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Despite signs that the real estate market might be lurching forward, prices are expected to fall further this year and next.

The average home price in the United States will fall by about 6% by September 2011, according to a joint report between Fiserv and Moody’s Economy.com. And that’s after plunging more than 27% in the past three years.

Most of the projected home price decline will occur during the usually slow summer months of 2010. After that, prices should begin to stabilize, according to Fiserv, and stay almost flat through fall of 2011.

The main reason for continued decline, according to Mark Zandi, economist and co-founder of Economy.com, is foreclosures — the same thing that’s plagued markets for the past three years.

"Foreclosure sales will pick up this spring as mortgage servicers figure out who can qualify for a modification and who can’t," said Zandi.

He figures there are at least 4.5 million mortgage loans either in foreclosure or clearly headed in that direction. When that additional inventory hits the market, it will provide numerous choices for buyers and encourage sellers to drop their listing prices.

The end of two federal programs, which have been propping up markets, will also tamp down prices.

The Federal Reserve has been purchasing mortgage-backed securities since early 2009, scooping up as much as $1.25 trillion worth. That has dampened rate increases by providing a ready market for the securities. But the Fed’s program lapses on March 31, when it cedes the playing field to private investors, who will almost surely demand higher rates.

Any resulting rise in rates will cause some buyers to withdraw from the market and others to look for lower priced homes guaranteed online payday loans. Either way, demand for homes drops and so do prices.

A month after the Fed bows out of the mortgage-buying market, the homebuyer tax credit will start to expire. To qualify for the $8,000 credit, homebuyers must sign a contract before April 30 and close by June 30. When the first date passes, many buyers are expected to vacate the market, weakening the demand for homes.

In a broader sense, home prices are ultimately decided by employment. "If [the job market] improvement is stronger than expected, prices will get better. If it’s weaker than expected, prices will be worse," Zandi said.

Worst of the worst

The worst performing market will be Miami, Fla. Moody’s projects prices there to drop a heart-stopping 29.2% by Sept. 30. That follows a 47.7% decline the metro area recorded in the past three years. Grand total: 64% drop.

Other disastrous performances will be turned in by the Hanford, Calif., metro area, where prices are projected to plummet 27.2% through Sept. 30, 2010 following their 36.9% drop for the previous 36 months. Ft. Lauderdale and West Palm will also register steep drops.

There’s some good price news coming out of California’s Central Valley for a change; prices will begin to emerge from their free fall toward the end of this year.

In Merced, for example, which crashed and burned by 71.8% in the past three years (through last September), they’ll only fall only another 6.2% in the next six months before bouncing back with a rise of 10.1% by Sept. 30, 2011. 

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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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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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SunPower Corp. hired Jim Pape to run its residential and commercial business group as part of a reorganization of responsibilities at the company.

Howard Wenger, to whom all SunPower’s business units previously reported, is now president of just the utilities and power plants business group.

The San Jose solar power company (NASDAQ: SPWRA) gave both Pape and Wenger greater responsibility for all profits and losses in their business units.

“Our new business groups have full responsibility for the business results for their groups, not just sales, or just construction,” said company spokeswoman Helen Kendrick no fax needed payday loans.

Pape’s position — president of residential and commercial — is a new job at the company. No one else was hired directly as part of the reorganization, Kendrick said, although existing employee teams will be assigned to the new business groups.

Pape worked previously at Trane Commercial Systems.

SunPower, led by CEO Tom Werner, has a large facility in the rehabbed Ford Point factory in Richmond.

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Since cratering at 12-year lows in March, the S&P 500 has staged a powerful rebound as investors turned what could have been an abysmal 2009 into the second best year of the decade for stock returns.

Between war, recession, corporate malfeasance, and the collapse of the housing market, investors have had a tumultuous 10 years. The S&P 500 plunged 23%, seeing its first losing decade in close to a century.

But the decade could have been even worse, if not for the turnaround in 2009.

In the just-completed year, the S&P 500 gained 23.4%, the Dow industrials gained 18.8% and the Nasdaq added 44%. That’s trumped only by 2003, when the S&P 500 gained 26.4%, the Dow added 25.3% and the Nasdaq climbed 50%.

Like 2009, 2003 marked a big turnaround for the stock market as the economy emerged from a recession brought on by the 9/11 attacks and the collapse of the tech bubble.

For 2009, the big recovery has come in the aftermath of the housing market collapse and credit crisis and the worst recession since the Great Depression.

Although 2009 gains are strong historically, gains are even more substantial since stocks bottomed in March at the height of the financial market crisis. Since closing at a 12-year low on March 9, the Dow has gained 59% and the S&P 500 has gained 65%. Since closing at a 6-year low on the same date, the Nasdaq has risen 79%.

All 10 S&P 500 economic sectors managed gains this year, with technology the leader, rising 62% versus a year ago. Materials took second place, rising 47.1% from a year ago. The biggest losers were telecom, up just 3.6% and utilities, up just 8.4%.

Gains this year were driven by several factors, notably the government injection of trillions in fiscal and monetary stimulus into the economy.

A weak dollar also played a big role, boosting commodity prices and shares as well as the stocks of big blue chips that do a lot of business overseas who benefit when the U.S. currency is weaker.

Investor psychology also contributed, as investors went from factoring in another Depression to a recession to an eventual recovery.

But the year ahead is unlikely to see similar gains, either for the major indexes or the individual sectors, as investors look for signs that the slow-growing economy can charge ahead without unusual assistance.

"The biggest question is employment and whether the economy can start creating enough jobs to create a sustainable economic recovery," said Michael Sheldon, chief market strategist at RDM Financial Group business card design.

He said that as this issue works its way through the market, stocks could be vulnerable, particularly if the dollar continues to firm up, as it has through most of December. The other potential catalyst for a selloff later in the year ahead could be rising interest rates, although the Ben Bernanke-led Federal Reserve is unlikely to change its policy stance until the second half of next year.

"I think that prices will drift moderately higher in the year ahead, at least until Ben Bernanke decides to land the helicopter," said Mark Travis, president and CEO at Intrepid Capital Funds. "We could end up as much as 8% higher by this time next year."

Next year also starts what is likely to be a better ten-year period for Wall Street, after a rough decade.

The awful 00s: A tumultuous 10 years brought two recessions, two major wars, one contested presidential election, terrorist attacks in the U.S. and abroad, the credit crisis, the housing market bust and the near collapse of the financial market.

In light of the events that took place, perhaps its unsurprising that the stock market experienced its worst decade in nearly a century. The S&P 500 plunged 23%, seeing its first decade of losses in 90 years. Compare that to the 1990s, when the S&P 500 gained 316%.

The Dow lost 8% this decade after gaining 418% in the 1990s and the Nasdaq, still reeling from the bursting of the tech bubble, is down 44% in the 10-year period. In the 1990s it gained 794%.

For a look at the best and worst stock performers of the decade, click here

The best-performing sector of the decade was energy, up 104%, according to Standard & Poor’s. That’s roughly the same gain it made in the 1990s, but in that decade, nine of the S&P’s 10 sectors added at least 100%, with utilities the lone exception. Utilities gained 37%.

In this decade, only half of the ten sectors gained, with the rest sliding. Telecom and technology were the two worst performers of the decade, notable in that both were stars of the 1990s, in particular tech. Telecom lost 66% in this decade after gaining 223% in the 1990s. Technology lost 57% this decade after gaining 1,148% in the 1990s, the decade it defined. 

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Venezuela’s President Hugo Chavez has threatened to expel Japanese carmaker Toyota unless it produces an all-terrain model of 4×4 vehicles used for public transport in poor and rural areas.

The fiery socialist, in a speech late on Wednesday, also said he would not hesitate to expel and expropriate plants from other Asian and U.S. automobile companies operating in Venezuela if they failed to share technology with locals.

"What’s this that Toyota doesn’t want to make the ‘rustic’ model here?" Chavez said, during a ceremony in Caracas to hand owners the keys to economically produced cars that Venezuela’s government has imported from Argentina.

"We must force them. And if they don’t, then they should leave and we’ll bring another company in … The Chinese want to come and they make ‘rustic’ models."

During a decade in power, Chavez has nationalized large swathes of the Venezuela economy — including the oil and power sectors — as part of his "21st century revolution" but has so far left car manufacturing relatively untouched.

He turned on Toyota, the world’s biggest automaker, when a transporter said there was a scarcity of all-terrain models to serve people in under-privileged areas.

Caracas’ poor mainly live in hillside slums, while many rural areas lack decent roads, meaning tough 4×4s are the main means of transport.

Chavez ordered his Trade Minister Eduardo Saman to carry out a "severe inspection" of Toyota, and warned other companies they must start sharing technology with Venezuelans.

"You tell the people at Toyota that they have to produce this model and we are going to impose a quota, and if they don’t meet it, we will punish them," he told Saman, adding that the state would not hesitate to expropriate Toyota’s facilities and pay appropriate compensation.

Car industry in trouble

Following Chavez’s speech, Toyota has asked the Japanese government to verify the true intentions of his remarks as he has not contacted the company on the issue, Toyota’s Tokyo-based spokesman Yuta Kaga said on Friday.

Spokesmen for Toyota’s Venezuelan unit, which operates an assembly plant in the eastern state of Sucre, were not available to comment on Thursday.

But a source at the company said Toyota had stopped assembling the model in question — which he identified as Land Cruiser 70 — in 2007, with the government’s full knowledge.

It planned to import instead, but had not received the necessary licence, he added.

"The government was informed, it can’t be a surprise," the source said, adding that most Toyota managers were on holiday but were communicating with each other about Chavez’s speech.

In addition to Toyota, Japan’s Mitsubishi as well as Hyundai and General Motors have assembly plants in South America’s top oil-exporting nation, whose people are known for their love of cars.

"Companies who come here to set up must be ready to transfer technology to us," Chavez said.

"If they don’t want to, they should go away. I invite them to pick up their things and go," he added, saying companies from allies like China, Russia, Belorussia and Iran were ready to take their place.

Lack of access to dollars at the official exchange rate, and labor disputes, have combined with a recession to hit the automobile industry hard in Venezuela this year.

According to latest figures from the Venezuela Automobile Chamber, car sales in November were down 40 percent at 10,075 units, compared with the same month last year. 

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Coal is used to generate almost half of the world’s electricity and demand is projected to grow by more than 50 percent by 2030, according to the International Energy Agency’s most recent projections.

But burning coal to generate electricity is one of the top two sources of carbon dioxide, the main heat-trapping gas linked to global warming.

Curbing CO2 emissions from coal-fired power plants was a central theme at the Copenhagen talks this month, and the primary driver behind the establishment of the Consortium for Clean Coal Utilization at Washington University a year ago.

Richard Axelbaum, a professor of energy, environmental and chemical engineering, leads the consortium. The goal is to bring together university researchers, industry, foundations and government to research better ways to utilize one of the nation’s most abundant, but dirtiest, fuels.

The effort is partially funded by three St. Louis area companies. Peabody Energy Corp. and Arch Coal Inc., the two largest coal producers in the nation, each committed $5 million over five years and Ameren Corp., one of the nation’s biggest coal-burning utilities, agreed to give $2 million.

Does clean in "clean coal" specifically mean CO2 and other greenhouse gases?

(The term) clean really goes back about 100 years, and it has meant different things at different times. Right now, the pressing issue is reducing greenhouse gases, so present perspective of the term really is focusing on ensuring that we can burn coal in a way that doesn’t emit CO2.

What do you hope the consortium can accomplish? And what’s the time frame?

As you know from Copenhagen, the critical issue that really faces us is that we have to be able to minimize greenhouse gases in a way that the entire world can accept. And, clearly, a critical issue is the economics of that.

So we have to develop technologies that will supply us with electricity in a way that the difference in the cost of electricity is minimal but, at the same time, minimizing greenhouse gases. So the focus of much of what we do, probably 80 percent of the consortium, is determine the best approaches to that sam day payday loan.

When it comes to minimizing CO2 emissions from coal-fueled power plants, the technologies most often referenced are carbon capture and sequestration (separating the carbon from coal and injecting it underground). How close are we to commercializing that technology or making it economically viable?

Right now, there are some demonstration sites that are small scale versions of carbon capture and sequestration. And there’s considerable investment right now both from government and industry to develop this at a larger scale.

I expect — and this is my perspective, and there are different perspectives on the time frame — but certainly in 10 years I expect we will be seeing large scale carbon capture and sequestration sites. And I believe that in 2020 to 2030 it will ramp up considerably.

What other technologies are being studied beside carbon capture and sequestration?

Other studies are what we consider carbon capture and utilization, where you would take the CO2 and, for example, one study is to grow algae from the CO2 and use that to process into useful products. It could be nutraceuticals. Also bioproducts, biodiesel products. Also you can convert CO2 into useful fuels not from algael approaches, but from catalytic processes. We’re studying that as well.

What role do the consortium’s international partners play?

The consortium was really founded on the principal that the challenges of clean utilization of coal and minimizing CO2 emissions were global challenges and really would require us working together, both so that we can transfer knowledge, but also so we can understand the challenges that the rest of the world faces in addressing emissions. So we have a major effort to ensure that the research that we support is actually going to support collaborative efforts between Washington University and other institutions in China, India, in Japan, Israel and other nations.

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Critics say a $139 million settlement reached this week between securities regulators and eight big financial institutions is small potatoes.

Don’t be fooled.

I think this settlement is a big enchilada.

It’s not far behind the $205 million paid by five mutual fund managers in 2005 to settle complaints about short-term trading of fund units.

Both cases showed that investors have rights that can’t be trampled upon by large financial firms.

In 2005, fund managers agreed they should treat investors’ money as carefully as if it were their own.

They were failing to protect the interests of long-term investors by letting short-term traders take away some of their profits.

In the current case involving third-party asset-backed commercial paper (ABCP), there were several key principles at stake for investor rights. These principles include the following:

Investment advisers should not sell products they don’t understand.

Two firms were selling ABCP to smaller retail investors.

Cannacord Financial Ltd. will pay $3.1 million and Credential Securities Inc. will pay $200,000 under a deal with the Investment Industry Regulatory Organization of Canada. IIROC said the two firms did not do enough homework on the product in order to learn about its complexities and underlying risks.

They relied primarily on the credit rating provided by Dominion Bond Rating Service, an agency whose work was paid for by the issuers of the rated securities.

Interviews with several advisers working for these firms showed they knew nothing about the issuers or the composition and structure of the product, IIROC said.

Some advisers were representing it to their clients as a safe and secure product that was similar to a T-bill, guaranteed investment certificate or a term deposit.

Investment dealers should disclose known risks of products to investors.

Two firms were selling ABCP after learning of its risks from the product issuer.

CIBC World Markets will pay $21.7 million and HSBC Bank Canada will pay $5.9 million under separate deals reached with the Ontario Securities Commission.

They were dealing with an ABCP issuer, Coventree Inc., which had said that its average exposure to U.S. subprime mortgages was 7.4 per cent.

But in late July, Coventree sent an email to all dealers noting that its exposure to subprime mortgages in some conduits was as high as 42 per cent.

Coventree did not put any limits on disclosing information in its email, the OSC said.

But neither firm notified investors of the risks.

"CIBC continued to sell Coventree and certain other third-party ABCP from July 25 to August 3, 2007," the OSC said.

"During that period, CIBC sold $245 million to investors who may not have been aware of those issues."

HSBC sold $172 million in ABCP to clients who didn’t know about the risks that it had been made aware of during the same period.

Short-term credit products can be as risky as stocks.

ABCP was sold under an exemption from securities rules that allowed it to avoid much of the disclosure required for other securities, such as company shares.

The Canadian Securities Administrators has proposed that distributors of asset-backed short-term debt should have to issue a prospectus, similar to stock issuers.

It also wants to reduce reliance on the use of credit ratings in securities legislation.

I think both recommendations should go ahead.

Few investment products are safe and secure any more, even short-term debt.

Meanwhile, buyers aren’t protected in a system in which sellers rely on endorsements from for-profit commercial agencies.

eroseman@thestar.ca

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After a 38-day trip through bankruptcy, small business lender CIT Group emerged on Thursday and says it’s ready to charge back into the lending fray. Its next challenge: Rebuilding relationships with customers damaged by the bank’s struggles.

The Melting Pot once counted CIT (CIT, Fortune 500) as one of its preferred lenders. The fondue franchise has 145 restaurants in 37 states, and opened more than a dozen new outposts each year in 2007 and 2008. But as CIT’s troubles deepened, its lending to franchise operators — once a core part of its customer base — came to a near standstill.

None of the seven Melting Pot franchises that opened this year borrowed money from CIT, or any other national bank: "We didn’t do one loan with a major player," said Dan Stone, director of franchise development for Tampa, Fla.-based Melting Pot.

The CIT account representative that worked with Melting Pot has left. "Even if things turn around, we’ve lost that relationship and knowledge of our concept," Stone said. "We have to start over again."

CIT will be starting over with many customers. In 2008, it was the top lender through the Small Business Administration’s flagship financing program, investing $771 million to fund more than 1,200 loans. But this year, as CIT struggled unsuccessfully to avoid bankruptcy, its lending dried up. In the SBA’s 2009 fiscal year, which ended Sept. 30, CIT funded just 142 loans, totaling $105 million.

Now CIT says it’s ready to reopen its coffers. The bank announced this week that it has $500 million in funding available to make SBA-backed loans this year. To win back potential customers, CIT plans to waive packaging fees for the loans for 90 days starting Monday.

Given that CIT was the No. 1 SBA lender in the U.S. for nine years straight, people should have no qualms about seeking financing from the company now that it’s back in the lending business, said Chris Reilly, president of CIT Small Business Lending.

"We have the infrastructure to lend that much money," she said. "The team and I are pretty confident the demand is out there. Realistically, I think there is going to be a lot of competition for loans."

Financing the retail supply chain

While the SBA-backed loan program took a hit, CIT Group’s factoring business — a type of financing that lets companies borrow against their customer invoices — remained relatively unscathed.

An estimated 2,000 manufacturers rely on CIT’s factoring services to finance the goods they supply to some 300,000 retailers. That cash pipeline kept operating through the past year and was unaffected by CIT’s bankruptcy. But there, too, CIT has some rebuilding to do.

The company pumped $23 Same day payday loans.7 billion through its factoring business in the first nine months of 2009 — down 32% from the same period a year earlier. The weak retail environment reduced demand for CIT’s services, but customers have also expressed wariness about running credit balances with a financially strapped lender. In a recent regulatory filing, CIT said that the uncertainty surrounding its business resulted in a "virtual standstill" in signing new business last quarter.

Meanwhile, existing customers took steps to shield themselves from CIT’s risks. Hooker Furniture, a home furniture manufacturer in Martinsville, Va., changed the terms of its financing agreement with CIT in July, when it heard the company was considering bankruptcy. Hooker now retains ownership of its customer invoices. Hooker also immediately drew down its entire available credit balance with CIT in July, to avoid losing access to the money.

"It’s a better situation for us going forward," said Larry Ryder, Hooker’s executive vice president of finance and administration. But with those new safeguards in place, Hooker is happy to remain a CIT customer, he said.

Many customers, like Hooker, changed their financing terms and drew down their credit lines in recent months, CIT said in its filing. The company held credit balances of $898 million for its factoring clients as of Sept. 30, down from $3 billion nine months earlier.

But analysts think CIT has a fighting chance to get back onto solid ground.

As far as bankruptcies go, CIT’s was relatively short, and the company was savvy in structuring its reorganization plan, particularly in terms of debt, said Brian Charles, an equity analyst with New York-based brokerage firm RW Pressprich & Co.

The company has not only reduced its debt by $10.5 billion, but has pushed out the maturity of its remaining debt to 2013 and beyond, he said, buying CIT time to reinvest in the parts of its business that will be most profitable.

"They can work off of its existing portfolio and realize the cash flow from that without having to worry about debt maturities in the near term," Charles said. "This gives them the ability to put that back into the business."

The money is ready to flow again. Now CIT has to convince borrowers that it’s back in the game.

"We as a company would be willing to work with CIT again," said Dan Stone of Melting Pot. "But I could understand if some franchises were hesitant and, if given the option of going with a local bank that hasn’t had as much difficulty, would do that instead." 

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Here’s a conundrum for yield-seeking investors: What buys and then gets rid of stocks, behaves like a bond fund and is taxed like a stock fund?

Answer: A specialty fund that mimics the returns of a bond portfolio while spinning off capital gains.

Recent new offerings of these bond fund alternatives, both launched in November, include Claymore Advantaged Canadian Bond ETF (CAB/TSX) and Renaissance Corporate Bond Capital Yield. Similar financial engineering is occurring in the fixed-income portions of some balanced funds.

Simply put, here’s how interest is transformed into capital gains: First, the fund buys stocks. Then it sells the stock portfolio in what’s called a forward agreement.

The counterparty, commonly a bank, agrees to pay a future price that’s tied to the returns of a bond index or bond portfolio. This enables interest to be re-characterized as capital gains.

Som Seif, president of Claymore Investments Inc., says the returns of his firm’s exchange-traded fund are not related in any way to the equities that are bought and then sold forward. "The equities are only there for the purpose of providing the tax efficiency," Seif says.

If you’re investing in an RRSP or other registered account, your decision is simple. Avoid these funds, since there’s no advantage to receiving distributions in the form of capital gains. But in a taxable account, you’re better off receiving capital gains, which are not taxed as heavily as interest.

As the Claymore ETF’s prospectus warns, there are risks associated with derivatives. These include the risk that the counterparty in the forward agreement may default on its obligations.

However, such risks are low, since the fund managers generally deal with very creditworthy institutions. The Claymore ETF’s counterparty, for instance, is Toronto-Dominion Bank.

Taxes are always an important consideration when investing in a nonregistered account paydayloans. But the investment in a virtual bond fund must stand on its own merits, the risks should be understood by the investor and the fees should be reasonable.

The pioneer of this genre is Mackenzie Financial Corp.’s Mackenzie Sentinel Managed Return Class, first offered in March 2002. It’s not a pure play on fixed income, since Mackenzie portfolio manager Chris Kresic maintains a 10 per cent weighting in stocks to give the fund a little more growth potential. He sells forward all the rest of his stocks, using the proceeds to obtain bond exposure.

The fund’s performance has generally lagged that of Mackenzie Sentinel Bond, the more conventional fixed-income fund that Kresic runs. Over the past five years, the gap in returns is about 80 basis points (0.8 per cent) on an annualized basis.

Both funds have roughly the same management expense ratio, so MERs don’t explain the performance disparity. What has made a difference is contrasting bond exposures and counterparty costs.

Mackenzie Sentinel Managed Return is mostly exposed to Government of Canada bonds, which are lower-yielding than the corporate bonds that normally make up a substantial portion of the holdings of Mackenzie Sentinel Bond.

Also exerting a drag on the performance of the virtual bond fund are the fees charged by the counterparties to the forward agreements. These fees are reflected in the prices the counterparties are willing to pay for their forward purchases.

Though forward agreements don’t get factored into MERs, their effective cost would typically be in the range of 25 to 50 basis points. Investors take heed: This alone will offset some of the tax advantages of holding a bond fund substitute rather than the real thing.

rudy.luukko@morningstar.com

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