BAD NEWS
Crumbling foundations
America’s housing market is still rickety. Prices fell by 0.3 per cent in August, according to the Federal Housing Finance Agency. The agency’s index tracks houses guaranteed by mortgage finance firms Fannie Mae and Freddie Mac. Meanwhile, economists cheered when the Case Schiller house price index showed a 1.2 per cent gain from July to August, but the index was still down 11.3 per cent from the year before.
Try some restraint
Ontarians are now hearing a term they haven’t in years: fiscal restraint. With tax revenues plunging and spending on the rise, the province faces an astronomical $24.7-billion deficit this year. That works out to about $1,993 for every man, woman and child. The Ontario government said it would unveil an action plan to fight the deficit in time for the next budget. Get ready for “Dalton Days.”
Commodities
Canadians have a love-hate relationship with rising commodity prices. They can mean higher gas prices, but they also saved our Canadian bacon when most of the rest of the world plunged into a deep recession. That’s why it’s worrisome to see the Scotiabank commodity price index fall in September by 1.8 per cent amid the sluggish global economy. Everything from agriculture and oil to minerals and uranium was down. The bank predicts the index will rebound in October.
SIGNS OF THE TIMES
- The U.S. housing bust has ravaged what’s left of Howard Hughes’s estate, dampening hopes of a final, big payout to scores of heirs and beneficiaries. The reclusive billionaire died in 1976 with no children and no will. Among the few remaining assets were some 7,000 acres of land in Las Vegas that was originally intended to house his aerospace interests. Once valued at US$2 billion, the property is now worth only a fraction of that.
- India’s Tata Motors, maker of the US$2,500 Nano minicar, represents one of the few bright spots in the beleaguered auto sector. The company doubled its earnings in the second quarter thanks to lower raw material costs and rising car sales in India. However, the numbers don’t include results of luxury brands Jaguar and Land Rover, which Tata Motors purchased last year from Ford.
- McDonald’s is pulling out of Iceland one year after the banking sector there collapsed and took the local economy down with it. While the fast-food giant has generally done well during the recession, the company said Iceland’s “very challenging economic climate” made doing business there financially impossible. All three McDonald’s restaurants are scheduled to close by Oct. 31.
- As if the economy needed another drag, a new study suggests employees who use Twitter or other social networking sites such as Facebook at work are costing businesses in the United Kingdom the equivalent of $2.4 billion annually. The office workers surveyed claimed to spend an average of 40 minutes a week on the sites.
LATEST INTELLIGENCE
The U.S. cracked down on executive pay at banks that received bailout funds, with some bankers expected to take pay cuts averaging 50 per cent. The news did little to calm anger about huge bonuses at other banks, and some warned affected banks will lose valuable employees. But most observers welcomed the clampdown.
“The idea that the people who move money around are some favoured class—and they are in this country, even in terms of taxes—is getting pretty far away from where we should be.”—Warren Buffett, CEO, Berkshire Hathaway
“These institutions have a set-up where it’s heads they win, tails the taxpayer loses.”—Bill Fleckenstein, president, Fleckenstein Capital
“We will not remind market participants of the many oaths they swore a year ago; nor do we expect scores of financiers to join religious orders. However, we do expect those fevered battlefield vows to be respected.”—Bank of Canada governor Mark Carney
“I don’t think there will be any charity cases on Wall Street.”— Barney Frank, chairman, House financial services committee
“These [earnings] are gifts, hidden gifts, from the government, so I don’t think those monies should be used to pay bonuses.” —George Soros, chairman, Soros Fund Management
THE WEEK AHEAD
Thursday, October 29: U.S. GDP figures will be released for the third quarter. Economists expect economic growth of 3.2 per cent.
Thursday, October 29: Statistics Canada will report payroll employment numbers for August.
Tuesday, November 3: U.S. auto sales for October will be released. Sales are expected to remain down following a sharp decline in September after the cash-for-clunkers program expired.
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