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Showing posts from November, 2010

Wikileak: Is it possible to embarrass US banks

From Barry Ritholz the Big Picture blog:  Here is the sad reality: Can you really embarrass any [... U.S.] banks? They were incompetently run, with criminally inept risk management. They blew themselves up, and exist today only due to the largesse of the taxpayer. They gratefully took all they could grab and more.What else can you release to embarrass them?Unless they have 5GB of video showing their CEOs engaging in bestiality, its hard to imagine Wikileaks embarrassing the big banks.Harsh but probably true, even the Vampiresquid GS got away with "murder"

Canada’s Balance of Payment – Deeply negative

Sorry missed this data yesterday!
The strength of the Canadian dollar continues to affect the Canadian economy.Canada’s trade balance continues its downward trajectory into the negative…In the third quarter of 2010, our current account deficit widened to C$4.6bn, for a total of C$17.5 bn for the year.
The strength of the Canadian dollar is sucking-up foreign demand; at the same time demand for Canadian goods (non-energy) is ebbing.This has been financed by the dramatic increase in foreign capital inflows (see here) that have been the hallmark of Canada’s economy for the past two years.

On the bright side, Canada’s Gross fixed capital formation advanced 9.4% driven by non-residential investments (+19.8%) with machinery & equipment surging 28.7%.In a nut shell Canadian company are investing heavily to increase labor productivity.
(Source Data:  StatsCan)

Steven Harper's Hair -- very funny joke

Amid the furor and embarrassment of the state and military secrets revealed in the latest Wikileaks data dump, there is perhaps some reason for pride among Canadians in keeping at least one important state secret. Buried in the thousands of pages are a few telling lines that point to Ottawa’s steadfast defense of Prime Minister Stephen Harper’s Unmovable Hair. It appears that Canada’s spy agency, CSIS, was inundated with calls from world leaders and military chiefs in the wake of this summer’s rainy G20 meetings in and around Toronto. It did not go unnoticed that while wind and rain assailed many a presidential coiffure, come photo time Harper’s hair was as unruffled and well-ordered as a Ken doll’s. 
Hoping to coat the undersides of Humvees and helicopters in war zones with this seemingly indestructible unguent that protects yet provides volume and shine, foreign powers had their entreaties rebuffed again and again, “lest the secret fall into the wrong hands.” Having grown weary of th…

Producer inflation is a worry for the Canadian economy:Stagflation signal?

While the Canadian CPI Index has recently felt a bump, there reality for producer price is one of very heavy inflation.  In October, the Industrial Product Price Index (IPPI) and the Raw Materials Price Index (RMPI) were up 0.5% and 1.7% respectively from September. Both indexes advanced mainly because of petroleum and metal products.  Importantly, excluding petroleum and coal prices, the IPPI would have remained unchanged in October.
(Source: Statscan)
The story for the Raw Materials Price Index (RMPI) is one of strong year on year inflation.  They increased by 1.7% in October, primarily because of higher prices for mineral fuels (+2.0%), non-ferrous metals (+2.8%) and vegetable products (+5.1%). Crude oil prices were up 2.5% in October, after falling 3.7% in September. Excluding mineral fuels, the RMPI would have increased 1.4% in October, continuing its upward trend that began in July 2010.
Compared with the same month a year earlier, the RMPI rose 5.0%, following a 5…

Canada’s 3rd quarter GDP numbers make for grim reading

As expected third quarter GDP growth in Canada was poor, annualized growth of 1.2% (against 5.8% in the first quarter), is nothing to write home about.Moreover, in September itself GDP declined by 0.1%, which is far worse than expected and sets a difficult stage for the 4th quarter.

Our initial estimate in December 2009 was for GDP growth of 3.2% for the year, based on solid natural resource prices (check), strong-ish Canadian dollar (check) and oil price in the $72-$75 range (check) what we underestimated was the impact of trade, exports were a massive drag in the 3rd quarter GDP numbers to the tune of 0.4% -- somehow we had anticipated that the U.S. economy would be doing better than it is.The one single item of strength in the GDP figure is personal consumption which rose 0.9% (again in the quarter).Housing was also a drag on the GDP number, not entirely surprising, since it was during all of 2009 and early 2010 such a massive contributor to Canada’s GDP growth.

The BoC target was 3%…

Federal deficit for September shrinks to $3.9B

The federal government’s budget deficit in September was C$3.92 billion, a 21% improvement from $4.97 billion a year earlier thanks to stronger revenues, the Department of Finance said today. Revenues were up 13% to C$17.31 billion for the month, while expenses increased 3.1%.
In the first six months of the current fiscal year, April to September, Ottawa’s deficit of C$17.4 billion, was 39% lower than for the same period in 2009.Moreover of this C$17.4 billion a total 52% are for programs (C$9bn) implemented during the recession that will expire in March 2011.
It is important to remember that until 2009, Canada’s federal government was operating a surplus.Estimate for the current year’s deficit is C$55.6 billion, which is equivalent to a 4% deficit.
Source:  Reuters

The Euro – A digression

Friday night I was invited to a “late Thanksgiving dinner”, late because Americans based in Canada celebrate Thanksgiving on the Friday night – its easier than doing it on Thursday, since Friday is a school day up here (Canada’s Thanksgiving occurred several weeks ago).
At our dinner was the CIO of a major pension fund, and his background was a fascinating element to his perception of the future of the Euro currency.Before being in the investment game, he worked for the ministry of finance of one of Europe’s core country.Clearly a very smart and dedicated man, he came across as typical of this high profile network to which he belongs, reserved and effacing.I mean this as a compliment; this is what always irritates people who meet Goldman Sachs bankers, they never come across as arrogant (nearly ever), but their few (and quiet) comment are usually incisive.
However, this upbringing can create some major blind spots; in this case his view is that the ECB and the “government” authorities w…

China Slowdown: What does it mean?

First, this is a long post, my point is that the anticipated slow down of China – due to its inflation worries – will negatively impact the Canadian economy.
A few months ago, Jim Chanos, president and founder of Kynikos Associates, a New York City investment company said that there was a property bubble in China, evidence was that there are 65 million homes in China that are not connected to the electrical grid – therefore no one lives there (See here and here).There was a great deal of skepticism as to his views, but what is important was that Chanos said that he was not shorting China (despite his perception that a contraction was in the cards), rather, Chanos said that since shorting China was “impractical” he would short first and second derivatives assets.
What does this mean?Well it means that if you believe that China will slow down, the demand for many raw materials will fall, as will their price, hence shorting the stock of firms that are active in these sectors, you achieve t…

Nigel Farage on the Future of the Euro -- Some home truth!

Text from an elocution in the European parliament this morning:

Good morning Mr. van Rompuy, you've been in office for one year, and in that time the whole edifice is beginning to crumble, there's chaos, the money's running out, I should thank you - you should perhaps be the pinup boy of the euroskeptic movement. But just look around this chamber this morning, look at these faces, look at the fear, look at the anger. Poor Barroso here looks like he's seen a ghost. They're beginning to understand that the game is up. And yet in their desperation to preserve their dream, they want to remove any remaining traces of democracy from the system. And it's pretty clear that none of you have learned anything. When you yourself Mr. van Rompuy say that the euro has brought us stability, I supposed I could applaud you for having a sense of humor, but isn't this really just the bunker [or banker?] mentality. Your fanaticism is out in the open. You talk about the fact that…

A fascinating analysis

Chief economist at National Bank of Canada looks at the various inflows into investment assets (Cash, Equity and Bonds).First, the interesting elements; in 1995 (15 years ago, fixed income accounted for 30% of investors portfolio, in 2000 it accounted for only a little more than 10%, today the proportion is growing again (around 25%), but is still today (2010) below the long term average of 30%.

The flow away from equity continues unabated:

What is truly interesting is the median age of investors is around 50, so that an increasing number of investors are looking at their retirement requirements, having lost some confidence in the equity market (essentially flat since 2000), investors are taking their most recent experience as a barometer of future occurrence.
Are the correct? Only time will tell.Corporate profitability has risen dramatically over the past two years, to reach stratospheric levels, in fact, American companies have seen virtually no growth in top line revenues, but massive…

It's official -- no housing bubble!

Apparently, Canada's minister of finance (Jim Flaherty) today stood in the Chamber (House of Commons) and declared that there is "no housing bubble in Canada", there cannot be because interest rates are low.

On another note, Today the Teranet - National Bank Housing Price Index came out for September 2010, and there's been small correction in the Canadian housing market, its down 1.1% across the country:

Canadian home prices in September were down 1.1% from the previous month, according to the Teranet-National Bank National Composite House Price Index™. The monthly decline ended a string of 16 consecutive increases in the composite index since the last monthly deflation in April 2009. For the first time since February 2009, prices fell in all six of the metropolitan markets surveyed. The declines were 2.4% in Halifax, 2.2% in Calgary, 1.6% in Toronto, 0.5% in Ottawa and 0.3% in Montreal and Vancouver. For Vancouver it was the third consecutive monthly decrease…

One wonders (bit of a rant)

Today the economic news south of the border is mixed, it’s very important to Canadians, because America accounts for ¾ of all our exports (and imports).Most non-Americans fail to realize that the North American relationships are North South, and not East West (physical barriers).Canadians are more “to the left” than their American counterparts, and aside from a very small minority, Canadians are satisfied with their health care system.However, few Canadians have patience with Bay street (Canada’s Wall Street), and a bank rescue as was organized in the US would probably not fly here. We have a few issues with our neighbors, aside from entertainment dominance, belief that Hockey is an American game, disbelief that basketball was invented in Canada!
Of late it’s the economic news that has been troubling me.Sure the Federal Reserve has been aggressively expanding the money supply (of sort) whereas last year the Bank of Canada has withdrawn all liquidity facilities – today’s Bank of Canada’…

October inflation in Canada -- not good news

Most Canadian economist were betting on unchanged core inflation numbers (stripping out the more volatile elements), but core inflation rose to 1.8% from 1.5% it was in September.  Including all CPI elements consumer prices rose 2.4% in the 12 months to October, the largest increase since October 2008. It follows a 1.9% increase in September. About half of the 0.5% increase can be attributed to higher gasoline prices (prices at the pump were 8.8% higher than a year earlier, following a 3.1% increase the previous month).

The seasonally adjusted CPI increase was even worse, consumer prices rose 0.7% during the month, the largest increase since 2006.  Could we be seeing stagflation in Canada? (Low growth and high inflation?). 

The distribution of price increase seems to be across the board, and seems to confirm the PPI increase of the summer, which are finally being passed through to consumers (on the bright side PPI have been tame of late – which could be good for future inflation).
It wo…

Deficit, Growth and the Canadian dollar

Demand for Canadian assets by foreign investors continues to grow at an almost uncomfortable level, account for more 8% of GDP today.  One reason is that the Canadian federal deficit for the current year is anticipated to be around 2% of GDP (slow down Nelly it sounds better than reality!).  The issue is that in Canada, the provinces account for a substantial portion of total government activity.  In fact, at a Federal level, Canada’s government should be generating a surplus, since the economy is “humming along”. 

Late last week, the Ontario government (Canada’s largest province by population, wealth and GDP), gave an update on the state of the nation.  Certain surprising facts:
Deficit is anticipated to be $1 billion lower at $18.7 billion (or 3.1% of the GDP), the reason – revenues are higher ($750) and costs were lower ($250).Ontario has revised its growth forecast to 3.2% from 2.7% as a result of the better level of economic activity – tax receipt are an undispu…

Canadian Productivity Revisited

I have often written about productivity here in Canada  (here, here and here).  Part of the problem is that with the U.S. economy next door, Canada's performance has almost always lagged, and no one seems to know why this occurs.  there are many theories, and I know for a fact that the are hundred of articles in Canadian literature as to why it lagged and how it can be improved by the "right policy".

In fact, provincial and federal governments have tried all kinds of policies to get productivity to rise with little success, and when it does suddenly rise (as it did early in 2009) the reason is unexplained and it is evident that no policies were in place.

There are four factors which drive productivity; Canada has structural weakness in two of the four:
(1)Innovation and Technology:Canada is a small open economy.Its small size, labor market inflexibility and stronger union make this force weaker in Canada. (2)Specialist knowledge workers;Canada is a country of generalist, spe…

Canada’s September TIC report

Foreigners’ love affaire with Canada continues unabated, although the flow direction has changed somewhat towards bonds – to levels only second to the January 2009 amount. Non-residents acquired $8.8 billion of these instruments in September, focusing on US dollar and Euro denominated private corporate and provincial bonds.

Non-resident investors purchased $3.6 billion of Canadian private corporate bonds in September, following acquisitions of $5.3 billion in August. This activity was dominated by new bonds issued by resource and financial firms.
Foreign investment in federal government bonds leveled off in September, accounting for a $1.9 billion inflow of funds from abroad. Federal bonds have attracted sizeable foreign investments since January 2009, with foreign holdings of these instruments more than doubling since then.
Although the risk associated with the Canadian economy remains positive – in fact Canada’s economy is underperforming its southern neighbor in Q3/2010 (and possibly …

Europe Cluster&uck-- Zero Hedge Comment today

..(I)t seems that more of the Eurozone is starting to get cold feet over how to proceed with this classical defection from a game theory set up. As a result, the entire EU has delayed the December tranche of the Greek payment until January. Presumably this is to teach Greece a lesson, although it is unclear what it will actually end up achieving. As Greece can not fund itself outside of the ECB framework, as its banks are insolvent, and as it does not have the capital to exist in isolation, this action is comparable to the EU pointing a gun at its head and telling itself it has to stop lying or else.

So the clock has been set -- Greece goes down in December unless Europe changes its tune.  the problem is the first sentence; Austria has thrown the gauntlet (As has Finland vis-a-vis Ireland), who will be next?    

On related news today Obama, at the request of the Republicans, has agreed to delay a November 19th meeting on the Bush tax cuts to November 30th (it could be delayed further). …

Canadian manufacturing in the dumps

Well it was to be expected; with our southern neighbor having a difficult time in the sales department (although consumption was up in October, removing gas and cars from the equation shows sales growth of 0.2% as anemic).StatsCan just released the September manufacturing data, and sales are off 0.6% for the month, in constant dollars sales are off by 1.4% -- manufacturing sales are still up 11% from the March 2009 low, but as the chart shows Canada’s manufacturing sector is having a hard time.

Of course a month doesn’t a trend make, especially since the bulk of the shortfall (7%) came from Aerospace (a particularly volatile sector), but the automobile sector was also off by 10% -- which considering consumption figures in America were largely the result of demand for new vehicles – should we read something here with regards to U.S. consumption for the rest of 2010?Unsurprisingly, the material and energy segments are both up, but then they have less scope for dramatic rebound (oil and g…


The Chinese are finally building their own aircraft.  They’re on the verge (two years away anyway) of having a 70 seater aircraft (ARJ70) ready for delivery to their airlines, and to airlines around the world.  Good for them, it’s about time!  Of course this is not a question of cheap labor; making aircraft requires very experienced engineers, people that are expensive to train (5 years for full engineer ticket) and have to be retained (not low paying jobs).  So we are talking here of direct competition to Embraer (Brazil) and Bombardier (Canada).   
Of course what few notice is that the market for 70 seater aircraft is not in China, it is in Europe and America.  A news article this morning talked about a Californian executive having to wait 5 days to get a flight out of China to the U.S.  (no seats available).  Now these stories have a tendency to exaggerate the real problem, but it remains that China’s density, wealth and growth (coupled with horrible land transport infrastructure) m…

Getting Fit

Ok, since there’s so little going in Canada, I though a more personal entry would be interesting.  Last summer my weight ballooned (literally) to 143kg (don’t even want to think what that was in pounds).  Anyway, I took a decision that this time I would get serious about the weight loss!
On August 1, 2010 my objective was to loose 44kg (96.5 lb).  For those serious about permanent weight loss, the maximum you can lose (as a man) is about 2kg per week, beyond that you run risk of major health issues.  You also have to be realistic.  Some weeks you will loose more and some less.  My doctor, yeah I know its sounds lame but when you target this kind of weight loss you really need a third party involved, says that the trick is to not think of the deviation as anything as something that happened (don’t make a mountain out of a molehill).  As of last week my blood pressure is around 110/78 and my heart rate at rest is 59.
As of November 15, 2010 I’m down to 125.8kg, or 17kg, my actual weigh lo…

Housing & GDP Growth

Canadian new housing construction is slowing rather quickly, not only are new permits off by nearly 9.2% from their September numbers, these numbers were also revised downward.Primarily, it is cities that were affected, but then since they account for nearly 90% of all construction anyway… The worse affected region was Ontario (down ¼) followed by the prairies, while Eastern Canada did ok (flat or up). Canada’s peak in new housing construction occurred in the early spring, and is consistent with a slowing economy.Mortgage rates in Canada are still very lower – in Canada mortgage are set for a 5 year period after which rates are reset, there are no 30 year fixed mortgages in Canada.
Some home truth here are that construction was outpacing potential demand for the better part of 2009 and early 2010, so the drop off is just a re-adjustment to more reasonable levels.Canada requires nearly 200k new homes, but production was far above that level in 2009.When the government puts expiry dates o…

Impact of American mid term elections

It has now been a week since the mid term elections took place.Personally, I never thought that the Republican would recover so quickly from their 2008 drubbing, but then I made two miscalculations:First, Americans are shell shocked by the 2007-2009 recession, the worse in nearly 80 years.Second, the Obama administration has gone a long way to demonstrated that Democrats are not fit to govern.
Obama’s priorities to focus on the status quo appear somewhat strange.The banks problems have been swept under the carpet, and sustained by a mix of lies and omission.Level 3 assets are the perfect example of the weakness of the U.S. banking system.His focus on the health care reform was important, but a 2,000 page new law is beyond the pale of what is acceptable.
Americans like black and white solutions and Obama has failed to deliver these.He has spent an inordinate amount of time courting Republicans who have time and again spurn him.His desire to re-regulate the banks, while leaving them uncha…

Interesting comment on Gold

While this is not a prediction that the price of gold will fall, McElvaine simply believes bullion isn't the type of investment he is looking for. "You're more of a psychoanalyst than an investor if you're buying gold," he says. "When an investment is advertised on television, I have hard time thinking it will fit in to what I do.
"On a fundamental basis, the manager notes that three years ago, net producer output of gold (less hedging, plus scrap) came to about 3,000 tonnes per year. Meanwhile, fabrication demand -- industrial, dental and jewellery -- came to roughly the same amount. So fundamental supply was roughly in line with fundamental demand.
Fast forward to today and McElvaine expects we'll have about 4,000 tonnes of production and scrap. However, lower fabrication demand will only absorb about 2,000 tonnes.
"My issue with that is I don't like situations that are so dependent on emotion. Could that demand double? Of course. Could it h…

Canada’s Dilemna

Over the next few days Canada’s Prime Minister will have to decide if BHP will be allowed to purchase Potash Corp (TSE:POT).POT is considered a Canadian company, not sure that’s a fair representation of reality, since most of the management is based (day to day business) in Chicago, and a good portion of the company’s shares are owned by non-Canadian (some will say that in excess of 50%).Moreover, it’s not like BHP can “move” the business.Potash is mined, and something like 60% of the world’s supply is in Saskatchewan.
The Federal competition tribunal has ruled that it’s Ok for BHP to buy POT, however, there are two additional twists:First, Steven Harper, Canada’s prime minister can over-rule the competition tribunal, second, mining is of provincial jurisdiction, in other words, the province can still veto the whole thing.
Bottom line, BHP’s offer is around $140 per share, and the stock trades at $148 so that fight is not over yet.In the past Canada has been very willing to see “nationa…