How unemployment is tearing America apart

By Jason Kirby - Wednesday, November 30, 2011 at 3:00 PM - 0 Comments

Shannon Stapleton/Reuters

Eight months ago, Deborah Burnley, an administrative assistant in Baltimore, suddenly found herself among America’s growing army of unemployed. Losing her job at a cash-strapped non-profit was a demoralizing and debilitating experience, she says, and to keep her spirits from crashing she’s sought solace in, of all things, the bleak arithmetic of her job hunt: 226 positions applied for, six temp agencies engaged, and countless miles travelled across the region for interviews. “I try to think of it as a numbers game, that each day is basically one more step closer to being employed,” says Burnley, 52. In other words, if she applies for enough positions, and meets enough prospective employers, some day— eventually—she’s bound to find work. But even as she clings to that hope, Burnley acknowledges she and her husband, who also lost his job as a facilities manager six weeks ago, have depleted their savings and almost maxed out their credit cards. “It can be hard to see the light at the end of the tunnel.”

Two-and-a-half years after the Great Recession was deemed officially over, that light has never seemed dimmer for the close to 25 million Americans who are either out of work or underemployed today. Like a gaping wound at the heart of the economy, the U.S. job crisis has cast a vast swath of the population into a state of semi-permanent unemployment. At the same time, America’s housing market is in a shambles and poverty is on the rise. Even if economists weren’t already once again warning of another global recession, a realization is slowly setting in: the United States is suffering from an outright economic depression, and it threatens to leave a deep scar on the American psyche for decades to come. As Robert Reich, a professor of public policy at the University of California at Berkeley and a former secretary of labour, put it recently: “America’s ongoing jobs depression, which is what it deserves to be called, is the worst economic calamity to hit this nation since the Great Depression.”

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Econowatch: November 2011

By Jason Kirby - Monday, November 7, 2011 at 9:30 AM - 0 Comments

“At least it’s heading in the right direction.” That was all the enthusiasm Ian Shepherdson of High Frequency Economics could muster when asked about the trajectory for the U.S. economy in the third quarter, when GDP rose at a rate of 2.5 per cent. If his observation was light on technical analysis, it nonetheless reflected the dim view many share about America’s prospects. The world has become resigned to the idea that the American economy is a stagnant, unstable mess.

It’s not hard to see why. The crisis in Europe threatens to push America, which is grappling with its own fiscal woes, back into recession. Consumer confidence has plunged off a cliff into a sea of despair. Meanwhile, unemployment remains shockingly high and house prices are stuck in the basement.

But as bad as all that is, glimmers of hope have once again begun to emerge. Against all odds, the leaders of France and Germany convinced European bankers to accept a 50 per cent loss on their loans to Greece as part of a massive restructuring deal to stave of a Greek default. The Obama administration also overhauled a program that allows American homeowners who are underwater on their mortgages to refinance at lower rates, a move which some analysts said could put a floor under the housing market. And when the latest U.S. GDP figures, modest as they were, beat expectations and showed that consumers were still willing to open their wallets, investors sent markets soaring.

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The life and times of Steve Jobs

By Chris Sorensen, Jason Kirby, and Michael Friscolanti - Monday, October 17, 2011 at 8:00 AM - 4 Comments

John G. Mabanglo/AFP/Getty Images

Theo Gray was at the wheel of his car when he learned his friend Steve Jobs was dead. The call from his assistant came as a shock, not because Gray didn’t know of Jobs’s failing health—“I had some information about how bad he was”—but because it was difficult to comprehend a world without the legendary Apple co-founder. Jobs not only built one of the world’s most successful companies, with a market value of more than US$350 billion, but he elevated technology into the realm of the magical and gave us our first true glimpse of its potential. “I don’t know, maybe I was repressing the knowledge,” says Gray, who has known Jobs since 1988 and whose software company, Wolfram Research, has worked closely with Jobs and Apple for the past two decades. “I hoped maybe he would have another year or something.”

One more year. It boggles the mind to imagine what a digital dreamer like Jobs could do with 365 more days on this planet; the wonders he might conceive, or even the little annoyances of the mobile age he would inevitably solve. Jobs reshaped the world and how it communicates more in his 56 years than almost any other person of the last century.

It was why, moments after Apple Inc. confirmed Jobs’s death on Oct. 5, tributes began to pour in on sites like Facebook and Twitter, by the tens of millions. A few hours later, makeshift shrines popped up outside Apple stores throughout North America, Europe and Asia. President Barack Obama was moved to write: “Steve was among the greatest of American innovators—brave enough to think differently, bold enough to believe he could change the world, and talented enough to do it.” Steve Wozniak, who co-founded Apple Computers with Jobs in the 1970s, put it even more simply: “It’s like the world lost a John Lennon.”

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And I was “irresponsible” and “misinformed” how?

By Jason Kirby - Friday, September 30, 2011 at 4:24 PM - 10 Comments

In attacking my recent story What’s the Use of Saving Money? as “irresponsible” and “misinformed,” I’m not entirely sure Peter Aceto, the CEO of ING Direct Canada, read beyond the headline. If he did, he’d know it wasn’t a piece that “discourages Canadians from using savings accounts.”  Quite the opposite. While bemoaning and exploring the demise of the saving culture in this country, our story argued that around the world people are being discouraged from putting away their pennies by ultra-low interest rates and government programs that promote spending (Cash for clunkers, home reno rebates etc).

I won’t go over the content of the original story. I’m confident readers understood it simply aimed to give a voice to the frugal few and their frustration that low rates subsidize borrowers while hurting savers.

The main thrust of Mr. Aceto’s indignant letter is that Canadians who don’t want to buy a house or invest in the stock market have a choice—they can open an ING Direct savings account. It’s true that until ING came along, there were few options for Canadians to earn decent guaranteed rate on their deposits. ING popularized at least the idea of saving with that Dutch bloke and his accented “Save your money” catchphrase. ING pays 1.5 per cent with its standard high-interest savings account. Ally Financial, which in a past life was the financing arm of General Motors until a bailout came and washed away all its problems, offers 2 percent to its clients. (You can earn more with both if you put the money into longer-term GICs.—five-year GICs pay 2.5 per cent at ING and 2.75 per cent at Ally.)

That’s great, but in the year since ING raised its savings rate from 1.3 per cent to 1.5 per cent, there have been seven months where year-over-year increases in the Bank of Canada’s core consumer price index exceeded that rate. The core rate also excludes eight of the most volatile components (fruit, fruit preparations and nuts; vegetables and vegetable preparations; mortgage interest cost; natural gas; fuel oil and other fuels; gasoline; inter-city transportation; and tobacco products and smokers’ supplies). Excluding those items helps the Bank better determine the long term trend of inflation, but they’re still products Canadians buy and must pay more for. Much more in some cases. According to Statistics Canada, in August food prices were up 4.4 per cent.

Contrary to what Mr. Aceto claims, I didn’t say Canadians should be investing rather than saving. I made no suggestions whatsoever for what Canadians should do with their money, because there is no easy answer. The housing market looks like it’s in a bubble, the stock market is terrifyingly volatile, and savings accounts are not keeping pace with inflation. That’s just the sad reality for savers today. And it’s why many more savers are likely to throw up their hands and ask “What’s the point?” For the record, and for Mr. Aceto, I believe that’s a bad thing.

Here are some more thoughts on the topic from south of the border. Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, is retiring tomorrow and takes a parting shot at ultra-low interest rates:

“What you do when you artificially hold rates down is ask the savers to subsidize the debtors. In an emergency and a crisis that is justifiable, perhaps,” he said.

But to do it repeatedly and indefinitely risks distortions in the market and creating unintended consequences and eventually inflation, he warns.

“It would be better if we were not as accommodative so the market could function and send out proper signals,” Hoenig said. “I think interest rates would be low. I just don’t know how low.”

Before I finish I want to also take an opportunity to thank Garth Turner, the former MP and financial commentator for his help rustling up folks for us to talk to for our original story. After I asked Garth if he knew anyone who felt like a chump for being prudent in the face of all the incentives to borrow and spend, he put out the call on his popular www.greaterfool.ca site and sent me dozens of emails from people who responded to his message. The request clearly hit a nerve.

What’s the use of saving money?

By Jason Kirby and Chris Sorensen - Tuesday, September 27, 2011 at 9:30 AM - 38 Comments

Getty Images; Photo Illustration by Taylor Shute

Steven Patterson and his family moved to Vancouver from Cambridge, Ont., in mid-2008, just as the financial crisis hit. After years of scrimping and saving to pay off their first mortgage, they had earned a tidy profit when they sold the Cambridge house and put the proceeds into GICs, where the money would be safe and easily accessible should they decide to buy another home in B.C. Three years later, Patterson, a 42-year-old IT manager, is still sitting on the sidelines, renting, while real estate prices march ever upward in a city where a three-bedroom bungalow covered in warped siding can fetch $1 million.

That might seem like a prudent move in an uncertain economy, but Patterson says his cautious approach has come at a steep price: all his money is steadily being eaten away by inflation, which the meagre interest income from his GICs can’t cover—particularly after the taxman takes a cut. Meanwhile, several of Patterson’s friends have taken advantage of those same low interest rates, loaded up on debt, and bought into Vancouver’s frothy housing market in recent years. And they have enjoyed a windfall—at least on paper—as the value of their homes continues to climb. As for Patterson, “I’m only a few thousand dollars ahead—minus inflation,” he says, clearly frustrated. “So actually, I’m way behind, and I don’t have a house.”

Welcome to the world of ultra-low interest rates, where profligacy is richly rewarded and saving is, well, for suckers. Those who’ve opted to be austere with their personal finances have found themselves on the losing end as governments and central bankers have worked to get people to borrow and spend in the wake of the global recession. While emergency interest rate cuts were to be expected after the financial crisis seized up lending markets, it’s been nearly four years since central banks started slashing rates to the lowest levels in history. For that matter, over the last 10-year period, following the 9/11 terrorist attacks, the Bank of Canada’s benchmark interest rate stayed above four per cent for just six quarters (in 2006 and 2007), while the average headline rate of inflation over that time was 2.1 per cent.

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Is America in a depression?

By Jason Kirby - Wednesday, September 21, 2011 at 6:20 AM - 12 Comments

Shannon Stapleton/Reuters

Everywhere Darren Enns looks these days he sees the devastation wrought by America’s grinding employment crisis. As the treasurer of a construction union in southern Nevada, the state with the highest unemployment in the country, Enns has watched as friends and colleagues—the bricklayers, electricians and drywallers who thrived during Las Vegas’s housing boom—struggle to move on to other careers. Few succeed. Many have simply given up hope. “When you look at the unemployment rate during the Great Depression, we’re beyond that in the construction industry here in Las Vegas,” he says. “We’ve got close to 70 per cent unemployment, so for us, the economy is extremely depressed.”

When the financial crisis tipped America into a deep recession in 2007, it was tempting to draw comparisons to the Great Depression of the 1930s. Those fears subsided once the stock market pulled out of its nosedive and America’s economy began to grow again, albeit at a crawl. It was a brief respite. Four years later, American towns and cities remain overrun with millions of unemployed workers even as the economy risks slipping back into reverse. It raises the question whether the U.S. ever really emerged from recession in the first place. Instead, some are suggesting those early fears may have been justified after all: the United States appears to be in the throes of an outright jobs depression.

Earlier this month, Robert Reich, a professor of public policy at Berkeley and the secretary of labour in the Clinton administration, said the current crisis is an extension of the “depression” that began in December 2007. Meanwhile, Richard Posner, a high-profile judge in the United States Seventh Circuit Court of Appeals and regular political and economic commentator, said it’s time for America to give up any false hopes that the economy is on a path to recovery. “If we were being honest with ourselves, we would call this a depression,” he wrote in the New Republic. “That would certainly better convey both the severity of our problems, and the fact that those problems have no evident solutions.”

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Fine-feathered frauds

By Jason Kirby - Thursday, September 15, 2011 at 11:20 AM - 3 Comments

Kaine Doen/Laif/Redux

In the animal world, the closest thing to gold may be the fluffy underfeathers of the eider duck. The down, which female eiders pluck from their breasts to line their nests, is typically only found in parts of Iceland, Greenland and islands in the St. Lawrence River, and its warmth, softness and rarity make it a coveted filling for duvets—so much so that it costs $1,000 per pound. It’s why, after showing off a clump of eiderdown, Michael de la Place, president of industry group Downmark, gingerly plucks tiny plumules from the air before they float away. And it shows what’s at stake as companies in Canada’s close-knit down industry fight an onslaught of fakes and knock-offs flooding retail stores.

Down, the layer of fine feathers next to a bird’s skin, is nature’s most efficient insulator. It’s also expensive, with duck and goose down duvets, pillows and coats running from several hundred dollars up to more than $5,000. Money like that has spurred Chinese manufacturers to crank out cheap copies filled with low-grade materials. And while fake down goods make up a tiny fraction of the multi-billion-dollar market for knock-offs, the experience of those in Canada’s down industry shows how hard it is to battle the onslaught of cheap fakes. “The fraud against consumers that’s going on is mind-blowing,” says De la Place.

Last year, Canada Goose, famous for its winter coats, went on the offensive against fakes. Its jackets sell for $500 and up, but the company said a plague of knock-offs—stuffed with “feather mulch”—selling for under $100 has seriously cut into its business.

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Really bad investment advice

By Jason Kirby - Tuesday, September 13, 2011 at 10:35 AM - 5 Comments

These days, Richard Kelertas, a financial analyst at Dundee Securities, isn’t saying much about Sino-Forest, the beleaguered Chinese forestry company at the centre of a fraud investigation by regulators. “I’m not speaking with the press or anyone, unfortunately,” he says. That is unfortunate, because a lot of investors who followed Kelertas’s advice to buy Sino-Forest’s shares—either before the company got into trouble, when he insisted Sino-Forest was a “class act in timberland management in China,” or after, when he called the fraud allegations a “pile of crap”—no doubt have a few choice words for him.

The Sino-Forest debacle has the potential to be the biggest stock market scandal to hit Canada since the Bre-X gold-mining fraud in the mid-1990s. Until June, Sino-Forest was the most valuable forestry company on the Toronto Stock Exchange, with a market capitalization of $6 billion. Then Muddy Waters Research, a U.S. investment firm, issued a damning report that claimed Sino-Forest “massively exaggerated its assets” and is nothing more than a Ponzi scheme. Muddy Waters said it was short selling Sino-Forest, or betting that the company’s share price would plunge. It did. By the time the Ontario Securities Commission suspended trading in the stock on Aug. 26 and raised its own concerns about fraud, Sino-Forest had shed three-quarters of its value.

At this point none of the allegations have been proven. The OSC’s accusations of fraud at the company could ultimately prove unfounded. This still may turn out not to be “Tree-X.” Even so, investors would be right to wonder why a company with the potential to completely collapse on the basis of a single critical report was regarded so highly by analysts in the first place. Kelertas wasn’t alone in his effusive praise of the company in recent years. Of the 10 analysts covering Sino-Forest before the Muddy Waters report hit the street, nine rated the stock a “buy” or “outperform,” while just one considered it a “hold,” according to Reuters.

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Can the EU be saved?

By Jason Kirby and Michael Petrou - Friday, August 19, 2011 at 8:00 AM - 16 Comments

Reuters/Yiorgos Karahalis

Until recently, the tiny German town of Guben was best known—to those who knew it at all—for two things. With only the narrow Neisse river separating it from the Polish town of Gubin, it is one of few place where Germans and Poles live so close together. That, and Guben is also where the controversial anatomist Gunther von Hagens, famous for his museum displays of skinless human cadavers seated at poker tables, set up a factory six years ago to treat and preserve corpses.

Now Guben’s mayor, Klaus-Dieter Hübner, has set off alarm bells in Europe by calling for border controls to be put in place to stop Polish “criminals” from looting German businesses. Since 2007, when Poland joined the Schengen zone, a border-free travel area consisting of 25 European countries, Germans and Poles have freely criss-crossed into each other’s countries to shop, dine and work. With his call for security checks at the border, Hübner has challenged one of the pillars of modern Europe: the free movement of people and goods between nations.

Taken on its own, the border squabble in Guben is a seemingly minor concern, but it comes as the twin forces of economic stagnation and surging nationalism threaten to tear Europe apart. Even as European leaders struggle to halt the spread of the debt crisis—a task that they increasingly appear unable to handle—a wider backlash against European integration poses an existential crisis for the continent. Europe is failing, both economically and politically, leading to the question: can it be saved, or is Europe destined for the embalming slab in Guben?

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This may get ugly

By Jason Kirby and Chris Sorensen - Monday, August 15, 2011 at 10:00 AM - 16 Comments

Take all the time you want . . .

By Jason Kirby - Thursday, August 11, 2011 at 12:00 PM - 1 Comment

Jamie Grill/Getty Images

For tired, overworked employees, it sounds like a dream come true: a job that offers the potential for unrestricted holidays. Forget the era of saving up precious vacation days. Instead, a growing number of companies now offer unlimited time off for their employees. But as the trend catches on, workplace psychologists warn unlimited vacations may not be the unbounded perk they seem.

Over the past few years, more and more companies have cast off the traditional rules surrounding paid leave. That’s partly because the lines between work and personal time have blurred, thanks to mobile computing and other technologies, making it harder for companies to keep track of exactly when and where someone is working. So rather than spell out rigid limits for holidays, the companies are allowing workers themselves to decide how much time to take off, on the condition that employees excel when they’re on the job and meet deadlines. The practice dates back to the 1990s, but gained fame in the last decade when Netflix adopted it. Since then, many smaller social networking companies, as well as law firms and consultancies in the U.S. and U.K., have followed suit, though so far Canadian companies have eschewed the perk.

No doubt workers who have already used up their vacation time and face another five long months before the end of the year are envious, but the unlimited vacation has its drawbacks, say experts. It’s supposed to boost employee morale, but there are concerns it could have the opposite effect. In a new legal paper written for the digital journal Bloomberg Law, Daniel McCoy and Dan Ko Obuhanych of the Silicon Valley law firm Fenwick & West warn that unrestricted time off can actually hurt employee spirits. “Some employees may believe that an unlimited vacation policy is akin to a ‘no vacation’ policy, particularly if the company has a workaholic culture where taking time off is discouraged,” they wrote. “Employees may feel a responsibility to limit the amount of vacation time taken, to fit in with their co-workers and the corporate culture.”

So a novel perk doesn’t always translate into reality. “It can be a good policy on paper, but you have to look at how it’s put into practice,” says Merv Gilbert, an organizational health psychologist in Vancouver. “There can be an implicit expectation that a company has this policy on paper, but it really doesn’t want you to use it.”

While most managers are no doubt wary of offering unrestricted time off out of fear that workers will disappear for months at a time, some experts believe that with open-ended vacations, many workers could end up taking even less time off than they otherwise would. When a company has a set vacation policy, an employee knows exactly how much time off his or her colleagues are permitted to take. In the absence of structured holidays, a race to the bottom may ensue as the realization sets in that the overachiever in the next cubicle hasn’t missed a day of work.

Those types of gnawing mind games are made worse when the job market is in the dumps, as it is in the U.S. All but the most self-assured workers may feel pressure to limit their holidays in order to keep their jobs. “In tough economic times there may be a belief that if I want to get ahead or stay with this company, I’d better not act on [the unlimited vacation offer],” says Gilbert.

Of course, that’s already a problem even when companies do have strict vacation rules. Research has shown that many employees already forego a chunk of their allotted time off. A study by Ipsos-Reid in 2008 determined that Canadian workers neglect to take the equivalent of 41 million vacation days a year that they’re owed. For these workers it’s the equivalent of giving $6.3 billion back to their employers, which is the amount lost in unclaimed paid holidays. Workaholics are the worst at taking time off, says Dr. Barbara Killinger, a psychologist specializing in work addiction. “[Workaholics] see themselves through others’ eyes, so if they are away for long, they worry people won’t see them as hard workers,” she says. In a company with no set rules for vacations, workaholics, who make up 30 to 35 per cent of the North American workforce, are more likely to succumb to their paranoia and may in fact take even less time off. Killinger says unlimited holidays may also be a way for companies to save money, since they would not have to pay out for unused vacation time.

Experts stop short of saying the unlimited vacation perk is an attempt at reverse psychology, but few bosses are likely to be upset if their underlings opt to put in more time at work as a result.

Unhappy meals

By Jason Kirby - Thursday, August 11, 2011 at 9:10 AM - 0 Comments

Keith Srakocic/AP

The Happy Meal, introduced by McDonald’s in 1979 and coveted by billions of tykes ever since, has seen jollier times. Under pressure from critics, the fast food chain says it will cut the calorie count in the meals by 20 per cent thanks to smaller french fry servings and the addition of yogourt and fruit (sans caramel). The changes have done little to quell critics who have blasted the company for putting a toy in each meal, which they say amounts to bribing kids. Of course, if parents are really worried about their kids getting fat, they could take the apparently radical step of saying “no” the next time Sally demands a Happy Meal. The critics blaming McDonald’s for overweight children have yet to answer the real question surrounding the obesity epidemic: why is it up to a clown what parents let their children eat?

Buy, sell, donate

By Jason Kirby - Thursday, July 28, 2011 at 1:20 PM - 2 Comments

Dominic Chan/CP

When the news first broke a few weeks ago that the Canadian Cancer Society spends more money fundraising than it does on cancer research, it set off alarm bells for many of the charity’s donors. Shortly after, the Canadian Press dug through tax filings of the country’s many registered charities and found that thousands of employees earn hefty six-figure salaries. The revelations raised questions about how charitable organizations use the money people give them. Which is why some say it’s time to start evaluating charities with the same unforgiving eye that equity analysts bring to valuing stocks.

“We could have a far more effective charitable sector than we have now, if funds are redirected properly,” says Greg Thomson, director of research at Charity Intelligence Canada, a Toronto organization that rates charities on their performance. “We’re trying to make it more market driven so that the charities doing a good job get more money and can expand, and the charities that aren’t are forced to pull up their socks.”

That’s not the type of language one normally associates with philanthropy. Neither are terms like return on investment, cost-coverage ratios and operating efficiencies—just a few of the measures this new breed of charity analysts like Thomson is using to scrutinize charities. While it may seem like there’s little in common between for-profit companies and philanthropy, the charity sector has become a big business. Last year, Canadians donated $6.5 billion and the sector employs more than one million people.

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Central bank battle

By Jason Kirby - Thursday, July 21, 2011 at 12:00 PM - 0 Comments

Cheap money pumped out by central banks has sparked a speculative frenzy in the commodity sector that has driven up prices for everything from gasoline to Corn Flakes.

Or it hasn’t, depending on who you ask.

It’s become one of the most critical economic debates facing the world, and it’s pitted the Bank of Canada against Japan’s own central bank. Last week, a BoC study concluded “financial speculation seems to have played a modest role” in rising commodity prices,” and that “the available evidence points to global demand and supply conditions” as the real cause. That’s in contrast to a report published three months ago by the Bank of Japan. While demand from emerging economies has driven prices, the BoJ admitted, “speculative investment flows…have amplified the intensity of the price surge.” And the jump in speculative money can be tied directly to lax monetary policies, it said.

Maybe the faceoff simply comes down to perspective. Resource-rich Canada will benefit enormously if the rise of commodities is in fact due to a permanent shift in demand. With almost no resources of its own, Japan can only hope that as central banks tighten the reins, speculators abandon their bets on commodities, and prices finally fall back to Earth.

The Great White tax haven

By Jason Kirby - Tuesday, July 19, 2011 at 9:10 AM - 12 Comments

Getty Images

Until last year, Peter was a successful American fund manager, with roughly 200 employees in New York City and a personal fortune of $100 million. That’s still the case today, save for one detail—Peter is no longer an American. In 2010, the U.S.-born executive took the extreme step of renouncing his American citizenship. “I wanted to remove myself from a society and country that was heading for a financial catastrophe,” Peter said in an email interview through his Toronto-based lawyer, David Lesperance, who specializes in “tax-efficient citizenship, residence and domicile solutions.” In other words, Lesperance moves rich people to places where they’ll pay less tax. So which global tax haven lured Peter (not his real name) away from Uncle Sam? Was it the Cayman Islands? Switzerland? Monaco?

Try Canada. A year and a half ago, Peter moved to Toronto and is well on his way to obtaining his Canadian citizenship. He bought a luxury home in the city, as well as a vacation property. And now he’s in the midst of determining how much of his fund management company to uproot from New York and move across the border. “Five years ago, I would not have considered expatriation as an option, especially to Canada,” he said. “I always thought of Canada as a younger sibling of the U.S.—the same, but less advanced in terms of culture, quality of life, business opportunities and above all, taxation. I now see it as the same, but maybe better in the long term.”

As for those taxes, Peter says he’s fed up with his money going to pay for what he considers needless trillion-dollar wars in the Middle East, and to cover the staggering interest charges America owes on the money it’s borrowed to live beyond its means; by the end of this decade, at least 18 cents out of every $1 of tax revenue America raises will go to interest payments. “I know I get more for my taxes in Canada,” he says. “And the debt levels here are reality-based.”

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Reining in the mortgage king

By Jason Kirby - Monday, July 11, 2011 at 9:15 AM - 2 Comments

In March, Maclean’s warned that the Canada Mortgage and Housing Corporation, the quasi-governmental insurer that underwrites $500 billion of residential mortgages, answers to no one—not Canada’s top financial regulator or even the minister of finance. That all quietly changed last month when Ottawa passed a law that puts the CMHC strictly under the watchful gaze of both the finance minister and the Office of the Superintendent of Financial Institutions (OSFI).

With the new law, CMHC must hand over “prescribed books, records and information” and make those records available to the public. The legislation also allows the minister to set capital requirements and impose fees to compensate the government for the risks it assumes by backstopping mortgages.

CMHC has always said the money it sets aside to cover insurance losses exceeds that required by OSFI. But Finn Poschmann, a C.D. Howe researcher, told the House of Commons finance committee the new law is overdue. “There are a number of informal arrangements through which our oversight agencies are able to have a look at what it is that the CMHC does and the risks to which taxpayers are exposed,” he said. “However, it is an informal arrangement. It’s good to have this in legislation.”

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Carmaker comeback

By Jason Kirby - Monday, July 11, 2011 at 9:05 AM - 0 Comments

Jim R. Bounds/Bloomberg/Getty Images

In 2009, when there seemed no bottom to how far the economy might fall, a series of photographs circulated online showing thousands of unsold cars piling up around the world. With consumers paralyzed by the credit crisis, automakers filled docks, vast meadows and even abandoned airport runways with the vehicular glut. The striking yet surreal aerial photos could have hung on a gallery wall were it not for the economic devastation they represented. Today, some economists are once again warning the world is on the cusp of another crisis as Greece burns, gas prices remain high and America’s job market stagnates. Only this time instead of pulling down the global economy, the auto sector is seen as the best hope of jump-starting the recovery.

Call it Cars 2—not the animated big-budget sequel making its way through theatres, but the return of cars and trucks as key drivers of the critical U.S. economic machine. “Americans still love their cars,” says Michael Burt, who tracks industrial economic trends for the Conference Board of Canada. “The types of vehicles they may purchase will change, but they’re continuing to buy.” The question now is, how long can America’s love affair with metal and rubber overcome the economic headwinds?

On the surface, the auto sector’s performance in June seemed disappointing. When American sales for the month were tallied, the results fell short of analysts’ forecasts. Sales growth came in at 7.1 per cent, according to Autodata Corp. That was less than the eight to 10 per cent analysts had predicted, and slower than the growth registered in May, which was already a sluggish month.

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Can RIM recover?

By Chris Sorensen and Jason Kirby - Wednesday, July 6, 2011 at 9:45 AM - 0 Comments

Martin Bureau/AFP/Getty Images

At the sprawling Future Shop store in downtown Vancouver, anyone who wants to check out Research In Motion’s BlackBerry PlayBook tablet must find it first. When the device debuted in April amid a glitzy ad campaign, it enjoyed front-and-centre billing at the store, but by last week only a single, neglected PlayBook sat collecting dust among the aging Bolds and Curves, two of RIM’s geriatric smartphone models. Just steps away, throngs of customers crowded around displays of shiny iPhones and iPads.

The PlayBook was supposed to catapult RIM back to its dominant perch in the mobile technology sector. After steadily losing ground in the smartphone wars to rivals like Apple and Google, the company’s co-CEOs Jim Balsillie and Mike Lazaridis promised the device would redefine the burgeoning tablet business and set the stage for a new generation of BlackBerry devices. Instead, since the PlayBook’s launch, RIM has been plunged into the darkest period of its 27-year history. The past few months have been marred by an ugly string of profit warnings, product delays, recalls, and a host of nasty commentary from once boosterish analysts.

Patience is wearing thin. Consumers are increasingly gravitating toward RIM’s rivals and investors are selling their shares, which traded as low as $25 in recent months (compared to a high of nearly $150 three years ago). Perhaps most ominously, for the first time there are rumblings that some of RIM’s biggest customers—the wireless carriers that actually buy its devices and wireless email services and sell them to their subscribers—are losing faith.

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This week: Newsmakers

By Ken MacQueen, Nicholas Kohler, Jason Kirby and Nancy MacDonald - Monday, July 4, 2011 at 9:05 AM - 0 Comments

Mike Hewitt/FIFA/Getty Images

Hollywood’s high rollers

His day job is playing such film roles as Spiderman and Nick Carraway, in the upcoming Great Gatsby adaptation. But incredible as it may seem, Tobey Maguire’s hobby—high-stakes poker—may be even more lucrative than the silver screen. Maguire’s winnings, which could amount to as much as $30 to $40 million over three years, came to light in a lawsuit filed against the 35-year-old actor by a group of investors attempting to recoup money lost to Brad Ruderman, who was sentenced to 10 years in prison for operating a $5.2-million Ponzi scheme. Ruderman lost much of the money playing Texas Hold ’em, including over $300,000 to Maguire, in an exclusive poker ring that drew players like Leonardo DiCaprio, Ben Affleck and Matt Damon. Now, Ruderman’s investors want some of that cash. DiCaprio, Affleck and Damon aren’t being sued, though. “Matt never won,” a whistle-blower said.

One for the lads

As contingencies go, this one was a doozy. David Hart, a 23-year-old Royal Marine killed by a bomb blast in Afghanistan last year, earmarked $160,000 from his life insurance policy for an all-expenses paid trip to Las Vegas for his best friends and their girlfriends—32 people in all. “In a letter, David said he had had a great life and had no regrets about anything,” one friend told a reporter. “He said, ‘Go and have a good time and spend all this money.’ ” He left a second portion to his family, and the rest to charity. Hart, who died a day short of his 24th birthday, had always dreamed of a Vegas weekend. When his pals return to England they will continue training for a 275-km bike ride to raise money for the Royal Marines Charitable Trust.

Stick with a bike

The 911 call to police in Caseville, Mich., went something like this: “Believe it or not, I just passed about a five-, six-year-old flying down the road with a red Pontiac Sunbird.” Actually, Chief Jamie Learman discovered that the driver, who stood on the floorboard of his stepfather’s car to see over the steering wheel, was a pyjama-clad seven-year-old. He hit speeds of 80 kph during a 32-km drive across Huron County, north of Detroit. Police gingerly boxed him in, stopping him without incident. “He was crying, and just kept saying he wanted to go to his dad’s,” Learman said. “That was pretty much it: he just wanted to go to his dad’s.”

Quit that racquet!

There are tasks where a grunt or two are justified. Piano moving or childbirth come to mind. But tennis? It’s all a bit much, says Ian Richie, head of the All England Lawn and Tennis Club. “Whether you are watching it on TV or here, people don’t particularly like it,” he told Britain’s Telegraph, with precisely the sort of understatement he’d like to see on Wimbledon’s grass courts. Jimmy Connors was a pioneering grunter back in the 1970s. Women then took it up with great enthusiasm. Maria Sharapova was recorded at 105 decibels in 2009—as loud as a car horn from three feet. Portugal’s Michelle Larcher de Brito and Serena Williams have also employed the tactic as a weapon of mass distraction. Richie has made his concerns known, but certain fans find the sound effects appealing. Former Wimbledon Champ Michael Stich accuses the women of trying to “sell sex.”

#DMFail

Think a weakness for sexy social networking, à la Anthony Weiner, is a purely American failing? Turns out the language of <3 knows no borders. Xie Zhiqiang, a health bureau official in the Chinese city of Liyang, set up an account with Weibo, a Twitter-like service in China, early this year believing it was a private chat tool. “Please marry me if there is a second life, so that we can live in romance until we are 100 years old,” he wrote to a married woman on the site before the pair were able to follow through on a planned tryst. Xie learned of the mistake after a reporter called about the exchange. “How can you view our messages on Weibo? It is impossible, isn’t it?” He has since been suspended from his job.

Captain courageous

For more than a half-decade, she has been the face of Canadian women’s soccer—though perhaps never more so than now. Christine Sinclair wrote herself into the country’s sports lore for refusing to leave the field after her nose was broken in the opening game of the women’s World Cup at Berlin’s Olympiastadion. “You can’t play on,” Canada’s team doctor, Pietro Braina told her, trying to corral her onto the bench. But the Canadian captain turned, teary-eyed to Italian-born coach Carolina Morace who shrugged, palms up, and nodded to the field. Sinclair, of course, went on to score Canada’s lone goal, on a beautifully executed free kick in the dying minutes of the gutsy 2-1 loss—the first goal the two-time defending champion Germans have allowed since 2003. Sinclair, after having her nose resculpted by a German doctor, took to Twitter to opine on the new appendage: “amazing,” she wrote—joking, of course.

How to lose a billion dollars

It takes a lot to go from “the wealthiest divorcée in history” to bust in two decades—a lot of waste, that is. Patricia Kluge landed a $1-billion settlement when she split from media mogul John Kluge in 1990, only to blow the lot on parties for royalty, a 120-hectare estate in Virginia’s Blue Ridge mountains and a private winery. Kluge and her third husband, William Moses, have racked up $46 million in debt and filed for bankruptcy last week. Her antiques, and her personal jewellery collection have already been auctioned off, and the Kluge winery was sold at auction—to none other than Donald Trump, her old friend, for $6.2 million. But Kluge isn’t the only one exiting the billionaire club. Research in Motion’s co-CEOs Jim Balsillie and Mike Lazaridis lost their status after a sharp drop in RIM’s share price cut their personal net worth to around $800 million each, down from $1.8 billion in March.

The Doc returns

After 12 years on the mound for the Toronto Blue Jays before he was traded to the Philadelphia Phillies, star pitcher Roy Halladay is set, this week, to make his long-awaited return to the mound at Rogers Centre, where he earned both a reputation and a nickname. The two-time Cy Young winner, Toronto’s first pick at the ’95 draft, was set to pitch against the Jays last year, but security concerns around the G20 summit forced the series to be shifted to Philadelphia instead. “Doc,” as he’s known around the league, was calm before the game: “I feel like it’s any other start.”

Tears of joy

“Alec! Now we can get married!” Steve Martin tweeted to his Oscar co-host, after New York legalized gay marriage in the state. “Ok,” Alec Baldwin responded, “but if you play that effing banjo after eleven o’clock…” Lady Gaga, meanwhile, was a bit more emotional: “I can’t stop crying,” said the staunch gay-rights activist. “We did it kids. The revolution is ours to fight.”

Life out of office

It was a good week for Gordon Campbell, who is off to London as Canada’s high commissioner to the U.K.; the plum posting comes with a chauffeur, a chef and an official residence in swank Mayfair. In London, the former B.C. premier, who always resisted the temptation to bash the feds, will further hone his diplomatic skills among royals and the global elite. Gilles Duceppe, an Ottawa basher par excellence, had a big week too, granting his first televised interview since the Bloc’s stunning collapse in the last federal election. Unless Quebecers choose sovereignty, they’ll be “eating gumbo” in 50 years, he told Radio-Canada. He went on to hint at a return to politics, likely at the helm of the PQ, which appears to be imploding, a mere two months after the Bloc. He may well return to helm a sovereignist party, but the better question may be whether anyone will still be interested in the idea.

No medal for the penguin?

Dozer, a three-year-old goldendoodle from Fulton, Md., now merits his own runner’s page on the Maryland Half Marathon website, after escaping his masters Sunday and running the race. He crossed the finish line at the 2:12:24 mark, limping and exhausted, and received a medal from organizers after they discovered he was running solo. Truth is, Dozer probably slipped into the run several miles into the event. Far more impressive is the emperor penguin who swam an astonishing 4,000 km from Antarctica to New Zealand. Happy Feet, as he was nicknamed, was operated on at the Wellington Zoo to remove the stick and pebbles he’d eaten on Peka Peka beach. A committee has been struck to decide whether he should be returned home.

Building ships, and political futures

After a week in Ottawa spent championing the province’s bid for part of an estimated $35 billion in federal shipbuilding contracts, B.C. premier Christy Clark returned home to announce a major investment in a new marine trade training facility on Vancouver Island, sweetening the pot. If successful, the contract, which could create thousands of new jobs and raise millions in spinoffs, could also help Clark in a possible fall election, which could come as early as September.

Returning the warm embrace

Michelle Obama was hailed as a queen in her first solo trip to Africa this week. There, the U.S. First Lady spoke passionately to students, danced with African youth, met with Nelson Mandela and even squeezed in a dinner with her gal-pal Oprah Winfrey, a queen in her own right.

Free food fight

By Jason Kirby - Thursday, June 9, 2011 at 12:25 PM - 1 Comment

Photograph by Cole Garside

By 8 a.m. Tuesday morning, the breakfast sandwich assembly line at the Subway restaurant on Granville St. in downtown Vancouver was in overdrive—English muffin, pre-cooked egg, sliced ham and cheese, then into the oven. Brush away crumbs. Repeat. Despite the frantic pace, the lineup spilled out the door and down the street, drawn by that siren call of the tired and hungry morning consumer—a free breakfast and coffee.

There may be no such thing as a free lunch, but when it comes to breakfast, fast-food chains are doling out meals and coffee to anyone who’ll take them. Last November, Burger King Canada gave away free coffees every Friday, having earlier handed out complimentary breakfast sandwiches. Subway’s one-day breakfast and coffee giveaway was its second in 10 months. Meanwhile, McDonald’s has blitzed the morning crowd with free coffees five times since 2009, with each event lasting between one to two weeks.

The goal is invariably the same each time—to get as many new people as possible to try their offerings with the hope that some moochers come back for more as paying regulars.

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Econowatch: June 2011

By Jason Kirby - Friday, June 3, 2011 at 9:30 AM - 3 Comments

When the U.S. economy crashed in 2008, taking the world with it, central bankers grabbed their defibrillators and headed for the emergency room. To shock their economies back to life, interest rates were slashed nearly to zero. Then when it was clear the American patient would survive, but remained dangerously weak, the U.S. Federal Reserve administered a bold new treatment: quantitative easing, by which it created trillions in new money to stimulate growth.

Well, in just under a month, the latest round of quantitative easing, more commonly known as QE2, will end. Meanwhile, here at home, the Bank of Canada faces pressure to raise rates. Last week, the Organisation for Economic Co-operation and Development said the B of C should put an end to its “highly stimulative” monetary policy to keep inflation in check. Opinions are divided over what comes next. Optimists argue the U.S. economy can stand on its own. Companies are profitable and the job market is improving. Besides, interest rates in the U.S. will still be near record lows. On the other hand, the easy money that’s helped drive up stock markets could be bad. Albert Edwards, a strategist at French bank Société Générale, shares this view in the extreme. He warns the end of QE2 will cause a “deflationary bust” and send the S&P 500 stock index down 70 per cent.

As for Canada, the recession was never that bad to begin with. The key reason B of C governor Mark Carney kept rates low is to prevent the loonie from strengthening further and hurting exporters. An end to QE2 might even help in that effort, since the greenback is expected to rise after the program ends.

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The real problem with Vancouver's outrageous house prices

By Jason Kirby - Wednesday, June 1, 2011 at 4:50 PM - 56 Comments

A Chesterman Beach home in Tofino, B.C., listed for $7.6 million, is shown on Thursday, June 9, 2005. High house prices in the Vancouver Island town are driving some residents out. One realtor said 12 Tofino residents have bought Ucluelet properties in the past two years, and five more are looking. (CP PHOTO/Keven Drews)

The international media have finally clued in to the wackiness on Canada’s west coast, otherwise known as the Vancouver real estate market. Last month Bloomberg noted that when compared to median household incomes Vancouver homes are more expensive than even New York. The story linked soaring prices to the influx of wealthy buyers from mainland China. Today the Wall Street Journal retraces the exact same material. The warning in both pieces is clear: Vancouver’s housing market has become disconnected from reality and is primed to crash.

This little 3 bedroom, 1 bathroom bungalow in Vancouver is priced at $1.5 million. The listing suggests buyers just tear it down and build a new home.

This is a well worn theme for many Canadian reporters. Here at Maclean’s we’ve reached the same conclusion several times going back to 2008, and, admittedly, we’ve been proven fully and completely wrong. I still think prices here in Vancouver are nuts, but each day as I walk to work past the high-end coffee shops and panhandlers I see more “For Sale” signs going up, along with plenty of “Sold” stickers, too.

But here’s the thing. The real threat to Vancouver isn’t that the housing market might crash. That’s happened here before. It undoubtedly will happen again. Such is the boom & bust nature of real estate in Lotusland.

Far more insidious is the impact housing unaffordability is having on employers and the broader economy. Continue…

Real estate porn: The 15 most expensive homes in Canada

By Jason Kirby - Thursday, May 19, 2011 at 2:40 PM - 4 Comments

According to a new report from Re/Max, sales of luxury homes in Canada—the land that the global housing correction, and gravity for that matter, forgot—are exploding. Here’s the breakdown from the release.

$2 million is nothing to sneeze at, but in Vancouver there are crack shacks worth nearly that much. If you really want to talk luxury, set your sights higher. So without further adieu, here’s a countdown of the 15 most expensive homes in Canada right now, as drawn from the real estate industry’s listing service, Realtor.ca, after the jump…

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When presidents and PMs give investment advice: The ultimate insider information

By Jason Kirby - Thursday, May 12, 2011 at 6:43 PM - 3 Comments

(AP Photo/The Daily Texan, Tamir Kalifa)

In his daily briefing email this morning, New York investment strategist Edward Yardeni pointed out President Barack Obama not only called the bottom of the stock market in 2009, he forecast the recent collapse in commodity prices, too:

I guess we should pay closer attention to President Barack Obama’s investment advice. On April 19 he called the top in commodity prices, in general, and oil prices, in particular, when he said, “It is true that a lot of what’s driving oil prices up right now is not the lack of supply. There’s enough supply. There’s enough oil out there for world demand,” Obama said. “The problem is…speculators and people make various bets, and they say, you know what, we think that maybe there’s a 20 percent chance that something might happen in the Middle East that might disrupt oil supply, so we’re going to bet that oil is going to go up real high. And that spikes up prices significantly.” Remember that on March 3, 2009, our nation’s Chief Strategist told us to buy stocks: “On the other hand, what you’re now seeing is–is profit and earning ratios are–are starting to get to the point where buying stocks is a potentially good deal if you’ve got a long-term perspective on it.” He is on a roll.

As you’ll no doubt recall, Obama wasn’t the only world leader to slap a “buy” recommendation on markets in those dark days. Prime Minister Stephen Harper took a lot of knocks in October 2008 when he went on CBC and told Canadians the upheaval in the stock market was a time to get in.

Harper: “The stock market will sort itself out. I suspect some good buying opportunities are opening up with some of the panic we’ve seen in the stock market in the last few days.”

Peter Mansbridge: “Do you really want to be heard saying that? Are you suggesting people should be buying?”

Harper: “I think there are some great buying opportunities out there.”

As it turned out, he was right, if a bit early. Markets continued to fall until the following March, but if you took the PM’s advise and bought, say, the S&P/TSX Composite Index, you’d be up roughly 25 per cent today. (I looked, but couldn’t find any recent comments from Harper that related to the current bubble in commodity prices.)

So, should you listen when pols say buy? Obviously politicians will say anything if they think it will make voters happy, and like perma-bulls, they’ll never, ever issue a sell call, no matter what.

Still, there’s value in at least considering their words when it comes to the broad sweeps of the economy. After all, they do have  their hands on the levers of government spending, which they both used to deploy billions of dollars for infrastructure projects, tax cuts and bailouts. Both were no doubt aware of efforts by their respective central bankers to employ considerable monetary stimulus to reboot the economy. In the case of Obama’s sell recommendation for commodities, it came just weeks before the Chicago Mercantile Exchange hiked margin requirements for energy futures traders, a move that regulators and politicians had been pushing for, and which accelerated the commodity sell off.

Whatever your views on government stimulus and intervention in the economy, there’s no denying each leader has the power to influence consumer and investor sentiment with their policies. In other words, Harper and Obama can be seen as the ultimate insiders.

So, Mr. Prime Minister and Mr. President, got any stock tips?