World financial news

MetroPCS Communications Inc., a wireless phone company known for its no-contract, prepaid service, posted a 2009 profit of $176.8 million.

The company credits an expansion into northeastern U.S. states and a broadening of its rate plans for its 2009 success.

Richardson-based MetroPCS (NYSE: PCS) posted an annual profit of $176.8 million, or 49 cents per share, on revenue of $3.5 billion in 2009. That is up from the company’s profit of $149 million, or 42 cents per share, on revenue of $2 cash advance america.8 billion in 2008.

For the fourth quarter of 2009, MetroPCS posted a profit of $33.1 million, or 9 cents per share, on revenue of $930 million. That compares to a profit of $14.6 million, or 4 cents per share, on revenue of $723.6 million for the fourth quarter of 2008.

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Prime Minister Gordon Brown will pledge today to make Britain’s tax system attractive to large multinational companies in an effort to secure the backing of business leaders before this year’s election.

Brown’s government will propose a set of principles that include promises to ensure new taxes aren’t too complex and a commitment to hold consultations before introducing new corporate taxes. The plan will be published by Chancellor of the Exchequer Alistair Darling at a conference in London.

“By maintaining a world-class environment for business to do business we can attract the investment that will underpin our move from recession to recovery to growth,” Brown said in his weekly podcast yesterday.

Brown’s Labour Party and David Cameron’s Conservatives are competing to win credibility with business leaders before the election, which Labour Party documents suggest will be held on May 6. So far, the campaign has centered on which party has the best recipe for tackling Britain’s record peacetime budget deficit.

Darling began talks with company leaders in April 2008, establishing a panel of more than 10 executives from international companies who meet regularly with Treasury ministers and civil servants.

Brown, Darling and Business Secretary Peter Mandelson will be joined at the London conference by executives from companies including Bombardier Inc., China Merchants Bank Co. Ltd., Burberry Plc and Lockheed Martin Inc.

Bank Stakes

The Conservatives pledged yesterday to sell U.K. government stakes in Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc to voters as their support continued to slip in opinion polls.

The plan to sell shares at a discounted price, outlined by Conservative Treasury spokesman George Osborne, came as opinion polls show the party’s lead slipping after it called for spending cuts to start this year to reduce the deficit and the economy exited recession in the fourth quarter of 2009.

A poll by YouGov Plc in the Sunday Times newspaper showed the Conservative lead over Labour at its narrowest since December 2008.

YouGov said the Conservatives had the backing of 39 percent of those surveyed, down one percentage point from a month ago, while Labour were backed by 33 percent, up two points. Details of when the poll was taken and the margin of error weren’t given.

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Davenport, Iowa — Lee Enterprises, the publisher of the St. Louis Post-Dispatch and other newspapers, painted an improved financial picture over a year ago for its shareholders Wednesday, citing better revenue trends and deeper-than-expected cost reductions.

Mary Junck, Lee chairman and chief executive, told shareholders at the company’s annual meeting that Lee newspapers and digital products are reaching nearly 7 of 10 adults weekly in its markets. Its newspapers also are reaching 6 of 10 younger readers, or those 18 to 29 years old.

"The effectiveness of our products, coupled with our intensive sales culture, continues to keep Lee ahead of the industry in advertising revenue performance," she said, adding that Lee has outperformed the industry every quarter throughout the recession.

Lee reported Wednesday that total revenue fell 9.2 percent in January from a year ago, the first time since 2008 that revenue didn’t show a double-digit decline. For the quarter ended Dec. 27, Lee’s revenue dropped 13.8 percent.

Carl Schmidt, Lee chief financial officer, reminded shareholders that a year ago, Lee predicted it would reduce its 2009 cash costs by $100 million. In reality, the company cut $147 million in cash costs, a decrease of 17.9 percent.

Among the cuts was retiree health care at the Post-Dispatch, Lee’s largest newspaper. The decision, announced in December, as well as ongoing union negotiations, prompted more than a dozen Post-Dispatch retirees to attend the annual meeting at Lee’s headquarters.

Several retirees quizzed Lee executives about the decision, expressing their dismay at the action.

Junck said Lee, as well as many newspaper companies, "had to make a lot of tough choices" in 2009.

Shannon Duffy, the business representative for the St. Louis Newspaper Guild, said the change affected 80 retirees, but the union fears the same change could be passed on to another 150 retirees represented by the contract now being renegotiated.

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Zhu Zhu Pets robotic hamsters, the must-have toy of Christmas 2009, were named Toy of the Year on Saturday by the Toy Industry Association, also winning two category awards.

The toys, a product of Clayton-based Cepia LLC, won the award for Girl Toy of the Year, for a toy developed for girls of any age, and for Innovative Toy of the Year, for an outstanding toy that combines innovation and play value.

Russell Hornsby is founder, owner and chief executive of Cepia, which has 15 employees.

The Toy of the Year Awards program in New York City is the kickoff to this week’s American International Toy Fair. The Toy Industry Association is a not-for-profit representing more than 500 producers and importers of toys and youth entertainment products sold in North America.

For a complete list of winners, go here.

Cepia created Zhu Zhu Pets (which means “little pig” in Chinese) with affordability in mind personal business card. The suggested retail price for each hamster is $7.99, and accessories range from $3.99 to $19.99.

Sean McGowan, a toy industry analyst with Needham & Co. in New York, projected sales of $300 million in 2010.

The robotic hamsters have a video game in the works.

A former Mattel designer, Russell Hornsby previously founded Trendmasters, a St. Louis toy company with $189 million in revenue that was best known for its Rumble Robots. Trendmasters sold its assets and products to Malibu, Calif.-based JAKKS Pacific Inc. for about $25 million in 2002.

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European leaders ordered Greece to get the bloc’s highest budget deficit under control and promised “determined” action to staunch the worst crisis in the euro currency’s 11-year history.

The agreement, brokered by German Chancellor Angela Merkel, Greek Prime Minister George Papandreou and European Central Bank President Jean-Claude Trichet, called for closer monitoring of the Greek economy and stopped short of offering concrete steps to help Greece handle a debt load exceeding annual economic output. Greek bonds rose and the euro fell after the deal was announced at a European Union summit today.

“It’s a political message that we wanted to send out,” EU President Herman Van Rompuy told reporters in Brussels. “The Greek government will take the responsibility for cleaning up its public finances.”

The declaration, which Merkel called a “clear political signal” to Greece, left open how the EU would respond to a fresh wave of speculative attacks against Greece or countries such as Spain and Portugal, which are also struggling to cut their budget deficits. The statement echoes prior calls for Greece to get its accounts in order and gave the International Monetary Fund a monitoring role.

Finance ministers are working on measures such as setting up a lending facility for Greece, with each country paying in according to its size, an EU official said. The official, who spoke on condition of anonymity, said it’s premature for a European bond.

‘Breathing Space’

“Markets will only normalize once they outline more detailed measures,” said Andreas Rees, an economist at UniCredit MIB in Munich. “The statement won’t be enough to reassure investors. It’s some breathing space.”

Greek bonds, which have plunged since December on concern the country will be unable to tackle its deficit, extended a three-day rally, with the yield on the two-year government bond falling 35 basis points to 5.11 percent at 7:45 p.m. in Brussels.

Concern about the costs of a hazily worded commitment by Europe’s richer countries pushed the euro down 0.4 percent to $1.3685. Its slide to a nine-month low of $1.3586 on Feb. 5 forced Greece to the top of the EU agenda out of concern that market turmoil might spread.

Called by Van Rompuy to sketch out a 10-year economic strategy, the summit turned into a crisis-management exercise that tests Europe’s ability to run a common currency with 16 separate national fiscal policies.

Rescue Talks

The main event came before the 27-nation EU meeting, when Merkel piloted the Greek rescue talks with Papandreou, Trichet, Van Rompuy, French President Nicolas Sarkozy, Spanish Prime Minister Jose Luis Rodriguez Zapatero and Luxembourg Prime Minister Jean-Claude Juncker, who heads the panel of euro-region finance ministers paydayloan.

Under pressure from political allies at home who are opposed to giveaways to countries that live beyond their means, Merkel pressed for strict conditions on any European financial lifeline for countries that spend too much and save too little.

Demonstrating Germany’s sway in the euro region, the declaration was issued in the EU’s name before other leaders were consulted. Irish Prime Minister Brian Cowen said there was “no detailed discussion” over the Greek backstop.

U.K. Prime Minister Gordon Brown, the main mover behind the EU-wide rescue of banks in October 2008, also wasn’t involved. In London when Merkel’s crisis meeting started, Brown later said Greece is in the hands of countries using the euro.

Greek Deficit

Greece, representing 2.7 percent of the bloc’s $13 trillion economy, posted a budget deficit of 12.7 percent of gross domestic product in 2009, the highest in the euro’s history and more than four times the EU’s 3 percent limit.

Papandreou’s government needs to sell 53 billion euros ($72 billion) of debt this year, the equivalent of about 20 percent of GDP. Greece’s credit rating was cut by Standard & Poor’s, Moody’s Investors Service and Fitch Ratings in December.

Greek plans to cut public-sector wages, trim welfare provisions and raise taxes have provoked street protests that threaten to throw the government’s aim of slicing the deficit by 4 percentage points in 2010.

By living under EU strictures, Greece no longer controls its own economic destiny, Papandreou said. Speaking after the summit, he said: “We have lost a part of our sovereignty because of this loss of credibility. We are determined to regain this lost credibility. We will do anything necessary.”

Resisting IMF

EU leaders resisted putting Greece in the sole hands of the IMF, concerned that recourse to outside assistance would expose Europe’s inability to get its own house in order.

EU treaties bar the ECB or national central banks from bailing out members countries through buying their debt or offering loans, while rules on government-to-government support are more flexible.

Whether from individual countries or the EU as a whole, a financial lifeline for Greece would open a new chapter in the euro experiment by breaking with the orthodoxy that each country has to steer its own economy.

“I don’t think there is any bluff here. This is a very, very serious commitment to back up Greece,” said Jacques Cailloux, chief European economist at Royal Bank of Scotland Plc in London. “This is once in a lifetime moment for monetary union.”

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For all the concern over the $1.6 trillion U.S. budget deficit and record debt load, the dollar is as valuable now as 35 years ago.

Measured against a basket of currencies from the Group of 10 nations proportioned by how they trade against each other, the greenback is up about 3 percent since 1975, according to Bloomberg Correlation-Weighted Currency Indexes. That was four years after the Bretton Woods agreement, set up in 1944 to link currencies to the price of gold, collapsed. The U.K. pound has dropped 34 percent and the Canadian dollar has fallen 6 percent.

The U.S. dollar gained 6 percent since November after losing 12 percent in the first 11 months of 2009 as measured by the Bloomberg index. Barclays Capital and Morgan Stanley say the U.S. will grow faster than the rest of the developed world this year and 2011. At the same time, Europe faces worsening finances in Greece, Spain and Portugal, Japan’s economy is struggling and concerns about valuations in emerging markets are increasing.

“To quote Mark Twain, the reports of the dollar’s demise have been greatly exaggerated,” said Win Thin, a senior currency strategist in New York at Brown Brothers Harriman & Co., which manages about $40 billion in assets.

Rising Demand

Nowhere is that more evident than in the market for U.S. Treasuries. The amount of America’s government debt held by investors outside the U.S. rose 17 percent to $3.6 trillion in 2009 through November, according to the Treasury Department.

Purchases may continue to rise as investors seek refuge from growing sovereign credit risk in the euro area. The dollar “will benefit from relative liquidity of the U.S. Treasury markets,” Barclays Capital currency strategists led by David Woo in London said in a Feb. 5 report.

Barclays Capital economists said in a report the same day that U.S. gross domestic product may grow 3.6 percent this year, versus 2.5 percent for the developed world, and 3.1 percent in 2011, compared with 2.6 percent elsewhere. Japan’s GDP may expand 1.9 percent this year, and the euro zone 1.3 percent, they said.

A day earlier, strategists at New York-based Morgan Stanley boosted their dollar forecast, saying it will strengthen to $1.24 per euro by year-end from its previous estimate of $1.32. It traded at $1.3676 as of 6:46 a.m. in New York today. The firm sees the U.S. currency gaining to 109 yen from 89.42 today, and rallying to $1.49 to the pound from $1.5578

Reserve Currency

Investors and traders predicted last year the dollar would lose its position as the world’s reserve currency, which means it’s the first place central banks look to park their cash.

“With all the concerns about the problems with the U.S. financial system last year, the banking sector in the euro zone looked a bit more stable,” said Robert Sinche, chief strategist at Lily Pond Capital Management LLC in New York. “That created a sense of the euro as an alternative to the dollar.”

Central banks that disclose breakdowns of their reserves bought a record $60 billion worth of euros in 2009’s second quarter, more than half of their new cash in the period, based on International Monetary Fund data adjusted for exchange-rate changes using methodology developed by Barclays Capital.

They then reversed course, putting 15 percent of new reserves, or $17.8 billion, into euros in the third quarter, the smallest share of any period in which their reserves grew since early 2008. Central banks put 45 percent, or $52 billion, into dollars, up from 36 percent.

Rally by Default

Rather than a referendum on the U.S., the dollar may be rallying by default. Nouriel Roubini, the New York University professor who predicted the credit crisis, said on Feb. 4 that the greenback may weaken for the next three years.

Moody’s Investors Service said last week the U.S. government’s Aaa bond rating will come under pressure unless additional measures are taken to reduce budget deficits projected for the next decade. The ratio of government debt to GDP and revenue increased “sharply” during the seizure in credit markets and recession, Moody’s said.

“If the current upward trend in government debt were to continue and become irreversible, the rating could come under downward pressure,” said analysts led by Steven Hess, a senior credit officer at Moody’s in New York.

The Obama administration’s plan to offset spending by more than $1.2 trillion over 10 years showed larger deficits and higher debt levels than in the original budget, Moody’s said. The ratio of debt to GDP in the U.S. will continue to expand, reaching 76.5 percent in 2019 compared with an earlier forecast of 70.1 percent, Moody’s said.

Treasury Secretary Timothy F. Geithner said in an ABC News interview broadcast yesterday the U.S. isn’t in danger of losing its Aaa rating.

“Absolutely not,” Geithner said, when asked whether a downgrade is a concern. “That will never happen to this country.”

‘A Better Bet’

The U.S. Office of Management & Budget said America’s budget deficit will fall each year through 2014, to $706 billion from $1.56 trillion in 2010, as borrowing needs drop to $814 billion from $1.75 trillion.

“Under stress, people trust the U.S. to do the right thing,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “The U.S. is a better bet.”

A global reserve currency must provide investors with the ability to invest, which requires liquid markets, and few capital controls, according to investors. China’s yuan can’t replace the dollar because it isn’t fully convertible and doesn’t float freely. The euro region and the markets for commodity currencies, such as the Australian, New Zealand and Canadian dollar, don’t have enough trading to absorb the amount of cash the reserve banks hold.

‘No Alternative’

“There is no alternative to the dollar, so it’s status as a reserve currency can’t be under threat,” said Adam Boyton, a senior foreign-exchange strategist at Deutsche Bank AG in New York.

The dollar’s preeminence will remain intact, as it continues to be the most widely used currency in business and finance worldwide, the Federal Reserve Bank of New York said in a report released Jan. 5. Some $580 billion in banknotes, or 65 percent of all bills in circulation, were held outside the U.S. as of March 2009, according to Fed data.

The greenback has an 86 percent share of the foreign- exchange market, more than twice the euro’s 37 percent. Its share of the international debt market is 39 percent.

“The international role of the dollar remains substantial a decade after the introduction of the euro, and despite changes in the value of the dollar and the financial turmoil that began in 2007,” Linda Goldberg, a vice president at the New York Fed, wrote in the report.

Relative Deficits

While the Congressional Budget Office expects America’s debt to reach 65 percent of GDP in 2010, that would still be below the 77 percent of GDP the European Commission expects for Germany, the U.K.’s 80 percent and Japan’s 180 percent.

“I would want to stay away from the euro, the euro zone and some of the emerging European currencies,” Michael Gomez, the co-head of emerging markets at Pacific Investment Management Co., said on Feb. 4 at a conference in Moscow. The Newport Beach, California-based firm manages the world’s biggest bond fund.

At their meeting this weekend in Iqaluit, Canada, Group of Seven finance ministers pledged to press ahead with economic stimulus measures. Canadian Finance Minister Jim Flaherty told reporters that “we need to continue to deliver the stimulus to which we are mutually committed and begin looking at exit strategies to move to a more sustainable fiscal track.”

Yen Gains

Rather than using a weighted average of exchange rates based on trade data, which is reported on lag and subject to revision, the Bloomberg Correlation-Weighted Currency Indexes calculate weights based on variances in exchange rates.

The indexes have a start date of Jan. 2, 1975, and a base value of 100. The index for the dollar was little changed at 102.69 today and the yen index was at 395.70. The Swiss franc index was at 271.20 and the euro index was at 107.60, from 271.23 and 107.58 on Feb. 5 respectively. The index for the euro replicates the German deutsche mark before 1999, when Europe’s common currency started trading.

The New Zealand dollar index fell 0.2 percent to 50.14 today, the Swedish krona index climbed 0.1 percent to 52.89 and the Australia dollar index dropped 0.2 percent to 64.07.

Though the dollar is the world’s reserve currency, it doesn’t affect the movement of foreign-exchange rates as much as the euro, the indexes show. Since the euro’s creation, its correlation to other G-10 currencies has steadily risen, overtaking the dollar in 2004 and all others by December 2008.

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Senate Democrats are expected to take up President Obama’s call and start rolling out their employment creation package by week’s end.

With the balance of power shifted in the Senate, Democrats have moved away from introducing a comprehensive bill similar to the $154 billion legislation passed by the House in December. Instead, the Democrats will likely push through smaller measures in stages.

"First of all, we do not have a jobs bill," said Senate Majority Leader Harry Reid, D-Nevada, on Tuesday. "We have a jobs agenda that we’re working on."

At the top of the list: Renewing existing highway legislation for a year, which is expected to result in one million jobs, Reid said. Also, enacting small business and job creation tax credits. And extending Build America Bonds, a stimulus measure that helps states and municipalities fund capital construction projects.

The president’s fiscal 2011 budget, unveiled Monday, would direct $50 billion to job creation measures, including clean energy initiatives and road projects.

"Infrastructure is where the jobs are, and we need to move in that direction rapidly," Reid said.

Coming next: Enacting the president’s Cash for Caulkers proposal, which would subsidize making homes and buildings more energy efficient, and extending the stimulus grants for surface transportation.

The first job creation bill was unveiled on Wednesday. The measure, promoted by Sens. Charles Schumer, D-N.Y., and Orrin Hatch, R-Utah, would absolve any private-sector employer who hires a worker who’s been unemployed for at least 60 days of paying the 6.2% share of the employee’s Social Security payroll tax for the rest of 2010.

Also, employers who keep these workers on the payroll continuously for a year would be eligible for a non-refundable $1,000 tax credit on their 2011 tax returns.

"This proposal isn’t about more and more government spending; it’s about tax relief to get employers hiring again," Hatch said.

Democrats’ other measures, however, aren’t likely to get as warm a reception from the GOP. Already, several Republican senators have come out against using TARP bank bailout funds to jumpstart lending to small businesses and raising taxes on the wealthy.

"If you’re in business now and you’re trying to figure out what the future is, you’re looking at health care taxes, you’re looking at capital gains taxes going up, dividend taxes going up," Senate Republican Leader Mitch McConnell of Kentucky said on CNN’s State of the Union on Sunday. "If you are a small business and pay taxes as an individual taxpayer, your taxes are going up. So, is that a great environment in which to expand employment? I think the answer is no."

Since Obama outlined his job creation push in his State of the Union speech last week, he has traveled up and down the East Coast promoting his small business initiatives. These include jumpstarting small business lending by giving $30 billion in TARP funds to banks and providing these firms with a $5,000 tax credit for each addition to their payrolls.

"Today, one in 10 Americans still can’t find work," Obama said in Nashua, N.H., on Tuesday. "That’s why jobs has to be our number one focus in 2010. And we’re going to start where most new jobs start — with small businesses." 

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In one of his many applause lines at Wednesday night’s State of the Union address, President Obama emphasized the importance of American exports: "Tonight, we set a new goal," he said, "We will double our exports over the next five years, an increase that will support two million jobs in America." It’s no surprise that people cheered; what’s not to like? There’s just one problem: Growing exports is almost entirely out of the president’s — and even business’s — hands.

It’s not that the growth he’s calling for is impossible. Since 1960, the U.S. has seen two periods of fast, sustained growth. From 1970 to 1975, exports more than doubled, going from $56.6 billion to $132 billion. Then from 1976 to 1981, they doubled yet again, from $142.7 billion to $294.4.

More recently, the U.S. saw a 68% surge in exports between 2002 and 2007 to $1.1 trillion. (The latest figure for goods exported: $1.3 trillion.) Much of the more recent growth came from the meteoric rise of countries like China and India. The United States’ chief exports — sophisticated manufacturing items like planes and semiconductors — benefited from the countries’ need to rebuild (or, in many cases, to just build) nationwide infrastructures.

But a nation can only stock up on so many Caterpillar tractors at a time. Then the demand inevitably slowed. To get back to the mid 2000s-kind of growth, the U.S. would have to bank on other countries’ stimulus plans working flawlessly.

There are other paths to export success that involve less brute growth and more finesse. China’s trade partners have long complained about the country’s unwillingness to let the renminbi exchange rate float — right now it’s pegged to the U.S. dollar — which makes China’s exports look cheaper and U.S. imports to the country more expensive.

Address this in China and in other countries in Asia with similar practices, and demand for U.S. products abroad could rise. One economist, Gary Hufbauer, a research fellow at the Peterson Institute for International Economics, estimates that if China were to let the RMB rise by 25%, and if Hong Kong, Singapore, and a few of China’s other neighbors were to do the same, the U.S. would see a 5% increase in goods exported.

"Heavily undervalued currencies are doing the most damage to U.S. trade and U.S. exports," says Robert Scott, director of international programs at the Economic Policy Institute. "That is really our number one unfair trade problem."

Another way to spur exports is to encourage smaller companies to send their goods abroad. According to Dan Griswold, director of the Center for Trade Policy Studies at the Cato Institute, small businesses account for 30% of total U.S. exports.

On Wednesday night, Obama mentioned in passing he would create a National Export Initiative focused on helping farmers and small businesses sell their goods overseas. While the details have yet to be hammered out, Hufbauer suggests the administration needs to provide incentives to banks to allow more lending to small businesses that are pursuing greater exports.

Would that be enough? Any plan would have to account for how difficult it can be for smaller businesses to operate abroad. Even in the Skype and email era, discovering which markets will want what goods and then building relationships over long distances and countless time zones with potential buyers is enormously difficult — especially when the exporter’s production volume might not be very high.

The difficulty in aiding such small players explains why the government in the past has spent so much time and money on the largest, most capital-intensive industries.

A study by the Pew Charitable trust in November found that about 65% of the nation’s Export-Import Bank’s loan guarantees — the main arm of the government that helps promote exports — went to just one company: Boeing (BA, Fortune 500). Not surprisingly, the Aerospace Industries Association released a statement today voicing their support for Obama’s goal: "We’re very pleased that President Obama is making it a priority this year to double exports, enforce trade agreements and reform export controls consistent with national security."

In the end, the problem of creating jobs is so thorny that growing exports will only do so much. As Griswold points out, the health of the U.S. job market is determined mostly by domestic demand. If Americans aren’t spending, there will be fewer jobs here, regardless of what’s happening abroad. "[Raising exports] is not going to be a magic bullet for bringing down the unemployment rate," says Griswold. 

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