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Showing posts from May, 2010

Q1 GDP 6.1%-- Not enough for a Bank of Canada rate hike?

In early May (the 18th) I discussed Q1 GDP performance that was then estimated to be around 3.2%, but many economists anticipated that this was a misread, and that the actual number would be much higher – around 5.5%. The actual headline number at 6.1% is 0.6% higher than most economists had expected then (and about 30 bps higher than the street expected last week). This is a strong signal for the Bank of Canada to tightening and increase interest rates – in fact, the futures market has already priced in a 130 bps increase in interest rates. Because interest rate increases are like potato chips – you never eat just one (analogy from David Rosenberg).
Q4/2009 and Q1/2010 are the arguments for an increase in interest rates. However, looking at a few other macro data points:
Canada’s current GDP is at the same level it was in Q1/2007.Canada’s GDP is 2.5% lower today than it was 2 years agoManufacturing export volumes are 20% lower than they were in Q1/2008Unemployment …

The world is certainly getting interesting!

Fitch downgrades Spain to AA+ China declares that they will investigate the South Korean sinking – this after having seen the ship first hand today. US figures provides convincing evidence of a renewed slowdown. Canadian dollar back at the 1.0561/.95 level & Oil is at $74…
David Brooks of the NYT is one of my favorite commentators, and he draws an analogy between the Tree Mile island disaster and the Deepwater Horizon accident. His point is that in a complex world, people tend to underestimate the impact of small failures.Because people don’t understand complex systems, and the cascading effect of many small failure can have on a total system.
Now imagine our world of complexity (just try to explain how a derivative works – or how it settles if there is a failure), and there are right now a number of small failure that don’t appear to be interconnected, but could all this lead to something bigger. For a start many countries are otherwise engaged in solving “more critical” proble…

The Sell out of Main Stream Media

"How telling is it that the best 'news' program on TV is on Comedy Channel (Daily Show with Jon Stewart) and the best financial journalist is found at Rolling Stone (Matt Taibbi)?  Is that a pathetic commentary on our corporate media or what?"

This comment was left on a blog (Zero Hedge), and speaks volume on what has been happening in the American media -- Matt Taibbi is infamous for having come up with the Goldman Sachs "Vampire Squid" moniker for the firm, which has stuck to the firm like super glue.  But it remains that the main stream media is not only loosing viewers/readers but it is also losing its hedge.  

In finance in particular the hard questions are now being asked by bloggers and not financial journalists.  Its not only litigation but its also a certain laziness that has gripped even the better news know outlet.  

MY top list of news sources are:

Zero hedge
Calculated Risks
Bronte Capital
The Big Picture
Worthwhile Canadian Initiative

Of International Banking Operations

A bit of a tangent today, in a sense I am proud of my employer decisions. About 10 years ago, my employer decided to shut down the vast majority of its foreign operations (Before my time), keeping a small (funding) operation in London, and two regional offices in other major European cities. These limited European operations generate a small profit for the firm; they have limited aspirations and do an excellent job.
Our firm is a smaller financial institution, and having international operations to “follow our clients” just didn’t make any sense. My own experience working in London, New York and Singapore for very large financial institutions would also justify similar decision. Our “home” clients were just not interested in working with us (and when I say us, I mean three different institutions from three different continents…). Bottom line, our “home” client wanted local market expertise, and not some overpaid expatriate douche bag which had gotten off the boat two weeks earlier! (I …

Canadian housing prices slowing – Is the jury in for a rate hike?

Between January and April 2010 200,000 jobs were created in Canada of which 30% were related to housing and its ancillary businesses.  Every Canadian economist, starting with the BoC, recognized that housing stability/growth saved the Canadian economy in 2008/09 period.  David Rosenberg did a “bottom-up accounting” to see how much of the recovery could be attributed to housing:

Based on our statistical work, around half the seven per cent annualized growth rate in nominal GDP from the recession trough has been due to the combined direct and indirect benefits from the housing boom. And when we apply the price deflators to the various sectors of the GDP, we actual find that every penny of economic activity, in real terms since this recovery began, has occurred thanks to the housing sector. In other words, if not for housing, real GDP would have stagnated since Q2 2009 instead of rebounding at a three per cent annualized pace.”
A recovering housing market provided Canadian banks with a go…

Micro Vs. Macro Factors in Canada

Inflation in Canada is just shy of 2% (mid range target) 200,000 new jobs were created in the first 4 months of 2010 Retail sales rose 2.1% (YoY) in March 2010 Very little economic news out of Canada this week
But over the past 30 days:     Oil prices down 20% from USD 86 to USD 68     Copper prices down 17% from USD 3.6 to USD3.0     Canadian dollar down 6% from parity with the USD to 0.94.
The situation in Canada is interesting, insofar as for the first time in over a year, the Canadian dollar is trading near or at its fair value. It could give a break to (manufacturing) exporters, but many of them have been aggressively hedging their short term US dollar exposure – a reasonable decision, but it means that over the next 6-12 months they will not benefit from a weaker dollar. That has implication for growth expectation from ¼ of Canada’s economy (manufacturing). The energy complex and natural resource sector are also hurting both from a drop in price (especially copper which is consid…

Did you know

Apparently all Euros are not equal.  There are rumors of Euro hoarding (the physical currency)! Each issuing country has a code attached to its Euro, and certain country's Euro are deemed to be a better store of value.  All euro notes have a numerical code which identifies the issuing country.  Those with the following letter codes: X,W and Z are especially popular (Germany, Netherland and Finland) the three countries who are in the best shape.  Don’t know if its true, but it would be an amusing, also I'm not sure if in the event of a break up for the Euro each country would only purchase its own Euro...

Maybe a real life application of Gresham's Law

Whoa Nelly!

Man this market is insane. Up here in Canada we are watching as spectators, unclear of what our role is in this financial ballet taking place in Europe and in the U.S.The Canadian stock market is off by nearly 2%, the Canadian dollar dropped 3¢ today – which is a lot.
On a global basis what we do know:Energy, metals and other raw materials prices are dropping fast. WTI crude that was flirting with $85/89 bbl in April is now trading just north of $65/68 per bbl (-24%).

What we don’t know:rumors of a German bank in trouble are all over the “blogosphere” after the government there prohibited the shorting of bank stocks, this morning the German Minister of finance indicated that the EU needs to have a mechanism in place if country needs to restructure their debt burden (Greece is not a solution going forward)… what do they know that the market doesn’t?
Economic indicators (south of the border as usual) are downright horrible, deflation seems to be the problem now, unemployment is up, and …

Dance baby dance!

Last tine Ms FitN and I went to the SAT in Montreal, its one of those spaces that has a multi purpose use, well last night it was dance – both Ms. FitN and I love dance, and last night it was a real treat:We saw the Nyata Nuata dance company. They call it African dance, maybe I wouldn’t know but it was GOOOOOOOOD! It was actually one of the best show we saw this year. The creator of this troupe Ms. Zab Maboungou has been all over the world, is based in Montreal.  Tickets are cheap around $25 and really worth it -- assuming its not sold out.
There’s a show tonight and tomorrow! If you are in Montreal it’s a must see. Dress light the room is very warm.

No New Posts

I’ve been busy at work for a few days, reducing my ability to say or write anything. Honestly, the problem seems to be that the indicators are not providing a clear picture of where things are going. Part of the problem is once you’ve stated your position you have to wait for events to catch up.
I still believe in deflation for North America, because the great debt contraction wagon is still moving ahead (I am speaking of the U.S.), but since Canada is so expose to the U.S. there has to be a certain level of correlation.Credit is shrinking as is the money supply (in the U.S, right now in Canada both Credit and the money supply are growing -- a reflection of Canada's strong economic growth).

Oil Price this morning are still below $69 bbl, no so long ago oil prices were around $89 bbl, an 18% reduction – although the impact at the Canadian pump has been somewhat muted, for a variety of reasons, but first and foremost is that the Canadian dollar has backtracked from parity, Canadian d…

What a weekend!

Canadian Economic news:
New residential construction:+197k (target +200k) April job creation:+109k (target +43k)

The local news continues to be good; internationally the air of normality is somewhat strange.Nothing has really changed; the Greek mess is still around, and if anything this newest bailout reduces the pressure on the Greeks to do the hard things.The US regulator is freaking out that a country such a Greece could cause such a mess (2.4% of Europe’s GDP), looking at their own house the Americans must be getting worried, since the U.S. government deficit at 11.6% is in the same ballpark as Greece’s, we seem to be lurching from one catastrophe to another – 18 months ago it was U.S. mortgages, now its Europe, the crisis cycle seems to be accelerating (Steve Roach of MS Asia this AM on CNBC).But in Canada new residential building was roughly in line with expectation, Canada’s economy is humming along, with new job (full time as opposed to part time) being creating across the countr…

Turns out that being a Bear is a bit easier today.

This was an interesting week for North America markets. Yesterday was amazing, although I missed the live action (I was in a meeting) market participants freaked out late in the afternoon (when the Down Jones Industrial dropped by 1,000 points). In Canada new jobs for the month of April were announced at + 108,000, or about 4 time the anticipated growth rate (last time it was this high was in January 1976!). Also this morning permits for residential construction were up a staggering 12%.
So why did the market react the way it did with a further 2% drop?The very first sign was the low market volatility (price movements) and very low trade volumes when the market was rising but large volumes whenever the market dropped a bit.Something became askew a few weeks ago when the Shanghai stock market which had been stead for the past few months started to trend down. As of this morning the Shanghai market is off 22% since the beginning of the year.

G7 markets were priced for perfection, where t…

Is the EMU failing?

Have the European governments waited too long to take decisive action in the PIIGS problem? It would seem to be the case!Despite the Euro 120 billion package announced Sunday the 2nd of May, it seems that the credit markets don’t believe this will work, in Greece or elsewhere.

Above are the top five CDS price movments on Tuesday the 4th of May, between 10% and 19% movement in the price of insuring "Club Med" countries debt...
As other commentators have made clear recently, why are we bailing out investors who invested in a patently bad economy (Greece) for a few extra basis point of yield. Why are we bailing our DB, SocGen and their friends?
Cheating a bit from my vow to discuss only Canadian events I want to talk about what is occurring in Europe:It is a sense of outrage that forces me to make a statement here. For years Greece has been screwing-up by massive overspending and tax evasion on a scale hard to imagine – now they have to pay the pipe!  This correction should and it…

Growth, Inflation & All That!

Last week, Mark Carney, the Bank of Canada’s Governor, gave his latest assessment of the Canadian Economy.  In a nutshell, the BoC has underestimated Canadian economy in terms of growth, and capacity utilization.   

It may be that making GDP prediction when all levels of governments undertook massive simulative programs was bound to be problematic.  In fact, the BoC now recognizes that they may have overestimated the gap between potential and actual growth, a function of under estimated the permanent destruction of capacity Vs. temporary idle state, and also overestimating the growth in Canadian productivity. 
Mark Carney’s view of inflation remains optimistic – unlike some, he takes the view that the worse (in terms of increase) and despite the recent expansion of the diffusion index on manufacturer’s prices remains within the BoC’s favorite range.

From WCI:  But there's another thing that could be happening, although it will take a few months to confirm. If you look at that graph,…

My Ipad

Last week I drove down to Champlain NY to take delivery of my shinny new Ipad.  The problem is that for us Canadians the Ipad is not available in stores (or for delivery) yet.  On the other hand purchase via the U.S. site (U.S. delivery address and U.S. credit card only) was easy. 
Primary purpose of the device is to replace morning newspapers (I read the FT, WSJ and local newspaper – La Presse), and for surfing and doing simple emailing around the house (in Montreal and at the cottage).  The devices cost $499, plus NY taxes and I paid an additional $30 in Canadian taxes at the border – a remarkably simple process.
The device is simply magical; it reminds me of that you tube video of the 100 year old women who took to the Ipad immediately.  When opening the box you find the Ipad, a wire and a wall socket charger, and a card 4x3 which gives the device instruction:  plug into a computer and sync wiht Itunes 9.0.
The first thing that impresses is that when opening a page where the script is…