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The U.K.’s unemployment rate would be almost double and its recession would have been deeper if Britain had joined the euro, according to the Centre for Economics and Business Research.

Gross domestic product would have contracted 7 percent last year and unemployment would currently be 15 percent if the nation had signed up to the single currency, CEBR’s Chief Executive Officer Douglas McWilliams said today in an e-mailed statement. The economy shrank 4.8 percent last year.

At 7.8 percent, the U.K. jobless rate is below that of the U.S. and the average of the euro region, which are both at 10 percent. Prime Minister Gordon Brown decided to keep Britain out of the European single currency when he was finance minister in 2003 after an assessment of the potential benefits of joining. Many euro members have struggled, McWilliams said personal business card.

“Most European economies have found keeping up with a German-inspired exchange rate a problem,” he said. “For those European countries that have a propensity to borrow, a single interest rate, kept low by frugal Germany, was a step too far and they over borrowed. Ireland and Spain are the most spectacular examples, but Portugal and Greece also had interest rates that were far too low for their economic circumstances.”

If the U.K. had joined the euro in 1998, economic growth would have been “slightly higher” and inflation would have been faster by about 0.6 percent through 2006, McWilliams said.

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The Federal Reserve is in talks with money-market mutual funds on agreements to help drain as much as $1 trillion from the financial system as policy makers prepare for the first interest-rate increase since June 2006, according to a person familiar with the discussions.

The central bank is looking to the money-market mutual fund industry which manages $3.2 trillion in assets because the 18 so-called primary dealers that trade directly with the Fed have a capacity limited to about $100 billion, estimates Joseph Abate, a money-market strategist at Barclays Capital in New York.

Money-market funds may welcome the opportunity to trade with the Fed after the financial crisis reduced the supply of safe assets in which they can invest. In one example of demand for such assets, auctions on four-week Treasury bills have attracted an average of $5.47 in bids for every dollar sold this year, compared with an average of $3.77 last year, according to Bloomberg data. Yields on the four-week bill were quoted at four basis points at 3:47 p.m. in New York trading from 18 basis points a year ago.

“There are lots of great credit stories, but the option of going with the Fed and the government — it takes away part of the risk,” said Deborah Cunningham, a chief investment officer at Federated Investors Inc. in Pittsburgh, which manages $318 billion in money-market investments. Conversations with the Fed “seem pretty positive,” she said, adding that the Fed and the industry should be in a position to conduct operations before the end of the year.

Fannie, Freddie

Chairman Ben S. Bernanke yesterday charted ways the Fed might withdraw record monetary stimulus pumped into the economy to fight the recession. Among the central bank’s tools are reverse repurchase agreements, in which the Fed sells securities with the intention of repurchasing them at a later date.

The Fed is also considering reverse repurchase agreements with mortgage lenders Fannie Mae and Freddie Mac, said the person familiar with the discussions. Freddie Mac spokeswoman Sharon McHale declined to comment. Fannie Mae spokesman Brian Faith also declined to comment.

“To further increase its capacity to drain reserves through reverse repos,” Bernanke said, the Fed is “in the process of expanding the set of counterparties with which it can transact” beyond primary dealers of government securities.

The primary dealers, which are required to bid at auctions of Treasury notes and trade directly with the New York Fed’s markets desk, include BNP Paribas Securities Corp., Banc of America Securities LLC and Goldman Sachs & Co.

‘Extended Period’

Bernanke repeated yesterday that while interest rates are likely to stay low for an “extended period,” the Fed in “due course” will need to “begin to tighten monetary conditions to prevent the development of inflationary pressures paydayloan.”

The central bank has created more than $1 trillion in excess reserves in the banking system through its purchases of $300 billion of Treasury debt and $1.25 trillion of mortgage- backed securities. To put upward pressure on the federal funds rate, the Fed may need to drain as much as $800 billion, Abate estimates.

One potential tightening tool is the interest rate on reserves that commercial banks keep on deposit at the Fed. By raising that rate, the central bank “will be able to put significant upward pressure on all short-term interest rates,” Bernanke said.

The Fed can also use reverse repos to shrink the quantity of reserves, which in turn gives it “tighter control over short-term interest rates,” he said.

Risk for Fed

Fed officials face the risk that when they start to tighten policy by raising the rate they pay banks on reserves, other market rates may not follow. That would keep monetary conditions too loose in an expansion.

“They still seem nervous that they might not be able to control short rates, and if they can’t control short rates, how do they tighten?” said Mark Spindel, chief investment officer at Potomac River Capital LLC, which manages $200 million in Washington.

The Fed has sought to keep the benchmark rate in a range of zero to 0.25 percent since December 2008. The federal funds rate is now 0.13 percent, even though banks can earn 0.25 percent by keeping their money on deposit at the Fed.

One reason for the discrepancy is that Fannie and Freddie have become “significant sellers” of funds in the overnight market and aren’t eligible to place cash on deposit at the Fed, according to a December research paper by the New York Fed.

Some hurdles remain in the Fed’s efforts to secure bigger repo capacity. Fed officials and mutual-fund industry representatives are working on a structure that would allow funds to invest in relatively liquid assets that can be sold in seven days, while allowing the central bank to avoid having to renew billions of dollars in transactions each week.

“There needs to be liquidity,” said Cunningham of Federated. “A reverse repo contract is not considered to be liquid in the context of anything beyond seven days.”

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OTTAWA–The good old days of booming economic growth are not coming back in the years ahead, Bank of Canada governor Mark Carney warned in a gloomy assessment of the long-term strength of the Canadian economy.

Economic growth, which achieved a robust average rate of nearly 3.5 per cent in the late 1990s and early 2000s, won’t be much greater than 2 per cent beyond 2011, Carney said Thursday.

He put it down to an aging workforce and low growth in productivity, a measure of worker output that determines a society’s standard of living.

"Until we see evidence of an uptick in productivity, at least at this stage, looking for growth – real growth – much north of 2 per cent is not yet a realistic prospect," Carney told reporters after releasing the central bank’s quarterly outlook. "We have a productivity performance that has been relatively disappointing in recent years."

Economists said this means that, over the long term, Canadians will face declining living standards, reduced household incomes and mediocre employment prospects.

United Steelworkers economist Erin Weir said Carney’s long-term growth forecast will probably not be enough to significantly reduce unemployment, now running at 8.5 per cent.

"You’ve got this stock of unemployed workers and the bank is projecting enough economic growth to employ what you might call the new flow of workers into the labour market each year," he said. "But the bank is not actually projecting enough economic growth to bring down that stock of unemployed."

In the short term, Carney was cautiously optimistic, saying a global recovery is underway and economic and financial developments have been "slightly more favourable" than the central bank expected in its October report.

Economic output in Canada contracted by 2.5 per cent in 2009. But the country will return to growth of 2.9 per cent this year and 3 fast cash now.5 per cent in 2011, Carney said. Quarterly growth will begin to drop to the 2-per-cent range in the second half of 2011 and stay that way into the foreseeable future, Carney noted.

Carney gave no indication that the bank will stray from its commitment to maintain its key overnight rate at the current 0.25 per cent until mid-2010. Carney repeated that, barring a burst of inflation, he would maintain the record-low rate to spur economic activity and offset the recession.

But even his relatively upbeat forecast for 2010 was hedged with uncertainties. The higher-valued Canadian dollar and the possibility that the global recession will linger longer than expected are raising questions about the strength of the recovery, the bank said.

"There is a risk that persistent strength of the Canadian dollar could act as a significant further drag on growth," according to the quarterly Monetary Policy Report.

"Another important downside risk is that the global recovery could be even more protracted than projected."

The Canadian dollar, which has been trading in the 95-cent (U.S.) range on exchange markets, has climbed steadily over the past two years. As the loonie rises, it makes it harder for Canadian exporters to compete abroad, particularly in the key United States market.

The central bank said global economic growth will pick up over the next two years as the recovery takes hold, but the rebound in advanced industrial nations will be moderate.

In the U.S., the recovery will remain relatively weak, the bank said, although it predicted it would be a bit better than forecast due to stronger-than-expected growth in domestic consumption and exports. Carney forecast U.S. growth this year at 2.5 per cent, up from the 1.8 per cent predicted in October.

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NEW YORK – A nine-month rally in oil prices could be faltering as a gradual sell-off that began in late October gains momentum.

Crude prices, which doubled from March to October, fell Friday for the eighth day in a row. The contract for January delivery gave up 67 cents to settle at US$69.87 a barrel on the New York Mercantile Exchange. It's the first time that oil settled below $70 a barrel since early October.

Prices hit two-month lows as the U.S. dollar gained strength and investors took a second look at paltry demand figures in the West.

All energy prices were in retreat despite a report Friday from the International Energy Agency saying global oil demand will rise next year more than previously expected. Analysts said they've heard such talk before, and they're now looking for concrete signs of demand from both consumers and industry.

"How do you know when the economic recovery really begins? It is when real oil demand growth appears," analyst Phil Flynn said in a report. "Not just artificial demand growth being propped up with smoke and mirrors, but demand growth that comes with solid economic activity and global growth."

The IEA, an energy watchdog for some of the biggest crude consuming countries, said Friday that it was raising its estimates for 2010 global oil demand because of increased economic activity in Asia and the Middle East.

The Paris-based organization said in its monthly report that crude demand would reach 86.3 million barrels a day in 2010, up 1.7 per cent from 2009. Last month, the IEA forecast oil demand of 86.2 million barrels a day in 2010.

Meanwhile, the U.S. dollar has surged on a drop in U no fax cash advance.S. unemployment and an anticipation that the Federal Reserve may raise interest rates.

Oil contracts, which are priced in U.S. currency, tend to move in the opposite direction of the U.S. dollar.

Crude had jumped as high as $82 a barrel in October. Since then, oil prices have slumped 13 per cent. U.S. consumption of petroleum products including heating oil and diesel, has fallen about 20 per cent from a year earlier, Barclays Capital said in a report.

"It is really the lack of inspiration in distillate demand that stands out, showcasing the lack of cold weather and no turnaround yet in trucking activity in the U.S.," Barclays said.

Retail gasoline prices are also nearing two-month lows.

Pump prices fell by less than a penny overnight to a new national average of $2.623, according to auto club AAA, Wright Express and Oil Price Information Service. A gallon of regular unleaded is 3.1 cents cheaper than a month ago and 95.9 cents more expensive than last year.

In Canada, the price at the pump averaged 98.5 cents Canadian per litre, down from $1.025 per litre a month ago, according to price-watching website GasBuddy.com.

In other Nymex trading in January contracts, heating oil added less than a penny to settle at $1.9085 a gallon while gasoline added less than a penny to settle at $1.8416 a gallon. Natural gas fell 13.5 cents to settle at $5.163 per 1,000 cubic feet.

In London, Brent crude for January delivery added two cents to settle at $71.88 on the ICE Futures exchange.

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Mid-cap stocks have been anything but middling in 2009.

They’ve been the sweet spot for investors still leery of the large-cap stocks that burned them in the recent past. Too many big-name companies also seem to be offering only downsizing as a strategy these days.

With large caps and small caps garnering all the attention, mid caps usually fall between the cracks.

Yet mid-cap growth funds are up 34 percent and mid-cap value funds up 31 percent this year, according to Lipper Inc. Both have surpassed the 26 percent increase of the average diversified stock fund.

"Mid-cap stocks are a neglected part of the market, a well-kept secret not a lot of investors know about," said Patrick Dunkerley, portfolio manager for Scout Mid Cap Fund, which is up 40 percent this year. "It’s no surprise they’re outperforming this year, since half the time coming out of an economic downturn mid caps outperform and half the time small caps outperform."

Mid-cap (which stands for middle capitalization) stocks are loosely defined as those of companies with capitalizations between $2 billion and $10 billion. It is a squishy term whose parameters can vary considerably from investment firm to investment firm. It basically encompasses companies that aren’t either big or small, and that concept is in the eye of the beholder.

"Mid-cap companies can still be nimble like their small-cap counterparts and aren’t as bloated as the larger companies," said Scott Grittinger, principal in McCarthy Grittinger Weil Financial Group LLC in Milwaukee. "They have the ability to grow but aren’t considered risky start-ups anymore."

With money now heading to more aggressive investments such as junk bonds; emerging market stocks and bonds; and smaller stocks, noted Grittinger, mid-cap stocks offer a modestly aggressive possibility. A mid-cap company typically has a better management team, more financial liquidity and greater opportunity to raise capital through loans and initial public offerings than the small-cap counterparts.

"Mid-cap companies have had good strong earnings, and many have beaten the estimates," observed Tom Roseen, senior research analyst with Lipper Inc. in Denver. "Investors are reaching for larger capitalizations but don’t seem interested in reaching for the biggest of the big."

Mid-cap portfolio managers sometimes have a blend of mid-cap and small-cap stocks but won’t venture into large-cap territory, Roseen said. Only if a portfolio manager has a strong buy-and-hold philosophy will a mid cap that has grown into a large cap be kept.

Here are some mid-cap stocks priced right and worthy of investment, according to Scout Mid Cap’s Dunkerley:

— Cimarex Energy Co., a producer of natural gas and oil whose stock is inexpensive, has a long runway ahead of it as it drills its properties, expands production and increases earnings.

— Priceline.com Inc., a global phenomenon with about 70 percent of its profits coming from Europe, has been increasing revenue at a 30 percent annual clip while taking market share from online sites and travel agents.

— Terex Corp., a maker of road pavers, construction machinery and mining equipment, is a cheap stock that will benefit whenever the world’s economy perks up and infrastructure needs are being met.

— Allegheny Technologies Inc., a fabricator of high-strength metals used in the oil and gas industries, deepwater drilling and jet planes, is out of favor now but well-positioned for the long haul.

Scout Mid Cap Fund has 66 stock holdings with average market capitalization of $6.2 billion. This "no-load" (no sales charge) fund requires a $1,000 minimum initial investment and has an annual expense ratio of 1.4 percent.

"We do rigorous fundamental research on companies, and we like a strong liquidity position, strong cash flow, strong balance sheet, good valuation and a strong catalyst to drive growth," said Dunkerley. "We really don’t like ‘gotchas’ like bad management or litigation."

Roseen sees a number of mid caps positioned to do well. In technology, he points out Salesforce.com Inc. and Adobe Systems Inc.. Among retailers, he notes Urban Outfitters Inc., Tiffany & Co. and Abercrombie & Fitch.

Turning to mid-cap funds, Grittinger especially likes T. Rowe Price Mid Cap Growth Fund, up 39 percent this year, because of proven portfolio manager Brian Berghuis who has been with it since 1992. The fund was closed to new investors in 2003 because of rapid asset growth but reopened in 2008 after the market drop had reduced its size.

"Unlike many mid-cap growth mangers, Berghuis does pay attention to valuations, and that appeals to us," said Grittinger, also noting that solid balance sheets and diversity of industries are hallmarks of that fund’s holdings. "Growth at any price is a loser’s game."

The largest holdings in its 141-stock portfolio include Agnico-Eagle Mines, Global Payments Inc., Marriott International Inc., The Western Union Co., Expedia Inc. and Juniper Networks Inc.. T. Rowe Price Mid Cap Growth is a no-load fund with a $2,500 minimum initial investment and an annual expense ratio of 0.82 percent.

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Billionaire hedge fund manager John Paulson is launching a new gold fund, which will include $250 million of his own personal investment, the Wall Street Journal reported on Wednesday.

Paulson is among a number of hedge funds managers stocking up on the precious metal, for centuries considered a hedge against inflation, as governments around the world ramp up spending to combat recession.

Citing three investors, the Journal said the fund will focus on gold mining stocks and gold-related investments.

Paulson spoke about the new fund, which will begin on January 1, at a meeting with his investors in New York on Tuesday.

Paulson’s combined gold and gold-related investments make up about half of his firm Paulson & Co’s holdings bad credit cash loans.

Paulson already owns big stakes in gold miners AngloGold Ashanti Ltd, Kinross Gold Corp and Gold Fields Ltd.

He is also by far the biggest shareholder of SPDR Gold Trust, the world’s largest gold-back exchange-traded fund (ETF). His investment in the ETF is valued at about $3.53 billion on Wednesday.

A spokesman for Paulson & Co declined to comment.

(Reporting by Frank Tang; Editing by Christian Wiessner)

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Bond prices were mixed on Thursday with dated Treasurys edging lower after the government reported that the number of Americans who filed for unemployment benefits slipped last week.

The Labor Department said initial jobless claims fell more-than-expected to 512,000, which triggered a rally on Wall Street. Still, investors are anxiously awaiting the October employment report due Friday.

"Investors look at earnings and employment as key drivers as to when the economic recovery is going to occur, and the consensus is the first half of 2010," said Bill Larkin, portfolio manager at Cabot Money Management. "A disappointing unemployment number will hinder economic recovery, which would be favorable for the Treasurys but negative for the stock market."

Economists are expecting the economy to have lost another 175,000 jobs last month, which could push the nation’s unemployment rate closer to 10%, according to a consensus of economists surveyed by Briefing.com.

Larkin also said the new supply of bonds entering the market next week is also making investors nervous.

The Treasury announced a record refund on Wednesday, saying it plans to auction a total of $81 billion in debt next week, with $40 billion of 3-year notes, $25 billion of 10-year notes, and $16 billion of 30-year long bonds. An announcement about more supply typically reduces debt prices.

"We’re seeing redistribution to longer-term securities," Larkin said. "The debt the government has been financing has been skewed to the short end, so they’re equalizing that and putting more capital needs into longer dated bonds, resulting in steeper yields."

Bond prices. The 30-year bond lost 1/32 to 101-19/32. Its yield rose to 4.41% from 4.40% late Wednesday. Bond prices and yields move in opposite directions.

The benchmark 10-year note was down 1/32 to 100-25/32 and its yield was 3.53%.

The 2-year note edged up 2/32 to 100-8/32, with a yield of 0.89%.

The yield on the 3-month bill was 0.05% 

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JPMorgan Chase chief executive officer defended the dollar — and the size of his company — at a securities industry conference Tuesday.

"The ultimate strength of the dollar will depend on the strength of the United States," Dimon said.

Dimon discussed the dollar and other key financial topics with PBS host Charlie Rose as part of the Securities Industry and Financial Markets Association (SIFMA) annual meeting held in New York.

He said that the dollar needs two things to remain strong: the economy must grow and, equally as important, the government must demonstrate fiscal responsibility.

The fate of the dollar is not about "the deficit over the next year or two," said Dimon, but about proving that the country’s long-term plan is to rein in spending and reduce the nation’s debt over time.

"We’ll be voting on this," Dimon told the crowd. "It’s not only a matter of what happens at the [Federal Reserve] but about what happens in Congress."

The dollar has spent much of October bouncing around its 14-month low against the euro as investors worried that low U.S. interest rates and months of stimulus injections would spark inflation. Moreover, the market recovery has made stocks more attractive to investors than super safe assets like the dollar.

The dollar got a bit of a lift earlier this month when Fed chairman Ben Bernanke said that the central bank is poised to raise interest rates if the economic recovery strengthens in order to avoid a surge in inflation. But given that employment remains weak, many analysts and economists believe that the government would rather not boost rates rise anytime soon.

In his wide ranging remarks, Dimon also noted that the economic recovery was not tied to hotly debated issues in Congress such as health care reform and cap and trade energy proposals.

Dimon said that these are long-term issues the administration must tackle, but added that "getting people back to work" is the most important ingredient in a true economic recovery bad credit payday advance. If Congress does pass another stimulus bill, Dimon said he hopes that it will focus on job creation.

Chase isn’t too big to fail

Dimon also defended his company’s role as one of the largest banks in the country, arguing that it had not reached a point that it was "too big to fail." He stressed that the firm’s size was appropriate given the number of its clients and their business needs.

"Large businesses are large for a reason," Dimon said. "You can’t do an $8 billion loan if you are a small bank."

JPMorgan Chase (JPM, Fortune 500) has been one of the nation’s fastest growing banks in recent years. In the wake of last year’s financial chaos, it bought investment bank Bear Stearns and the savings-and-loan giant Washington Mutual.

Both deals were done at what analysts felt were relatively low prices. JPMorgan Chase bought WaMu after it was seized by the FDIC in the nation’s largest bank failure.

But the size of the nation’s largest financial firms has been a key issue among regulators and lawmakers following the near collapses and government bailouts of AIG (AIG, Fortune 500) and Citigroup (C, Fortune 500). Congress continues to debate how best to reform the U.S. financial system.

One leading proposal in Washington has been for regulators to create a system that would allow regulators to handle the failure of a large financial institution. Many have argued the absence of such a system exacerbated the problems associated with the bankruptcy of Lehman Brothers last fall.

Dimon, echoing previous comments, threw his support behind such a system. But he added that there would need to be coordination with international regulators to work effectively.

"We think failure is a good thing," he said. "But you don’t want a failure that destroys America." 

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Here’s one reason to move to Lithuania: Eight weeks of time off.

Workers in the Baltic state tied with Brazil for the most days off in the world: a whopping 41 a year, according to a report released Wednesday by global consulting firm Mercer.

"People take a lot of time, especially in the summer, because a lot of them own places outside the cities, in villages and by the sea," said Dina Kopilevic, a Lithuanian citizen working for the consulate in New York. "We take it for granted, probably."

In Lithuania, the minimum annual leave is 28 days plus 13 public holidays. Brazil has a statutory minimum of 30 vacation days plus 11 public holidays.

Ade Umhey is from Belo Horizonte, a city in southeastern Brazil, but is working temporarily in upstate New York. She said that in her country, there’s a real appreciation for time spent outside of work.

"Being with family and friends is important," she explained. "You spend weekends dancing, going to clubs and barbecuing." Workers also take extended vacations at the beach or to other parts of the country, she said.

"It’s a healthier attitude, because even though you don’t work as long, you do work hard and then you get great time off."

Employees in Finland, France and Russia post a close second in time off, thanks to 40 vacation days and holidays.

Meanwhile, U.S. workers receive 25 days total. Although vacation policies vary widely, according to Mercer, many businesses in the U.S. give employees only 15 days, or three weeks of vacation, plus 10 holidays a year.

Employees in Singapore also get 25 days, while Chinese employees get 21 and Canadian employees only get 19. Excluding public holidays, workers in Canada and China each get just 10 days, the lowest allotment of any countries in Mercer’s study.

Anthony Brown, a Canadian citizen who currently works in New York, argued that the lack of time off there is mitigated by other pluses. "The social benefits, including both welfare and unemployment benefits, should be factored in," he said. "Maybe there are fewer days but in reality you get paid a lot more for doing a lot less."

In addition to annual leave and public holidays, employers in some countries are also required by law to give additional leave for special circumstances such as getting married, having a baby or bereavement.

The Mercer report was based on mandatory vacation time for an employee working five days a week after 10 years service. 

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The United States is going out of its way to build a warmer economic relationship with China and the strategy seems to be paying early dividends.

In the past two weeks, China has endorsed a U.S.-backed commitment to rebalance the global economy, and impressed some European officials by backing up the pledge with specific steps it planned to take to reconfigure its own economy.

In addition, what looked like it could have been the start of a trade war when the United States imposed tariffs on Chinese tires fizzled out with minimal drama.

French Finance Minister Christine Lagarde said China had delivered a surprisingly forthright speech at an International Monetary Fund meeting in Istanbul this past week.

“What really hit me was the change of speech, and I suppose of economic policy of China,” she said, adding that China had spelled out policy goals on improving social security, pensions, infrastructure and other areas that “correspond to calls to rectify imbalances.”

Some officials and private analysts credit a change in tone out of Washington for helping build credibility in Beijing.

U.S. Treasury Secretary Timothy Geithner held a series of phone conversations with Chinese finance officials within weeks of taking office in late January, and visited Beijing in June.

He has fought for greater representation for China on the international economic stage, even though it put him in direct conflict with some European allies who saw it as a threat to their own global influence.

Last week, President Barack Obama broke with tradition when he declined to meet with the Dalai Lama who was visiting Washington, opting instead to delay the meeting until after his official trip to China in mid-November payday loan lenders.

And at bilateral talks in Washington in July, the United States downplayed the touchiest issues including human rights violations and whether China’s yuan currency is undervalued. Obama sought common ground over a non-controversial topic — basketball. He referenced Chinese star Yao Ming and presented the Chinese delegation with a signed basketball.

ECONOMIC REALITIES

The strategy is aimed at showing that the United States is not simply trying to impose its will on China. Both sides have something to gain — and lose — from the relationship.

For the United States, China remains a critically important buyer of U.S. government debt, holding some $800 billion as of July, according to Treasury Department data.

For China, which relies on exports to generate jobs for the millions of workers migrating to urban areas, the United States is still the most reliable customer, although the recession has clearly put a dent in demand.

The U.S. trade deficit with China stood at $143.7 billion for the year through August, government data shows. While that still makes China easily the largest single contributor to the trade gap, it is down 15 percent from the $169.2 billion recorded in the same period a year ago. 

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