Steve Maich

Econowatch: A decade's end

By Steve Maich - Friday, December 18, 2009 - 62 Comments

A look back at a decade of triumph and heartbreak in the north american economy

Congratulations, ladies and gentlemen, you have survived your worst fears.

When we began Econowatch a little over a year ago, the world economic order seemed to be breaking  all around us. We warned that things were going to get a whole lot worse before they got better, and indeed they did. World governments pressed ahead with emergency policies that had only ever been considered in theoretical discussions of worst-case scenarios. The good news is, those policies successfully doused what can be thought of as a global economic forest fire. Often, forests grow back stronger and healthier than before, but it takes time.

These days, we hear a lot of fretting that world economic powers are headed toward a “lost decade” with stagnant growth and stubborn unemployment. Well, folks, look in the rear-view mirror—or better yet, look at the graph below—and you will discover that our stock market is pretty much exactly where it was nine years ago. Now, if this were just about stock prices, it wouldn’t be such a big deal. But in fact, the Canadian and especially the American economies have stagnated in a host of ways over the past 10 years. The most striking might be private sector employment in the U.S. There were 108.4 million private sector jobs south of the border in October of this year. In October 1999 there were 1.1 million more. Another example? American industrial production is down about four per cent from a decade ago.

And where are the numbers bigger than they were a decade ago? Well, mortgage delinquencies in the U.S. are at an all-time high. Claims for jobless benefits are also in uncharted territory. On the more positive side, retail sales are more than 25 per cent higher than in 1999. But that’s no great mystery when you consider that consumer debt is up by 60 per cent over the same period.

Believe it or not, though, the point here is not to despair but to focus on our resiliency. To avert financial calamity, the world’s financial powers transferred the staggering cost of financial malpractice onto the public books. You’d be well justified to complain about this, but it’d do no good. Problems this big belong to everybody, and instead of watching the system implode quickly, we all get to pay to fix it slowly. We’ll pay through higher taxes, weaker growth, higher interest rates and a whole lot more uncertainty than we’ve ever known before. The well-educated, flexible and relatively debt-free will find the future a lot less scary than others.

For a long time, we were taught to believe that markets only ever go up. By now, it’s clear that they can gyrate sideways for a long, long time. But that, in itself, isn’t a disaster. We’ve seen all this before—weak markets, expensive energy, high unemployment, bouncing interest rates—and we lived through it. By some measures, it might be another lost decade while the forest recovers. But hey, we’ve just lived through one of those, too.

THE GAME CHANGERS

The Chinese worker
Toiling for low wages, the Chinese labourer churned out cheap goods to fill the aisles of stores like Wal-Mart. This reorganization of production helped North American companies turn big profits, but it also made China an economic force to be reckoned with.

Michael Osinski
He wrote the computer program that would be used by financial insitutions to bundle and sell mortgages—a time bomb that would bring Wall Street to its knees with the subprime crisis. Osinski retired to become an oyster farmer.

The Google guys
Larry Page and Sergey Brin turned a university research project into an Internet search and advertising juggernaut that rivals Microsoft. With free video, software and phone services, Google has upended entire industries.

The U.S. consumer
With an unrivalled appetite to buy and spend, American shoppers fuelled the economy through the 2001 recession and powered home and auto sales to new heights. But when they lost steam in recent years, so did the economy.

The oil sands
The commodities boom reshaped the Canadian economy and labour force, not to mention national politics. Everyone knew someone who moved to Fort McMurray to work in the oil sands—or at Tim Hortons for $17 an hour.

WHAT HAPPENED TO?

RadioShack
The name was a fixture in Canadian shopping malls until a dispute in 2005 with the U.S.-based RadioShack Corp. forced a Canadian name change to The Source by Circuit City.

Netscape
It was the Web browser that introduced the world to the Internet. But in 2007, Netscape’s owner, AOL, announced it would no longer support the browser, effectively killing it.

Canada 3000/JetsGo
Two of the biggest discount airlines in Canada went bust in what would be a brutal decade for the industry. First it was 9/11, then record fuel prices and finally the economic crash.

Pontiac
With its “We Build Excitement” slogan, the GM brand was much loved by Canadians. But Pontiac, which launched in 1926, was axed by GM in April as part of the automaker’s restructuring.

FAMOUS LAST WORDS

Economists are notorious for flubbing forecasts—even the best do it from time to time. And when it comes to making predictions about the economy, business people and politicians are no different.

“After their substantial run-up in recent years, home prices could recede . . . Any bubbles would tend to be local, not national, in scope.”—then- U.S. Federal Reserve chairman Alan Greenspan, March 2003

“We’re not going into a recession.” —Prime Minister Stephen Harper, October 2008

“Eventually, Canada and its biggest trading partner will move to a common currency. But the broader point is that we must have a discussion on this now.”—Paul Tellier, former CEO, Canadian National Railway, December 2001

“In today’s regulatory environment . . . it’s impossible for a violation to go undetected.”—Bernard Madoff, October 2007

DISORDER YEARS

TOP 10 COMPANIES

Ten biggest Canadian companies (by revenue) in 2000
1.   General Motors of Canada*
2.   Nortel Networks*
3.   Ford Motor Co. of Canada
4.   DaimlerChrysler Canada*
5.   George Weston Ltd.
6.   CIBC
7.   RBC
8.   The Seagram Co.*
9.   Bank of Montreal

10. Bank of Nova Scotia

* Companies that went on to file for bankruptcy, were broken up or acquired

Ten biggest Canadian companies (by revenue) in 2009
1.   RBC
2.   Power Corp of Canada
3.   Manulife Financial
4.   George Weston Ltd.
5.   EnCana Corp.
6.   Imperial Oil
7.   Suncor Energy
8.   Petro-Canada
9.   Onex Corp
10. Bank of Nova Scotia

CHUMPS AND CHAMPS

When you have a decade as volatile as the one we just experienced,  those who win win big, and those who lose . . . well, you get the picture.

Bankers
From pimping shoddy dot-coms to even crappier collateralized debt obligations, it was a lucrative decade for the red-suspender set. Canadian banks fared especially well, coming out of the crisis largely unscathed. But even in countries where big banks went bust, it’s back to business as usual—they face public scorn, but still collect huge bonuses.

Taxpayers
Unlike bankers, taxpayers have no one to bail them out. As the orgy of stimulus spending comes to an end, governments, including Ottawa, have racked up record deficits. Expect the taxman to come knocking soon.

Steve Jobs
iMac, iPod, iPhone . . . for the mercurial founder and CEO of tech giant Apple Inc., the last decade can be summed up nicely in one word: iWin. True, he faced criticism for concealing his heath problems. But in the end Jobs redefined consumer cool while helping to save the music industry. Up next: the iTablet?

Dubai
In a decade marked by mindless excess, Dubai stood apart. From palm-shaped islands and indoor ski hills to the world’s tallest building and largest mall, Dubai’s ability to waste money was limitless. Now the creditors are calling, and Dubai is shaping up to be the world’s biggest financial flop.

Warren Buffett
When Buffett gave away a US$37-billion gift to the Bill and Melinda Gates Foundation in 2006, he made charity look easy—like everything else. During the darkest days of the crisis, his words of calm assurance helped to jump-start consumer confidence. But will his bold US$39-billion bet on railroads prove as sage?

The Big Three
After years of signing insane labour agreements and pumping out cars nobody wanted, the end of cheap money meant Detroit automakers could no longer hide from reality. Mass layoffs and bankruptcies were a sad inevitability.

  • Econowatch

    By Steve Maich - Friday, November 6, 2009 at 8:30 AM - 3 Comments

    A weekly scorecard on the state of the economy in North America and beyond

    EconowatchWhew . . . glad that’s over.

    Let the record show that the Great Recession of 2008-09 was finally slain this past summer. The gross domestic product of the United States grew at an annual rate of 3.5 per cent between July and September. Nobody is going to confuse these with the go-go days of 1999, or even 2006. But after a bleak spring and a gut-wrenching winter, we have a bona fide recovery on our hands, and that alone is reason to celebrate, even if you’re not convinced it’ll last.

    So, was that it? That’s what all the fuss was about? No bread lines? No hobos riding the rails? So soon we forget. And in truth, for millions of people around the world who lost their jobs and have no immediate prospects of getting a new one, this recession isn’t nearly over. The good news is that our social safety nets are working, more or less, as they are designed to—smoothing out the brutal twists and turns of trillion-dollar economic shocks. Continue…

  • Econowatch

    By Steve Maich - Friday, October 16, 2009 at 8:30 AM - 1 Comment

    A weekly scorecard on the state of the economy in North America and beyond

    EconowatchThe Canadian economy has answered a lot of questions for us in the past few months. Our housing market stumbled, but didn’t go into free fall. Our mining, manufacturing and construction industries suffered, but did not collapse. Retail sales slowed, but you won’t see row upon row of boarded-up stores when you venture out holiday shopping next month. And, of course, it turns out our banks are a fair bit more solid than many gave them credit for.

    All of that must qualify as welcome and somewhat surprising news, and the latest bit of encouragement came last week with the release of September jobs figures. As the kids headed back to school, the employment situation in the U.S. continued to worsen—another 263,000 jobs vapourized as the world’s largest economy searches for a way to staunch the bleeding. But in Canada, 31,000 jobs were created, a second straight month of improvement, far outpacing even the rosiest projections on Bay Street. Continue…

  • The truth about Canwest’s collapse

    By Steve Maich - Wednesday, October 14, 2009 at 12:40 PM - 1 Comment

    It’s hard to hold a fire sale when your house is actually on fire

    The truth about Canwest’s collapseThere are certain archetypical characters that come up again and again as we rush to scribble out the first draft of history. In business, the roles are particularly well-worn: the iconoclastic entrepreneur, the maverick gambler, the sage manager, the disruptive outsider, the establishment man, and, of course, the dilettante heir. We organize these characters into familiar storylines—the heroic rise, the humiliating fall, the tragic miscalculation—again and again, not just to elevate the mundane details of commerce into dramatic narratives, but because these storylines serve a purpose. People are good or bad, smart or stupid, and everything makes sense.

    We never tire of these familiar fables because they impose a tidy order on the chaotic events of life. They reinforce certain ideas that make the world seem less arbitrary, less random, and less frightening. Triumphs are always the result of human genius, and failures are generally flaws of character written in our DNA. Everybody deserves their fate. Continue…

  • Econowatch

    By Steve Maich - Friday, September 25, 2009 at 8:30 AM - 1 Comment

    A weekly scorecard on the state of the economy in North America and beyond

    EconowatchMy colleague Paul Wells is fond of saying that when everyone in Ottawa knows something about federal politics, it invariably ends up to be false. While there’s no doubt this is true, it’s an affliction that is not unique to our nation’s capital. It applies just as much to the economy.

    Right now, the accepted truth on our immediate economic future goes like this: “Oh sure, the worst might be over, but this is probably just a sucker’s rally. And even if we can avoid another nasty relapse on the markets, the recovery is going to be long, gruelling, and almost as bleak as the downturn itself.” No doubt, there is a strong rationale to back up this hardening consensus. After all, job losses continue in both Canada and the U.S., and while consumer confidence is rising, it’s still fragile. We are still bracing for the worst. Continue…

  • Econowatch

    By Steve Maich - Friday, September 18, 2009 at 8:30 AM - 1 Comment

    A weekly scorecard on the state of the economy in North America and beyond

    EconowatchThere are many signs of rising confidence in the air lately, from the return of real estate bidding wars to new equity offerings and takeover deals. But the surest sign of an economic spring is this: debt is rising again.

    This might not sound like good news. The word debt strikes fear in the hearts of millions of Canadians. After all, we’ve spent the past 18 months hearing that debt is terribly dangerous. Debt will curve your spine, clog your arteries and stain your teeth. Debt, we’re told again and again, is what got us into this mess in the first place, and if there was one positive that emerged from the Great Recession of 2008-09, it’s that it forced a massive worldwide flushing of toxic loans from the system—like a warm water enema for the world economy. Continue…

  • Econowatch

    By Steve Maich - Friday, August 21, 2009 at 8:30 AM - 0 Comments

    A weekly scorecard on the state of the economy in North America and beyond

    EconowatchIt would be nice if the markets and trade and employment worked like mathematical equations. After all, economic reports are full of numbers and percentages. You’d think it’s primarily about math. But it isn’t really. Predicting an economy’s direction is not unlike forecasting the weather—it is subject to certain scientific fundamentals (i.e., the weather gets warmer when our hemisphere is tilted toward the sun, and the closer you get to the equator) and a whole lot of scientifically based guesswork (i.e., that low-pressure system should be gone by tomorrow afternoon).

    Economics is even more inexact because it tries to foretell the behaviour of human beings—billions of them. And while our tendencies are roughly predictable over the long run, the short term can be incredibly messy, especially when fear gets involved. That’s why you can get synchronized global stock market plunges, like the one we saw early this week, and be at a loss for a credible explanation. Continue…

  • Econowatch

    By Steve Maich - Friday, August 14, 2009 at 8:30 AM - 1 Comment

    Layoffs are often part of a company’s recovery process more than its crisis strategy

    EconowatchLast January, Maclean’s published a cover story warning that the Canadian economy would likely lose a quarter of a million jobs this year. The economic storm was just beginning to reach hurricane force, but Canada was still in relatively good shape. The government was still insisting that our world-leading banks would shelter us, and a couple of rival publications chortled at our economic warning and suggested we were being alarmist. I wish.

    It turns out we underestimated the threat to Canada’s job market by a fair bit. As of July, roughly 331,000 jobs have been lost in 2009, the unemployment rate has gone from 6.6 per cent to 8.6 per cent, and if not for the fact that thousands of Canadians now consider themselves “self-employed,” the carnage would look far worse. Continue…

  • Econowatch

    By Steve Maich - Friday, August 7, 2009 at 9:00 AM - 3 Comments

    A weekly scorecard on the state of the economy in North America and beyond

    EconowatchLadies and gentlemen, the recession is over. Or at least it seems to be winding down. Unless it isn’t. The past few weeks have been a little dizzying for those not accustomed to the wildly contradictory messages common in the world of economics.

    What is a poor citizen supposed to think when Bank of Canada governor Mark Carney comes out one day and says the recession is all but over, and then Finance Minister Jim Flaherty (backed by a passel of big bank analysts) emerges a day later to throw cold water on the idea.

    Is the recession over or what? As is so often the case in the world of economics, the answer is “yes and no.”

    Carney and Flaherty were speaking honestly and accurately about two separate but related realities. Carney was referring to the technical definition of a recession, and the news there is encouraging. All signs suggest that Canada’s economy is growing again, and will likely grow more toward the end of the year. Commodity prices have rebounded, housing has stabilized and job losses are slowing. That means that the pressure will soon be on for Carney to squeeze off the easy money tap, to keep inflationary pressures at bay. Continue…

  • Econowatch

    By Steve Maich - Friday, July 24, 2009 at 9:30 AM - 7 Comments

    What we’re seeing now is not really deflation . . . at least, not yet.

    EconowatchDeflation is the word that strikes fear into the hearts of economists more than any other, and this week it was the one on everybody’s lips. Both Canada and the United States reported that consumer prices slipped into reverse in June. The 0.3 per cent decline in Canada’s consumer prices was the biggest since the 1950s, and the first time the cost of living has dropped from a year earlier since 1994.

    The news sent many observers into an anxiety attack. But there are two critically important things you need to know about this. Continue…

  • Econowatch

    By Steve Maich - Thursday, July 16, 2009 at 9:00 AM - 1 Comment

    Want to know what’s really going on with the economy? Look at the numbers behind the numbers.

    EconowatchAlmost from the beginning of this economic downturn, experts have been rushing to tell us how different this one is from all others that have gone before. Yes, we’ve had stock market bubbles pop, we’ve seen the real estate market crash, we’ve seen Wall Street paralyzed by fear, and governments printing money in an effort to avert catastrophe. But never quite like this.

    This is unsettling for many reasons. Human beings look to history to make sense of the future. The Great Depression was a catastrophe, but we understand it. We know essentially what caused it, what policies failed, and which ones eventually worked. Japan’s lost decade is another cautionary tale that provides useful lessons and context. Continue…

  • Econowatch

    By Steve Maich - Thursday, July 9, 2009 at 9:00 AM - 0 Comments

    A weekly scorecard on the state of the economy in North America and beyond

    EconowatchBeing right is much, much better than being wrong. In business being right can make you rich, and being wrong is often a firing offence. And right now, on Bay Street, Wall Street and in every other financial capital, the world is dividing into two camps. One is right, the other is wrong, and no one really knows for sure which group is which.

    On one side are the bulls. They believe the worst of this economic and market crisis passed months ago, and the worldwide efforts to stimulate trade and commerce are working—not perfectly, but adequately. Sure, the recovery might be pretty anemic, and jobs will continue to disappear for some time. But by the end of the year, they say, the world will feel like a much more stable place. For the past three months, the bulls have been talking (and talking and talking) about “green shoots” and early signs of an economic spring. Fuelled by a strong rise in stock markets, this optimistic thesis has become the dominant storyline. Continue…

  • Champagne wishes

    By Steve Maich - Thursday, July 2, 2009 at 9:20 AM - 119 Comments

    He stole $100 million, and lived like a king. Then it all fell apart.

    Champagne wishesThe experts will tell you that most frauds start small—maybe a few hundred bucks pocketed here, a little accounting fudge there—and get gradually bigger over time as the thief warms to the task, and gains confidence. That’s the way it almost always goes.

    But Paul Champagne was not your typical fraudster. For one thing, Champagne had no particular expertise in finance. He was a computer engineer, brought in to manage maintenance contracts at Canada’s Department of National Defence in 1992. He was a technical authority, who could tell the bureaucrats how to buy, operate and maintain their computer systems more efficiently, and to save the taxpayer money in the process. For most of his time at DND, he wasn’t even an employee, but an outside contractor. And, up until the day he was fired in 2003, most of his colleagues thought he was doing a great job. Even when he was fired, it was for exceeding his authority in approving contracts that were beyond his position. Continue…

  • Econowatch

    By Steve Maich - Thursday, June 25, 2009 at 9:00 AM - 0 Comments

    A weekly scorecard on the state of the economy in North America and beyond

    EconowatchOn a day when the Canadian stock market plunges by more than 450 points and the Dow Jones Industrial Average tumbles by 200, it’s a tough sell to suggest that we need to start planning for the economic recovery. And yet, there was Joaquín Almunia, economic and monetary affairs commissioner for the European Union, urging all OECD countries to start preparing exit strategies for this downturn before it’s too late. “We cannot afford to get out of this recession creating big imbalances that will be the origin of the next crisis,” Almunia said.

    No doubt he’s right. Over the past year, governments have pumped unprecedented mountains of stimulus into the global economy. Major banks and corporations have been bailed out, propped up and nationalized. Interest rates have been slashed to nothing. That may have averted the worst-case meltdown scenario, but it presents a lot of daunting questions as the world begins to pull out of this tailspin. Trillions of dollars in cheap money is currently sloshing through the economy. Will the system be able to soak up all that excess capital before it triggers runaway inflation? Now that governments have committed themselves to massive deficit spending over the next few years, can lawmakers find the political courage to rebalance their budgets in time to avert a massive distortion of the debt markets? Continue…

  • Econowatch

    By Steve Maich - Thursday, June 18, 2009 at 12:30 PM - 0 Comments

    Rising confidence is essential for the economy to recover, but too much optimism too soon may be the biggest threat to this rebound

    EconowatchAfter worrying for months that confidence would never return, now financial gurus find themselves dealing with an overabundance. For the past several weeks, experts and authorities have been doing their best to dampen optimism, and step on a few of the celebrated “green shoots” that have dominated the discussion on Wall Street since March. There was Mark Carney, governor of the Bank of Canada, last week warning that this recovery is still weak and fragile. “We shouldn’t underestimate the scale of the challenge,” he told a gathering of business leaders and academics in Montreal. Not to be outdone, UBS surveyed central bank managers around the world who collectively manage US$5.5 trillion in assets and found they are highly skeptical of the idea that we’re in the late stages of this economic slump. They expect interest rates to stay grounded for at least six months and consider rising unemployment a huge and continuing threat.

    But for those who make their living swapping stocks, bonds and contracts, none of that skepticism matters as long as momentum remains in their favour. Consumer confidence is up. Stocks have been rising for four months now. Long-term bond prices have begun to fall. Commodity prices are recovering. And all of this is happening despite the fact that economic activity is still feeble.

    Continue…

  • Econowatch

    By Steve Maich - Thursday, June 4, 2009 at 9:00 AM - 1 Comment

    Vanishing wealth, pinching pennies and pipsqueak profits

    EconowatchOn the day that General Motors declared bankruptcy, the Dow Jones Industrial Average surged by 220 points. Take a look at that again, if you would, because if some person from 1970 (or 1999 for that matter) were to step out of a time machine and read that sentence it would be unfathomable—like one of those hackneyed newspaper headlines in science fiction movies, meant to convey that The World Has Changed buddy. On the day that GM—once the biggest company in the world, and the very heart of American industrial power—collapsed into the arms of its new majority owner, the U.S. government, Wall Street traders were more focused on the ISM manufacturing index (up for a fifth straight month), and the fact that durable goods orders and incomes are on the mend.

    That’s the perverse silver lining of the GM story: by the time it reached its sad climax, most had changed the channel. It used to be said that “as GM goes, so goes America,” but not anymore. In fact, it’s become clear that the old saying ought to be reversed: GM isn’t America so much as America is GM. And that is a problem.

    Continue…

  • Can I see your passport, Mr. President?

    By Steve Maich - Friday, May 29, 2009 at 8:22 PM - 13 Comments

    At their ‘conversation’ in Toronto, both Clinton and Bush get tripped up on new U.S. travel requirements

    ClintonBushC’mon. Did we really expect one of them to say something unkind?

    About 5,000 people paid between $100 and $200 for a ticket to “A conversation with Presidents George W. Bush and Bill Clinton,” today at the Metro Toronto Convention Centre, and every single one of them came hoping for at least a little jousting on foreign policy, or taxes, or even just a taste of old-fashioned partisan ribbing. But no. The only jokes were self-deprecating. The only disagreements were measured and respectful. “I have a different take on that” was about as pointed as it got.

    To be fair, Clinton undercut the confrontational atmosphere right off the top. “You imagine this is a 21st century version of the Roman Coliseum. You expect us to attempt to devour each other. Frank McKenna (the moderator) will attempt to meet your expectations. We’ll do our best to thwart them,” he said. Continue…

  • Econowatch

    By Steve Maich - Thursday, May 28, 2009 at 9:00 AM - 3 Comments

    The new normal: Call it frugality if you like. We call it sanity.

    EconowatchWhen will things go back to normal? That is the only question that seems to matter: when will this strange and frightening episode pass? It’s a fair question, but not exactly the right one. What most really mean is: when will my house price begin soaring again? How long before my stocks triple? And when will I feel safe to max out my credit cards again? Over the past 15 years that became “normal,” or at least common. But that isn’t coming back soon.

    The reality is, everything we see happening around us is part of the process of returning to normal. For the past decade or so the laws of financial gravity were suspended. Now they are back in force, and those who soared the highest have the furthest to fall.

    Continue…

  • Econowatch

    By Steve Maich - Thursday, May 21, 2009 at 4:15 PM - 0 Comments

    A weekly scorecard on the state of the economy in North America and beyond

    EconowatchDavid Rosenberg ranks up there with the very best economic minds currently practising the dismal science, and last week he returned home to Toronto, to a new job as chief economist with Toronto firm Gluskin Sheff, after a seven-year stint as lead economist with Merrill Lynch in New York.

    While he was south of the border, Rosenberg became known as one of a precious few economists willing to warn of serious trouble ahead. While most of Wall Street constructed complicated justifications for the gravity-defying surge in housing and stock prices, Rosenberg warned again and again that it would end in tears. As we all know by now, it did. And, in all honesty, it’s been a fair bit worse than even Rosenberg predicted. It spread pain around the world and, ironically, destroyed Rosenberg’s own firm. Even the men who paid his salary weren’t paying close enough attention to his sobering analysis of a market gone mad.

    Continue…

  • Econowatch

    By Steve Maich - Thursday, May 14, 2009 at 2:30 PM - 1 Comment

    A weekly scorecard on the state of the economy in North America and beyond

    EconowatchA few weeks ago, the most optimistic observers of the world economy began talking about “green shoots.” As economic metaphors go, it was pretty powerful: a post-volcanic wasteland, oh-so-gradually coming back to life. Well, don’t those shoots just grow up fast these days? A few weeks on, and you’d get the idea we’re in the middle of a thriving rainforest. Mark Zandi, chief economist of Moody’s economy.com, captured the popular consensus in a report to clients this week. “Consumers are no longer retrenching, and businesses are successfully clearing out unwanted inventories,” he wrote. “Global financial markets continue to rally, and even the beleaguered banking system seems to be on the mend.” He, like so many other top economists in the past week, entitled his report “The Worst is Over.” A steady procession of top executives—from Sumner Redstone to Rupert Murdoch to Manulife Financial’s new boss, Donald Guloien—were eager to echo the all-clear.

    But isn’t all this just setting us up for another fall? Has anything really been fixed in the economy? And aren’t the summer months generally lousy times for the markets? Maybe, maybe not. UBS Strategist George Vasic has put together a convincing statistical analysis, showing that just because the market has surged through the spring, doesn’t mean it’s doomed to fall through the summer. The old saying, “sell in May, and go away” need not apply.

    Continue…

  • Econowatch

    By Steve Maich - Thursday, April 30, 2009 at 2:30 PM - 1 Comment

    A weekly scorecard on the state of the economy in North America and beyond

    EconowatchThings are getting a tad frosty in the world of high-level economics. U.S. Treasury Secretary Tim Geithner said this week that he sees “encouraging signs” in the global economy. But vague assurances aren’t enough for the growing backlash against America’s financial leadership, which has been characterized by half-measures and missteps since last September. The problem, as the critics see it, is that Geithner’s cautious optimism is focused on the symptoms of this crisis. Despite hundreds of billions in stimulus spending and bailouts, there has been little progress in treating the disease itself—which is rooted deeply in the U.S. housing market.

    That disease is still getting worse, not better. The S&P/Case Shiller housing index fell another 2.2 per cent between January and February, prices in 20 major cities are down 18.6 per cent from a year ago, existing home sales fell three per cent in March and distressed home sales (including foreclosures and so-called “underwater” properties in which the mortgage is bigger than the value of the house) represented almost half of all transactions last month.

    Continue…

  • Econowatch

    By Steve Maich - Wednesday, April 22, 2009 at 5:00 PM - 6 Comments

    A weekly scorecard on the state of the economy in North America and beyond

    EconowatchBen Bernanke, the chairman of the U.S. Federal Reserve, and the man charged with resuscitating the world’s largest economy, thinks we all need to be smarter about our finances. “As the global economy continues to experience extraordinary turbulence . . . the need has never been greater for initiatives that help consumers learn to manage their money wisely,” he told a conference on financial literacy this week. Big Ben should be careful what he wishes for.

    In recent weeks, world stock markets have been buoyed by a rebound in confidence, and that confidence appears to be based on . . . well . . . not much, really. Earnings among America’s big banks have been better than expected, but jobs are still being vaporized at an alarming pace, housing prices continue to drift lower and blue-collar industries remain dead zones of fear and misery.

    Continue…

  • Econowatch

    By Steve Maich - Thursday, April 16, 2009 at 2:15 PM - 2 Comments

    The Sunshine Gang vs. The Legion of Doom. PLUS: The geography of job cuts

    EconowatchThere are two dominant schools of thought emerging in the economy today. They agree on nothing and they’re making quite a racket.

    The first group we shall call the Sunshine Gang. After watching stock markets rise 20 per cent in the past month, they’re feeling good. Every piece of economic data that is slightly less awful than it was last month only bolsters their enthusiasm and their oft-repeated mantra that “the worst is behind us.” U.S. Federal Reserve chairman Ben Bernanke bought his membership in the Gang Tuesday morning, telling an audience of college students that he sees “tentative signs” that economic activity is “levelling out.” Continue…

  • Econowatch

    By Steve Maich - Monday, April 13, 2009 at 3:45 PM - 1 Comment

    A weekly scorecard on the state of the economy in North America and beyond

    Amid the constant stream of statistics and forecasts it’s easy to forget that booms and busts are all about human behaviour—and the various ways we translate our hopes and fears into action. This week, market research firm the Futures Company issued a survey that identified eight consumer categories, providing a useful framework for understanding how consumer psychology will impact on the downturn and the recovery. They are as follows:

    The Unruffled (16 per cent of the public): Job is secure. Debt is easily manageable. If they’re doing anything to save money, it’s not much.

    The Earnest (10 per cent): Job is secure. Debt is under control. Anxiety is mild. They’re doing little things to save, but little has changed.

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  • Econowatch

    By Steve Maich - Thursday, April 2, 2009 at 4:00 PM - 0 Comments

    A weekly scorecard on the state of the economy in North America and beyond

    The EconogaugeThe purists will tell you that Canada is not “officially” in recession yet. They won’t stamp it with the “R” word until they see two consecutive quarters of negative growth. Fair enough. But the steam is quickly coming out of the “I’ll believe it when I see it” crowd, and a quick look over Canada’s GDP report for January will tell you why.

    The economy shrank by 0.7 per cent in the first month of the year, marking a third straight month of contraction, and the troubles are widespread. Twelve of the 18 industry groups declined, as did 18 of 21 manufacturing sectors. In fact, manufacturing, wholesale trade and construction all shrank by more than three per cent from a month before. That pace suggests a near-collapse is underway in all three sectors. Consider that another 11 months like January and we’d be looking at 8.4 per cent economic shrinkage for the year—far worse than even the most dire predictions heading into this year. As CIBC’s incoming chief economist Avery Shenfeld said, if this were to keep up, recession talk would soon give way to serious depression speculation.

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