Skip to main content


Showing posts from June, 2010

Out there in the universe there are an infinite number of copies of you

Cosmology’s dirty little secret, the thing the scientists don’t like to tell you because, well, it’s embarrassing. But, according to the standard picture of our Universe combined with the standard picture of physics, quantum theory, there may be an infinite number of other domains like our Universe in which all possible histories are played out. It could be that there is something wrong with the standard picture of cosmology or physics or both. Or it could be that there really are an infinite number of copies of you out there in the Universe! 
If that doesn’t blow your mind, nothing will! (I got this somewhere, but I don't remember where!  How fitting.)


(By David Rosenberg)
And free. Free of the dramatic fiscal retrenchment and tax rate increases that are going to be plaguing much of the rest of the industrial world. Shortly after reading Miners Agree to Higher Royalties in yesterday’s WSJ on a story out of Australia, we saw Canada Seeks to capitalize on Australia’s Resources Super-Tax in the FT. Canada is one of the few countries with a low primary budget deficit and as such is in the process of lowering corporate tax rates, which will be below 25% for the combined federal-provincial levy in most parts of the country by 2012. The one thing we know about capital is that it flows to the jurisdictions that treat it the best.
We are still reeling over that article in the Economist that showed how more market- and business-friendly Canada has become, especially in relation to what is happening south of the border. Canada has a Finance Minister who delivered a credible plan that balances the books and cut taxes in the next five years, and …

Is the Canadian economy really that strong?

Is the Canadian economy really that strong?
After exhibiting very strong signal for the past 6 months, Canadian consumer decided to stay home in April.Consumer sale (seasonally adjusted) fell 2% in April (vehicle, clothing were the worse) with 10 of 11 sectors showing a marked drop off.It could be a reaction to the retailers attempt to increase prices (a reflection of their increased costs, but desire to maintain margins) again illustrating that it is easy for retailers to confuse being price giver and price takers.BTW the 2% drop wipes out eh March increase in retail sales.

The auto sector saw its biggest drop at new car dealers down 5.3%. In terms of regional distribution the worse affected province was Quebec (-4%) – but it is the province that has been the least affected by the crisis. Ontario, Canada’s bellwether, saw a 1.3% drop in sales.For completeness sake, Canadian retails sales have been on an uptrend since early 2009.

April retail sales were down in all provinces, but Quebe…

The UK budget as a blueprint?

Today the Chancellor of the Exchequer announced his special budget for the UK. Overall, the plan is to reduce the government’s deficit from STG 149 billion to STG 20 billion over a 4 year period. In percentage from 10.1% of GDP to 1.1% of GDP.
The cuts are severe, and actually are somewhat similar to what Canada did in the mid 90s, with one big difference, for Britain this will be actual spending costs, in Canada the expenses were effectively shifted from the central government to the provincial ones.
Bottom line a 25% reduction in government expenditure in all but two departments:healthcare and foreign aid.Also increases in taxes:
Capital gains tax rise by 10% to 28% (with a STG 5 million lifetime exemption)VAT rise of 2.5% to 20%Corporate tax down from 28% to 24%, but dramatic reduction in exemptionsBank tax
The impact on the economy will be mixed, the reduction in corporate taxes will be balanced out by an important reduction in certain deduction, so the impact of …

Yuan, Inflation and Expectations

The big news is that China will be going off the peg to the U.S. dollar. Studies indicate that the Chinese currency is between 25% and 40% undervalued in dollar terms. Of course this doesn’t help since the implication is that the undervaluation of the Yuan against the Euro was even more extreme!
China is Canada’s third largest trading partner, overtaking Japan in 2008, to take on about 3% of all Canadian trade (62% of all trade is with the U.S.).So what is the impact of a re-valuation of the Yuan on Canada’s trade position? First, a revaluation of the Yuan (lets say the authorities allow a 5% appreciation) is almost meaningless since the Canadian dollar over the past 5 years has gained approximately 30% against the U.S. dollar, and by the same amount against a pegged Yuan.
It will affect Canada’s producer price index (PPI), but its unclear how much of this production cost increase will pass on to the consumers. Overall, the link between China and Canada is too inconsequential to mean a…

Canada's exchange rate -- beyond parity in 2011

Scotia Capital’s monthly foreign exchange strategy conference call is a great piece of research. Sutton and Tihanyi do an excellent job on providing both S/T and L/T flavor to the foreign exchange market. When Canadians talk foreign exchange they talk about the US Dollar, since the vast majority of Canada’s trade flows are with the U.S.
Scotia Capital’s thesis is that over the next 18 months: (1)The Canadian dollar will settle slightly over parity with the US dollar, and (2)That Canadian short term interest rates will range around 2.25%.
According to Scotia Capital, the factors with the highest level of correlation with a stronger Canadian dollar are:
(1)Performance of the S&P 500 (2)Oil Prices (3)Direction of the Euro (4)Copper prices
In terms of negative correlation the US S&P 500 volatility index presents an almost perfect correlation of -0.95
According to Scotia Capital, the drivers for higher interest rates are inflation and a recovering domestic economy. Interest rates at 0.5% ar…

When Politics gets in the way of investors' best interest

Several years ago Visa (the credit card people) did an Initial Public Offering (IPO) the banks were selling off a majority of their interest in the credit card company.  Investors across the globe participated in this IPO, this joyous example of capitalism, everywhere but in the Province of Quebec.

You see Quebec has some strange rules, first is the fact that virtually all form of "giveaway contests" are illegal here.  The province of Quebec has a monopoly on gambling and makes it very expensive for companies to do these contest.  The Quebec government also insist that all prospectus be fully translated into French.

Most people don't realize but French language prospectus do not use capitalized language.  You guess the result they become thick bricks that absolutely nobody reads.  Most people don't read prospectus anyway -- they are made to be incomprehensible, but in French its even worse because you have to "guess" as to the defined terms (bankers speak).  

Recent Canadian Economic News points to a slowdown

Three important Canadian data points over the past few days:
Canadian housing starts were down 6.3% well below consensus expectations. However, we have to keep in mind that the rebound in housing starts observed since April 2009 has been strong. This month’s numbers could be the first signs of the end of a frontloading of the purchasing process by Canadian home buyers. Another important development is related to the multiple segment where there appears to exist excess stock. Residential construction has been a determinant component of the Canadian GDP growth. Initial data therefore (only 2 months of the Q2 period) seem to confirm that housing will not be a net contributor. Although housing only accounts for 6% of Canada’s GDP, its contribution to GDP growth has been disproportionate (think of all the related segments).
The trade picture is not very rose, although Canada produced a trade surplus +200 million in April (-200 MM in March) the news was not all good, insofar as that the reaso…

Canada Trade -- Not that good but better than a kick in the face

From David Rosenberg:

Canada posted a very small surplus of $200 million, which was below the $600 million consensus estimate and again, two-way trade deflated with exports down 1% and imports down a sharper 2.2% (these are in nominal terms). In volume terms, imports were flat while exports fell 1.6% in what was the second contraction in the real trade balance in a row. Upside growth risks for Canadian Q2 GDP are subsiding — if fact, we are at 3.3% (annual rate) right now versus 3.6% as per the consensus and we believe the risks are to the downside, especially in light of the weak May housing data.

Bottom line is that Canada's economy is doing okK, internal demand is good, oil price around $75 is keeping the CAD near the 1.03/97 level (again the Petro-currency effect).  But with 40% of the GDP depending on exports the signs are poor for export demand.

The Chinese numbers for May trade were excellent (up 48%) so we may be seeing a decoupling of the Asian economies (I wish) although…

You want Crazy, I’ve got Crazy:

S&P 500 is up 1.2% today
At the same time:
TED spread is 0.65% -- the highest in a long timeEuropean banks are not lending to each otherSpanish interbank market is effectively dead.

That’s crazy, we have in Europe a major clusterfuck and the boys in the states are singing Up! Up! Up

Did the Hitchhiker's guide to the Galaxy predict the mini crash & BP's epic failure

Douglas Adams' Hitchhiker's Guide to the Galaxy series explaining how things that we've decided won't go wrong not only do go wrong, but are invariably made worse by our overconfidence. When I went back and found the passage, though, it turned out to be an almost breathtakingly perfect summation of not just the financial crisis, but the innovations that preceded it. The Great Ventilation and Telephone Riots srDt 3454 of had started out as just a lot of hot air. Hot air, of course, was the problem ventilation was supposed to solve and generally it had solved the problem reasonably well up until the point someone invented air-conditioning, which had solved the problem far more throbbingly. And that was all well and good, provided you could stand the noise and the dribbling, until someone came up with something even sexier and smarter than air-conditioning, which was called in-building climate control. Now this was quite something. The major difference from ordinary air-cond…

Why Canada's mid 90s solution will not work for others today

Canada faced similar problems to the U.K. back in 1993. TheWall Street Journal: describes how: Taking over as finance minister in 1993, Paul Martin inherited a looming disaster. The government was running a deficit worth 6.6% of GDP. By the following year, gross government debt had hit 101% of GDP, while net debt was over 70%, even as GDP registered a strong rebound–it grew 4.8% in 1994–from the recession of the early 1990s. Canadian government spending was cut by 15% (considering inflation) from 1994 - 1996. The budget deficit achieved a surplus in just three years. Canada's crisis disappeared was solved quite easily in retrospect, once tough austerity took place. So will the Canada model work? Can the U.K., or Eurozone nations for that matter, follow Canada's early 90's play book and fix their debt problems just as easily? The WSJ explains why it will be far more difficult for them. Canada had some key advantages back then: A strong global economy in the 90's.Massive cons…

This is what China’s commentator believe about the G7 countries

A year and half after the first shock waves of the global financial tsunami, Western economies - including the US and the European Union (EU) but excluding Australia and Canada, which are big natural resources exporters - are marching toward economic failure. I base this assertion on just one thing: Their governments are afraid to do the right thing.
With the full knowledge of what their fatal policies will lead to, their politicians do not seem to have the political courage to rally the support of the people to accept the necessary pain and make the sacrifices as preached by the Washington Consensus. Instead, Western governments have taken the other direction.
Much attention has been focused on the stagflation effect of spawning banknotes from helicopters, a metaphor for monetary quantitative easing.
That was bad already. Worse, the money has been given to a bunch of rich crooks who created the present quagmire in the first place. This is more than robbing the poor to pay the rich.
It is…

Where do you start? First, I was wrong!

Clearly the Bank of Canada saw an opportunity by raising rates by 0.25% this morning. The press release seem do indicated that this rise should be viewed in the context of global financial turmoil and this may not presage an aggressive strategy of raising rates going forward.But of course what else were they going to say within the context of an
The question that needs to be asked is why?
The BoC gives a few reasons:
The Bank has decided to raise the target for the overnight rate to 1/2 per cent and to re-establish the normal functioning of the overnight market.Activity in Canada is unfolding largely as expected The economy grew by a robust 6.1 per cent in the first quarter, led by housing and consumer spending. Employment growth has resumed.Going forward, household spending is expected to decelerate to a pace more consistent with income growth. The anticipated pickup in business investment will be important for a more balanced recovery.C…