Japanese businesses cut spending for an 11th quarter even as their earnings rebounded, signaling a revival in exports remains insufficient to prompt investment that would spur the recovery.
Capital spending excluding software fell 18.5 percent in the three months ended Dec. 31 from a year earlier, the Finance Ministry said today in Tokyo. Sales declined and profits doubled.
Sony Corp. and Panasonic Corp. are among companies cutting costs to protect earnings even as demand from abroad picks up. A stronger yen is forcing exporters to invest overseas rather than at home, and deflation is discouraging spending by domestic service companies, said Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co.
“We’re seeing a clear contrast between the rapid recovery in profits and the weakness in capital spending,” Tokyo-based Miyazaki said. “The recovery’s spillover to capital spending has been particularly weak this time, even in comparison to the economic recoveries of the past.”
The yen traded at 88.34 per dollar at 3:12 p.m. in Tokyo after earlier touching 88.31, the highest since Dec. 11. Japan’s currency has gained more than 5 percent this year, eroding the value of exporters’ repatriated profits. The Nikkei 225 Stock Average fell 1.1 percent, extending its losses to 3.8 percent for the year.
Slower Growth
Based on today’s data, the Cabinet Office may revise fourth-quarter economic growth figures lower on March 11. Gross domestic product probably expanded at an annual 3.9 percent pace, slower than the 4.6 percent reported last month, according to the median forecast of 13 economists surveyed by Bloomberg News after today’s figures were released.
The capital spending component likely rose 0.3 percent from the previous quarter, compared with a 1 percent increase in the preliminary report, economists said.
“Capital spending may have hit bottom, but the strength of the rebound is still in question,” said Naoki Tsuchiyama, market economist at Mizuho Securities Co. in Tokyo, who estimates a GDP downgrade to 3.7 percent. “The economic recovery is largely dependent on government stimulus and companies are still cautious about the outlook for final demand.”
Companies’ sales slid 3.1 percent last quarter after tumbling 15.7 percent the previous three months, the ministry said. Profits surged 102.2 percent, the first increase in 10 quarters and the second biggest advance since the survey began in 1955.
Weak Link
Business spending remains the weak link of a recovery that’s being driven by exports and showing signs of improvement in the labor market. About a third of factory capacity is sitting idle in the wake of the nation’s worst postwar recession, discouraging companies from buying equipment free credit score.
“Capital spending may start growing later this fiscal year, but the pace of the recovery will be very moderate,” said Junko Nishioka, chief economist at RBS Securities Japan Ltd. “Companies still have excess capacity, so they will try to utilize existing facilities rather than building new plants.”
Sony last month narrowed its forecast for a net loss, saying it is approaching its target of trimming 330 billion yen in costs by eliminating jobs and shutting factories. Capital spending for this fiscal year will probably total 220 billion yen, 34 percent less than a year earlier and lower than the 250 billion yen estimated in October, Sony said on Feb. 4.
Raising Forecasts
Panasonic last month raised its operating profit forecast, as cuts in fixed and material costs lead to a recovery in earnings from consumer electronics and appliances. Capital investment for the nine months ended Dec. 31 stood at 275.6 billion yen, 22 percent less than the same period a year earlier, according to a company statement.
Slumping prices also are squeezing profit margins. Consumer prices excluding food and energy dropped 1.2 percent in January, matching December’s record decline, the government said last week.
Finance Minister Naoto Kan renewed calls on the Bank of Japan to help arrest deflation this week, saying he hopes prices will rise this year.
The government has been encouraging spending by providing incentives to buy cars and consumer electronics. Those initiatives are becoming less effective, said Tetsufumi Yamakawa, chief Japan economist at Goldman Sachs Group Inc.
“Not only is capital investment slack but the demand boost from policies to stimulate replacement purchase of energy-saving electrical goods and environment-friendly autos is fading,” Yamakawa said.
Asia Rebound
Still, some companies are benefiting from rebounding demand in Asia, particularly China, the world’s fastest-growing major economy and Japan’s biggest overseas market.
Hitachi Construction Machinery Co., Asia’s second-largest excavator maker, may double sales in China this quarter, beating its forecast as the nation’s spending on railroads and mining fuels demand, Chief Executive Officer Michijiro Kikawa said in an interview on March 1.
Japanese manufacturers increased output in January at the fastest pace since May and exports climbed the most in almost 30 years, government reports showed last month.
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The nation’s second-largest shopping mall operator, General Growth Properties Inc., said Wednesday that it reached a deal with Canada’s Brookfield Asset Management Inc. that will speed its exit from Chapter 11 bankruptcy protection.
Speculation raged for weeks that General Growth might turn to Brookfield, which has been looking to expand its slate of U.S. retail properties and last year acquired an undisclosed stake in the company.
General Growth, in turn, could thwart last week’s $10 billion takeover bid from Simon Property Group Inc. The No. 1 shopping mall operator controls some 382 properties worldwide including the Regency Plaza center in St. Charles, St. Louis Mills mall in Hazelwood and Lincoln Crossing in O’Fallon, Ill.
General Growth rebuffed the unsolicited offer from Simon for being too low cash advance to savings account. A Simon spokeswoman didn’t have a comment.
General Growth owns or manages 200 shopping malls in 44 states, including St. Louis Galleria. The company racked up $27 billion in debt by the time it sought shelter from creditors last April, making it the largest real estate bankruptcy case in U.S. history.
As part of the new plan, General Growth would spin off some assets as a new company named General Growth Opportunities, which would essentially hold assets the company concedes aren’t producing much income currently, including the company’s master planned communities and some large retail hubs, such as the South Street Seaport in New York.
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Dubai is reportedly preparing to sell a host of assets, including one of the world’s best known cruise ships, as the emirate’s investment arm looks to restructure a mountain of debt.
The Queen Elizabeth II, or QE2, is rumored to be one of the assets that Dubai’s state-run private equity firm, Istithmar World, is planning to sell. An Istithmar spokesman did not respond to requests for comment on Tuesday.
However, a company spokesman told Arabian Business that "there are a number of options being considered for QE2. IW is considering which option will best maximise value of the vessel."
Istithmar bought the QE2, once the largest passenger ship in existence, in 2007 for an estimated $100 million. The firm had planned to turn the ship into a floating hotel attached to a man-made, palm-shaped island in the Persian Gulf.
Also in the firm’s portfolio is a 20% stake in Canadian circus group Cirque du Soleil. But a Cirque du Soleil spokeswoman said the group has had no indication from Istithmar that a sale is pending.
Any proceeds from the asset sales would probably be used to pay down the $22 billion in debts that Dubai World, the parent company of Istithmar, took on during a multiyear, global property binge.
Dubai was one of the first sovereign nations to run into serious debt problems as a result of the global economic downturn payday loan lenders. The fallout has now spread to Europe, where Greece and other countries are struggling to slash budget deficits and repay mountains of debt.
Dubai World, the investment arm of Dubai, rattled financial markets late last year when it signaled that it couldn’t make payments on its debts. The company received a $10 billion bailout in November from fellow emirate Abu Dhabi and is working with creditors to restructure its debt load.
As a result, Istithmar has already been forced to sell some assets at a loss. In December, the firm sold the W Hotel in New York for only $2 million in a foreclosure auction. It reportedly paid more than $200 million for the boutique hotel in 2006.
Last week, Istithmar sold its stake in Indian budget airline SpiceJet for $37 million. It also recently announced plans to sell port and shipping agent Inchcape Shipping Services for $700 million.
Despite the recent asset sales, Istithmar still has a large portfolio of investments and properties, including a large stake in book publishing giants Houghton Mifflin and Harcourt Education. It also has interests in U.K.-based Pension Insurance Corporation Holdings and Perella Weinberg Partners, a New York-based investment firm.
Arizona State University is partnering with Teach For America to transform ASU’s teacher education program.
With a five-year, $18.9 million investment from entrepreneur and philanthropist T. Denny Sanford, ASU will partner with Teach for America to bring changes to the way ASU recruits, selects and prepares K-12 teachers.
The Sanford Education Project will use Teach For America’s tools to recruit teachers to work in low-income communities. Since 1990, Teach for America has recruited, trained and placed more than 24,000 teachers in low-income communities guaranteed payday loans. It has developed strategies to attract people into teaching who otherwise may not have chosen the profession. It also has developed support systems to help those teachers in the classroom and built a pipeline of leaders in the community focused on quality education.
As part of Sanford’s investment, ASU’s College of Teacher Education and Leadership will create a summer institute based on Teach For America’s model.
About 1.5 million Graco strollers have been recalled because they could pose a risk of fingertip amputations and lacerations to children, federal safety officials announced Wednesday.
The recall includes certain models of strollers and travel systems made by Graco Children’s Products, including the Graco Passage, Alano and Spree Strollers and travel systems, the Consumer Product Safety Commission said.
The hinges on the product’s canopy pose a fingertip amputation and laceration hazard to the child when the consumer is opening or closing the canopy, the CPSC said.
Graco has received seven reports of children injured when they placed their fingers in the stroller’s canopy hinge mechanism, including five fingertip amputations and two lacerations, according to the commission online cash advance.
The CPSC said consumers should immediately stop using the recalled strollers and contact Graco to receive a free protective cover repair kit.
The recalled strollers were sold at Babies "R" Us, Toys "R" Us, Kmart, Sears, Target, Walmart and other retailers nationwide from October 2004 and December 2009.
The strollers had a suggested retail price of between between $80 and $90. The travel systems, which include a detachable car seat, sold for between $150 and $200.
Luxembourg’s Jean-Claude Juncker said the group of euro-area finance ministers, which he heads, may not reach a decision next week on a successor for European Central Bank Vice President Lucas Papademos.
“Whether we do this on Monday evening or in February, I cannot yet say,” Juncker said at a press conference in Luxembourg today. The so-called eurogroup of finance chiefs is scheduled to discuss the three candidates to succeed Papademos at a regular monthly meeting on Jan. 18 in Brussels.
The candidates to take over the central bank’s vice- president post on June 1 are ECB Governing Council members Yves Mersch and Vitor Constancio and Peter Praet, a director at the Belgian central bank who also is chairman of the Frankfurt-based ECB’s Banking Supervision Committee low interest rate personal loans.
Juncker said he lobbied French President Nicolas Sarkozy on behalf of Mersch, who is head of Luxembourg’s central bank, at a meeting yesterday in Paris.
“I’m in touch with all the euro-zone countries. I outlined the merits of Mersch’s candidature to President Sarkozy,” Juncker said. “It’s not my intention to reveal publicly the various reactions I’ve had.”
Renters who are caught up in foreclosures or short sales may get more time to get out before the sheriff shows up to evict them, if a proposed bill gets traction in the Florida Legislature.
HB 125, sponsored by state Rep. Hazelle Rogers, D-Lauderhill, and co-sponsored by state Rep. Darren Soto, D-Orlando, is scheduled to be taken up Tuesday by the Civil Justice & Courts Policy Committee. Its companion bill is SB 854.
Soto, an attorney who is handling more than 250 foreclosure defense cases, said tenants often get served the same paperwork from the bank as the owner, which causes stress and confusion.
“They basically receive a complaint, but it doesn’t tell them their rights, other than that they have to respond,” he said. “They don’t know to not pay the rent or to pay the rent, and their landlord is usually pretty mum.”
However, some worry that the bill could limit owner rights by requiring the owner or lender to give the tenant first right of refusal to buy the property.
“A lease with a tenant has a beginning and an end date,” said Stephen Weiss, VP of business development for Fort Lauderdale-based Foreclosure Response Team, a private company specializing in short sales. “It doesn’t give tenants a right or obligation to own my property. This is hindering and impairing on the value of real estate.”
The bill:
Scott Coloney, president of the Foreclosure Response Team, added that if the tenant is awarded the first right of refusal, it could prolong short sales, which are already long, creating problems for buyers.
However, he did like the provision that requires the lender to give notice.
“It’s one less thing that the landlord has to do,” he said.
When General American Life Insurance Co. commissioned acclaimed architect Philip Johnson to design its downtown St. Louis headquarters in the mid-1970s, the firm sought to create something striking to bolster what was then a barren area along the south side of Market Street.
Many architectural aficionados say Johnson delivered.
In essence, he designed a three-story dark-glass box that was just under 130,000 square feet. But here’s the twist: As if slicing a sandwich, Johnson divided the building diagonally, then perched half of it on columns.
"What he did, very creatively, was take a building, cut it on the diagonal and lift one part of the triangle," said H. Edwin Trusheim, General American’s chairman who retired 18 years ago. "You’ve now created a six-story building out of a three-story building."
General American moved to a location in south St. Louis County in 2004. Since then, the building has sat vacant, but a revival of sorts is in the works.
Centaur Properties of New York, which bought the building in 2005 for $6.1 million, says it will spend as much as $10 million in 2010 to spruce up the building to lure potential tenants and restore its historic appeal.
The building’s exterior glass remains in good shape, but the heating and cooling systems will be replaced. The rest of the rehab budget will go toward specific tenants’ needs, said Mike Donovan, a principal at Balke Brown Associates of St. Louis, which is marketing the building for sale or lease. Its $21 per-square-foot rent is at the upper end of the downtown office market.
By itself, a multimillion-dollar refurbishment won’t eliminate the General American building’s competition for tenants downtown, where the overall vacancy rate remains at about 20 percent. Finding the right fit among potential tenants hasn’t been easy, said Kevin Farrell, director of economic and housing development with the Partnership for Downtown St. Louis.
He pointed out that two law firms considered moving into the building since General American moved out.
While the building’s architect is noteworthy, Farrell said prospective tenants will be enticed by the building’s views of Citygarden, the Old Courthouse, Busch Stadium and the Arch.
"It’s a building with a lot of interesting attributes," Farrell said. "You need to find somebody who falls in love with it."
Johnson helped launch the Modernist movement of glass skyscrapers in the 1950s easy online payday loans. In New York, he had a hand in Mies van der Rohe’s Seagram building, the epitome of the sleek corporate headquarters. The Pritzker prize, architecture’s version of the Oscar, was established in 1979. Johnson was the first recipient.
His Modernist towers in the 1980s included the Pittsburgh Plate Glass Co. building in Pittsburgh and the Transco Tower in Houston. He also helped start a Post-Modernist phase of architecture with his AT&T building in New York.
Above the AT&T’s Modernist facade is an enormous pediment resembling the top of a Chippendale desk. Johnson was 98 when he died in 2005.
Even compared to such high-profile projects, the General American building ranks high in the Johnson portfolio, said John Berendzen, a partner at Fox Architects in St. Louis. "It’s a very clean Modernist building," said Berendzen, who years ago designed some interior remodeling there.
"It’s a very simple, yet very complex structure."
It was General American’s vice president, Stanley Richman, who should be credited for bringing Johnson to St. Louis, Trusheim said. Richman, who died in 1985, was a "Renaissance man" of many interests, including architecture.
"Stan searched out architects and, at that time, Philip Johnson was one of the leading architects in the United States," Trusheim said during a recent phone interview from his home in Minneapolis.
For now, however, the building remains empty.
Though intended for a single tenant, the "tremendous amount of public-type space" could allow for retrofitting the structure for several occupants, Berendzen said.
Law firm Blackwell Sanders nearly relocated to the General American building from the Laclede Gas building in 2006. The deal fell through at the last minute. Blackwell merged last year with Husch & Eppenberger and consolidated this year in Clayton. Bob Tomaso, a Husch Blackwell partner involved in the General American negotiation for Blackwell Sanders, wouldn’t explain why the firm passed. Still, he said he admires the building.
"It’s a shame it has sat empty for so long."
More than 30 leading budget experts on Monday prescribed a course for deficit reduction that the nation needs to take if it wants to "buy some breathing room" to avoid a debt crisis.
In its report "Red Ink Rising," the Peterson-Pew Commission on Budget Reform called on Congress and the White House to commit to stabilizing the public debt to 60% of gross domestic product by 2018. Left unchecked, it’s on track to hit 85% by 2018, and then grow to 100% four years after that. By 2038, it could reach 200%.
To put those numbers in context, just before the economic crisis, public debt stood at 41% of GDP. The public debt — $7.72 trillion as of Dec. 11 - represents the money the United States owes its creditors. It does not include the $4.36 trillion the federal government owes itself because of all the revenue the Treasury has borrowed from federal programs such as Social Security and Medicare over the years.
The concern is that well before the public debt reaches 200% of GDP, fear of inflation — and its twin nemesis, a decline in the dollar — could cause investors to demand a higher return in exchange for buying U.S. Treasurys. And higher rates would make the U.S. debt load that much more onerous because the government is constantly refinancing the debt it already has on the books at whatever the going interest rates are.
To stabilize the debt at 60% of GDP, the commission recommends policymakers negotiate a package of measures in 2010 that would begin to phase in by 2012, assuming the economy has recovered.
"To buy some breathing room, the United States must show its creditors that it is serious about stabilizing the federal debt over a reasonable timeframe. Both spending cuts and tax increases will be necessary," the commission wrote.
The mere act of signaling to creditors that a deficit-reduction plan is in place may have a positive economic effect, the group asserted.
"Improving [creditors’] expectations can lower investor perceptions of risk and thus the premiums that creditors demand for interest rates paid on U.S. assets," the report said.
In order for the plan to be perceived as credible, however, the commission believes there should be an automatic trigger to set in motion spending cuts and tax increases if a debt target set by lawmakers is missed in any given year instant payday loans.
"The goal of an enforcement mechanism is to be punitive enough to cause lawmakers to act but realistic enough that it can be enacted if necessary as a last resort," the commission wrote.
The commission’s members are a bipartisan collection of former directors of the Congressional Budget Office, the White House Office of Management and Budget, as well as former chairmen of the Senate and House Budget Committees and former U.S. Comptrollers General, among others.
Their estimates and suggestions are based on the assumptions that a number of current policies will remain in place. Among the assumptions are that the majority of the Bush-era tax cuts will be extended, that the reach of the alternative minimum tax will be reduced so as not to ensnare middle-income families, and that normal discretionary government spending will grow at the same rate as the economy, rather than inflation.
Easier said than done
The commission acknowledges that reducing U.S. debt levels will be neither quick or easy.
And their suggestions are certain to meet resistance from any number of quarters, including from those who fear Social Security and Medicare benefits will be cut drastically.
The growth in the spending for both of those entitlement programs and for Medicaid are growing faster than the GDP. Deficit hawks say permanent changes need to be made to ensure long-term solvency for the programs and fiscal stability for the federal budget.
"That does not mean, however, that the entire solution has to come from changes to [programs such as Medicare and Social Security] — or spending in general," the commission said. "To the contrary, government health and retirement programs will almost certainly have to grow as a share of the economy because of demographic and technological factors."
The bottom line is the commission believes changes to the entitlement programs are necessary but not sufficient. "We believe the problem is so large that nearly all areas of the budget will be affected," the report said.
James B. Lockhart III, vice chairman of WL Ross & Co. and the former director of the Federal Housing Finance Agency, said the U.S. housing decline may not be over.
Lockhart said at a conference in New York that he’s concerned there may be “another leg down” because of the pace of foreclosures. Foreclosures will “spike” unless the Obama administration’s programs to spur home loan modifications do more to reduce homeowners’ debts, he said.
“We need to be more aggressive in writing down mortgages and reducing principal to keep people in homes,” he said. “A spike could be pretty big.”
Lockhart also said he expects that “hundreds of banks will be taken over.” The possibility comes from troubles in commercial real estate, which lags behind housing in finding a market bottom, he said payday loans.
“We are overbuilt in many areas,” he said.
Lockhart, 63, joined the distressed-investment unit of Atlanta-based Invesco Ltd. this year after serving as head of the FHFA. WL Ross was among nine asset managers chosen by the Treasury Department to take part in the $40 billion U.S. Public- Private Investment Program, under which taxpayer and private capital will be paired to invest in mortgage bonds.
WL Ross manages funds that own American Home Mortgage Servicing Inc. and made “substantial investments” in bond insurer Assured Guaranty Ltd., according to a statement in August announcing Lockhart’s hiring.
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