The fiscal outlook for B.C.’s re-elected Liberals

By Kevin Milligan - Thursday, May 16, 2013 at 12:48 PM - 0 Comments

Jonathan Hayward/CP

Christy Clark and the B.C. Liberal government begin a new term facing a propitious fiscal situation, arguably second in Canada only to Saskatchewan. Net debt as a share of GDP is low (only Saskatchewan and Alberta’s are lower), and B.C. has a shot at balancing the budget in 2013-14 – along with Saskatchewan, Quebec, and Nova Scotia. The Liberals made a few big-ticket election campaign spending promises, but, on the tax side, they also indicated they intend to pad revenues over the next few years with higher tax rates for personal and corporate income. In short, the new government has much freedom to work on new projects without having to fight festering fiscal fires.

That said, budgets must still be watched, lest the current advantages be frittered away. Below, I outline the main challenges on both the revenue and expenditure sides.

Continue…

Why austerity may be wrecking the recovery

By Tamsin McMahon - Thursday, May 16, 2013 at 6:00 AM - 0 Comments

Shutterstock

As head of the world’s largest bond fund, Bill Gross has the kind of voice that can move markets. For much of the last few years Gross, who runs the $2-trillion Pacific Investment Management Co., has been warning about the day of reckoning that would befall countries like the U.S. and Britain as they buried themselves under mountains of debt. In 2010, Gross declared British bonds were “sitting on a bed of nitroglycerine” and dumped his entire holdings of U.S. Treasuries with a prediction that soaring government debts would pose the greatest risk to bondholders.

This year, Gross started buying again. His flagship mutual fund is now made up of nearly a third U.S. Treasuries. These days, Gross warns that the biggest problem facing Western economies isn’t the spectre of rising government debt, but that the sweeping budget cuts countries are using to try to repair their balance sheets are killing investor confidence. Governments “have erred in terms of believing that austerity, fiscal austerity in the short-term, is the way to produce real growth,” Gross told the Financial Times last month. “It is not. You’ve got to spend money.”

Gross is part of a growing chorus of opposition to the fiscal straitjacket being imposed on many European countries in the aftermath of the financial crisis. When they were first embraced, such policies seemed like a logical solution to the reckless spending that drove half of Europe to the brink of collapse, a necessary dose of tough medicine to clear the way for future growth. But critics argue that years of tax hikes and spending cuts have instead left countries awash in unemployment, stagnant growth and mounting debt.

Continue…

Slideshow: Are his tighter mortgage rules working?

By Erica Alini - Wednesday, May 15, 2013 at 9:52 AM - 0 Comments

of Photos

Google I/O: Speculation, gadgets and hoopla

By The Associated Press - Wednesday, May 15, 2013 at 6:32 AM - 0 Comments

SAN FRANCISCO – Google is expected to use its annual software developers’ conference to showcase the latest mobile devices running on its Android software, while also unveiling other features in its evolving product lineup.

The gathering, scheduled to begin Wednesday morning in San Francisco, provides Google Inc. with an opportunity to flex its technological muscle in front of a sold-out audience of engineers and entrepreneurs who develop applications and other features that can make smartphones and tablets more appealing.

Reporters from around the world also will be on hand, giving Google a chance to generate more hoopla about its latest innovations.

Continue…

Time for the CBC to fight fair

By James Cowan - Tuesday, May 14, 2013 at 8:56 AM - 0 Comments

Ash Mishra/CP Images

Kirstine Stewart switched in April from running the CBC’s English service to leading Twitter Canada. Plenty of self-styled media critics interpreted Stewart’s move as a high-profile defection from stagnant traditional media to a shiny digital upstart. That assessment is not just wrong, it’s backward: Twitter hired Stewart specifically to court established, traditional media outlets because it wants to establish paid partnerships with content producers; meanwhile, CBC is a dominant digital player in Canada, competing hard—and successfully—against private news, music streaming, and video-on-demand providers.

The online success of the CBC should be laudable. Its website received an average of 6.2-million unique visitors last year, making it the most popular Canadian website. Around 4.3-million people visit the CBC News site each month, besting both The Globe and Mail and Huffington Post. Adding to this success is an ambitious five-year plan that will open digital-only news operations in cities like Hamilton and Kamloops and allocate 5 per cent of the overall programming budget to digital content. Once upon a time, it was only private TV and radio broadcasters who had reason to grumble about competing with the Crown corporation; in building its online empire, the CBC is taking on everyone from newspapers to Netflix.

Continue…

Blackberry CEO will offer glimpse into company’s next steps

By The Canadian Press - Tuesday, May 14, 2013 at 6:59 AM - 0 Comments

ORLANDO, Fla. – Several questions about the future direction of BlackBerry will be answered this morning as the head of the company takes the stage at its annual conference in Orlando, Fla.

Chief executive Thorsten Heins is expected to deliver a speech that will give investors and tech industry players an idea of where Blackberry is headed for the rest of the year.

That could include unveiling details about a lower priced smartphone for some international markets.

Such an announcement would move the company closer towards what Heins has envisioned since he stepped into the leadership role nearly a year and a half ago.

Continue…

Questions for Tom Mulcair

By Stephen Gordon - Monday, May 13, 2013 at 11:44 AM - 0 Comments

(Jeff McIntosh/CP)

Tom Mulcair’s recent article for the Institute for Research on Public Policy (IRPP) raises perhaps more questions than it answers about the NDP’s positions on the economics of energy and the environment. Here are a few key passages:

An NDP government would establish a comprehensive upstream cap-and trade system to meet our international commitments to fight climate change and rigorously enforce environmental laws here in Canada.

We’ve heard this before, but we still don’t know very much about what this system would look like. Does “comprehensive” mean “applicable to all GHG emissions”? What are the estimated costs to consumers? What measures will be taken to compensate low-income households for these costs?

Continue…

On our radar this month: Australia’s $5-million visa and Tim Hortons vs. Highfields Capital Management

By Econowatch - Sunday, May 12, 2013 at 12:00 PM - 0 Comments

•In the wake of Pershing Square’s shakeup at Canadian Pacific, another activist investor from the U.S. has set its sights on an iconic Canadian brand. The hedge fund Highfields Capital Management is pushing for change at Tim Hortons, including scrapping its unsuccessful U.S. expansion strategy. Highfields owns four per cent of the coffee and doughnut chain’s outstanding shares.

• Passengers on Frontier Airlines who buy basic fares can now expect to pay as much as $100 to put a carry-on bag in the overhead bin, where finding space for luggage has become “unacceptably difficult,” the U.S. company says. Meanwhile, a new British study shows several budget airlines have been dramatically hiking baggage and booking fees this year. Those extra costs can make up 65 per cent of total ticket prices.

Continue…

‘Sell in May then go away.’ It really works.

By Econowatch - Sunday, May 12, 2013 at 11:00 AM - 0 Comments

BlackBerry’s Thorsten Heins disses tablets—jealous?

By Econowatch - Saturday, May 11, 2013 at 3:00 PM - 0 Comments

Warren Buffet’s first 45 mins on Twitter and other trivia

By Econowatch - Saturday, May 11, 2013 at 12:31 PM - 0 Comments

Continue…

Good news: Canada’s bank are safe. Bad news: well, Al Gore.

By Econowatch - Saturday, May 11, 2013 at 9:00 AM - 0 Comments

Continue…

Carney has left Poloz with little to fight slow growth

By Chris Sorensen - Friday, May 10, 2013 at 5:40 PM - 0 Comments

(Adrian Wyld/CP)

Outgoing Bank of Canada governor Mark Carney’s stick-handling of the 2008 financial crisis was widely viewed as a central-banking success story; it helped him snare his new gig as governor of the Bank of England, starting on July 1. But in many ways, Carney’s replacement, Stephen Poloz, the head of Export Development Canada, has an even more vexing task in front of him. Whereas Carney moved swiftly but predictably to drop benchmark interest rates when faced with the global financial crisis (and, somewhat less predic ably, announced he intended to keep them there for an extended period), Poloz faces several smaller, but no less troublesome threats: an overheated housing market, soaring personal debt, stubborn unemployment and anemic GDP growth. And they come at a time when conventional monetary policy has far less influence, given that money has been so cheap, for so long.

Continue…

And the winners are… manufacturing and public-sector jobs

By Erica Alini - Friday, May 10, 2013 at 10:02 AM - 0 Comments

To recap:

• The economy added some 12,500 jobs in April, roughly in line with expectations. The uptick in employment comes after a steep 54,500 dip in March.
• The gains were just enough to keep the unemployment rate steady at 7.2 per cent.
• Beyond the headline numbers, the details of the report were more positive. The job gains, for example, were mostly in full-time work.
• Also, manufacturing churned out some 20,600 new positions, the largest increase since May 2012. In general, the goods-producing industries delivered a strong performance, with 24,500 jobs added, whereas the service sector shed 12,000.
• Surprisingly, it was the public sector that lead the overall employment increase, with gains in public administration and health care.
• Provincially, employment rose in Alberta, declined in Manitoba, New Brunswick and Newfoundland and Labrador, and remained roughly unchanged in Ontario and Quebec.

Continue…

In the U.S., a recovery for the rich

By Erica Alini - Wednesday, May 8, 2013 at 5:00 PM - 0 Comments

Officially, the Great Recession in the United States ended in June 2009. For the following 2½ years, though, the recovery has only blessed the rich. For the rest of America, it felt like the recession kept on going.

That’s according to research based on the latest available data on the wealth of U.S. households. At the height of the financial crisis, the economy spared few American families, rich or poor. But once it started growing again, relief came unevenly. Only households in the top seven per cent of the income ladder saw their net worth—assets minus debt—grow between the second half of 2009 and the end of 2011, the recent Pew Research Center analysis shows. For the bottom 93 per cent, wealth continued to decline, shrinking by four per cent—more worrisome evidence, say economists, of rising inequality in the U.S.

Blame goes to the opposite trajectories of financial assets and real estate. Rising stock prices and soaring gains in bonds gave a quick lift to America’s top earners, for whom wealth is mostly concentrated in financial holdings. For most people, however, their homes are their most valuable assets and the housing market kept sliding through 2011. With bond prices at record highs and stocks up 34 per cent in December 2011 from June 2009, America’s eight million richest households saw their mean net worth grow to $3.3 million from $2.6 million. For the other 111 million households, mean net worth fell by $6,000 to an average of $136,426, as home prices declined five per cent in the first 30 months of the recovery.

Continue…

The National Household Survey: Pig, meet lipstick

By Stephen Gordon - Wednesday, May 8, 2013 at 10:00 AM - 0 Comments

(Sean Kilpatrick/CP)

I wrote a lot about the decision to cancel the mandatory long-form census and replace it with with the voluntary National Household Survey (NHS) in 2010-2011 (see here: [1], [2], [3], [4], [5], [6], [7], [8], [9], [10], [11], [12]), but that was all prologue. The real implications of the new survey are only now being played out with the release of the the numbers –  I can’t bring myself to use the word “data” – collected by the NHS.

Here’s what Statistics Canada has to say about the quality of NHS numbers:

Continue…

Killing cable TV

By Jaime Weinman - Tuesday, May 7, 2013 at 5:51 PM - 0 Comments

Sophie Giraud/Netflix

Netflix is like a Goliath taking on the other, older Goliaths of media. Though it started in the U.S. as a DVD rental company, it has stuck to founder Reed Hastings’ belief that streaming video is the future. Its expanded investment in that area—including original content such as the series House of Cards—has been amply rewarded. First-quarter revenues were more than $130 million higher this year over last. And when it announced its latest financial data recently, the stock price shot up 24 per cent on the day.

Emboldened by that success, Hastings has taken to declaring that Netflix is about to defeat cable TV. In a letter to investors, he proclaimed that “Internet TV will replace linear TV,” and virtually taunted HBO and other competitors with reminders of Netflix’s advantages: “They have to attract an audience for Sunday at 8 p.m., say. We can be much more flexible.” Hastings even has evidence to back up his belief that Netflix can take on HBO and win: according to the Hollywood Reporter, Netflix now has 29.2 million U.S. subscribers to HBO’s 28.7 million.

What Netflix doesn’t have yet is original content to match the cable giants it derides as outdated. Though House of Cards received some good reviews, Hastings said it had only a “gentle impact” on subscriptions. The service’s newest original, Hemlock Grove, was blasted by the Los Angeles Times as “terrible in ways that mock the meaning of the word.” Netflix is betting a lot on new episodes of Arrested Development, launching in May, but fans shouldn’t expect the epic story arcs of the original version: due in part to scheduling and budget limitations, every episode will focus primarily on only one character.

Continue…

Buffettpalooza: ‘If you’re in the business world, it’s a bucket list item’

By The Associated Press - Saturday, May 4, 2013 at 12:17 PM - 0 Comments

OMAHA, Neb. – Part rock concert, part investment workshop, the annual gathering of Berkshire Hathaway shareholders is an odd mix.

But that’s just how the faithful crowd of more than 30,000 who attended Saturday’s version likes it.

Getting the chance to learn about business and life from Berkshire CEO Warren Buffett and spend the day with like-minded investors made it worthwhile to brave Saturday’s cool, rainy weather in Omaha, Nebraska.

The level of appreciation shareholders have for Buffett becomes clear as he tours the meeting’s 200,000-square-foot exhibit hall each year.

Admirers held their cellphones and iPads in the air as they surrounded the billionaire Saturday morning. A pack of security guards created a buffer around Buffett as he visited displays selling Berkshire’s See’s Candy, explained BNSF railroad’s virtues and highlighted some of the company’s other 80-plus subsidiaries.

Continue…

Fisker Karma hybrid car becomes example of failed U.S. environmental policy

By Mika Rekai - Friday, May 3, 2013 at 12:49 PM - 0 Comments

Photo by Harold Cunningham/Getty Images

When the Fisker Karma debuted in 2008, its stunning design and innovative plug-in hybrid drivetrain were heralded as the future of America’s automotive industry. Today, the company is on the brink of bankruptcy after selling fewer than 2,000 cars worldwide.

Last week, Fisker missed a $10-million loan payment to the U.S. government—it had been approved for a $529-million loan in 2009, and had received $192 million before being cut off—and the company is now being held up by critics as an example of the Obama administration’s failed green policies. At a hearing before Congress, conservatives accused the administration of making a rash and risky bet on Fisker and its untested technology.

Indeed, when Karmas landed on showroom floors in 2011, they were riddled with defects, and several needed their batteries recalled. And at $100,000, they were roughly the same price as a Porsche 911, which doesn’t need to be pulled over to be recharged.

How to lower tariffs and not give China preferential treatment

By Mike Moffatt, Canadian Business - Friday, May 3, 2013 at 11:31 AM - 0 Comments

(Adrian Wyld, AP Photo/The Canadian Press)

This article first appeared in Canadian Business.

The government’s latest position on Budget 2013’s tariff changes is that the modifications are necessary to ensure that China does not receive special treatment. As the prime minister put it, “we do not think it is appropriate to have special tariff reductions only for companies from countries like China.” This is problematic and not simply because these changes affect 72 countries, of which China is only one. The truth of the matter is that the existing treatment of imports from China is not particularly favourable but there is a much better way to ensure that imports from China receive Canada’s least favourable tariff treatment.

The Customs Tariff is exceedingly complex, with up to 16 different tariff treatments (rates) for each product, based on the country of origin of that product. Countries can be assigned multiple tariff treatments and, for a given product, are assessed the lowest of the multiple rates that apply.

Continue…

The recession and recovery: Australia did it better

By Stephen Gordon - Friday, May 3, 2013 at 10:49 AM - 0 Comments

(Seth Perlman/AP Photo)

It is frequently remarked that Canada fared “relatively” well during the economic and financial crisis. And it is also frequently remarked that current and projected short-term Canadian economic growth rates are relatively weak. Both statements are true. But it’s important to make the distinction between the level of economic activity and its growth rate. An economy that is still climbing out of recession has a lot more room to grow than an economy that has already fully recovered.

We’re used to measuring ourselves up against the U.S. economy, and sometimes the other G7 countries, but what about a broader comparison?

Continue…

Tax cheats have nowhere to hide

By John Geddes - Friday, May 3, 2013 at 10:34 AM - 0 Comments

Valentin Flauraud/Reuters

Back in early 2010, a meeting in Paris between ministers of the Canadian and French governments led to authorities in Canada getting their hands on an extraordinary list of potential tax cheats. The Canadian revenue minister at the time, Jean-Pierre Blackburn, met with Eric Woerth, then the French budget minister. According to a Canadian government memo on what transpired, Woerth “invited” Blackburn to “make a formal request” for information on Canadians whose Swiss bank-account records were among thousands from various countries itemized in pilfered data that had been turned over to the French by a whistle-blower.

That informant was Hervé Falciani, a former IT employee of HSBC Private Bank in Geneva. Falciani is a citizen of France and Italy, but he’s now in Spain facing possible extradition back to Switzerland, where police regard him as a thief of HSBC’s information. Among advocates of greater global co-operation to catch rich tax-dodgers, though, he’s something of a hero. But exactly how the Canada Revenue Agency has made use of the roughly 1,700 Canadian names reportedly contained in his digital trove of HSBC account-holders is impossible to find out. Revenue Minister Gail Shea won’t say, citing both the privacy rights of taxpayers, which the CRA is bound to respect, and a bilateral confidentiality deal between Canada and France.

Still, pressed by Maclean’s for some indication of results, the CRA did provide figures that suggest what some jittery Canadian HSBC customers did after the Falciani story hit the news in 2009. Under a CRA “voluntary disclosure” program, taxpayers can come clean on undeclared income, as long as they do so before the federal agency begins to audit them. They must cough up the tax owing, plus interest, but can avoid penalties and charges. In the case of HSBC, as of March 22, the CRA says 208 voluntary disclosures had been made. Of those, the agency had finished processing 177 files, and discovered that the accounts in question sheltered $89.9 million in previously unreported income—or nearly $510,000 on average for each HSBC client who suddenly decided to be more forthcoming.

Continue…

Are no-fee chequing accounts too good to be true?

By Manisha Krishnan - Friday, May 3, 2013 at 10:30 AM - 0 Comments

Photograph by Jessica Darmanin

When it comes to saving money in this era of low interest rates, banking fees can be a big hindrance. But two U.S. companies are giving consumers the chance to pay nothing at all for a chequing account and a host of other web-based services. Bluebird, the latest offering from American Express and Wal-Mart, is offering a chequing account with online bill payment, ATM access and mobile depositing—all without annual or monthly fees. GoBank, owned by prepaid-debit-card provider Green Dot, has many of the same free services, though it’s in the midst of rolling out a pay-what-you-wish option, allowing customers to give between $0 and $9 a month at their discretion.

Critics say the pay-what-you-wish model isn’t sustainable and reads as a publicity stunt. But musicians, software distributors and even restaurants have all employed it successfully, so why not banks? With fees as low as $0, patrons have nothing to lose.

Researchers find link between Google terms and stock fluctuations

By Chris Sorensen - Friday, May 3, 2013 at 8:24 AM - 0 Comments

(Torsten Silz/AP)

Buy low, sell high, the old adage goes. The problem, of course, is that it’s impossible to know which way the market is about to move. Or is it?

In a bid to climb inside the heads of millions of investors, British researchers compared 98 search terms typed into Google between 2004 and 2011—examples include “inflation,” “portfolio” and even “cancer”— to the performance of the Dow Jones Industrial Average. The researchers used a simulation tool to buy short positions in a portfolio that tracked the index (a bet the market would decline) when the frequency of the search terms being tracked spiked, hypothesizing investor nervousness would first manifest itself as a flurry of Google searches. By contrast, when the frequency of the queries fell, the study’s authors bought the index.

It turned out that trading on mentions of “debt” was extremely good at predicting market declines, allowing the simulator to earn a 326 per cent return over the study period, compared to 16 per cent for a more conventional buy-and-hold strategy. There were, however, several less obvious predictors of an impending sell-off, including the word “restaurant.” Perhaps investors planned to treat themselves to a nice meal after recording a sizable capital gain?

10 things you should know about the new Bank of Canada governor

By Tamsin McMahon - Thursday, May 2, 2013 at 7:08 PM - 0 Comments

Finance Minister Jim Flaherty has named Stephen Poloz the next governor of the Bank of Canada. The announcement shocked analysts who had thought that long-serving senior deputy governor Tiff Macklem was a front-runner. Poloz, head of the federal trade agency Export Development Canada, has a low profile in financial circles.

Here’s a primer on who he is and what he might bring to the job:

1. He is 57 and married to Valerie Poloz. The couple has two children.

2. He spent 14 years at the Bank of Canada, rising to chief researcher, before being appointed chief economist at Export Development Canada in 1999. He is currently the agency’s CEO.

3. During the 1990s, he was managing editor of the Montreal-based International Bank Credit Analyst, an influential financial publication that long warned against jumping into frothy, dot-com fuelled stock-market bubble before it burst.

4. He has also been a visiting scholar at the International Monetary Fund and the Economic Planning Agency in Tokyo.

5. He was previously rumoured to be on the short-list of candidates to replace David Dodge as Bank of Canada governor in 2008.

6. He warned early on of a potential for a major financial crash:

In 1998, after Long-Term Capital Management went bust, requiring a $3.6-billion U.S. government bailout, some analysts shrugged off the episode as the workings of a rogue hedge fund. Poloz was among those who predicted the fund’s failure was more likely a sign of a financial system that was working itself into a bubble built on complex and opaque derivatives, which would eventually require more bailouts. “I think there will be lots more” fund failures, he predicted in 1998.

7. … and then got it wrong after it happened.

In 2007, Poloz predicted the financial crisis would be short-lived. “A key source of comfort during the financial turmoil of recent weeks has been the consensus that the world economy remains strong,” he wrote in an analysis. “This is important, for it means that even if the financial contagion continues to spread, the world economy will prove resilient to the shock.”

8. He helped set the framework for Bank of Canada policies largely seen as successful in helping Canada stave off the worst of the global recession.

In 1994, while still at the Bank of Canada he co-authored a paper describing in detail the central bank’s approach to its medium-term forecasting. It may sound dull, but the paper was a critical step in the bank’s sweeping shift away from clandestine operations and toward more transparency in how it sets monetary policy.

It’s an approach strongly supported by outgoing governor Mark Carney and one that he has signaled he’s bringing to the Bank of England. Carney is a vocal a proponent of more communication and forward guidance from central bankers — signaling to investors where interest rates will likely be headed in the future —arguing that it can be calming on the markets and perhaps induce consumers to adjust their spending.

9. He disagrees with Carney on a few key issues.

Unlike Carney, who has criticized Canadian corporations for sitting on “dead money” instead of investing, Poloz warned in a 2011 speech that the stockpiles of cash were a “necessary insurance against the next black swan” in an era of deep uncertainty about the future of both the Canadians and the global economy.

Carney has also openly dismissed the “Dutch Disease” argument that Canada’s high “petrodollar” is harming the manufacturing economy. Poloz, on the other hand, has publicly warned that the rising Canadian dollar was harming the economy, mainly because it exacerbated the widening gulf between Eastern manufacturing-based economies and Western commodity-based ones.

He has cautioned that such economic divergence would become a long-standing problem in Canada and that similar conditions in the 1970s had led to “stagflation” when inflation rises rapidly but economic growth stalls.

“This two-speed economy thing is enormous,” he told a 2008 conference on how energy industry affects the economy, arguing that the Bank of Canada should pay more attention to the dollar’s exchange rate when setting interest rates.

10. Perhaps he’s so vocal because he initially got it so wrong when it came to the dollar:

In spring 2007, Poloz proclaimed that the Canadian dollar, then sitting at 94 cents, would fall to 84 cents U.S. by the end of the year because the weak U.S. and global economy would hurt demand for Canadian exports. “There is a global slowdown that is grinding through the system, and oil prices are probably going to drift lower rather than higher, and in that context you get the Canadian dollar going down not up.”

Instead, the dollar hit a high of $1.08 in November. It took roughly two years for his prediction to come true — the dollar dropped in 2009 — though the loonie has been stubbornly sitting around par since 2010, thanks largely to strong oil prices.

Some analysts rushed to describe Poloz as an “outsider” whose appointment signals a morale crisis at the Bank of Canada and a push by the Harper Conservatives for more control over monetary policy. Indeed, the Canadian dollar fell on news of his appointment. But Poloz could also be viewed as one of Harvard Business School professor Joseph L. Bower’s “inside outsiders” — the kind of leader who has both deep institutional experience and knowledge, but not so much that he’s become part of the establishment.

A good example of such a leader, according to the Harvard Business Review? Mark Carney.