The rebate program – Recycle Your Ride – would allow customers to receive C$1,000 for purchase of a new Ford or Lincoln car, C$2,000 for a new sport utility or crossover vehicle and C$3,000 for a new truck or luxury Lincoln. The program will start this Thursday and run for 60 days. If required, it may be extended.

Ford Canada plans to maintain sales momentum through the program. The program is built on the line of the Canadian Government's "Retire Your Ride" program, which has given C$300 to consumers to turn in an old vehicle.

Ford Canada's chief executive, David Mondragon, also strongly supported the similar "Cash for Clunkers" rebate program for fuel-efficient vehicles that generated big sales in the U.S.

Ford Motor revealed a 17% rise in sales to 181,826 cars and light trucks for August in the U.S., driven by the "Cash for Clunkers" program. Two models – Focus and Escape SUV, which are ranked fourth and tenth, respectively, on the top-10 buy list – heated up the company's sales. Sale of the Focus increased 56% while that of the Escape shot up 49%.

Recently, it has been reported that Chrysler Canada would offer a rebate program of up to C$1,500 for qualifying trade-ins. Hyundai Canada had announced a similar C$1,000 incentive program last month.

Automakers are preparing for a new round of rebates and low-cost financing to bolster the sales gain generated by the car rebate program. This is because fears loom around the sustainability of the rejuvenation in sales once the rebate programs have expired.

We continue to recommend the shares of Ford as Neutral with a target price of $8.

Demand for U.S. Steel’s flat-rolled steel has improved after bottoming in April and May, this year and is likely to improve going forward. The largest steel producer in the U.S. expects mill-operating rates to exceed 50% in the current quarter, up from 32% in the prior period.

U.S. Steel acquired the Hamilton and Nanticoke plants in Ontario from Canadian peer Stelco Inc. for about $1.1 billion in 2007. The Hamilton operation has an annual production capacity of about 2 million tons. The facility also consists of galvanizing lines and a cold mill. However, the company does not plan to restart these for now.

U.S. Steel had closed the Hamilton blast furnace in November 2008. It suspended the remaining operations at Hamilton and the Nanticoke operation in March 2009 due to a drop in demand. Both the facilities were running below half of their capacity. The shutdown resulted in lay offs of about 1500 workers. However, the company recalled about 800 to 950 employees at the Hamilton plant in July.

A day before, workers of U.S. Steel approved Lakeside’s bid to acquire the Ontario production unit. Lakeside Steel is a steel pipe and tubing manufacturer in Welland, Ontario.

The Canadian government has alleged U.S. Steel of failing to meet commitments on production and employment. While acquiring Stelco in 2007, U.S. had agreed to produce 3.95 million tons of steel per year and employ about 3,100 workers through Nov. 1, 2007 to Oct. 31, 2010. A federal court in the U.S. will evaluate these charges today.

We maintain our Neutral recommendation on the stock.

General Motors Corp., the world’s largest automaker for 77 years, will file for bankruptcy today, and emerge with majority ownership by taxpayers and liabilities reduced by more than 50 percent, the U.S. government said. The “new GM” will get $30.1 billion in bankruptcy financing from the government, and the Treasury “does not anticipate providing any additional assistance” after that, the Obama administration said yesterday in a statement. The federal government will have a 60 percent equity stake in the retooled automaker, and 12 percent will be held by the Canadian government, which is lending $9.5 billion to the company

“Our objective is to make sure we’re limiting our involvement to the minimum necessary, and that we get out of those involvements as quickly as we can,” Treasury Secretary Timothy Geithner said today in Beijing. “We want to have a quick, clean exit as soon as conditions permit.” The filing, which GM executives said last year wouldn’t happen, marks the plunge of a company that once made more than half the cars bought in the U.S. The Detroit-based automaker became burdened by higher costs than competitors and a reliance on fuel-guzzling light trucks as gasoline prices rose. GM has been battered by almost $88 billion of losses since 2004.

And the BBC;

Elliot Sloane, spokesman for an ad hoc bondholders committee, said investors representing about 54 percent of GM's bonds had agreed to exchange their unsecured bonds for a 10% stake in a newly restructured company, the Associated Press news agency reported. But it is still possible that dissident bondholders may mount legal challenges in the bankruptcy court.

Meanwhile, a US bankruptcy court judge in New York has approved the sale of fellow US carmaker Chrysler to a consortium including Italy's Fiat. The move, which is backed by both the US and Canadian governments, should enable the carmaker to exit bankruptcy protection in the near future. Under the terms of the deal, Fiat will control 20% of Chrysler, while 68% will be owned by a union trust, and the two governments will share 12%.

And finally, there is Reuters;

Since the start of the year, GM has been kept alive with U.S. government funding as a White House-appointed task force vetted plans for a sweeping reorganization that will be undertaken with $50 billion in government financing. By preparing to take a 60 percent stake in a reorganized GM, the Obama administration is gambling that the automaker can compete with the likes of Toyota Motor Corp after its debt is cut by half and its labor costs are slashed under a new contract with the United Auto Workers union. The governments of Canada and the province of Ontario agreed to provide another $9.5 billion to GM in a late addition to the plans for the bankruptcy that have been taking shape for weeks, U.S. officials said.

GM plans to close 11 U.S. facilities and idle another three plants. It has not provided an updated target for job cuts but had been looking to cut 21,000 factory jobs from the 54,000 UAW workers it now employs in the United States. The UAW would have a 17.5 percent stake in the "new GM." The Canadian government would own 12 percent stake and GM bondholders would get 10 percent.

Fritz Henderson, GM President & Chief Executive Officer will hold a press conference at 12.15 p.m. ET in which one would assume that more details are revealed. Of course, this was hardly surprising and one has the distinct feeling that the financial crisis was only the proverbial nudge which pushed GM into the abyss close to which the company had been situated for a long time due to a poor response to changing market dynamics. But don't take my word for it. Stories about GM's problems and potential demise, to a great extrent, preceded the financial crisis and this is thus not a surprise for anyone I'd imagine.

David Morris is chief executive of London-based Global Wealth Allocation Ltd., an asset management and research firm with around $3 billion in assets under management. He began his career by serving in economic development for the Canadian government in East Africa. In 1980, he took over as treasury manager for Xerox's Canadian operations. Then, six years later, he became treasurer for Campbell Soup in Canada. Morris later started a pension consultancy business. In 1992, he founded GWA.

Morris is probably best known for developing a series of 20 indexes that are sold worldwide in partnership with the FTSE Group. The benchmarks, which were created in 1996, are "wealth-weighted." GWA takes standard FTSE indexes and weights components based on three valuation measures: net profit, cash flow and book value.

IndexUniverse's Murray Coleman recently caught up with the economist-turned-index-developer to discuss his views on global corporate profits and market pricing of those assets.

IndexUniverse.com: Why do you focus on net profits and two other valuation metrics in creating indexes?

Morris: I didn't grow up, so to speak, as a fund manager. My education is as an economist and my work experience prior to GWA was as a treasurer in corporate finance. Most of my background has been focused on analyzing how corporations run their balance sheets—not modern portfolio theory. I look at how all of the tools, machines and equipment in society—the stock of capital—is used to produce a flow of goods and services. That is on a country-by-country, regional and global basis.

IU: What does your research tell you about current market conditions?

Morris: The limit to growth in the market, of course, is the amount of wealth being created at any given time. If we measure wealth consistent with economic macro theory, then we can look at the wealth in markets and compare that to current pricing levels. For example, in metals we're seeing a collapse in share prices underpinning the basic materials sector.

IU: Has that collapse been matched by a similar deterioration in the corporate profits?

Morris: No, global market prices for basic materials producers indicate that investors expect future wealth creation to decline materially by 35% or more in that sector. But the probabilities favor a recovery of prices rather than a further deterioration of wealth creation.

IU: What brings you to that conclusion?

Morris: We've just been told the Chinese are accumulating strategic materials now at a phenomenal rate. That will support the market pricing for metals. In effect, demand in China should put a floor on metals pricing going forward.

IU: So this is a significant new dynamic coming into play for basic materials and metals manufacturers?

Morris: Yes, considering that the bubble in metals prices that burst in 2007 was driven pretty much by economic development in China. For the decade ended in 2004, China's demand drove lead prices, for example, up almost five times greater than in the past decade. And copper prices expanded by over six times the previous decade's highest levels.

IU: When China's economic activity slowed in 2007, then demand and world metals prices dropped?

Morris: Yes, and they dropped by a large amount. Even though copper prices have rallied by 38% since December [2008], the market still doesn't seem to believe that demand has rebounded enough. But as we've just learned from recently released first-quarter [2009] data, China has purchased something like 20-25% of the world's total copper production. In that same time, copper prices went up about 45%.

IU: What do you see taking place in the financial sector?

Morris: Stock prices in developed markets for financials have dropped about 70% since July 2007. It's interesting to note that we've seen an almost identical deterioration in the sector's net profits and cash flow. In nonfinancials among developed markets, we've seen the same 70% erosion in prices. However, we haven't seen a similar deterioration in earnings. That indicates investors are punishing nonfinancials as much as financials. Today's market pricing is suggesting that investors expect another 50%-plus erosion in nonfinancial corporate profits from current levels. That would put corporate profits about at a level where they were a decade ago.

IU: How much have nonfinancial profits actually fallen?

Morris: Across global developed markets, nonfinancial prices have dropped about 15% off their peak levels. So broadly speaking, there's a huge gap between market pricing and actual corporate profits in those segments. More specifically, it appears that investors are punishing basic materials manufacturers especially hard.

IU: But you consider nonfinancial stocks to be priced fairly now, don't you?

Morris: Yes, and the 55% gap between how much prices have dropped for nonfinancials so far and the actual falloff in corporate profits signify the future for investors. In other words, that 55% gap represents the potential upside in nonfinancials going forward. But that's based on an assumption that no other significant material events will occur to cause a major contraction in corporate profits. But if that does happen, at this point, the downside seems limited because the market has already taken a 55% greater hit than actual earnings and cash flow measurements would justify.

IU: The majority of downside risk for investors globally will continue to come in financial sectors then, won't it?

Morris: Yes, going forward there could be some real nasty surprises. But that's likely to hurt financial balance sheets much more than nonfinancials, considering that financials have fallen by so much at this point. And the limit to that risk is the positive yield curve that is benefiting banks right now.

IU: How do you see bond yields impacting the profit picture for banks across the developed world?

Morris: With 90-day Treasuries yielding around 11 basis points today, and 30-year Treasuries yielding about 400 basis points, financial institutions can borrow at short-term rates—that is, take deposits—while lending at longer-term rates. So they've got a built-in profit margin right now in the lending business. 

IU: But banks are being criticized for not lending enough, aren't they?

Morris: We keep reading that. But the total assets in the world banking system are just under [U.S.] $60 trillion. So even if bank lending shrinks a little, that positive yield curve is still working with an enormous base of assets.

IU: So as long as yield curves remain positive, that will act as a floor to losses in the financial sector?

Morris: Yes, that would seem to be the case. Remember that when the credit crisis began in the summer of 2007, the yield curve was inverted almost everywhere in the world. You can debate the merits of Ben Bernanke's short reign as chairman of the U.S. Federal Reserve's board. But give him credit—he did manage to get the yield curve to turn positive in the span of a little more than 18 months. Consider that in June 2007, 90-day Treasury notes were yielding 480 basis points, and 30-Year Treasury notes were around 505 basis points. So that put a huge squeeze on bank profits. That situation has been turned around and will prove to be a significant factor in the performance of financials as a whole in coming quarters.

David Morris is chief executive of London-based Global Wealth Allocation Ltd., an asset management and research firm with around $3 billion in assets under management. He began his career by serving in economic development for the Canadian government in East Africa. In 1980, he took over as treasury manager for Xerox's Canadian operations. Then, six years later, he became treasurer for Campbell Soup in Canada. Morris later started a pension consultancy business. In 1992, he founded GWA.

Morris is probably best known for developing a series of 20 indexes that are sold worldwide in partnership with the FTSE Group. The benchmarks, which were created in 1996, are "wealth-weighted." GWA takes standard FTSE indexes and weights components based on three valuation measures: net profit, cash flow and book value.

IndexUniverse's Murray Coleman recently caught up with the economist-turned-index-developer to discuss his views on global corporate profits and market pricing of those assets.

IndexUniverse.com: Why do you focus on net profits and two other valuation metrics in creating indexes?

Morris: I didn't grow up, so to speak, as a fund manager. My education is as an economist and my work experience prior to GWA was as a treasurer in corporate finance. Most of my background has been focused on analyzing how corporations run their balance sheets—not modern portfolio theory. I look at how all of the tools, machines and equipment in society—the stock of capital—is used to produce a flow of goods and services. That is on a country-by-country, regional and global basis.

IU: What does your research tell you about current market conditions?

Morris: The limit to growth in the market, of course, is the amount of wealth being created at any given time. If we measure wealth consistent with economic macro theory, then we can look at the wealth in markets and compare that to current pricing levels. For example, in metals we're seeing a collapse in share prices underpinning the basic materials sector.

IU: Has that collapse been matched by a similar deterioration in the corporate profits?

Morris: No, global market prices for basic materials producers indicate that investors expect future wealth creation to decline materially by 35% or more in that sector. But the probabilities favor a recovery of prices rather than a further deterioration of wealth creation.

IU: What brings you to that conclusion?

Morris: We've just been told the Chinese are accumulating strategic materials now at a phenomenal rate. That will support the market pricing for metals. In effect, demand in China should put a floor on metals pricing going forward.

IU: So this is a significant new dynamic coming into play for basic materials and metals manufacturers?

Morris: Yes, considering that the bubble in metals prices that burst in 2007 was driven pretty much by economic development in China. For the decade ended in 2004, China's demand drove lead prices, for example, up almost five times greater than in the past decade. And copper prices expanded by over six times the previous decade's highest levels.

IU: When China's economic activity slowed in 2007, then demand and world metals prices dropped?

Morris: Yes, and they dropped by a large amount. Even though copper prices have rallied by 38% since December [2008], the market still doesn't seem to believe that demand has rebounded enough. But as we've just learned from recently released first-quarter [2009] data, China has purchased something like 20-25% of the world's total copper production. In that same time, copper prices went up about 45%.

IU: What do you see taking place in the financial sector?

Morris: Stock prices in developed markets for financials have dropped about 70% since July 2007. It's interesting to note that we've seen an almost identical deterioration in the sector's net profits and cash flow. In nonfinancials among developed markets, we've seen the same 70% erosion in prices. However, we haven't seen a similar deterioration in earnings. That indicates investors are punishing nonfinancials as much as financials. Today's market pricing is suggesting that investors expect another 50%-plus erosion in nonfinancial corporate profits from current levels. That would put corporate profits about at a level where they were a decade ago.

IU: How much have nonfinancial profits actually fallen?

Morris: Across global developed markets, nonfinancial prices have dropped about 15% off their peak levels. So broadly speaking, there's a huge gap between market pricing and actual corporate profits in those segments. More specifically, it appears that investors are punishing basic materials manufacturers especially hard.

IU: But you consider nonfinancial stocks to be priced fairly now, don't you?

Morris: Yes, and the 55% gap between how much prices have dropped for nonfinancials so far and the actual falloff in corporate profits signify the future for investors. In other words, that 55% gap represents the potential upside in nonfinancials going forward. But that's based on an assumption that no other significant material events will occur to cause a major contraction in corporate profits. But if that does happen, at this point, the downside seems limited because the market has already taken a 55% greater hit than actual earnings and cash flow measurements would justify.

IU: The majority of downside risk for investors globally will continue to come in financial sectors then, won't it?

Morris: Yes, going forward there could be some real nasty surprises. But that's likely to hurt financial balance sheets much more than nonfinancials, considering that financials have fallen by so much at this point. And the limit to that risk is the positive yield curve that is benefiting banks right now.

IU: How do you see bond yields impacting the profit picture for banks across the developed world?

Morris: With 90-day Treasuries yielding around 11 basis points today, and 30-year Treasuries yielding about 400 basis points, financial institutions can borrow at short-term rates—that is, take deposits—while lending at longer-term rates. So they've got a built-in profit margin right now in the lending business. 

IU: But banks are being criticized for not lending enough, aren't they?

Morris: We keep reading that. But the total assets in the world banking system are just under [U.S.] $60 trillion. So even if bank lending shrinks a little, that positive yield curve is still working with an enormous base of assets.

IU: So as long as yield curves remain positive, that will act as a floor to losses in the financial sector?

Morris: Yes, that would seem to be the case. Remember that when the credit crisis began in the summer of 2007, the yield curve was inverted almost everywhere in the world. You can debate the merits of Ben Bernanke's short reign as chairman of the U.S. Federal Reserve's board. But give him credit—he did manage to get the yield curve to turn positive in the span of a little more than 18 months. Consider that in June 2007, 90-day Treasury notes were yielding 480 basis points, and 30-Year Treasury notes were around 505 basis points. So that put a huge squeeze on bank profits. That situation has been turned around and will prove to be a significant factor in the performance of financials as a whole in coming quarters.

Petro-Canada (PCZ) shares rose the most in six months after peer Suncor Energy Inc. (SU) agreed to acquire the oil-sands producer in an all-stock deal worth about $15 billion to create the largest Canadian energy company.

Under terms of the deal, Petro-Canada shareholders will get 1.28 shares of the merged company for each share they own. After the proposed transaction, Suncor shareholders will own about 60% and Petro-Canada shareholders will own nearly 40% of the newly created company. The deal is expected to get regulatory clearance from the Canadian government.

Slumping prices for crude oil since last summer have hurt both Suncor and Petro-Canada. With credit markets tightening further in the deepening recession, cash-rich companies are seeking to expand their value by acquiring smaller players. The proposed merger of Suncor and Petro-Canada will also help in saving more than $1 billion in annual expenses.

Petro-Canada Chief Executive Ron Brenneman said, "The increased scale provides more stability in volatile markets, plus the financial and organizational capability to successfully take on large-scale projects in the future."

Petro-Canada rose nearly 27% to $30.77 on Monday morning while Suncor shares were up marginally at $26.73 on the New York Stock Exchange.

News of Interest

ECONOMY

U.S. and Global Economies Slipping in Unison

Only a few months ago, some economists still offered hope that robust expansion could continue in much of the world even as the United States slowed. Foreign investment was expected to keep replenishing American banks still bleeding from their disastrous bets on real estate and to provide money for companies looking to expand. Overseas demand for American goods and services was supposed to continue compensating for waning demand in the States. Now, high energy prices, financial systems crippled by fear, and the decline of trading partners have combined to choke growth in many major economies. The International Monetary Fund expects global growth to slow significantly through the end of this year, dipping to 4.1 percent from 5 percent in 2007.

How to stop the next bubble

"The financial crisis has shown that markets are bubble-prone and that laissez-faire regulation doesn’t work. The authorities need to get a grip if we are to avoid a mega-bubble. But we may need an even deeper crisis for that to happen."

BANKS

From Calculated Risk: even with the failure of almost 3,000 banks and thrifts during the S&L crisis, the overall economy stayed fairly healthy with only a mild-to-moderate recession starting in July 1990.

Libor Signals Credit Seizing Up as Banks Balk at Lending in Money Markets Most of the bond strategists and salesmen that Resolution Investment Management Ltd.'s Stuart Thomson talked to last August expected the credit crunch to be long over by now. Instead, money markets show there's no end in sight, and it may even worsen.

CURRENCIES

The weakened US dollar has fallen out of favor with organized crime groups to pay for drug shipments or to settle scores, a Canadian government report said Friday.

PAKISTAN -- THE NEXT CRISIS?

Pakistan's ruling coalition was at risk of collapsing Monday if its junior partner carries out a threat to quit unless judges ousted by ex-President Pervez Musharraf are restored immediately.

Taleban winning war (in Pakistan), says Zardari

The Pakistani Taleban have "the upper hand" and should be put on the list of banned organisations in Pakistan, Benazir Bhutto's widower has said.

CHINA

Olympics disappoint China business owners

Many owners of small restaurants, hotels and shops in Beijing are wearing long faces this summer, especially those who poured their life savings into buying businesses or sprucing up their shops ahead of the Games. About half a million foreign visitors were expected in Beijing this month. But many businesspeople think that because of stricter visa rules and other hassles, there are no more here now than there were last August, when 420,000 visitors from abroad came to the capital. In July, Air China, the nation's flagship carrier, saw its international passenger traffic fall by 19% from a year earlier.

China's Economic Gains Give Way to Hazy Future

In the next few years, China will cross the threshold to a majority-urban society. China's urbanization rate is about 40% to 45% now, well below levels of about 75% in most of Western Europe and Latin America, but statistics show that growth in China's urban population is already slowing.

China's 1.3 billion people each consumed the equivalent of 1.4 tons of oil in energy last year, a relatively low figure. If each Chinese was to consume the same amount of energy as each person in the U.S. does -- the equivalent of 7.82 tons of oil -- then China alone would consume nearly as much energy as the entire world does now.

So far, China's government is falling behind in its drive to cut the amount of energy required to produce each yuan of economic output. It managed a reduction of just 2.9% in the first half, less than last year's 3.7%

MINING & RESOURCES

Mining Industry Shifts on Bad News

Weaker commodity prices and higher costs are starting to take a toll on the global mining industry as the billions of dollars being spent on new projects could take years to recoup.

…

Demand for resources by China and other emerging markets still is expected to soar in the years ahead.

Some analysts view the recent mine closures as bullish for commodity prices in the long run, because the moves suggest companies are imposing more financial discipline than in past booms. As miners curb output, it could help prop up prices.

Still, the economics of mining have shifted drastically in recent years. The cost of energy to run mining trucks and other equipment has skyrocketed, while steel and other building materials also are more expensive.

Commodities Hint of Bottom as Mines Close, Crop Supplies at Five-Year Lows Corn and soybeans have rebounded as reduced crop yields push U.S. stockpiles to near five-year lows. Oil has reversed on U.S.-Russian tensions. Nickel has turned after Xstrata Plc closed a Dominican Republic plant.

Corn, Soybeans Jump as Midwest Crop Tour Forecasts Smaller U.S. Harvests Corn and soybeans gained after Professional Farmers of America said harvests in the U.S. will be smaller than forecast by the government as dry weather in August hurt Midwest crops already stunted by flooding in June.