $10; rating buy at Genuity
• TMX Group (X) price target cut to $29 from $31; rating sells at Goldman Sachs
EXDIVIDENDS
• Emera Inc. (EMA). Amount $0.2725
• Vitreous Glass Inc. (VCI) Amount $0.12
Note: All values in Canadian currency, unless otherwise stated
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
Accounting irregularities may be on the rise in U.S.
Corporate balance sheets may be showing signs of the wear and tear from the prolonged U.S. recession as accounting irregularities are starting to surface at growing numbers at U.S. companies.
"When things get difficult companies tend to stretch even further and utilize whatever games that they can get away with and sometimes they don't get away with them," David Tice, chief portfolio strategist for bear markets at Federated Investors, said in an interview with Reuters television on Wednesday.
Accounting irregularities are increasingly showing up in U.S. regulatory filings and corporate announcements.
Shares of Apollo Group Inc sank 18 percent on Wednesday after the parent of University of Phoenix said the U.S. Securities and Exchange Commission had launched an informal inquiry into its revenue recognition practices.
Apollo is just one of several big name companies that have disclosed they have accounting issues over the last few weeks.
Internet retailer Overstock.com said last month that it was under scrutiny from government regulators over the way it accounted for some expenses. The company restated financial results in 2006 and 2008.
New York Sports Clubs owner Town Sports International Holdings Inc said last month that the SEC was formally investigating its deferral of certain payroll costs related to membership sales.
And jewelry chain Zale Corp said it will report fourth-quarter financial results on Thursday, after it twice-delayed its earnings results due to an accounting review of prepaid advertising costs.
"Statistically you can show any time you have a recession or some type of tremendous decline in an economy you're going to see financial pressures on companies," said Bruce Dorris, program director at the Association of Certified Fraud Examiners, noting that corporate employees can sometimes be motivated to be overly aggressive with accounting or commit outright fraud to meet targets, particularly in difficult economic times.
"If revenues start to dry up in other areas that they could use to mask it, it makes it much more difficult," Dorris said, adding that corporate frauds can unravel in a recession in the same way that Ponzi schemes like Bernard Madoff's become impossible to keep going. "The recession exacerbates the issue and makes it harder for them to control," Dorris added.
Nearly a third of corporate executives have expected that fraud and misconduct would rise in their organizations this year, according to a survey from accounting firm KPMG in August. The most common causes of financial restatements are related to costs, expenses and revenue recognition problems, according to the Government Accountability Office.
Investors, however, often have little notice that anything is wrong, and disclosures of investigations can have a minimal impact on stock prices until investors truly know what has happened. Shares of Overstock, Zale and Town Sports are all trading above where they were when the companies first disclosed these issues.
However, shares of Huron Consulting, which said in August that an SEC inquiry into the company's accounting resulted in restatements of three years of results and a withdrawal of its earnings forecast, is still trading about 40 percent below its earlier level.
Investors may expect to see more accounting-related disclosures from corporations ahead, experts said. One reason that more accounting issues are surfacing now, could be because it is nearing the end of the year and companies and their auditors are trying to close out the books, said David Grubb, a partner at accounting firm Plante & Moran.
"At the end of the year they (the auditors) do a hard close and everything's cut off, everything's scrubbed," Grubb said.
Some companies may have also been forced to cut back on finance support staff during the economic downturn, which can lead to errors, Grubb said.
Regulators at the SEC and other government watchdogs could also be causing an increase in fraud detection, as they have been more focused on investigating tips and sharpening their fraud detection skills after their failure to detect Madoff's scheme, Dorris said.
Tice said that he also expects to see more accounting issues surface at U.S. companies in the months ahead, partially because the motivation is still so great for companies to play games with their numbers.
"Unfortunately, there's still a great deal of latitude inside generally accepted accounting principles and companies -- because there's so much at stake -- will grasp at whatever straws they can in order to post as good numbers as they can," said Tice, who has been known for turning up accounting troubles at companies in his career as a short seller.
--- By Emily Chasan, Reuters
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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Oct 28, 2009
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WEDNESDAY, OCTOBER 28, 2009, CANADIAN EDITION
TOP STORIES
• Magna expects to sign Opel purchase contract soon
• Nexen Q3 down 86 pct on weaker oil prices
• Canam Q3 profit falls 71 pct
• Ford names Geely preferred Volvo cars bidder
• Qwest profit falls, revenue misses Wall St view
BEFORE THE BELL
Toronto’s main stock index could open lower on Wednesday weighed by weaker energy prices. Wall Street is also poised for a lower open on concerns about the pace of economic recovery. Investors will be closely watching U.S. durable goods and housing data, as they seek insight into the health of the economy, a day after disappointing consumer confidence figure. European shares hit a three-week low, led by energy and banking stocks. Asian stocks were also. Oil fell below US$79 a barrel.
COMPANIES REPORTING RESULTS
• Agnico-Eagle Mines Ltd. (AEM). Expected to report Q3 earnings of 20 U.S. cents a share, according to Thomson Reuters I/B/E/S
• Canadian Oil Sands Tr New (COS_u). Expected to report Q3 earnings of 37 cents a share
• Cash Store Financial Services Inc. (CSF). Expected to report Q1 earnings of 29 cents a share
• MacDonald, Dettwiler and Associates Ltd. (MDA). Expected to report Q3 earnings of 62 cents a share
• Maple Leaf Foods (MFI). Expected to report Q3 earnings of 14 cents a share
• Mullen Group Ltd. (MTL). Expected to report Q3 earnings of 14 cents a share
• Samuel Manu Tech Inc. (SMT). Expected to report Q3 loss of 13 cents a share
• Sherritt International Corp. (S). Expected to report Q3 earnings of 29 U.S. cents a share
• Teck Resources Ltd. (TCKb). Expected to report Q3 earnings of 50 cents a share
• TMX Group Inc. (X). Expected to report Q3 earnings of 61 cents a share
STOCKS TO WATCH THIS MORNING
• Allana Resources Inc. (AAA). The company has received multiple unsolicited offers from strategic investors keen on partnering in its potash project in the Danakil Depression in northeastern Ethiopia, the company said on Wednesday.
• Bank of Montreal (BMO). The bank said it plans to buy back up to 15 million common shares, or about 3 percent of its shares outstanding, over one year.
• Canam Group Inc. (CAM). The construction products maker on Wednesday reported a 71 percent drop in third-quarter profit, which also came in below market expectations, reflecting a slowdown in non-residential construction.
• Canext Energy Ltd. (CXZ). The company said on Tuesday it board has initiated a process to evaluate various strategic alternatives for the company, which may include a sale, merger, major asset disposition, major financing or any other alternatives. The company also said it expects November production to average at 500 boepd to 550 boepd at its two recently bought wells at Sweeney oil property.
• Canwest Global Communications Corp. (CGS). The company said late on Tuesday it would transfer its assets of National Post to a new entity, pending court approval, as part of its process to recapitalize the whole company.
• Eldorado Gold Corp. (ELD). The company said on Tuesday Kisladag Mine continues to perform in accordance with plan and is expected to produce 230,000 ounces of gold.
• First National Financial Income Fund (FN_u). The company on Wednesday reported third-quarter net income of $44.7 million, which rose 33 percent year-over-year, on revenue of $96.2 million.
• Magna International (MGa). The autoparts maker thinks it can clinch a contract to buy a majority stake in carmaker Opel from General Motors even as GM's board weighs its final word, Magna's co-chief executive said on Wednesday.
• MDC Partners Inc. (MDZa). The company said on Tuesday it is redeeming early $45 million convertible debentures, effective Nov. 26, 2009. The debentures were earlier scheduled for maturity on June 30, 2010.
• Methanex Corp. (MX). The world largest producer of methanol reported on Tuesday a third-quarter loss, hurt in part by unplanned outages at its Chile and Trinidad plants.
• Nexen Inc. (NXY). The independent oil explorer’s third-quarter profit fell 86 percent as oil prices tumbled from the lofty levels of a year earlier, the company said on Wednesday.
• Open Text Corp. (OTC). The business software maker posted an 88 percent drop in third-quarter profit on Tuesday as unspecified charges offset the impact of stronger revenue.
• OPTI Canada Inc. (OPC). The company on Wednesday reported third-quarter EPS of 4 cents, on revenue of $38 million.
CORPORATE EVENTS
08:30 Inmet Mining Corp. (IMN). Q3 earnings conference call
08:30 OPTI Canada Inc (OPC). Q3 earnings conference call
09:00 Canam Group Inc. (CAMa). Q3 earnings conference call
09:00 Nexen (NXY). Q3 earnings conference call
10:30 True Energy Trust (TUI_u).
11:00 CE Franklin Ltd. (CFK). Q3 earnings conference call
11:00 Methanex Corp. (MX). Q3 earnings conference call
14:00 Sherritt International Corp. (S). Q3 earnings conference call
14:30 Maple Leaf Foods (MFI). Q3 earnings conference call
16:00 TMX Group Inc. (X). Q3 earnings conference call
17:30 MacDonald, Dettwiler and Associates Ltd. (MDA). Q3 earnings conference call
ANALYST RECOMMENDATIONS
• Canadian Pacific Railway Ltd. (CP) rating raised to outperform from market perform at Raymond James
• Inmet Mining (IMN) rating cut to market perform from outperform at Raymond James
• Progress Energy Resources (PRQ) price target raised to $14 from $12; rating market perform at Raymond James
• Rogers Communications (RCIb) price target raised to $33 from $32; rating hold at Genuity
• Silvercorp Metals (SVM) price target raised to $6.75 from $5; rating outperform at Raymond James
EXDIVIDENDS
• Acuity Small Cap Corp. (ASF). Amount $0.0125
• AG Growth Intl Inc. (AFN). Amount $0.17
• Alaris Rty Corp. (AD). Amount $0.07
• Allied Pptys Real Estate Invt (AP_u). Amount $0.11
• Amalgamated Income Ltd Partner (AI_u). Amount $0.06
• Big Bk Big Oil Split Corp. (BBO). Amount $0.09
• Brascan Soundvest Focus-Unit (BSF_u). Amount $0.027
• Brompton Advtg Oil & Gas Inc. (AOG_u). Amount $0.0325
• Brompton Equity Split Corp. (BE). Amount $0.10
• Brompton Lifeco Split Corp. (LCS). Amount $0.075
• Brompton Split Banc Corp. (SBC). Amount $0.10
• Brookfield Asset Management (BAM). Amount US$0.13
• Canadian Banc Recovery Corp. (BK). Amount $0.0625
• Canadian Energy Svcs L.P. (CEU_u). Amount $0.0792
• Canadian Life Cos Split Corp. (LFE). Amount $0.10
• Canadian Tire Corp. (CTC). Amount $0.21
• Capital Gains Income Streams (CGQe). Amount $0.0875
• Connor Clark & Lunn Glb Fin II (GFT_u). Amount $0.0375
• EPCOR Power L.P. (EP_u). Amount $0.1467
• Exchange Income Corp. (EIF). Amount $0.13
• Extendicare (EXE_u). Amount $0.07
• Financial 15 Split Corp. II (FFN). Amount $0.10
• Financial 15 Split Corp. (FTN). Amount $0.1257
• Financial Svcs Income Streams (STRe). Amount $0.1458
• First Asset/Blkrck North Amern (BDA_u). Amount $0.05
• Fort Chicago Energy Partners (FCE_u). Amount $0.0833
• Global 45 Split Corp. (GFV). Amount $0.05
• Horizons Alphapro Fiera TCT BD (HAF_u). Amount $0.0583
• Income Streams III Corp. (STQe). Amount $0.0875
• Killam Properties Inc. (KMP). Amount $0.0467
• Life & Banc Split Corp. (LBS). Amount $0.10
• Macquarie Pwr & Infrastructure (MPT_u). Amount $0.0875
• New Flyer Inds Inc/New Flr CDA (NFI_u). Amount $0.0975
• Petrobakken Energy Ltd. (PBN). Amount $0.08
• Prime Dividend Corp. (PDV). Amount $0.0625
• Sentry Select Primary Metals Corp. (PME). Amount $0.05
• Superior Plus Corp. (SPB). Amount $0.135
• Swiss Wtr Decaffeinated Coffee (SWS_u). Amount $0.03
• TDB Split Corp. (XTD). Amount $0.05
• Timbercreek Mtg Invt Corp. (TMC). Amount $0.068
Note: All values in Canadian currency, unless otherwise stated
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
Searching for signs of a real steel recovery
Steelmakers have been swimming in red ink for the past year and there is little indication that many of the producers in the developed world will be back in the black soon, analysts say.
The world's largest steel producer, ArcelorMittal is expected to post a fourth consecutive quarterly loss on Wednesday, days after U.S. Steel posted a third straight quarterly loss and Japan's JFE Holdings said the market was too fragile to update its own earnings outlook.
In contrast, steelmakers in India and China are booming as industrial activity in the developing world has surged back after the economic downturn last year dried up demand.
In Europe, North America and the developed economies of Japan and Korea, steelmakers are only slowly increasing production that some of them cut by more than half a year ago. Although they are finally selling some steel again, it is mostly to replenish stockpiles of service centers -- middlemen who process the metal for specific customer needs.
Dan DiMicco, chief executive of Nucor, which posted a third consecutive quarterly loss last week, was blunt. "There has been no meaningful real improvement in end-use demand."
THE GREAT DIVIDE
Siddhartha Sengupta, managing consultant of Hatch Beddows said in London there is a divide in the global steel industry.
"The Asian steel industry has recovered and will continue to do so in the next 2-3 years.
"In Europe and North America, while some recovery in demand could be expected from next year, it is not likely that demand will recover back to 2008 levels -- even in 2012," he said.
And Paul Scott, managing consultant at CRU's Steel Business Unit in London, questioned the sustainability of the recent improvement in U.S. mill orders.
"Once service center restocking has taken place and downstream supply chains have been replenished we see nothing to underpin a further, meaningful improvement of the order books of U.S. mills until 2011."
Asked to characterize the steel industry right now, Charles Bradford, of New York's Affiliated Research Group, said it was "very nervous and concerned, they are not seeing economic recovery.
"Most companies will do better in the third quarter than they did in the second, but some will still lose money, like U.S. Steel and Gerdau (AmeriSteel Corp)."
AN UNCERTAIN OUTLOOK
Last week, the steel industry body Eurofer said the EU steel market will be slow to recover, even after the region's economy starts to grow again.
It said the forecast for coming quarters would be slow and fraught with uncertainty as prospects for the EU's steel-using sectors -- like autos and construction -- remained dim.
"While the economy probably reached a turning point, the EU steel market will remain stuck in slow motion for the time being," Eurofer Director General Gordon Moffat said in a report on the market outlook for 2009 to 2011.
Eurofer President Wolfgang Eder also struck a downbeat note, with fears China could damage the delicate stabilization in the market by ramping up exports as domestic demand slows.
Eurofer's report said weak activity in Europe's steel sector had brought a slump in demand as consumption fell 45 percent year-on-year in the first half of 2009 and by almost 32 percent in the third quarter.
"Overall it is on very, very thin ice. We fear that there will be huge exports out of China in the first half of the year," Eder said.
Andrew Snowdowne, of UBS in London, said he expected western steelmakers to highlight stronger fourth-quarter results, but cite a lack of visibility beyond that.
"We at UBS are expecting steel prices to continue to soften into the first quarter of next year. We think the supply reaction has been too aggressive relative to where real demand is, and so we’re relatively cautious," he said.
Meanwhile, Sajjan Jindal, managing director of India's JSW Steel Ltd, announced its net profit rose above market expectations on strong domestic demand and cost reductions.
The latest data from the World Steel Association show that global crude steel output fell 0.6 percent year-on-year to 107 million tonnes in September. In contrast, China's output surged 28.7 percent to 50.7 million tonnes.
Japan's steel production slid 18 percent to 8.3 million tonnes in September and South Korea showed a fall of 2.4 percent to 4.4 million tonnes.
U.S. output tumbled 31.4 percent to 5.4 million tonnes and the equivalent number for Germany was 3.2 million tonnes, down 21.7 percent from September 2008 and for France it was 1.3 million tonnes, a fall of 15.3 percent.
JSW's Jindal confirmed that location is everything in steel: "The demand for steel is very strong in India and China and so the steel industry continues to remain in a robust shape."
--- By Steve James, Reuters
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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Oct 27, 2009
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TUESDAY, OCTOBER 27, 2009, CANADIAN EDITION
TOP STORIES
• Rogers profit jumps thanks to BlackBerry, iPhone
• Canadian Pacific posts Q3 adj EPS of 85 cents, before items
• Ballard Power posts narrower Q3 loss
• Vitran Q3 profit down 86 percent
• Textron returns to profitability in Q3
• Kinross trims production view, raises cost estimates
BEFORE THE BELL
Toronto’s main stock index could open higher on Tuesday after shedding more than 1 percent in the previous session. Wall Street is set for a flat open following a two-day selloff as investors digested more corporate results and key data on home prices and consumer sentiment. The S&P/Case-Shiller composite index of single-family home prices in 20 metropolitan areas in U.S., is likely to rise 0.7 percent on a monthly basis, while the annual rate is seen down 11.9 percent, according to Reuters polls. Consumer confidence is expected to remain unchanged from previous month's level at 53.1. European shares rose, with energy stocks taking the lead after oil major BP's quarterly results beat forecasts. Asian stocks fell on concerns that governments and central banks of some major economies may eventually withdraw stimulus measures. Oil rose above US$79 a barrel, up after three straight days of decline.
COMPANIES REPORTING RESULTS
• Astral Media Inc. (ACMa). Expected to report Q4 earnings of 68 cents a share, according to Thomson Reuters I/B/E/S
• CE Franklin Ltd. (CFT). Expected to report Q3 earnings of 11 cents a share
• EPCOR Power L.P. (EP_u). Expected to report Q3 earnings of 20 cents a share
• Hydrogenics Corp. (HYG). Expected to report Q3 loss of 5 cents a share
• Inmet Mining Corp. (IMN). Expected to report Q3 earnings of $1.32 a share
• Methanex Corp. (MX). Expected to report Q3 earnings of 4 U.S. cents a share
• Open Text (OTC). Expected to report Q1 earnings of 59 cents a share
• Transalta Corp. (TA). Expected to report Q3 earnings of 38 cents a share
STOCKS TO WATCH THIS MORNING
• African Aura Mining Inc. (AUR). The company’s subsidiary Stellar Diamonds Ltd and West African Diamonds Ltd have agreed to undertake combination of business interests and if successful will constitute a reverse takeover of West African Diamonds Ltd by Stellar.
• Ballard Power Systems (BLD). The hydrogen fuel-cell developer posted a narrower third-quarter loss on Monday, helped by lower operating costs and expects full-year revenue to come in at the low end of a previously stated range.
• Canadian Pacific Railway Ltd. (CP). The railway reported on Tuesday third-quarter adjusted EPS of 85 cents, before items, on revenue of $1.1 billion.
• Hawthorne Gold Corp. (HGC). The gold mining company said on Monday it terminated 3.7 million brokered flow-through share offering and now is proceeding with the non-brokered offering of up to 6.3 units at 40 cents per unit.
• Hydrogenics Corp. (HYG). The developer and manufacturer of hydrogen generation and fuel cell products reported on Monday third-quarter loss from operation of US$5.5 million, on revenue of US$3.6 million.
• Indigo Books & Music (IDG). The book retailer posted a drop in second-quarter profit on Monday as it dealt with a tough economy and continued to invest in its mobile-phone download business.
• Kinross (K). The gold miner on Tuesday lowered its full-year production outlook and raised its average cost of sales estimate, as the company's production ramp-up at its Paracatu mine in Brazil is progressing more slowly than expected.
• Lululemon Athletica (LLL). The yoga clothing and athletic gear maker raised its third-quarter earnings and revenue forecasts on Monday on stronger than expected demand for its clothing, including new apparel lines.
• QLT Inc. (QLT). The biopharmaceutical company reported on Tuesday third-quarter loss of 8 U.S cents, before items, and said the board of directors has authorized its repurchase program of up to 5 percent of outstanding common shares over next twelve months.
• RioCan Real Estate Investment Trust (REI_u). The company said on Monday its third-quarter FFO fell 66 percent due to higher interest expenses.
• Rogers Communications Inc. (RCIb). The wireless carrier posted a dip in third-quarter profit that still beat expectations on Tuesday and said subscribers snapped up smartphones like Research In Motion's (RIM) BlackBerry and Apple's iPhone despite the recession.
• Suroco Energy Inc. (SRN). The company said on Monday it is operations has been suspended temporarily at its Suroriente block in Colombia due to civil demonstrations and road transport blockages.
• Technicoil Corp. (TEC). The company said on Monday it sold one coiled tubing service rig and added debt was reduced to about $9.8 million after the completion of the rig sale.
• Turbo Power Systems Inc. (TPS). The British electrical machines and electronics company said on Tuesday it signed a five-year development deal, which has a potential of generating US$10 million in revenue per year, with U.S.-based air-conditioning firm McQuay International.
• Vitran Corp Inc. (VTN). The transportation and logistic company reported an 86 percent drop in third-quarter profit on Tuesday, hurt by fluctuation in fuel surcharge and foreign exchange on the company's Canadian operations.
CORPORATE EVENTS
08:30 QLT Inc. (QLT). Q3 earnings conference call
08:30 Rogers Communications Inc. (RCIb). Q3 earnings conference call
10:00 Hydrogenics Corp. (HYG). Q3 earnings conference call
11:00 Ballard Power Systems (BLD). Q3 earnings conference call
11:00 Riocan REIT (REI_u). Q3 earnings conference call
11:00 Transalta Corp. (TA). Q3 earnings conference call
11:00 Vitran Corp. (VTN). Q3 earnings conference call
14:00 Astral Media Inc. (ACMa). Q4 earnings conference call
14:00 Canadian Pacific Railway (CP). Q3 earnings conference call
17:00 Open Text (OTC). Q1 earnings conference call
ANALYST RECOMMENDATIONS
• Toromont Industries (TIH) price target raised to $29 from $27.75; rating outperform at Raymond James
• Victoria Gold (VIT) price target raised to $1 from 70 cents; rating outperform at Raymond James
EXDIVIDENDS
• Claymore Canadian Financial Monthly (FIEa). Amount $0.04
Note: All values in Canadian currency, unless otherwise stated
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
COLUMN - Time for a shareholder revolt
There are encouraging signs that shareholders are becoming more assertive in defending their interests.
The Financial Times reported on Monday that some of Britain's largest institutional shareholders - including Standard Life, Legal & General and M&G - are working on a plan to bypass investment banks by creating a club to underwrite new issues of equity by small and medium-sized British companies, a move that could save hugely on fees.
What, you may wonder, took them so long?
Second only to taxpayers, investors have been the great patsies of the financial crisis, paying massive costs to a financial services industry which has, to put it mildly, not served them well.
Activist shareholders and investors could be a key force in fixing what is wrong with the financial system. Unleashing their power to act in their own best interests should be a main thrust of new regulation.
The British investor group, reportedly being assisted by mergers and acquisition advisors Lazards, would effectively cut out the middle men by agreeing to take up any unwanted new shares in an offering. This is an idea which if successful could save companies and their owners huge amounts in fees and at the same time deal a blow to investment banking profitability.
Fees charged by banks for equity underwriting in Britain have more or less doubled in the aftermath of the crisis to 3.5-4.0 percent of the amount being raised, with the lions share going to banks rather than to the institutional investors who sub-underwrite.
While banks may argue, and in part be correct, that this is because the past two years have demonstrated the risks of capital market underwriting, it is also patently because there are now fewer banks competing for this business.
To be sure, a club approach is better suited for small and medium sized underwritings and would face huge difficulties for a major share issue involving global investors. But if a test run proves successful it would place pressure on fees for transactions of all sizes.
Even before the crisis hit, fees for investment banking services seemed not to follow with the same fidelity the laws of economics which hold such sway in microchips, steel or even tax preparation.
And it's not just investors, who consume investment banking products, who have been ill-served. Shareholders in companies, particularly in banks, have provided the capital but have not had their fair share of the fruits.
FOR WHOSE BENEFIT IS THIS ZOO BEING RUN?
That has led to bad decisions, decisions often designed to maximize the benefit to employees at the expense of the shareholders who run disproportionate risk.
Paul Myners, a British Treasury official with special responsibility for financial services, gave an absolutely scathing address last week to the Worshipful Company of International Bankers, assembled for dinner in the Mansion House in the City of London.
Myners, who is reported to be considering holding a competition inquiry into banking fees, took aim at the bonus and compensation culture in the industry.
"It could be argued that some shareholders in banks have been left holding not the ordinary shares they originally purchased, but a new form of subordinated, participating, non-cumulative equity that ranks behind rewards for the senior management, and executives of the firm in which they invested have a prior claim. This cannot be right," Myners said.
"In case anyone needs reminding, the profits of banks belong to their owners; not their managers and traders."
I imagine that the bankers were a little less worshipful on their way out then they were on the way in.
I would also argue that what Myners said about banking also holds true - to a lesser extent - in other publicly traded companies, where management is able to extract compensation out of proportion to their likely contribution.
Shareholders, and we are really talking about institutional shareholders, have allowed management to get away with it for years because they thought what they were supposed to be doing was outperforming the market by picking winners.
Much of what passed for skilled investment over the last 20 years has been little more than riding the waves of a debt-fueled economy which seemed capable of providing six to ten percent returns on an unleveraged basis.
Adding value too often meant little more than adding leverage to increase returns. When the current rally ends, as it surely will, investors should take a long look at their long term returns. What they will usually see is that they are poor.
A better strategy for the next 10 years may be to spend as much effort protecting your economic interest in what you own as you do in choosing what to own.
--- James Saft, a Reuters columnist. The opinions expressed are his own
(At the time of publication James Saft did not own any direct investments in securities mentioned in this article. He may be an owner indirectly as an investor in a fund)
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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Oct 26, 2009
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MONDAY, OCTOBER 26, 2009, CANADIAN EDITION
TOP STORIES
• Canada mulling tax reforms to aid pension funds - report
• Spain's Opel workers vote to accept Magna plan
• Verizon revenue rises, profit falls
• ING to split in two, launch rights issue
• McGraw-Hill Q3 earnings fall 14 percent
BEFORE THE BELL
Toronto’s main stock index could open flat on Monday after it fell 1 percent on Friday. Wall Street is poised for a higher open after a selloff in the previous session and as investors looked ahead to a busy week of corporate earnings and economic data. One of the data investors will be closely watching this week is the U.S. GDP figures, which may mark the official end of U.S. recession. European shares edged higher with higher oils and pharmaceutical stocks outweighing weaker financials. Asian stocks were mostly positive. Oil fell towards US$80 a barrel, extending its retreat from last week's one-year high.
COMPANIES REPORTING RESULTS
• Indigo Books & Music Inc. (IDG). Expected to report Q2 earnings of 7 cents a share, according to Thomson Reuters I/B/E/S
• Riocan REIT (REI_u). Expected to report Q3 earnings of 12 cents a share
• Toromont Industries Ltd. (TIH). Expected to report Q3 earnings of 45 cents a share
STOCKS TO WATCH THIS MORNING
• Bombardier Inc. (BBDb). Qatar Airways is "very interested" in buying Bombardier's CSeries jetliners, but needs to address commercial issues before it makes an order, the airline's CEO said on Sunday.
• Covalon Technologies Ltd. (COV). The advanced biomedical systems company said on Friday William Jackson has been appointed as CFO replacing Peter Hobbes, who resigned.
• Huntingdon Real Estate Investment Trust (HNT_u). The company said on Friday it is selling foot retail property in Calgary, Alberta, for about $12 million.
• Iamgold Corp. (IMG). The company on Monday forecast 2009 gold production to range between 940,000 and 950,000 ounces at an average cash cost of US$460 and US$470 per ounce.
• Magna International Inc. (MGa). The autoparts supplier and Sberbank have notified European Union antitrust regulators of their plan to buy General Motors Co's European unit Opel, the European Commission said on Monday. Separately, the workers at Opel's Spanish plant voted on Monday to accept Magna's industrial plan for the Figueruelas plan in northern Spain, according to a union assembly vote witnessed by Reuters.
• TELUS Corp. (T). The telecommunications company said on Monday it would bring iPhone 3GS to Canada on November 5, with a range of 3G data plans for iPhone customers.
• Vena Resources Inc. (VEM). The company said on Monday it expects drilling to commence mid-November on the Macusani Uranium project in Peru.
ANALYST RECOMMENDATIONS
• Bank of Montreal (BMO) price target raised to $58 from $53; rating sell at Genuity
• Bank of Nova Scotia (BNS) price target raised to $48 from $47; rating hold at Genuity
• CIBC (CM) price target raised to $73 from $70; rating buy at Genuity
• Connacher Oil and Gas Ltd. (CLL) rating raised to strong buy from outperform at Raymond James
• National Bank of Canada (NA) price target cut to $69 from $72; rating buy at Genuity
• Orezone Gold (ORE) price target raised to $1 from 65 cents; rating outperform at Raymond James
• Potash Corp. (POT) coverage started with buy rating; price target of $130 at Genuity
• RBC (RY) price target raised to $67 from $62; rating buy at Genuity
• TD Bank (TD) price target raised to $74 from $70; rating hold at Genuity
EXDIVIDENDS
• Prism Medical Ltd. (PM). Amount $0.075
Note: All values in Canadian currency, unless otherwise stated
"This publication is not, nor is it to be construed as, a solicitation or recommendation to investors to purchase, sell or hold any of the securities referred to in this publication. Global Securities Corporation is a member of the Canadian Investor Protection Fund"
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INSIGHT
US first-time home buyer tax credit: worth the cost?
The seller's New York City apartment had been on the market for nine months. The buyer had looked for nine months, always finding a reason not to commit.
But with the Nov. 30 expiration of the first-time home buyer US$8,000 tax credit looming, the buyer finally made an offer. The seller was amenable. A deal was struck.
"The buyers I'm working with were looking at apartments and debating whether to buy," said Adina Greenberg, a real estate agent at The Corcoran Group, the largest residential real estate firm in New York City. "Knowing the first-time home buyer tax credit was ending, they decided: 'Let's do it now.'"
For many of the clients Greenberg and her colleagues work with, expiry of the tax credit is the push they need to go through with a purchase.
That leaves a dilemma for the U.S. government, which has been trying to help a recovery in the housing market: should the credit for first-time buyers be extended, expanded, refocused or allowed to expire?
The U.S. housing market crisis, which began more than three years ago, helped drag the United States and the global economy into recession. With a sharp fall in U.S. house prices, and low mortgage rates, the new home buyer tax credit has helped the market show signs of a turnaround. The question is whether it played a real supporting role or a mere bit part.
GIVE ME CREDIT
Both Treasury Secretary Timothy Geithner and President Barack Obama's economic adviser Lawrence Summers told Reuters this week the question of whether to extend the credit would be examined in the context of its utility and cost.
Unsurprisingly, the real estate industry is lobbying to give the credit another lease on life.
The National Association of Realtors (NAR) is urging members to e-mail elected officials to "extend and expand" the homebuyer tax credit. The NAR says nearly 170,000 people have contacted their Congressional representatives so far.
The National Association of Home Builders was quick to link a slight dip in its NAHB/Wells Fargo Housing Market Index in September to concern about the credit's scheduled expiry.
"The approaching expiration...combined with the massive hurdles that builders face in obtaining construction financing ... could derail the fragile recovery in housing just as it is starting to take shape," said NAHB Chairman Joe Robson.
Home prices in 18 of the 20 metropolitan areas in the S&P/Case-Shiller index have risen for several months. Inventories of unsold homes have receded but remain high.
As a house-warming gift for a new mortgage-holder, the credit is also a mild stimulant for economic sectors that benefit when new households form.
"Buyers can use the credit to buy furniture they might otherwise not have been able to afford," Greenberg said.
To the extent that the credit helps to stabilize the broad housing market, that is good for the economy because stability in home prices helps consumer confidence, which in turn can boost spending, economists said.
"The S&P/Case-Shiller home price index broadly captures the ups and downs of consumer confidence measures," said Cary Leahey, economist at Decision Economics in New York.
WASTE OF MONEY?
But critics of the credit question how much value it really delivers for the cost. The direction of mortgage rates and the health of the job market will have the broadest, and most profound impact, on the housing market, they note.
Skeptics also say most of these home purchases would have been made anyway, though perhaps not as promptly.
The money spent on the credit could be spent better, focusing it in communities already hurt by foreclosures and vulnerable to even more, some policy analysts believe.
"In about four out of five cases, the tax credit went to people who would have bought a home anyway, so that means the real cost of getting that one extra buyer into the market is five times US$8,000 - about US$40,000," said Andrew Jakabovics, associate director for housing and economics at the Center for American Progress, a Washington, D.C.-based think tank.
"A better idea would be to take that US$40,000 to pay an absolutely critical housing counselor to help lots of people work out a loan modification, saving multiple homes from foreclosure on a continuing basis," Jakabovics said. "If the idea is to stabilize the housing market, we can do that more effectively by preventing foreclosures, rather than persuading marginal buyers to enter the market."
Economists also say the new credit just adds just one more subsidy to the government's already vast subsidy of private home ownership through the nearly unlimited tax deduction for mortgage interest, a deduction that does not apply to interest charged on student loans, medical bills or other consumption.
And the Obama Administration has other efforts high on its list of priorities. In recent Congressional testimony, U.S. Department of Housing and Urban Development Secretary Shaun Donovan said there were other ways to help the housing market.
"With health care costs the leading cause of personal bankruptcies - with some estimates finding that almost half of all foreclosures are caused in part by financial issues stemming from medical costs - reform (of the nation's health care system) is an important part of stabilizing the housing market," he said.
--- By Ellen Freilich, Reuters
About Thomson Reuters: The unique insights of Thomson Reuters drive productivity and performance by helping our clients generate investment and business ideas, gain fresh perspectives on the markets, and, ultimately, make more money.
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(Please note Canadian quotes are delayed 15 min)
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