The economy in March: signs of the times

By macleans.ca - Saturday, March 30, 2013 at 9:00 AM - 0 Comments

• Profits trump national allegiances in today’s auto industry. For the first time in its 94-year history, Bentley Motors is considering building cars outside Britain. But it insists that cars made at a Slovenia factory would retain their Britishness. Swedish carmaker Volvo (now owned by Geely), meanwhile, is set to open a plant in China this year, after reportedly winning government approval for its plan last week.

• Italy may be a basket case, but commerce continues: Moleskin, the paper and note-book company billed as the choice of Ernest Hemingway, is going forward with an initial public offering on the Italian Stock Exchange. The company is aiming for a $722-million valuation, with a stock price between $2.60 to $3.40. Shares of another Italian luxury brand, cashmere-maker Brunello Cucinelli, have risen 100 per cent since listing a year ago, the Financial Times reports.

• Canada’s WindMobile may be up for sale. Its Dutch parent company, VimpelCom Ltd., is reportedly accepting bids for the discount wireless upstart. Launched in 2009 after a government auction of wireless spectrum designed to boost competition, Wind has struggled to win significant market share from the big three Canadian telecoms: Rogers (which owns Maclean’s), Bell and Telus.

• Money-laundering rules in the U.S. will soon apply to virtual currencies, amid growing fears that online cash is being used for illicit purposes, reports the Wall Street Journal. The move will bring new reporting requirements for users of currencies such as Bitcoin. Retail spinoffs, like Amazon Coins, may also be affected.

The economy in March: the good news and the bad

By macleans.ca - Friday, March 29, 2013 at 12:13 PM - 0 Comments

Istockphoto; Shutterstock; Reuters; Getty Images

U.S. rolls out ‘green carpet’ for immigrant investors

By Econowatch - Wednesday, February 13, 2013 at 3:17 PM - 0 Comments

Chart by: Taylor Shute

The economy in February: by the numbers

By Econowatch - Wednesday, February 13, 2013 at 2:44 PM - 0 Comments

(Jonathan Hayward/CP)

$27.36:

The average hourly wage for union workers in Canada, versus $22.25 for non- unionized employees, says a new report.

30 cents:

The amount gas prices have jumped in the last month in the U.S., put- ting a crimp in consumer spending.

1,200:

The number of flights cancelled so far by All Nippon Airways due to the grounding of Boeing’s new 787 Dreamliner over battery troubles.

$612 million:

The record fine the Royal Bank of Scotland agreed to pay last week for its role in the LIBOR rate-fixing scandal.

$2 billion:

The savings the U.S. Postal Ser- vice expects each year from stop ping Saturday delivery. Its losses last year: $16 billion.

$16.4 trillion:

The U.S. debt, which rose on the first day the legal debt ceiling limit was suspended.

The economy in February: signs of the time

By Econowatch - Wednesday, February 13, 2013 at 2:25 PM - 0 Comments

SIGNS OF THE TIMES:

IT’S PAYBACK TIME

• Yale: prestigious university and now, debt collector. The school, along with the University of Pennsylvania and George Washington University, has resorted to suing former grads who haven’t paid back student loans, reports Bloomberg. The money is needed to replenish loan pools for future needy students.

• Toyota recently regained its title as the world’s biggest automaker from General Motors. But it still trails in a key area: pickup truck sales. Last week it unveiled a new version of its Tundra truck, hoping to win over buyers normally loyal to Detroit brands.

• Amazon was granted a U.S. patent this month for a marketplace to sell used digital media, like movies, video games, music and ebooks. A second-hand digital market could be worth billions but will undoubtedly face fierce opposition from the entertainment industry.

• Is Facebook losing its friends?A survey by the Pew Internet and American Life Project found 61 per cent of members have, at one time, taken a break from the website for several weeks or more. Twenty per cent said they were too busy to log on.

The economy in February: the good news and the bad

By Econowatch - Wednesday, February 13, 2013 at 2:04 PM - 0 Comments

Econowatch

By Colin Campbell - Wednesday, December 19, 2012 at 8:40 AM - 0 Comments

Stephanie Kuykendal/The New York Times

In approving the $15-billion takeover of Nexen Energy by China’s CNOOC, Stephen Harper cautioned that the sale was “the end of a trend.” Foreign ownership in the oil sands is okay, this time, but in the future, state-owned enterprises (SOEs) must be kept at bay, Ottawa ruled. The move was politically astute, but may prove economically dangerous. While attention has focused on whether we should fear SOEs like CNOOC and Malaysia’s Petronas (which also won approval to buy Progress Energy), the really scary question is: what will become of Canada’s oil sands without them?

As investors go, SOEs might not seem ideal. Critics argue they open the door to foreign governments dictating where our oil is sold and at what price. But Canada holds the trump card in the relationship through its ability to dictate royalty and tax rates, as well as labour and environmental laws that SOEs have to follow just like anyone else. Even if they decided to sell oil to China at less than market prices, the loss would be theirs, not ours.

The fact is that SOEs, not just in China but across Asia and the Middle East, rank among the few with the kind of money needed to fuel Alberta’s oil sands, where capital spending alone is expected to climb to more than $200 billion by 2025. They control 70 per cent of the word’s oil reserves, and 13 of the 20 biggest oil companies are state-run. This week, Natural Resources Minister Joe Oliver told the oil sands industry that investment will still flow into Alberta despite the recent ruling. Yet SOEs have been providing the bulk of the funding recently. Chinese SOEs have now sunk more than $25 billion into Canada’s energy sector since 2009. Ottawa is stressing that investment by SOEs is still welcome, just not ownership—not exactly an arms-open invitation.

Continue…

Econowatch: September 2012

By Colin Campbell - Monday, September 17, 2012 at 1:11 PM - 0 Comments

(Martin Oeser/AP Photo, dapd)

When analysts talk about corporate earnings in America these days, they often cite two numbers: regular earnings and earnings without Apple. In the first quarter, the technology giant accounted for fully 35 per cent of the growth in S&P 500 earnings. The quarter before that, more than half. Strip out Apple’s earnings, in other words, and corporate America remains a scary place. Is Apple a lone bright spot amid the devastation, or could it be something more: proof that the U.S. can still be an innovation leader?

Apple, now the biggest U.S. public company ever, worth $620 billion, is a behemoth whose influence extends well beyond its ability to distort markets. Not since Ford threw the U.S. into recession in 1926—when it closed factories for several months—has a company seemed to hold such sway over the economy. Although Apple can’t flick a switch and send the country into a tailspin (its manufacturing is done in China) the company has, it claims, created 500,000 jobs in the U.S. It has helped create an entirely new gadget economy where smartphones and telecoms are the new oil fuelling growth. J.P. Morgan’s top economist said sales of Apple’s new iPhone 5 could add as much as half a percentage point to U.S. GDP growth this year.

Still, Apple’s real stranglehold is more psychological—something seen in the obsessive attention it gets from the media and investors. This fervour will be on display this week with the anticipated launch of the iPhone 5. And it is why Apple has come to be seen as a bigger symbol of overall American success. But scratch deeper and the Apple obsession is glossing over big problems. A report by the Information Technology & Innovation Foundation ranked the U.S. second from last in its global survey on improving innovation in the past decade. Incredibly, by one estimate, earnings for S&P 500 tech companies would have turned negative this year if not for Apple.

Continue…

Econowatch: August 2012

By Jason Kirby - Monday, August 13, 2012 at 10:45 AM - 0 Comments

Bayne Stanley/CP

California likes Facebook. Well, it did when it looked like the social media giant was going to flood government coffers with desperately needed cash. When the state crunched its budget earlier this year, it took for granted that the company’s IPO in May would lead to a tax windfall as Facebook insiders cashed out. The bean counters banked on US$1.9 billion in tax revenue for the state. But then Facebook shares lost nearly half their value after the IPO. Officials now say the state may be out “hundreds of millions of dollars” as a result.

It would seem old habits die hard in the Golden State, where politicians can’t bring themselves to say no to more spending, but don’t have the money to meet those commitments. And so California spends beyond its means, and prays the manna (in this case Facebook riches) will fall from the sky.

There’s a lesson for Canada in all this. Substitute Facebook shares with barrels of oil or containers filled with minerals, and Canadian provincial governments have proven they’re every bit as dependent on wishful windfalls to make ends meet. Back in February, Alberta announced massive spending increases. Officials boasted that a “gusher” of revenue from the oil sands would turn this year’s $886-million provincial deficit into a $5-billion surplus in just two years. But oil prices haven’t co-operated. Amid a commodity sell-off, they fell from US$109 in March to around US$75 in June. Though the price crept back up to US$90, that’s still nearly US$10 shy of what the province wagered it would be this year. The Fraser Institute predicts Alberta’s deficit will rise this year. The province “bet the budget on overly optimistic oil and gas prices.”

Continue…

Signs of the times: Shrinking returns

By macleans.ca - Monday, June 25, 2012 at 5:30 AM - 0 Comments

• The global slowdown and euro crisis have claimed another victim: eggheads. The Nobel Foundation, based in Stockholm, said it is cutting the value of its awards by 20 per cent in order to safeguard its long-term capital. Nobel Prize winners will now take home about $1.1 million rather than $1.4 million.
• Europe’s troubles are driving more and more investors to the bottle. A French asset management firm recently launched a wine fund that will buy, store and sell cases of high-end wines. The minimum investment, which is locked in for one year, is just under $40,000. It is not risk-free. Wine prices can always collapse along with the economy. But at least investors won’t go thirsty if things go sour.
• A dollar just doesn’t go as far as it used to. The Canadian retailer Dollarama said it will start selling items this summer for as much as, gasp, $3 in addition to its $1 and $2 offerings. And why not: business at the dollar store is booming, with profit up 40 per cent in the first quarter to $42.6 million, and most sales in the past year coming from items that cost more than $1.
• Soccer doesn’t rank highly in the minds of U.S. sports fans, but investors? The storied but deeply indebted English club Manchester United is considering a $1-billion initial public offering in the U.S. after abandoning IPO plans in both Hong Kong and Singapore. But in the wake of Facebook’s debut, which kneecapped the IPO market, there are many who doubt Man U will score big in America.

Econowatch: the economy this month

By Colin Campbell - Tuesday, May 22, 2012 at 11:28 AM - 0 Comments

Tony Bock/Toronto Star

With the failure of coalition talks to form a government and new elections planned, Greece’s exit from the euro, or Grexit, as it’s being called, now seems less a question of if than when. The bookmaker Ladbrokes, after a flood of wagers, recently decided to close betting on the subject. “It is safer for us to suspend betting than to keep cutting the odds,” said the company. Banks, meanwhile, are reportedly already setting up trading systems that include a new drachma currency. This has ratcheted up fears of a financial meltdown not unlike Wall Street’s in 2008.

For Greece, the result would be devastating. Tens of billions of dollars worth of aid from the EU would be suspended. It would be frozen out by the lenders it so desperately needs. Its banking system would almost certainly fail. Starting a new currency from scratch is not something that happens overnight either, or at small cost to businesses. Greece would find itself out in the cold in a time of need, without the many benefits of membership in a continental trading bloc.

Yet there is a view emerging that the split might not be such a bad move in the long term. (After all, how much worse could things get in a country where the unemployment rate is over 20 per cent and lenders are already running scared?) A new drachma would rapidly lose value after its launch (by as much as 50 per cent, by one estimate). Many Greek businesses owing money in euros would likely face bankruptcy. But the devaluation would also cut the cost of Greek goods and services, giving a boost to exporters and to the country’s all-important tourism industry. Cheap labour and cheap real estate would lure new businesses. There is some precedent: Iceland’s krona rapidly devalued in 2008. This year, its economy is expected to grow more quickly than the EU’s.

Continue…

Econowatch: October 2011

By Colin Campbell - Tuesday, October 11, 2011 at 11:00 AM - 1 Comment

Mike Blake/Reuters

The TSX is down 20 per cent from its April high. It’s official, the bear market is back. The financial news is so bleak that even viral videos, which normally feature cute animals and footballs hitting groins, seem to have lost their sense of humour. Last week, one of the most talked-about Web videos was of a stock trader telling a BBC interviewer how the economic crisis is a cancer. “If you just wait and wait hoping it is going to go away, just like a cancer it is going to grow and it will be too late,” said Alessio Rastani, who argued that “the stock market is finished” and that people should hedge against an inevitable crash, like hedge funds are now doing.

Bloggers and business publications were quick to question Rastani’s bona fides. He’s self-employed, has modest holdings and is, in short, just an average guy. Which maybe explains why his message touched a nerve among average investors trying to make sense of the market chaos as their savings evaporate.

More importantly, it speaks to the extent that the economic crisis is one of confidence. Consumer confidence surveys show optimism has gone AWOL, even despite recent data showing there are silver linings. In the past months, companies have continued to go about their business—factories are humming in Canada and the service sector is growing. In the U.S., economists are predicting GDP will grow in the third quarter. Troubles still loom large. Employment is stalled and the eurozone is teetering. But tune out the markets for a moment, watch the likes of Rastani with all the seriousness you would a kitten slipping off a windowsill, and things aren’t so bad. Or at least, they could still be a lot worse.

Continue…

Econowatch: early September 2011

By Colin Campbell - Monday, September 12, 2011 at 11:30 AM - 0 Comments

The relative calm of markets during the first week of September brought a welcome end to a thoroughly rotten August. For several days, investors rediscovered their inner bulls, largely on reports that U.S. Federal Reserve officials are warming to the idea of buying even more government bonds to try to stimulate the economy.

But there is a wide gap between the sense of optimism that was on display and what’s happening on the ground. Unemployment remains high, with no sign of healthy job creation on the horizon in the U.S. There is still no lifeline in sight for those whose mortgages are underwater (and who couldn’t refinance even if rates keep dropping). The body of evidence suggests that the economy is teetering on the edge of another downturn. In Canada, it has already slipped into reverse as exports fell—a warning sign of what’s happening beyond our borders.

So what might a new round of so-called quantitative easing do to tip the balance in the direction of growth? If the last round, dubbed QE2, is anything to go by, probably not a heck of a lot. Launched in 2010, it sought to add $600 billion into the U.S. economy (on top of the $1.7 trillion added during QE1 to halt the 2008 financial crisis). For awhile, markets soared thanks to all the cheap money available. There were also hopes that the benefits would spill over and translate into lower interest rates, more lending and eventually more spending by businesses and home buyers.

That didn’t happen. The confidence boost from rising stock prices wasn’t enough to overcome America’s bigger economic problems: unemployment and slow growth. QE2 has also been blamed for driving up commodity prices, pushing up the cost of fuel and food. And there’s no reason to think it’ll be any different this time.

CP/iStock/Getty Images

Signs of the times:

• An Italian town has come up with a bold plan to avoid Rome’s deep austerity measures: secession. The mayor of Filettino (pop. 1,000) wants to create a sovereign principality and has already printed up a new currency—adorned with his photo, of course.
• Mere weeks after downgrading U.S. debt to AA for the first time in history, Standard & Poor’s continues to hand out superior AAA ratings to mortgage-backed securities containing subprime loans—the very same financial instruments blamed for spawning the 2008 financial crisis.
• It’s not just bottled water and batteries that fly off store shelves during hurricane season. Strawberry Pop Tarts are another emergency staple, according to an economist who studied Wal-Mart’s extensive preparations for storms.
• As the EU grapples with a deepening financial crisis and fears of a second U.S. recession grow, luxury Parisian fashion house Hermès has a different problem: meeting soaring demand for expensive handbags and silk scarves. Yet another piece of evidence that we may not all be in this together.

Econowatch: May 2011

By Erica Alini - Wednesday, May 18, 2011 at 4:35 PM - 3 Comments

A funny thing happened on the way to the Tory majority. Partway through the federal election campaign, around the time the words “NDP” and “surge” appeared together for the first time, the S&P/TSX index lost its footing. Economists were quick to read the tea leaves: global investors clearly feared Canada might end up with a weak, wobbly minority government headed by socialists. Instead, Canadians voted for the strong, stable majority promised by Prime Minister Stephen Harper, at which point investors ran screaming for the exits. Over the next four days, the market shed five per cent of its value.

Were investors saying a Harper majority was worse than an NDP minority? Of course not. The episode simply revealed that investors believe the main factor driving Canada’s economic future isn’t which party sits in power, but whether commodity prices stay high. The resource boom was the reason for our strong employment, resilient housing sector and phenomenal stock market returns of the last decade. In the same way, the dramatic rebound in commodities in 2009 enabled Canada to sail through the recession mostly unscathed—whatever the Tory’s Action Plan ads claimed. Investors know this, and that the reverse is also true. A sharp commodities correction could cripple the economy. Continue…

Econowatch: April 2011

By Jason Kirby - Thursday, April 14, 2011 at 10:35 AM - 5 Comments

If you tried to count the worries investors face today, you’d soon run out of fingers and toes. We’ve seen rising inflation, unrest across the oil-rich Arab world, a U.S. fiscal crisis and sovereign debt woes in Europe, any one of which might have kneecapped a lesser bull market. Not this one. Two years into the strongest rally ever, not even the prospect of nuclear fallout and the collapse of the world’s third-largest economy is cause for concern.

There are basically two ways to view what’s going on right now. One is that a fundamental disconnect has occurred between market sentiment and reality. In this scenario, investors have affixed blinders to obscure all that ails the economy. In other words, the markets are driven by momentum. When that momentum stalls, look out below.

The other possibility is that all these fears are overblown. Investors have learned from the stock market rout and correction of 2009 not to lose their heads at the first (or even umpteenth) sign of trouble. Instead, some argue there are real reasons to be optimistic: corporate profits are robust, manufacturing is on the upswing and gains in the U.S. job market are picking up speed.

The ultimate test of which scenario is behind the rally will come this year. Central banks are expected to tighten their monetary policies. Interest rates will rise and the virtual printing presses that created trillions of dollars in new money will shut down. With the end of easy money, investors will inevitably become more attuned to risk. Meanwhile, an important crutch that has helped prop up the recovery so far will be gone. If we’re fortunate, both markets and the economy will remain resilient. If not, we’ll look back and wonder why investors ignored so many obvious signs of trouble.

By the numbers

11 The percentage of homes in the U.S. now sitting vacant. In many vacation areas across the country, hit particularly hard by the downturn, vacancy rates are over 60 per cent.

50 The number of years of oil supply that may be left in the world, given current supplies and demand, notes a senior economist with HSBC.

428 The number of KFC, Pizza Hut and Taco Bell franchises in Canada owned by Prizm Income Fund, which has filed for court protection from creditors.

106,000 The number of high-tech jobs that will need to be filled in Canada in the next five years as the dot-com boom returns, notes an industry report.

$4.9 billion The amount U.S. hedge fund manager John Paulson earned in 2010 after betting big on the economic recovery.

Signs of the times: conspicuous consumers

*The U.S. housing market may be in brutal shape, but billionaire Russian investor Yuri Milner just plunked down US$100 million for a California mansion. Milner is an investor in Facebook, Groupon and game-maker Zynga. A sign of life in the housing sector, or just another oligarch with too much money to burn?

*Saks Fifth Avenue had to limit customers to six one-ounce packages of La Prairie’s latest skin care product. The price: $500 each. American consumers, it seems, are flooding back into the US$2.7-billion “prestige” skin care market. No sense looking like you just weathered a Great Recession.

*Subprime mortgage bonds—three words that would have sent investors screaming until recently—have been making a comeback. The bonds, which are backed by thousands of poor quality mortgages, have doubled in value to 60 cents on the dollar since early 2009, as investors have rediscovered their appetite for risk.

*President Barack Obama, an admitted “crackberry” addict, has been a boon to Research In Motion’s marketing campaign. But Obama told reporters he now has an iPad, too. Is that a bad omen as RIM readies to launch its PlayBook tablet?

Chart of the week: spending spree

By macleans.ca - Thursday, April 14, 2011 at 8:00 AM - 3 Comments

Real consumer spending in Canada hit record highs while other major economies stalled. But with retail sales now softening, are Canadian consumers about to hit their breaking point?

Chart of the week: Slow food

By macleans.ca - Wednesday, March 30, 2011 at 11:54 AM - 2 Comments

Source: International Monetary Fund

Food prices have been rising sharply—a trend that’s expected to continue. Still, they remain low compared to prices over the past century.

Econowatch: March 2011

By Jason Kirby - Thursday, March 3, 2011 at 2:15 PM - 10 Comments

Once again contagion looms over the global recovery. Not long ago, investors feared the prospect of which nation the sovereign debt crisis would infect next—having taken Greece and Ireland, would Portugal fall? Spain? Britain? Now unrest is spreading across the Middle East and North Africa as brutalized populations revolt against their tyrannical leaders. And the focus is squarely on whether soaring energy prices could push the global economy back into recession.

Some have argued the subprime crisis didn’t cause the Great Recession, but that it was the fault of the 2008 spike in oil prices. If so, watch out. The price of Brent crude jumped to above US$119 amid the crisis in Libya, before easing back to around US$111. In a new report, Nigel Gault, chief U.S. economist at IHS Global Insight, analyzed the effect on the American economy of a US$10 rise in the price of oil. No surprise—a gallon of gas jumps 24 cents. But each US$10 increase also raises inflation .38 per cent and lowers disposable incomes .26 per cent. If the price rise persists, economic growth gets zapped by more than half a percentage point over a two-year period, as does spending. Meanwhile, 410,000 jobs would be lost. Given that oil has rebounded from about US$40 a barrel since early 2009, it explains a lot about why the recovery has been so disappointing.

What happens now depends on how far the turmoil spreads, and whether panicked traders continue to push oil prices higher. For David Kotok, chief investment officer at Cumberland Advisors and a strategist closely watched for his views on energy issues, the outlook is grim. “This is nowhere near over,” he writes. “The risk of recession in the U.S. and European economies is rising daily.” Continue…