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TSX closes above 12,000

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The Toronto Stock Exchange racked up a solid triple-digit gain on Friday to move above the 12,000 level once again.

The benchmark S&P/TSX composite index closed up 169.84 points, or 1.4 per cent, at 12,081.73. The Canadian dollar was similarly strong, up 0.89 of a cent to 98.96 cents US.

In New York, the Dow Jones Industrial Average turned positive for the year, up 166 points, or 1.4 per cent, to close at 11,644.98.

Both stock markets and Canada's currency were lifted by data showing stronger manufacturing sales in Canada, and sharply better retail sales in the United States.

Statistics Canada said manufacturing sales rose by 1.4 per cent to $47.6 billion, which was the highest level since October 2008. Economists had expected a gain of 0.5 per cent.

In the U.S., retail sales increased 1.1 per cent in September, the largest gain in seven months and led by rising auto sales. Economists had expected a gain of 0.8 per cent.

"The reports are fairly consistent with what we've been seeing, that these numbers and most of the data we're seeing are consistent with low growth but not recessionary conditions," said Robert Gorman, chief portfolio strategist at TD Waterhouse.

"In other words, we have felt throughout [that another recession] was unlikely and the more we see, the more we are of that view."

Markets were also higher on new optimism that European leaders might be able to hammer out a solution to the European debt crisis at a meeting of G20 finance ministers in Paris this weekend.

"It's a little more of a coherent story at this stage and there are a lot of big issues to sort out, but you get the sense that it's past rhetoric and they're now trying to grapple with the mechanics of exactly what they will do," added Gorman.

"I think the sentiment surrounding that is certainly a lot more positive, no question."

Gold was also higher, up $14.50 at $1,683.00 US an ounce. Crude for November delivery was up $2.57 at $86.80 US a barrel in New York.

With files from The Canadian Press Accessibility Links

B.C. First Nations to be consulted on fracking

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Encana operates this natural gas plant in the Horn River area of northern B.C. Betsy Trumpener/CBC

B.C.'s energy regulator has agreed to consult with First Nations groups before it allows oil and gas companies to use fresh water for natural gas drilling.

Hydraulic fracturing — or fracking — uses pressurized water and chemicals to blast natural gas out of underground rocks.

Until now, aboriginal communities in northeastern B.C. haven't had a say in the use of nearby rivers and lakes for fracking.

But that's about to change, says Tom Ouellette, director of First Nations relations with the B.C. Oil and Gas Commission. He says First Nations will now be consulted on short-term water use, due to a growing demand from the industry.

The commission is currently issuing the gas industry more than 50 water permits a month, a number that's expected to rise.

"Historically, the water use associated with natural gas activities was relatively low. So, in those cases we were not consulting."

"Now, we're seeing the larger volumes [of water] and there's some potential impacts so we have to consult with the communities."

Ouellette says water use could negatively affect treaty or aboriginal rights, a fear shared by Halfway River First Nation Chief Ed Whitford. His community is surrounded by gas drilling.

"The freshwater, everyone says it's such a precious resource....and the next thing you know it's being sucked up into one of them [gas] trucks and it's gone," said Whitford.

"We've caught them lots of times taking out of the river, we really don't know how much water they're using."

The consultations will start Oct. 20. Industry will be required to notify the Oil and Gas Commission of its fracking plans, so the commission can then consult with First Nations.

With files from the CBC's Betsy Trumpener Accessibility Links

Air Canada's woes may be short term

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The contract dispute between Air Canada and its flight attendants may hurt financially now, but it isn't likely to damage the carrier's long-term business prospects, experts say.

After giving their union a strike mandate, Air Canada flight attendants were thrown for a loop this week when Labour Minister Lisa Raitt referred their labour dispute to Canada Industrial Relations Board. The order effectively removes their right to strike while the board investigates the impact on the health and safety of Canadians.

The board generally takes weeks to come back with rulings, by which point Parliament will be back in session and back to work legislation is expected to be tabled.

Travellers scrambled to make alternative arrangements, and travel agents report a drop in the number of new bookings. But beyond a temporary low for Air Canada's image, experts don't expect a major hit to the company's bottom line.

"I don't think it will be that dramatic," Schulich School of Business professor Fred Lazar says. He expects a drop off in the number of new bookings, and frustrated travellers vowing never to fly with them again.

But soon enough, he expects, the company will come forward with an apology and likely a seat sale. "Then all will be forgiven," he says. "They'll take a temporary hit through lower fares, but that might be it for now.

Even a temporary dip in travelers can cost the company a lot of money. P I Financial analyst Chris Murray estimates that every 1 per cent increase or decline in Air Canada's traveler numbers cost the company plus or minus $83 million in operating earnings.

With money like that, it's clear the airline has much to lose from even a short-term drop-off in customers.

The International Air Travel Association says North American air carriers such as Air Canada saw, on average, a 3.9 per cent increase in demand last quarter. That's encouraging news for an industry struggling to deal with a wobbly economy. But not enough of an increase that a carrier could simply brush off a precipitous — albeit temporary —decline in passengers.

'I don't think it will be that dramatic'—Business professor Fred Lazar

But perhaps far more troubling than any temporary financial losses for the company is the larger implication of their acrimonious relationship with labour. Twice since the flight attendants' collective bargaining agreement expired in March, the union has rejected a new agreement that has been put to them by their union leadership.

"It really raises a question of the confidence the members have in the leadership of the union," former Canadian Auto Worker union head Buzz Hargrove told CBC News recently.

The ongoing labour dispute is going to continue to weigh on Air Canada share prices in the near term, Murray says. "In our opinion, the primary risk in this labour dispute is the ability of the union leadership to negotiate a realistic settlement," he said. It appears as though there's some sort of move to replace members of the CUPE executive team. "That could prolong negotiations further," Murray said "but given the terms of the tentative agreements [and] earlier settlements by customer service agents … any final contract would not be dissimilar to current expectations."

Lazar agrees with that assessment. "There's a longer term problem here," he says. "It's becoming obvious that Air Canada can't work with its own union because there's a disconnect between rank and file workers and management."

Though he says the airline is likely to survive the current labour mess, he worries for the airline's future in its present form. The coming holiday travel season will be key, he says. If passenger numbers stay strong, and if the global economy can avoid any other setbacks between now and the New Year, the company should be fine.

"But life in the airline industry is always about the next shock," Lazar says. "You never really know what it's going to be, so I wouldn't necessarily be surprised to see Air Canada in [bankruptcy protection] again at some point, and that's going to affect employees a lot more."

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RBS Cancels Christmas for Investment Bankers

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October 14, 2011, 8:57 AM EDT By Gavin Finch

Oct. 14 (Bloomberg) -- Royal Bank of Scotland Group Plc is canceling Christmas for its investment bankers this year as the government-owned lender tries to reduce costs.

The bank will stop subsidizing holiday parties and has banned staff entertainment for the rest of the year, Chris Kyle, chief financial officer of RBS’s investment bank, wrote in an e- mail to employees obtained by Bloomberg News. A spokesman for the lender confirmed the contents of the memo.

RBS reduced its spending on holiday parties to 10 pounds ($16) a head, enough to buy two pints of lager and a packet of potato chips, after receiving the biggest banking bailout in the world in the financial crisis. The lender announced 2,000 job cuts at the securities unit in August.

The bank is seeking to “further tighten and minimize the rate of spend on non-staff costs,” Kyle wrote. RBS has also frozen spending on computer hardware, new Blackberries and additional newspaper subscriptions, he said.

“International travel for internal purposes is to cease across all areas” and “travel under four hours duration will be in economy class without exception.”

Employees have also been stopped from organizing off-site meetings and from taking taxis home before 10 p.m., he said. All contractors will take a “mandatory” vacation from Dec. 19 to Dec. 30, Kyle wrote.

The lender may also have to raise capital as European Union regulators force banks to bolster themselves against losses from the region’s sovereign debt crisis.

RBS might need to raise as much as 19 billion euros ($26 billion) of new capital to pass a third round of stress tests, Credit Suisse Group AG analysts led by Carla Antunes-Silva wrote in a note to clients yesterday. Evolution Securities Ltd.’s Ian Gordon said in a note today that RBS has “absolutely no need” to raise more capital because the bank wrote down its holdings of Greek debt by 50 percent in the second quarter.

--Editors: Jon Menon, Edward Evans.

To contact the reporter on this story: Gavin Finch in London at gfinch@bloomberg.net

To contact the editor responsible for this story: Edward Evans at eevans3@bloomberg.net

Portugal Plans Deeper Cuts Amid 'Emergency'

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October 14, 2011, 8:07 AM EDT By Joao Lima

(Updates with comments from prime minister in seventh paragraph. For more on the euro crisis, click on EXT4 .)

Oct. 14 (Bloomberg) -- Portugal plans to deepen budget cuts next year as it faces a moment of “national emergency,” Prime Minister Pedro Passos Coelho said.

“Next year the adjustment will have to be much deeper,” Passos Coelho said last night in a speech broadcast by television station RTP following a cabinet meeting to discuss the 2012 budget proposal. To meet its budget goals, Portugal has to do more than it initially planned, he said.

The overrun in carrying out the 2011 budget, relative to the financial aid program’s forecast, exceeds 3 billion euros ($4.1 billion), the prime minister said.

Passos Coelho is cutting spending and raising taxes to meet the terms of a 78 billion-euro aid plan from the European Union and the International Monetary Fund. The government has already announced a one-time income-tax surcharge to help cover the budget shortfall this year.

Portugal is “on track” to meet its 2011 deficit goal, a team of EU and IMF inspectors said on Aug. 12. A month later, the IMF said the government needed to improve control over expenditure and cut spending to meet its targets as it seeks to regain access to bond markets in 2013.

Summer, Christmas Payments

The 2012 budget includes a plan to eliminate the summer and Christmas salary payments for state workers earning more than 1,000 euros a month, Passos Coelho said last night. As mentioned in the financial aid program, tax deductions will be reduced and the government plans to increase the value-added tax rate of some goods.

The government will also consider an additional tax on companies with profit of more than 10 million euros, Passos Coelho said in parliament today.

Portugal will allow private sector working hours to increase by 30 minutes a day during the next two years and will adjust the holiday calendar as it tries to improve the economy’s competitiveness. It won’t go ahead with a plan to reduce employers’ social-security contributions for now, he said last night.

“We know we can count on our international partners beyond the current adjustment program, as long as we meet that program,” Passos Coelho said.

The additional austerity measures are intended to help the government meet its goal of trimming the budget deficit from 9.8 percent of gross domestic product in 2010 to 5.9 percent in 2011 and to the EU ceiling of 3 percent in 2013. Debt will reach 100.8 percent of GDP this year and peak at 106.8 percent in 2013 before starting to decline, the government predicted on Aug. 31. Debt was 93.3 percent of GDP in 2010.

‘Bold Measure’

“Clearly, the reduction in salaries is a bold measure,” Nuno Miguel Matias, an analyst at Espirito Santo Investment Bank in Lisbon, said today in a research note. “It will definitely have a negative impact on consumption.”

The government has forecast the economy will contract 2.2 percent this year and by 2.2 percent to 2.3 percent in 2012, before expanding 1.2 percent in 2013.

Borrowing costs have increased since the bailout was requested. The difference in yield that investors demand to hold Portugal’s 10-year bonds instead of German bunds reached a euro- era record of 10.8 percentage points on July 12 and was at 9.46 today, up from 5.11 when former Prime Minister Jose Socrates sought the rescue on April 6. On June 6, the day after Passos Coelho defeated Socrates to take power, it was 6.70.

--With assistance from Anabela Reis in Lisbon. Editors: James Hertling, Fergal O’Brien

To contact the reporters on this story: Joao Lima in Lisbon at jlima1@bloomberg.net.

To contact the editors responsible for this story: Tim Quinson at tquinson@bloomberg.net

August manufacturing sales better than expected

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Canadian manufacturers increased their sales by a surprising 1.4 per cent in August, to $47.6 billion, Statistics Canada reported Friday.

The consensus among economists had been for an increase of 0.5 per cent.

Sales reached their highest monthly value in almost three years. Adjusting for inflation, the volume of sales was up 1.1 per cent.

Still, sales are still below the level they were at before the 2009 recession.

The growth in August was limited to 11 of the 21 manufacturing sectors tracked by Statistics Canada, but those make up 70 per cent of the industry.

"This month's results extend a positive sales trend, but keep in mind that the recent two-month growth sequence merely makes up for ground lost in the second quarter of the year," said TD Bank economist Jacques Marcil.

"With about one-third of our manufacturing sales going to the U.S., we are not expecting breakneck growth for the rest of the year,” Marcil said.

“Signs point to improved auto industry shipments stateside,” he said, “but these are vulnerable to buyer confidence, which remains weak. At the same time, the recent softness of the Canadian dollar will provide offsetting support."

Quebec, Newfoundland and Labrador, and Ontario led the provincial increases. Sales of transportation equipment led all categories, rising seven per cent after a 3.5 per cent gain in July.

With files from The Canadian Press Accessibility Links

Occupy Canada rallies put police on alert

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Canadian organizers of the so-called Occupy movement are ramping up efforts to rally "against spiritual wickedness in high places" during a global day of action Saturday that now has the backing of at least a couple of major unions, and has put police and businesses on alert.

Thousands in at least 15 Canadian cities — from Vancouver to St. John's — were holding meetings Friday to complete plans for the weekend marches, sit-ins and other efforts to decry what the movement says is an uneven distribution of wealth caused by government policies favouring big business.

While locations for where the rallies start and end vary according to city, they generally include marching to financial districts, city halls or other important economic venues. Weather forecasts of heavy rain and high winds in parts of Canada aren't deterring the plans.

Their efforts now have the backing of at least two major unions — the Canadian Auto Workers and the Communications, Energy and Paperworkers Union of Canada.

"I'm encouraged to see citizens rightfully stand up and take action against what are gross injustices in our economic and social structures," said CAW national president Ken Lewenza in a release Friday. "It's time for people to take ownership of their streets, their economy and fight back against corporations and governments championing right-wing, neo-liberal policies that support a select few, at the expense of the majority."

As of early Friday afternoon, Occupy Canada's Facebook page had more than 13,000 "likes" and more than 23,235 "talking about this" hits. A YouTube video shot in Toronto's downtown Dundas Square features someone with Occupy Canada preaching to Canadians to join rallies in their cities as part of a rising "global consciousness."

“We wrestle not against flesh or blood, not against Muslim, not against Christian, not against black, not against white – but against powers, against spiritual wickedness in high places, against the rulers of darkness of this world, and that is the truth – and we wrestle not against each other but ... against the corrupt powers of this world," the man shouts.

It's all part of the social networking-driven movement, which has been heating up on the front lines in U.S. cities, including in New York where the whole Occupy mission began Sept. 17.

While the U.S. movement has the support of many labour, political and spiritual leaders, Canada's Occupy movement has been criticized for not being focused — which is reflected in a CBC online survey asking Canadians: "Is the Occupy Wall Street message relevant in Canada?"

In the U.S., hundreds have been arrested during clashes in various U.S. cities. Despite that, some 1,500 cities globally are taking part in Saturday's day of action.

Canadian police units, notably in Toronto and Vancouver where the G20 protests in June 2010 and hockey riots this past June, respectively, have led to violence and arrests, have for days been planning their strategies for handling the Occupy protests.

Police officials have been as tight-lipped about how they'll handle Saturday's mass events as the Occupy Canada organizers, who keep a low profile and let their Facebook, Twitter and other social networking efforts drive their planning.

However, Toronto police spokeswoman Const. Wendy Drummond reiterated Friday to CBC News that "we do have planning in place to facilitate a peaceful protest and ensure everyone’s safety."

Drummond said that for "operational" reasons, she couldn't give details of where police will concentrate their efforts, but added that officers will "be placed in accordance to where the protesters are."

When asked if Toronto police have had discussions with downtown businesses — many of which suffered severe losses during G20 looting and vandalism — Drummond said: "With the things that happened in Toronto, obviously we communicate with our partners. Toronto has dealt with protests in the past and those are the policies and plannings we go with, and really it will be the same" for the Occupy Toronto event Saturday.

In Vancouver, where the riots following the Canucks' Stanley Cup defeat last June led to dozens of arrests and financial losses estimated at more than $4 million due to vandalism, theft and damage to property, the police service has said it has had "preliminary discussions" with organizers of Saturday's rally that will start at the Vancouver Art Gallery.

'We feel they have a right to protest but we hope it is just done peacefully.'— Maura Drew-Lytle, Canadian Bankers Association

“We have already engaged in dialogue with self-identified organizers and we expect that we will communicate further with them in the coming days,” Const. Jana McGuinness said in a release. “Legal protests and demonstrations in Vancouver are welcome, and people are free to gather in any public space as long as their actions are legal."

A call to McGuinness on Friday for an update on police plans wasn't immediately returned.

The Occupy Wall Street movement grew out of an idea last summer by the Vancouver-based non-profit group the Adbusters Media Foundation, which was inspired by protests that toppled governments in the Middle East.

Occupy Wall Street protesters argue government bailouts in 2008 left banks enjoying huge profits, amid high unemployment and job insecurity, and that the richest one per cent of Americans have huge fortunes and are taxed at a lower rate than the average person. Movement leaders have developed some concrete demands, including that U.S. President Barack Obama ordain a presidential commission "tasked with ending the influence money has over our representatives in Washington."

In Canada, however, one commenter known as Buchoman said: "Prior to becoming relevant, the 'protesters' will need to figure out what their cause (and proposed solution) might be. I've heard rants to the tune of "Ban The Federal Reserve", "Cancel All Debt", "Abolish All Business Dealings," (and so forth). However until the protester leaders (whoever they might be) come up with a unified (and coherent) message, this so-called 'Occupy Canada' movement leaves 99% of Canadians scratching their heads."

Another commenter, known as ptwonline, begs to differ: "Relevant to Canada? Of course it is. We're seeing some of the same things happen where corporate interests are being put ahead of the people. The Oil Sands is a high-profile example of that, and the general inaction on climate change is long-running example."

Prime Minister Stephen Harper, in Peterborough, Ont., for a private meeting with Ontario Premier Dalton McGuinty on Friday, said during a question-and-answer session that he would limit his comments to saying Canada's situation differs from the U.S. concerns.

"Canadians understand that Canada has performed very well during the global economic recession," he said. "We've managed to create more growth and more jobs than just about any other industrialized country. We are extremely focused on the needs of Canadians and the needs of the middle class. We obviously have a very different situation here — we didn't bail out our banking sector. Our banking sector was the strongest in the world."

Some of the very institutions targeted by Occupy interests in Canada also say they're unclear about the Occupy movement's concerns.

"We are not sure what to expect in Toronto and not sure what their demands are," Maura Drew-Lytle, a spokeswoman for the Canadian Bankers Association, said in an interview Friday.Riot police walk by a burning police car in downtown Toronto during anti-G20 protests on June 26, 2010. Police in various Canadian cities are now preparing for Occupy movement rallies Saturday that they hope will remain peaceful. Frank Gunn/Canadian Press

"We feel they have a right to protest but we hope it is just done peacefully," she added. "Our banks throughout the economic crisis were strong and stable, and none needed a bailout and customers’ deposits were safe. It’s a very different situation here than it is in the U.S. for sure."

However, Drew-Lytle added that Canadian banks "listen very closely to their customers, and whatever concerns they might have ... and if there are any systemic concerns they hear, they’ll make changes."

Tom Caldwell, chairman and CEO of Caldwell Securities Ltd., which has offices in Toronto and New York City, also isn't exactly sure about the Occupy movement's goals.

"The medium is the protest but what is the message?" he said.

Caldwell said Canada "is relatively stable, the banking issues have not been the same and really there is an underlying sense that people are expressing their unhappiness at reaching the end of the age of entitlement." In the U.S., however, there is genuine anxiety, mistrust and fear, he added.

While not unsympathetic to the needs of people who have genuinely suffered economic hardship, he said he isn't concerned that his business sector is a target of Occupy protesters.

"People forget awfully easily when something else comes along."

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Euro Extends Biggest Weekly Rally Since January on G-20 Optimism

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October 14, 2011, 5:29 PM EDT By Catarina Saraiva

Oct. 14 (Bloomberg) -- The euro extended its biggest weekly gain versus the dollar in more than two years on speculation Europe’s sovereign debt crisis will be contained as Group of 20 finance ministers met to confront the region’s turmoil.

The yen fell against the dollar on bets Japanese authorities will take steps to limit its gains. A gauge of the dollar against the currencies of major U.S. trading partners dropped to a four-week low as an increase in retail sales buoyed stocks and reduced demand for a refuge. The euro rose versus the dollar as Treasury Secretary Timothy F. Geithner said “Europe is clearly” moving to a crisis solution.

“There’s a combination of better U.S. economic data and some progress, at least discussion-wise, that the European policy makers are heading in the right direction,” said Mark McCormick, a currency strategist at Brown Brothers Harriman & Co. in New York. “People were pricing in a meltdown two weeks ago, and now you’re seeing a short-covering rally for a lot of these” higher-yielding currencies. A short is a bet the price of an asset will fall.

The euro rose 0.8 percent to $1.3882 at 5 p.m. in New York and was poised for a 3.8 percent gain this week, the most since March 2009. The shared European currency tumbled 7.7 percent in the third quarter, the most since June 2010. The euro appreciated 1.2 percent to 107.20 yen today after touching 107.45, the highest level since Sept. 9.

A $4.2 billion increase in China’s currency reserves in the third quarter to $3.2 trillion was the smallest gain since 2000, according to Bloomberg data.

China’s Holdings

Weakness in the euro last quarter pulled down the dollar value of China’s holdings in that currency and capital outflows may have also limited the gain, said Ding Shuang, an economist in Hong Kong at Citigroup Inc. The yuan rose 0.1 percent to 6.3776 per dollar today in Shanghai.

The U.S. Treasury Department said today it would delay its twice-yearly report on global exchange-rate policies, including China’s, until later this year.

The Treasury said the delay will “give us a chance to assess progress following several international meetings,” including this week’s G-20 finance ministers’ session in Paris, a G-20 summit in November and meetings involving Asia-Pacific finance ministers and leaders in November.

The Australian dollar advanced 1.5 percent to $1.0340, extending this week’s gain to 5.9 percent as the annual rate of inflation in China, the South Pacific nation’s biggest trading partner, stayed above 6 percent.

Yen Versus Dollar

The yen slid 0.4 percent to 77.22 versus the dollar as Dow Jones Newswires reported government officials said they would take new steps against a strong yen as early as next week.

“This is a very direct response to people not wanting to be too long yen going into the weekend in case there’s some real meat in the talk of action early next week,” said Alan Ruskin, global head of Group of 10 foreign-exchange strategy at Deutsche Bank AG in New York. A long is a bet an asset may gain in value.

Dow Jones reported the steps may include more funding to encourage foreign mergers and acquisitions and won’t include a tax on currency transactions.

The yen increased to a post-World War II high of 75.95 against the dollar in August, making Japan’s exports more expensive, even after the government intervened in the currency market for the third time in the past year, selling yen in an effort to curb its appreciation.

Dollar Index

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, decreased today as much as 0.7 percent to 76.508, the lowest level since Sept. 16, on reduced demand for a refuge in the world’s main reserve currency.

U.S. retail sales increased 1.1 percent last month, the most since February, after a revised 0.3 percent gain in August, the Commerce Department reported today. The median forecast of 85 economists in a Bloomberg News survey was for an advance of 0.7 percent.

“This report is a game changer, following nonfarm payrolls,” said Michael Woolfolk, senior currency strategist in New York at Bank of New York Mellon Corp., the world’s largest custodial bank, with more than $26 trillion in assets under administration. “These two reports have had a significant impact on market psychology.”

Nonfarm payrolls increased by 103,000 last month after a 57,000 gain in August, the Labor Department said last week. The jobless rate held at 9.1 percent.

Rally in Stocks

The Standard & Poor’s 500 Index rallied 1.7 percent today on the gain in U.S. retail sales. Crude oil for November delivery surged 3.2 percent to $87.30 a barrel.

The euro rose as G-20 and International Monetary officials said the ministers meeting in Paris are working on a European rescue plan including boosting the IMF’s lending resources.

European leaders may complete the rescue plan at an Oct. 23 summit to present to a meeting of G-20 leaders on Nov. 3-4. The aim is to put together what the French and German governments call a “durable” fix to the turmoil that has propelled Greece to the edge of default and is roiling global markets.

“They’re talking about a much more comprehensive package, a much more forceful package and measures of backstop for sovereign governments and the preventive recapitalization of banks,” Geithner said in an interview on CNBC today. “Those are the kinds of things they need to do. Of course, the hard part is still ahead.”

Euro’s Gain

Europe’s currency has strengthened 1.2 percent in the past month, according to Bloomberg Correlation-Weighted Currency Indexes, which gauge the currencies of 10 developed nations. The yen has fallen 0.8 percent.

Investors should sell the euro against the Canadian dollar, betting the shared currency will weaken to C$1.3660, Standard Bank Plc said.

The bank recommends entering a short position on the euro at C$1.4030 with an initial target of C$1.3850, Steven Barrow, head of Group of 10 currency strategy in London at South Africa’s largest bank, wrote today in a note to clients. The trade should be abandoned if the euro strengthens to C$1.4380, he wrote. The euro dropped 0.3 percent to C$1.4019 today.

Hedge funds and other large speculators increased bets that the dollar will gain against the yen, euro, Australian dollar, Swiss franc, Canadian dollar, pound, Mexican peso and New Zealand dollar. Net dollar long positions increased to 132,835 contracts in the week ended Oct. 11, figures from the Commodity Futures Trading Commission showed today. That’s the highest level since June 2010.

--With assistance from Keith Jenkins and Lucy Meakin in London. Editors: Dennis Fitzgerald, Paul Cox

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

Japan hopes to trade free flights for Facebook fans

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If you’ve always dreamed of seeing Tokyo’s cherry blossoms or Kyoto’s famous temples, or even the Anime maid cafes of Akihabara, the Japanese government wants to help turn your hopes into reality.

In order to boost visitor numbers in the wake of its recent disasters, Japan’s official tourism agency hopes to provide free flights for 10,000 foreigners to travel to the country.

The Japan Tourism Agency says it will ask the lucky tourists to post about their experiences on social media.

“The travelers will put stories and images of their fun trips to Japan while travelling on Facebook and their own blogs,” says the Agency’s Masatoshi Tsukasaki.

“As such stories spread to their friends and followers, we hope a sense of insecurity and worries over Japan built up after the quake would be eliminated.”

The agency has asked for $14 million dollars as part of next year’s budget to fund the program. Winners would be selected based on how interesting their travels plans are, with 10,000 receiving free round-trip plane tickets.

The government hopes to lure both traditional tourists and young visitors interested in the country's street culture and nightlife. Tourists would be expected to pay for their own hotels and activities.

Japan’s tourism industry has suffered in the aftermath of the tsunami, earthquake and nuclear disasters on March 11. In August, just 546,800 tourists visited Japan, nearly a third less than a year earlier.

In the most impacted areas, visitors have fallen off by up to 90%. Tsukasaki says he expects it to take three-to-five years for the industry to fully recovery.

He also believes the project is away of showing gratitude for all the support Japan has received from the international community.

“The world helped Japan to come back on its feet,” he says. “We would like to show how much progress we have made since then."

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Suzuki Says VW Breached Car Technology Deal

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October 14, 2011, 3:15 AM EDT By Anna Mukai and Yuki Hagiwara

(Updates with comment from VW in fifth paragraph.)

Oct. 14 (Bloomberg) -- Suzuki Motor Corp. accused Volkswagen AG of violating a partnership agreement by not sharing technology and reiterated its demand that the German carmaker to sell back its stock.

Suzuki sent a letter to VW asking it to remedy “numerous” breaches of an agreement, the Hamamatsu, Japan-based company said in a statement today, without providing details of the alleged infringements. The German carmaker bought 19.9 percent of Suzuki in 2009 and the Japanese company took a 1.49 percent share of VW.

“This capital alliance was intended to facilitate Suzuki’s access to VW’s core technologies,” Suzuki’s Chairman Osamu Suzuki said in the statement. “I remain disappointed that we have not received what we were promised. If VW will not allow access, it must return Suzuki’s shares.”

Suzuki is seeking to end its partnership with Volkswagen, which has accused the Japanese company of violating the cooperation agreement by purchasing engines from Fiat SpA. Chairman Suzuki said Sept. 22 that VW’s allegation had “significantly disparaged Suzuki’s honor” and demanded a retraction.

“The accusations are completely unfounded,” VW spokesman Michael Brendel said today by telephone from the carmaker’s Wolfsburg, Germany headquarters, in response to the letter from Suzuki. “Volkswagen has from the start done all it could to safeguard the partnership.”

Suzuki’s shares fell 0.2 percent to 1,656 yen as of the 3 p.m. close of Tokyo trading, while the benchmark Nikkei 225 Stock Average dropped 0.9 percent.

Broken Relationship

“Now that both companies are claiming that the other infringed on the partnership, it seems like they will have to legally resolve this process,” said Tatsuya Mizuno, director of Mizuno Credit Advisory in Tokyo. “It doesn’t look like they will be able to rebuild their relationship.”

Suzuki has given VW “several weeks to remedy the breaches,” Executive Vice President Yasuhito Harayama said today at a media briefing in Tokyo. He declined to say when Suzuki expects the partnership to end. Top executives from both companies are holding talks, he said.

The two automakers have been at odds since VW said in its March annual report that it could “significantly influence financial and operating policy decisions” at Suzuki, describing the Japanese company as an “associate.”

The cooperation agreement hasn’t resulted in a single project, the companies have said. The Japanese automaker plans to sell its holdings in VW should the tie-up end, the company said Sept. 12. VW has said it doesn’t plan to sell or reduce its stake in Suzuki.

“Competition in India and at home is intensifying,” Masatoshi Nishimoto, a Tokyo-based analyst at IHS Automotive, said in a phone interview. “If the partnership with VW is delaying their development of new technology and cars, they need to end it as soon as and as calmly as possible.”

--Editors: Chua Kong Ho, Dave McCombs

To contact the reporters on this story: Anna Mukai in Tokyo at amukai1@bloomberg.net; Yuki Hagiwara in Tokyo at yhagiwara1@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net

Virtual Trip To 'Local' Food Market Can't Beat The Real Thing Yet

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Enlarge Bart Sadowski/iStockphoto.com

The regular old supermarket is still king for choice, price and convenience

Bart Sadowski/iStockphoto.com

The regular old supermarket is still king for choice, price and convenience

Farmers' markets, food cooperatives and community supported agriculture (CSA) groups have been all the rage among foodies looking for locally grown, organic or specialty foods for the past few years, even though they've existed far longer than the modern supermarket.

But the new businesses aren't sticking to bricks and mortar traditionalism. In recent years, these grocery store substitutes have exploded on the Internet, offering far-flung consumers more choices than ever.

But so far, none of them have found the magic combination of choice, convenience, and price that will make local and sustainable agriculture competitive with the grocery store, says Parke Wilde, associate professor at the Friedman School of Nutrition Science and Policy at Tufts University.

"It still has something to prove," Wilde says of the new business model.

The web-based services vary widely in their particulars. Some allow farmers to set up a profile and interact with customers directly by managing their own inventory and setting their own prices, while other sites never name the producers behind their inventory. An online food co-op might only sell food produced within a 100-mile radius of the town it serves, or it may offer bananas and coffee alongside its blueberries and maple syrup.

The online services do offer wide variety and avoid the major disadvantage producers face at farmer's markets, like figuring out how much inventory to bring.

The Iowa Valley Food Cooperative (IVFC), based in Cedar Rapids opened its virtual doors in August 2011. "The main inspiration was to develop a new opportunity for local producers," says co-founder and manager Jason Grimm.

IVFC focuses its efforts on small farms and unique foods being raised within a hundred-mile radius of Cedar Rapids. In addition to ground beef and Russet potatoes, customers can order elk brisket and Bavarian purple garlic, all from state-licensed farmers who have also met specific requirements set by the co-op's bylaws.

Grimm says members of IVFC are "able to know directly who they're buying from." He pointed out that at many food co-ops, the majority of the merchandise is not locally produced.

"This type of model has a lot of great opportunities with it," Grimm said. "It allows us to reach out to more communities." In particular, IVFC is working to expand into local food deserts, the type of communities that may not be able to support a grocery store, let alone a specialty co-op.

IVFC is also working with the state's Supplemental Nutrition Assistance Program (formerly the Food Stamp Program) so that lower-income families can participate in the co-op. At the moment, the organization has a single pickup point in Cedar Rapids one day a month, so it's not quite a grocery store replacement at this point.

Overall, grocery stores are a $560 billion business

So while alternative marketplaces keep multiplying, the sheer difference in scale is part of what keeps them from being competitive with a chain grocery store.

For instance, the Department of Agriculture reported a 17 percent increase in the number of farmers' markets between 2010 and 2011. Their Farmers' Market Search currently lists 7,222 different markets around the country, and a vendor working at one of those markets sells, on average, $7,000 worth of food.

Statistics from the Food Marketing Institute say there were over 36,000 grocery stores in the United States that each moved at least $2 million in merchandise last year.

And while smaller organizations are using technological innovation to the best of their advantage, so are supermarket chains, with services like Peapod that offer online shopping and home delivery. So smaller businesses have to work hard to convince customers that they're selling something special.

Another web-based co-op, The Arganica Farm Club based in Ruckersville, Virginia, avoids the complications of scheduling and pick-up sites. Custom orders are delivered to the client's door once a week, and the company picks up reusable containers, milk jugs, and even compostable table scraps. The club tries to make shopping for local foods as easy as possible without compromising sustainable practices.

One of the goals listed on Arganica's website is "providing transparency of food origin." But, this isn't as easy as it sounds. The ever-shifting list of specials makes eating locally look fun and exciting, but also overwhelming and pricy. And details like the names and locations of farmers are often lost in the shuffle.

My own hometown of Evanston, Wyoming is not the ideal location for a garden or a farmers' market, given its elevation of just under 7,000 feet and an average of 80 frost-free days per year. It's also not a great place for a specialty food store, since the population of just over 12,000 people is separated from its nearest neighboring town by at least 30 miles of sagebrush in each direction.

Even if you're a huge fan of pronghorn jerky, Evanston is a terrible place to be a locavore. Until recently, the town and its environs relied on a single grocery store and a Wal-Mart supercenter for its groceries.

Then, members of the community discovered an online food co-op called Bountiful Baskets. Some of them started using the service, despite having to drive to Utah to collect their veggies.

Fast forward a couple years, and Evanston has its own Bountiful Basket pickup station, staffed by volunteers who are willing to get out at 7 am on a Saturday in order to help their neighbors sort onions and sweet potatoes.

Now, the produce delivered in the standard mystery basket each week is neither local nor organic. It creates no lasting bonds between producer and consumer. In many respects, it falls short of the farm-to-table ideal. But those baskets also bring fresh figs to people who may never have seen them before, encourage home cooks to give Chinese eggplant a try.

Moving from Main Street to the Internet may not solve all of the conundrums faced by food shoppers, but it certainly brings the food conversation to a wider audience.

The idea is an attractive one that will probably continue to grow. "Lots of small-scale producers are interested in scaling up to mid-size level," Wilde tells The Salt. "I think a lot of consumers are interested in that scale, also."

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VIX Tumbles Most in 19 Years as Profits Calm Equities: Options

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October 14, 2011, 5:27 PM EDT By Cecile Vannucci and Jeff Kearns

Oct. 14 (Bloomberg) -- Corporate profits are calming U.S. stocks more than any time in 19 years, reducing the cost of insurance against losses at the same time investors gain confidence in European efforts to solve the debt crisis.

The Chicago Board Options Exchange Volatility Index fell 28 percent in the six trading sessions before New York-based Alcoa Inc. posted results, a record drop before the start of earnings season, according to data since January 1993 compiled by Bloomberg. The VIX, as the benchmark measure of U.S. equity derivatives is known, has fallen 14 percent since Alcoa’s earnings trailed analyst estimates Oct. 11.

Prospects for the eighth straight quarter of earnings growth combined with a pledge by French and German leaders to present a plan by Nov. 3 have helped reduce the VIX from an 29- month high of 48 on Aug. 8. The Standard & Poor’s 500 Index has added 9.5 percent since the VIX climbed above 45 on Oct. 3.

“We were very nervous, and rightfully so, about Europe,” said John Farrall, director of derivatives strategy at PNC Wealth Management in Cleveland, said in a telephone interview yesterday. The firm oversees $109 billion. “Now earnings have taken the forefront of attention, and corporate profits are supposed to be good,” he said.

The VIX fell an eighth straight day yesterday, the longest streak since March 2010, even after JPMorgan Chase & Co.’s quarterly report drove the S&P 500 down 0.3 percent. The VIX dropped 8 percent to 28.24 at 4:15 p.m. New York time, falling for a ninth straight day and extending its retreat since Aug. 8 to 41 percent.

More Bets

The S&P 500 added 1.7 percent today and completed the biggest weekly advance since July 2009. Google Inc. rallied 5.9 percent in its ninth straight gain after the most popular search engine reported sales and profit that beat estimates as businesses spent more to reach online consumers through advertisements.

Traders are placing more bets than any time since 2009 that the VIX will drop, a sign they expect concern about Europe’s credit crisis to recede and the S&P 500 to rally. There were 109 puts to sell the VIX for every 100 calls as of Oct. 12, according to data compiled by Bloomberg.

Profit for S&P 500 companies will climb 17 percent in the third quarter and rise 18 percent to a record $99.86 for all of 2011, according to analyst estimates compiled by Bloomberg. The S&P 500 is trading for 10.9 times forecast earnings for 2012, compared with its five-decade average of 16.4 times reported income, according to data compiled by Bloomberg.

First Day Rally

The gauge added 1 percent on Oct. 12 even after Alcoa’s earnings missed projections by 38 percent. When the S&P 500 rallies on the first day of earnings season, it advances the rest of the period 64 percent of the time, with gains averaging 1.2 percent, according to data since 2003 compiled by Harrison, New York-based Bespoke Investment Group LLC.

“People are not going to gamble on volatility and selling short if they expect positive earnings and good news,” Carlo Panaccione, co-founder of Navigation Group, which oversees $350 million in Redwood Shores, California, said in a phone interview yesterday. “Everybody is expecting a pretty decent earnings season, if not a great one. They’re expecting a rally.”

Analysts have cut projections for S&P 500 per-share profit in the third quarter by 0.9 percent since the start of October, according to data compiled by Bloomberg. Goldman Sachs Group Inc.’s David Kostin, a New York-based equity strategist, said in an Oct. 12 note that he expects a “modest upside surprise.”

The VIX closed at 32.86 on Oct. 11, the seventh-highest level at the start of an earnings season since January 1993, according to data compiled by Bloomberg.

More Than Usual

“Investors are going into earnings with more pessimism than usual, and if you have low expectations, it’s easier for executives to clear them,” Brian Jacobsen, who helps oversee about $400 billion as chief portfolio strategist at Wells Fargo Advantage Funds in Menomonee Falls, Wisconsin, said in a phone interview yesterday. “Sometimes the lack of bad news can be good news.”

The economy isn’t growing fast enough for companies to achieve earnings forecasts, said Jim Strugger, a derivatives strategist at MKM Partners LP in Stamford, Connecticut. U.S. gross domestic product will expand by 2 percent in the third quarter, according to the median of 88 estimates compiled by Bloomberg. That’s down from a prediction of 3.2 percent in August and a peak of 3.5 percent in March.

“Those are significant downgrades to economic forecasts, yet earnings estimates have remained stable,” Strugger said in a telephone interview yesterday. Falling volatility doesn’t necessarily signal that investors believe earnings will exceed expectations, he said.

Finding a Solution

“If anything, it’s related to more constructive news about finding a potential solution to the sovereign debt crisis in Europe,” he said. “This is a shock that began in August that had nothing to do with earnings.”

Equities have rallied this week, driving the S&P 500 up 4.2 percent, after German Chancellor Angela Merkel said on Oct. 9 that European leaders will do “everything necessary” to ensure banks have enough capital.

Since earnings season began, seven of the nine S&P 500 companies that reported third-quarter results beat the average analyst profit projection, according to data compiled by Bloomberg.

“Despite all our consternation about how bad the economy is, I think earnings are going to be pretty good,” Bob Doll, chief equity strategist at BlackRock Inc., which manages $3.6 trillion, said yesterday in an interview on Bloomberg Television’s “In the Loop” with Betty Liu. “Guidance 90 days ago for this quarter was ‘I really don’t know,’ and they’ve come through with pretty good news. Relative to earnings, stocks are very cheap.”

--With assistance from Gaurav Panchal in London, Whitney Kisling, Nikolaj Gammeltoft, Kaitlyn Kiernan, Rita Nazareth and Joanna Ossinger in New York and Brian Womack in San Francisco. Editors: Nick Baker, Chris Nagi

To contact the reporters on this story: Cecile Vannucci in Amsterdam at cvannucci1@bloomberg.net; Jeff Kearns in New York at jkearns3@bloomberg.net

To contact the editors responsible for this story: Nick Baker at nbaker7@bloomberg.net; Andrew Rummer at arummer@bloomberg.net

BMW May Leave Audi Behind With New 3-Series

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October 14, 2011, 10:22 AM EDT By Chris Reiter

(Updates with model details beginning in second paragraph.)

Oct. 14 (Bloomberg) -- Bayerische Motoren Werke AG is rolling out a revamped 3-Series sedan to widen the automaker’s luxury sales lead over Volkswagen AG’s Audi and its aging A4.

The sixth generation of BMW’s best-selling model, which debuted today in Munich, will hit showrooms February 11, about two years before Audi overhauls the $32,500 A4. That head start may help BMW’s lead over Audi surge 43 percent in 2012, according to an IHS Automotive forecast.

Backed by the overhauled 3-Series and recently revamped 1- Series compact, which together accounted for 49 percent of BMW’s sales last year, “2012 will be the sweet spot for BMW,” said Stefan Bauknecht, a DWS Investment fund manager in Frankfurt. “The 3-Series renewal improves sales volumes and pricing power, creating an immense margin advantage.”

The renewed 3-Series, BMW’s entry-level sedan, will adopt parts and technology from the 1-Series and full-size 5-Series to lower production and development costs. Higher profit from the car may help the manufacturer weather a looming economic slowdown. European Central Bank President Jean-Claude Trichet said this week that the region’s debt crisis has reached “a systemic dimension,” while China warned of “severe challenges” to the global economy.

Profit ‘Apex’

“The model cycle is arguably more important for upscale carmakers than the economic cycle,” said Juergen Meyer, who manages about 700 million euros ($960 million) for SEB Asset Management in Frankfurt. BMW’s profitability lead “could reach its apex in 2012 on the 3-Series.”

BMW’s auto unit reported earnings before interest and taxes equivalent to 14.4 percent of sales in the second quarter, outpacing 11.8 percent at Audi and 10.7 percent at Daimler AG’s Mercedes-Benz. The Munich-based manufacturer has been the second-best performer in the Euro Stoxx autos and parts index over the past three months after tiremaker Pirelli & C. SpA, falling 22 percent compared with VW’s 24 percent drop and Daimler’s 29 percent slump.

The updated 3-Series, which was originally introduced in 1975, will be 9.3 centimeters (3.7 inches) larger than its predecessor and be available in Sport, Modern and Luxury packages to increase customization options. It will also be available with a head-up display, which projects speed limit and other data onto the windshield, and collision-warning systems. The 320d version, which can get as much as 57 miles per gallon, will start at 35,350 euros, 1,050 euros more than the current version. A hybrid will be available in the fall 2012.

Nabbing Customers

The larger size and new customization options could help BMW win over customers from other manufacturers, according to Werner Entenmann, head of Autohaus Entenmann in Esslingen near Stuttgart.

“The new 3-Series has potential to capture customers” from the likes of Mercedes, Audi, Ford Motor Co. and General Motors Co.’s Opel, said Entenmann, who counts on the model to generate more than 35 percent of his dealership’s sales of about 1,400 BMW cars a year. He plans to hold an event for 4,000 customers when the model goes on sale Feb. 11. “It’s decisive for us,” he said.

Sales of the 3-Series are projected to jump 22 percent to 448,600 cars next year, boosting the BMW brand’s deliveries 9.3 percent to 1.47 million, according to IHS. Audi, which aims to grab the number-one position by 2015, will likely see the gap to BMW widen to 139,700 autos from 97,400 in 2011.

Automotive Challenges

Mercedes, which likewise covets the luxury-car crown, may get closer to BMW, buoyed by a new line of compacts. IHS forecasts Mercedes trailing BMW by 108,700 vehicles in 2012, closer than the 110,500 this year.

“Renewing the 3-Series is like renewing the company,” said Christoph Stuermer, an IHS analyst in Frankfurt. “The 3- Series has to be BMW’s response to the automotive challenges of the next decade,” and therefore needs to address the demand for cleaner vehicles, while generating the profit needed to pay for further development.

BMW is investing more than 1 billion euros in German factories in Munich and Regensburg, and at a plant in Rosslyn, South Africa, to produce the model. BMW has sold more than 12 million of the vehicle since its introduction.

“The new BMW 3-Series has excellent prospects for expanding its leading global market position,” Chief Executive Officer Norbert Reithofer said today.

Rivals Respond

Mercedes and Audi aren’t sitting still. Audi plans to roll out a face-lifted version of the current A4, which was introduced in 2007, in the first half of 2012 with cleaner engines and other improvements, said Moritz Drechsel, a spokesman for the Ingolstadt, Germany-based carmaker.

Mercedes upgraded the C-Class in 2011 with new engines and a restyled front end and interior. Next year, the Stuttgart, Germany-based carmaker plans to show the CLC four-door coupe, which will include high-performance AMG versions, to target sportier 3-Series customers, said a person familiar with the matter, who declined to be identified discussing internal planning. The next-generation C-Class is due in 2014.

Those responses may not be enough to overcome BMW’s early start. IHS predicts the manufacturer will further expand its lead in 2015 to 219,100 vehicles over Audi and 141,500 over Mercedes.

“They have two to three years where they can absolutely nail it,” said Arndt Ellinghorst, a London-based analyst with Credit Suisse who has an “outperform” rating on BMW stock.

--Editors: Chad Thomas, Heather Harris

To contact the reporter on this story: Chris Reiter in Berlin at creiter2@bloomberg.net

To contact the editor responsible for this story: Chad Thomas at cthomas16@bloomberg.net

Hedge-fund exec gets longest insider trading jail term

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A former billionaire described by the U.S. government as "the modern face of illegal insider trading" was sentenced Thursday to 11 years in prison — the longest insider trading sentence ever but far short of the two decades sought by prosecutors.

Galleon Group founder Raj Rajaratnam also was fined $10 million US and ordered to forfeit $53.8 million by U.S. District Judge Richard J. Holwell, who said he concluded that Rajaratnam made well over $50 million in profits from his illegal trades.

"His crimes and the scope of his crimes reflect a virus in our business culture that needs to be eradicated," Holwell said. "When the integrity of the marketplace is called into question, the public suffers."

The sentence eclipsed by one year the prison term given to one of Rajaratnam's co-defendants just weeks ago.

The Sri Lanka-born Rajaratnam, 54, was ordered to report to a yet-to-be-designated prison on Nov. 28.

His lawyers asked that he be allowed to report to the medical facility at the Butner Federal Correctional Complex in North Carolina, where Bernard Madoff is serving his 150-year sentence after admitting to a multi-decade Ponzi scheme that cheated thousands of people out of billions of dollars.

The judge gave Rajaratnam leniency, citing his need for a kidney transplant and his advanced diabetes.

And he credited Rajaratnam's charitable work, which he called "the defendant's responsiveness to and care for the less privileged." The judge cited Rajaratnam's work to help victims of the earthquake in Pakistan and Sept. 11, among others.

Asked if he wished to speak, Rajaratnam said only, "No thank you."

'His crimes reflect a virus in our business culture that needs to be eradicated.'—U.S. District Judge Richard J. Holwell

He has been a quiet presence at all his court proceedings, declining even to sit at the defense table during his trial. When he stepped off the elevator on the floor of his courtroom Thursday, he was carrying a water bottle and casually asked no one in particular: "Which way?"

The sentencing culminates a series of convictions and sentencings that followed the October 2009 announcement of Rajaratnam's arrest.

More than two dozen people were arrested; all were convicted. The other defendants got sentences ranging from a few months to 10 years. The probe touched off a related investigation of those on Wall Street who corrupt the research purpose of networking firms by letting unscrupulous public company employees spill secrets to hedge fund managers.

The case drew intense coverage in much the way the prosecutions of Michael Milken and Ivan Boesky had two decades before.

Boesky was a stock speculator who pleaded guilty to charges and was released in 1990 after serving two years in prison. Milken was known as the junk bond king. He pleaded guilty to securities violations in 1989, served 22 months in prison and paid a $200 million fine.

The Rajaratnam probe relied heavily on the most extensive use of wiretaps ever for a white-collar case, capturing conversations in which Rajaratnam and his co-conspirators could be heard gleefully celebrating their inside information.

Assistant U.S. Attorney Reed Brodsky told Holwell before the sentence was announced that Rajaratnam made up to $75 million in illegal profits from insider trading he indulged in since at least the late 1990s as he led one of the world's largest hedge funds.

The government has said he switched so much money around within his multibillion dollar funds that the movement of price in individual stocks could be traced to his trading whims.

"Today you sentence a man who is the modern face of illegal insider trading," Brodsky told Holwell. "He is arguably the most egregious insider trader to face sentencing in a courthouse in the United States."

The prosecutor said Rajaratnam went about his crime in a "brazen, pervasive and egregious" manner, corrupting at least 20 fellow traders and at least 16 insiders with a lust for the millions of dollars that can flow to anyone who gets an edge in the securities markets. He said at least 19 public companies were victims of his crimes.

"The duration of his crimes was extraordinary," Brodsky said.

Prosecutors had asked Holwell to send Rajaratnam to prison for at least 19 1/2 years for his May conviction on securities fraud charges. They said federal sentencing guidelines called for up to 24 1/2 years. A Probation Department report recommended a 15-year sentence.

The defense asked for leniency partly based on Rajaratnam's "failing health" and his "unique constellation of ailments."

Attorney Terence Lynam told Holwell that Rajaratnam should receive credit for his considerable charitable works and he urged compassion for his illnesses.

"Any lengthy term of imprisonment will surely shorten his life," he said. "Based on the conduct for which he was convicted, he does not deserve to die in prison."

Lawyers for the Sri Lanka native argued for 6 1/2 to 9 years. They said the illegal profits actually total around $7 million, when the trades at his Galleon Group are disregarded.

In a statement, U.S. Attorney Preet Bharara recalled telling an audience when he announced charges against Rajaratnam two years ago that the case was a wake-up call for Wall Street.

"We can only hope that this case will be the wake-up call we said it should be," he said in the statement Thursday. "It is a sad conclusion to what once seemed to be a glittering story. ... Privileged professionals do not get a free pass to pursue profit through corrupt means."

In another statement, FBI Assistant Director-in-Charge Janice K. Fedarcyk said Rajaratnam was no different from so many others who claim "superior research and acumen" gave them superior results in the stock markets.

"In fact, as his trial determined, he relied on — indeed, actively cultivated — insider information. His considerable fortune was built on a clandestine network of corruption and concealment," she said.

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Google earnings better than expected

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Internet giant Google reported better than expected third quarter earnings Thursday of $2.7 billion, or $9.72 US a share.

That was up 26 percent from nearly $2.2 billion, or $6.72 per share, a year earlier.

Wall Street had expected earnings in a range from $8.74 to $8.77.

When accounting for expenses covering employee stock compensation, it earned $8.33 a share.

Google reported their earnings after markets closed. In extended trading its shares rose more than $33 US or six per cent, to almost $593 US.

Net revenue was $7.51 billion, up 37 per cent from a year ago, and better than consensus estimates of $7.21 billion.

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G-20 Summit: Tapping the future powers

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Abu Dhabi (CNN) – A stone's throw from the Abu Dhabi downtown waterfront, it is hard to miss major construction works. Hotel and apartment towers and road building are taking place right across from the Emirates Palace Hotel.

It does not look as if there's scope for recession here or heading east to Asia, where growth is expected to average more than 8% next year, according to the International Monetary Fund's latest forecast.

During a meeting of the World Economic Forum in Abu Dhabi this week,
former British Prime Minister Gordon Brown says European disunity caused by debt problems in Greece and elsewhere cannot be ignored by the fast-growing countries of the world.

"What this emphasizes is what happens in one continent affects another, and we have to have a better system of cooperation," said Brown.

"Global cooperation is even more important today as we are faced in my view with a new unavoidable global downturn."

In the winter of 2009, after the banking crisis triggered by the collapse of Lehman Brothers, Brown pushed for greater coordination by ushering in the G20 group of nations, in part to tap those with vast surpluses.

Not all agree with Brown's approach. Policy strategist Ian Bremmer, President of the Eurasia Group says the power of the G-20 to encourage global cooperation has waned and we have entered a 'G-Zero' world in which countries do not band together for mutual benefit.

But the same refrain is being sung today to have the surplus countries step in to provide liquidity. Obvious ports of call for European governments in need of capital are sovereign funds, such as those based here in the Gulf States. But the dynamics have changed in the past three years.

Sven Behrendt, a specialist on sovereign funds for a firm he founded called
GeoEconomica, says priorities in the Middle East have changed as a result of the Arab Spring.

"If you look into the Arab World for example there is domestic spending, domestic infrastructure that bites into government finances," says Behrendt.

In fact, governments are starting to trim their sails in term of spending, bracing for a gathering storm front from the West – both Europe and the United States with potential for a double dip into recession. The United Arab Emirates, despite a deep well of funds, has reportedly cut back infrastructure spending by $170 billion.

There is plenty of excess capital circulating with China at more than $3 trillion. Add the other BRIC countries, Brazil, Russia and India, and the tally is more than $4 trillion. If Middle East sovereign funds are put into the pool, there's another $1.4 trillion dollars.

But Douglas Rediker, an IMF executive board member, doesn't expect the taps to be opened on a grand scale.

"It does not mean you won't see isolated transactions," said Rediker. "You will hear a lot of goodwill gestures to stabilize markets, but we have not seen huge ten to 100 billion dollars of capital being re-deployed as a result of a desire to stabilize the global system."

Isolated transactions include moves by the Emir of Qatar through his sovereign investment funds to buy a Greek bank and a mining group despite the continued unrest and uncertainty.

China, for its part, has held talks with Italy and Spain about the purchase of multi-billion euro bond transactions, but there are strings attached.

"We have seen the Chinese leadership in the past couple of weeks come out with statements that indicate, yes we invest in European assets but some conditions need to be met" says Behrendt.

This includes trying to get Washington not to pass a bill through Congress to raise the value of China's currency the RMB or yuan. It is all part of the global horse trading when new financing is needed.

Debt Financing

Union rebuffs Air Canada labour complaint

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The union representing Air Canada flight attendants is brushing off an unfair labour practice complaint filed against it by the airline.

CUPE national president Paul Moist called the complaint "a complete red-herring."

The airline filed the complaint with the Canada Industrial Relations Board and is seeking compensation.

The airline is complaining that the union leadership doesn't appear to be reflecting the wishes of the membership, among other concerns. The airline said the union's inability to properly represent their members is causing Air Canada significant harm, because the threat of a strike discourages people from buying Air Canada tickets.

The move comes after union members twice voted down tentative contracts negotiated by the union bargaining team.

"The suggestion the Air Canada Component of CUPE has been bargaining in bad faith is ludicrous," said Moist.

"This is just another transparent attempt to stall the flight attendants legal strike until back-to-work legislation can be put in place."

Moist called on Air Canada to return to the bargaining table.

The CIRB met Friday to begin setting out timetables on the two issues referred to it by Labour Minister Lisa Raitt.

They include whether any of Air Canada's services need to be maintained, in the event of a strike or lockout, to prevent an immediate and serious danger to the safety or health of the public.

The CIRB said that referral prevents any strike or lockout until it reaches its decision. The flight attendants had issued a strike notice for 12:01 a.m. on October 13, but that was called off after the matter went to the CIRB. Air Canada flights operated normally on Thursday.

The second matter referred by Raitt is whether the rejection of two tentative agreements recommended by the union "created conditions that are unfavourable to the settlement of the industrial dispute at hand."

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Air Canada union cancels strike

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The union representing 6,800 Air Canada flight attendants says it has cancelled its planned strike for 12:01 a.m. Thursday, after the Canada Industrial Relations Board said employees must remain on the job while their contract dispute is being reviewed.

"Flight attendants represented by the Canadian Union of Public Employees (CUPE), will not be going on strike tonight, as previously planned, following a notice by the Canadian Industrial Relations Board," the union said in a statement issued Wednesday afternoon.

"The minister’s intervention with the labour board, as it stands, postpones the calling of a strike until the question of essential services has been ruled on."

The CIRB said in a statement earlier Wednesday that it is being asked by the federal government to determine, under section 87.4 of the Canada Labour Code, "whether any services need to be maintained, in the event of a strike or lockout, to prevent an immediate and serious danger to the safety or health of the public.

"In this regard, the Code is clear that this referral suspends the right to strike or lockout until the board renders a decision on this matter," it said.

CUPE received formal notice Wednesday that Labour Minister Lisa Raitt had referred the contract dispute to the CIRB.

Her referrals ask the tribunal to decide whether the union membership's rejection of two tentative deals has "created conditions that are unfavourable" to settling the dispute, whether communities might be cut off from service to urban centres and what effect that would have on Canadians' health and safety.

Earlier in the day, CUPE had insisted it was in a "legal strike position," while adding it remained available to resume negotiations with Air Canada.

In a statement Wednesday, Raitt said the Conservative government had been given a "strong mandate to protect the Canadian economy and Canadian jobs, so we have been closely following the negotiations between Air Canada and CUPE."

"I have asked the CIRB to review the situation at Air Canada to ensure that the health and safety of the public will not be impacted, and to determine how best to maintain and secure industrial peace and promote conditions that are favourable to the settlement of industrial disputes," the minister said.

But CUPE national president Paul Moist called Raitt's decision to go to the CIRB "outrageous."

"Her rationale for this is disingenuous, and the use of the Canada Labour Code and the CIRB in this way is indefensible," Moist said in a statement.

Later, Moist said Raitt is using tactics that have nothing to do with health and safety

"It's got to do with the fact that she's got legislation on the order paper, Parliament's not meeting this week, the government's not inclined to call government back and this government doesn't want strikes," Moist told CBC's Power & Politics with Evan Solomon.

CUPE spokesman Robert Lamoureux echoed the sentiment.

"It's something fundamental to us — the right to withhold labour if we cannot reach a settlement," Lamoureux said. "If we lose that right, employers will be able to have the upper hand in every situation."

Labour lawyer Paul Cavalluzzo told CBC News he firmly believes the CIRB cannot suspend the legal right to strike.

Cavalluzzo pointed out that the CIRB was brought in to prevent an illegal strike by security screeners at Toronto's Pearson airport last week. He said the board only intervenes in legal strikes if there is illegal activity, and, even then, the board cannot stop the strike entirely.

"I don't think the CIRB has the authority to stop [a strike]," he said.

But York University law professor David Doorey told CBC's Power & Politics with Evan Solomon that he believes the board does have that authority.

"The simple filing of this reference to the board has the effect under the statute of suspending the commencement of a strike," Doorey said.

"My take on it is it's pretty clear that in fact it does what the minister says it does."

The flight attendants served a 72-hour strike notice on the airline on Sunday after 65 per cent of the votes cast were against the latest tentative collective agreement.

It marked the second time in recent months that the flight attendants have turned down a tentative deal with the airline.

They voted 87.8 per cent against ratifying the previous agreement in August.

Raitt has said a work stoppage would be unacceptable, and has indicated the federal government was prepared to use back-to-work legislation to end a strike by the flight attendants.

Parliament is not due to resume sitting until Oct. 17, meaning a strike could last a few days before legislation goes into effect.

But a government source told CBC News that back-to-work legislation remains on the table.

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LMS non-execs aim to oust chairman as break-up looms

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LONDON | Mon Oct 10, 2011 9:59am BST

LONDON (Reuters) - LMS Capital's independent non-executive directors said they were looking to replace chairman Robert Rayne, following a disagreement over strategy as Rayne seeks to break-up the investment group.

Last month, LMS (LMS.L) said it had received an approach by Rayne, along with a concert party put together by him representing approximately 35 percent of the company's shares, requesting that LMS be broken up in the short term.

However, LMS's independent directors said they had failed to reach a deal over a break-up due to price issues.

"The Independent Committee has sought to structure an exit for the Concert Party, but it has not been possible to establish a price at which the Concert Party would be willing to sell its holding and at which a buyer or buyers for those shares could be found in current market conditions," they said in a statement.

"Accordingly, Robert Rayne has been asked to resign from the board," they added.

"The company will be writing to shareholders shortly to table resolutions to approve the orderly wind-down and to address the composition of the board so as to ensure its full independence as it supervises the wind-down," said John Barnsley, who heads up the LMS Capital independent committee.

LMS Capital shares closed at 57 pence on Friday, giving the company a market capitalisation of around 155 million pounds.

Robert Rayne's late father Lord Max Rayne bought a controlling stake in LMS's predecessor London Merchant Securities in 1958.

Rayne and his partners have been concerned by the fact that the shares of LMS have traded at a discount to their net asset value since the business was demerged from London Merchant in 2006.

(Reporting by Sudip Kar-Gupta; Editing by Myles Neligan)

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Hargreaves Lansdown warns of hesitant clients

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LONDON | Thu Oct 13, 2011 9:22am BST

LONDON (Reuters) - Investment manager Hargreaves Lansdown continued to attract new money during its first quarter against a backdrop of falling markets while warning clients have started "delaying" making investments.

Net new business inflows of assets during the three months to September 30 were up 24 percent from a year earlier at 680 million pounds, Hargreaves (HRGV.L) said in a statement.

However, the total value of assets under administration fell 9 percent during the quarter to 22.3 billion pounds, attributed to falling stock markets.

The company warned market weakness and fears about a possible return of recession is hitting investor sentiment, however.

"In September we have seen clients and potential clients may be delaying their investment decisions," Chief Executive Ian Gorham said.

Economic uncertainty related to Europe's debt crisis and the possibility of a double dip recession is likely to continue to constrain client appetite for investing, he added.

"It is increasingly likely the retail investor will feel they need more pounds in their pocket and may continue to defer new investment decisions," he said.

(Reporting by Chris Vellacott)

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Facing Planetary Enemy No. 1: Agriculture

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Enlarge Cliff Owen/AP

Early morning view of an automated irrigation system in on a farm in Sudlersville, MD

Cliff Owen/AP

Early morning view of an automated irrigation system in on a farm in Sudlersville, MD

For the past 200 years, ever since Thomas Malthus published his Essay on the Principle of Population, big thinkers have been wondering whether Earth-dwellers will eventually run out of food.

Today, a global group of scientists released a fresh look at the question. They add a different, environmental twist to it. Can we feed the world without destroying the environment?

It's a good question, because agriculture is probably the single most destructive thing that humans do to the earth.

Consider: Cropland and pasture now cover 40 percent of our planet's land surface; farming consumes nearly three-quarters of all the water that humans use for any purpose; farming accounts for a third of all the emissions of greenhouse gases that humans release into the environment. (Those greenhouse emission come from clearing forests or grassland for crops, the emissions of methane from rice paddies, and the conversion of nitrogen fertilizer into nitrous oxide — a powerful greenhouse gas.)

That's bad enough, but Jonathan Foley from the University of Minnesota, who led this new analysis, says it's likely to get worse. Demand for food is expected to double over the next forty years. Are we truly, to quote environmentalist Bill McKibben, facing the "end of nature"?

According to the new study, not necessarily. But avoiding mass deforestation and food scarcity is going to take some very big changes. Briefly: Big investments in food production in places (think Ukraine and Uganda) where current farm land isn't producing as much food as it could; much more efficient use of water and fertilizer; less wasted food; and (controversy alert!) eating less meat. About 40 percent of the planet's crops, according to this study, currently are fed to animals.

Unfortunately, the paper does not really explain how this will happen. There's no global dictator who can, for instance, abolish feedlots where corn is fed to cattle.

What we have instead of a dictator is the global marketplace, setting prices for land, corn, meat, and everything else. Those prices drive decisions by farmers. But Thomas Hertel, an economist at Purdue University, says those markets can help solve our planetary problem — especially if we step in to make those markets work better.

For example, governments can put a price on forests, making it really, really expensive to cut down trees for crops. They can charge more for water or fertilizer, discouraging waste.

But when food gets scarce, Hertel says, markets do respond. Prices go up, farming gets more profitable, and farmers grow more food. Markets will balance supple and demand for food, Hertel says.

But at what cost? Will food get really expensive, driving down consumption and really hurting the world's poorest people? Right now, that's one of the biggest, most interesting questions that agricultural economists are debating.

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Berlusconi to Address Parliament After Losing Budget Vote

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October 13, 2011, 4:32 AM EDT By Chiara Vasarri and Lorenzo Totaro

(Updates with yields, spread in sixth paragraph, bond auction in seventh.)

Oct. 13 (Bloomberg) -- Prime Minister Silvio Berlusconi will defend his government in Parliament and may seek a confidence vote after Italy’s president called on him to prove he can still govern after losing a routine legislative vote.

Berlusconi will deliver a speech to the Chamber of Deputies in Rome at about 11 a.m. The premier may also call a confidence vote after President Giorgio Napolitano urged him yesterday to clear up “questions and concerns” about the government’s parliamentary support after the lower house failed to rubber stamp the 2010 budget report in the Oct. 11 vote.

The main opposition parties decided last night not to attend today’s session, leaving Berlusconi to address only his own supporters. The opposition also vowed to vote against the government in the confidence vote likely to be held tomorrow.

“The confidence vote could be a significant event,” Lavinia Santovetti, an economist at Nomura International in London, said in an e-mail. “I would not rule out the ability of the government to, once again, get together and find the numbers to get through the confidence vote. Berlusconi’s leadership is clearly weakening, but a muddle-through could continue.”

Fighting Contagion

Berlusconi is scrambling to convince investors that he can cut Europe’s second-biggest debt and reverse surging borrowing costs that risk making Italy the biggest victim of the euro-area debt crisis. Italy has been downgraded by the three main rating companies in the last month even after the government won final approval for 54 billion euros ($73 billion) in austerity moves that convinced the European Central Bank to buy Italian bonds to bring down record bond yields.

The yield on Italy’s 10-year bond rose 4 basis points to 5.782 percent at 10:03 a.m. in Rome, after closing at a three week-high yesterday. The yield difference with similar maturity German bunds increased 3 basis points to 358 basis points. That spread reached a euro-area record 416 basis points on Aug. 5.

The Treasury will auction as much as 6.5 billion euros of bonds today, following a sale of 9.5 billion euros of Treasury bills on Oct. 11 at which borrowing costs declined and demand rose for the nation’s debt.

Bank of Italy Governor Mario Draghi, in a speech yesterday, urged the government to quickly implement the austerity moves. “If protracted, the high borrowing costs seen in the last three months could largely offset” the effects of the austerity moves approved last month, “with a further negative impact on the cost of debt, in a spiral that may end up being ungovernable,” Draghi said in Rome.

Tremonti Absent

The government’s failure to get a majority in the Oct. 11 vote, which ended 290 to 290, meant last year’s budget wasn’t approved. The tie could have been broken if Umberto Bossi, whose Northern League is in the ruling coalition, or Finance Minister Giulio Tremonti had been present to vote. Their absence sparked speculation that parliamentary support for the government may be unraveling as pressure mounts on Berlusconi from the worsening debt crisis and four criminal trials that he faces. He denies any wrongdoing.

Tremonti has already clashed with Berlusconi over issues including last month’s austerity package and Draghi’s successor at the central bank. He was “engaged at the Ministry” in a review of economic policy during the Oct. 11 vote and was “represented by undersecretaries,” Tremonti said in a statement. There was “no political reason of any kind” for his absence from the ballot, he said.

Scajola’s Role

“Tensions within the coalition are escalating,” Santovetti said. Tremonti and Bossi’s absence from the vote “is probably a clear indication of this.”

Also absent from the Oct. 11 ballot was former Industry Minister Claudio Scajola. He and about 15 allies in Parliament are considering withdrawing their support for the government, affaritaliani.it website said yesterday, citing lawmakers close to the group. Scajola is “ready to bring down the government,” the website said.

Scajola met with Berlusconi in Rome yesterday and pledged that he and his backers will support the government should the premier call a confidence vote, Ansa newswire said yesterday.

While the failed budget vote doesn’t affect this year’s public finances, “it has symbolic importance as approval is required” by the constitution, Fabio Fois, a Barclays Capital economist in London, said in a note yesterday.

Berlusconi must spell out in his speech today how he intends to get last year’s budget report approved, Napolitano said in an e-mailed statement late yesterday. “It will then be up to the speakers of the two houses” of Parliament to decide whether the premier’s suggested solution can work, Napolitano said.

--Editors: Jeffrey Donovan, Andrew Davis

To contact the reporters on this story: Chiara Vasarri in Rome at asarri@bloomberg.net Lorenzo Totaro in Rome at ltotaro@bloomberg.net

To contact the editors responsible for this story: Angela Cullen at acullen8@bloomberg.net. Craig Stirling at cstirling1@bloomberg.net