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Showing posts from 2011

Merry Christmas to all

It is Christmas day, and of for the past few days I have not written very much. Frankly, the Canadian scene has been quiet -- aside from inflation data that showed that inflation is not under control in Canada, in reality inflation is steady at 2.5%, while transport costs (read fuel prices) are rising much faster.

GDP growth for October was flat (after many months of strong growth).  The reality that is GDP growth seems to indicate that Canada strong Q3 growth will be match by adequate Q4 growth, but nothing to write home about. It makes the numbers for the whole year closer to a level of 2.0% than the 2.5% that had generally been hoped for.

It is hard to say what will happen in 2012, since the BoC's hands are tied by global economic conditions.  The tea leaves for Canada are impossible to read, the events emerging in China, Europe and America will determine what happens to the Canadian economy.

Europe's story for 2012 seems to be largely written, and the news is not very good…

It didn't work for MF global, it may work for European banks

Some will have followed the Congressional hearing on John Corzin, the ex-head of MF Global, a middle size American investment bank, and broker that seems to have lost or misplaced around USD 1.2 billion of segregated client money. The picture that is emerging is that MF was using clients' money to improve its return by borrowing -- and pledging these funds to acquire government owned security .  Never mind tthe conflict that emerges from borrowing clients money without compensation, the reality is that MF was basically borrowing this cash so that MF could "gamble" in the sovereign bond market .  Usually because the risk of losses in sovereign bonds is very limited the lender (MF Global) can re-lend this moeney several times -- creating leverage.  It seems (and not all the information is in yet) that MF re-lent these funds many many times over -- but when the European bond market moved (by two or three percentage point) the collateral (Provided by MF's clients) was e…

Chris Htichen is dead

One of my hero's, a man ow wit died last night.  All those who followed the last year of his life new that he was "fighting the fight of his life", although to hear Hitchen, it was not so much a fight than it was a contemplation since he had little energy from the chemotherapy.

As a life long atheist he bugged America's known nothing right, and delighted many with his erudition, I've got several of his book on my Kindle reader for the holidays.

A fascinating man

Amazon and prostitution -- two unbelievable stories

First, the really crazy story; It was reported this morning that the German government is forcing its citizen into prostitution.  Hard to believe but according to the report a German women has been threatened with losing her unemployment benefits unless she accept a job in a brothel: "providing sexual favours".   You see prostitution is legal in germany -- it can only occur in certain area, like the Reeperbahn in Hamburg (as an example).  Now, the American puritanical right has been warning for years that l├ęgalisation of prostituions would lead to women being forced by their government into prostituions.  Turns out they may be right (I still think this is crazy).
However, there are a few things that don't add up in this story.  Say for example that you are a guy and are offered a very dangerous job, would the government have the right to terminate your unemployment benefits if you refused that job??? 
Still strange!
IN other news, yesterday afternoon -- it was around 3 …

France Vs. England -- An uneasy relationship

On new years eve 2000 I was celebrating the "new" millenium with my family in southern France -- we would watch the new year celebrations on the hour every hour as each time zone celebrate the new year (BTW I am fully aware that the new millenium only starts at the end of 2000 -- so don't point it out).  French television was effusive when the French capital did its "show" with the Tour Eiffel being the spectacular center piece of the new year celebration (it was such a hit that the lights that were installed for that event are still there today).  An hour later it was London's turn; the Brits really pulled out all the stops and the fireworks were spectacular.  The French commentator was so pissed-off that he started bad mouthing the British economy and social framework (at 1:30 am!).
Well we had a repeat last night.  It appears that the head of Banque de France (Christian Noyer) was being interviewed in a regional newspaper, where the issue of France'…

Is Commerzbank the first one to go?

According to the FT (December 14) the German government is working on a plan to rescue Germany's second largest commercial bank.  Commerzbank could be the first European institution (after Dexia) to fail.
I wish this was a joke (here), but the reality of Europe's over leveraged banks, and the fact that the $30 trillion Eurobond market has been closed for months, means that all these attempts to keep the boat afloat are now facing increasingly strong storm currents...
As Zero Hedge said this afternoon:
 "the German government has begun preparations for a possible state bail-out of Commerzbank." The plan would be activated if CBK is unable to figure out a way to fill a €5.3 billion shortfall in the next 30 days, which in reality will likely turn out to be far greater when all of the bank's dirty laundry is exposed for all too see. And with German banks by far the most sensitive to any perceived "tipping points", since it is the German state whose job it i…

2012 Projections -- a dilemma

My head says be true to your beliefs and analysis, my heart says the world will muddle through!
Each path has a very different outcome for Canada, and only in a few times in history have the pressures of change been more powerful.  In one corner we have China, the engine of growth for Canada with its insatiable demand for raw materials -- the core of Canada's strength.  In the other corner we have China the  65 million empty apartment massively over-invested economy battling inflation and a weakening economy.   Data out of China is famously unreliable, certain data points used to be useful (energy consumption) but over the past decade China's government has made this data less reliable.  Economists have used coal consumption (the primary source of China's energy) as a barometer, but even these datapoints have become contaminated.  Its a little like the USSR of old, not only was the Kremlin lying to the world, it was lying to itself; the pressure to make the numbers look g…

Turns out I was wrong! (Review of 2011 predictions)

IN late 2010 I made the following predictions:


2011 growth would be around 3%10y T-Bond would price around 2.95/3.30 (because of inflation)30y T-Bond would price below 4% but remain above 3.3%Inflation would be higher than BoC wants but Carney & friends have few optionsOil would remain around $100/bblCAD/USD would trade in the 97/101 range. How did I do?
Turns out not so well on the important stuff, the 10y and the 30y fell dramatically during the year, in fact as an investor the 30y has been a spectacular investment if you consider that yields have dropped from nearly 4% in January 2011 to 2.57%, nearly 1% below my lowest target price.  The same is true for the 10y that fell from 3% in January to 1.75% this morning.
Growth:  the numbers are not all in, but while the first half was a disaster the second half of the year saw an explosion in GDP growth that could take Canada GDP growth rate within spitting distance of my 3% target.  Better yet, growth has been countrywide and relativ…

Europe -- a short post

Being out of the loop for a few days allowed me to take some distance from Friday morning euphoria regarding Europe's most recent summit.  Looking at the cold reality of what has been agreed, a fiscal pact seems to have been struck by Europe's 17 (maybe 24 soon).  This falls well short of what is needed to repair the problems, but is a first and significant step in the right direction.
Most amazingly, reading the data available shows there are numerous ways for a country to derogate from the targets and stil escape from financial penalties.  Amusingly enough these penalties are not spelled out anywhere -- but the derogations are!  
Fundamentally, the initial problem persists; the only proposed solution is a deeply "protestant" one "those who overspent have to cut expenditure" -- there is no element of debt forgiveness.  An unrealistic (but locally for Merkel, politically expedient solution) position that assumes that the lenders don't share the  blame …

Canadian concerns

As one famous ultra-right wing economic commentator once said: "Canada makes things that if you drop them on your feet, hurt".  Canada makes steel (or at least Iron ore), we make copper we make gold and plenty of soft commodities.  Not only do we "make" these things we export the great majority -- which enables many Canadians to flee Canada's harsh winters.
Canada's banking system is made to measure to serve these industries, we know that demand is a boom/bust scenario -- unending change from feast to famine driven not by Canada's doing but others exuberance or at times soberness.  Canada's financial institutions are deemed some of the safest in the world because they know that today's feast can quickly change into famine. The past quarter of century (and the last decade specifically) have belonged to the emerging nations and as far as Canadian exports, China in particular.  The Chinese story has been one of massive investments -- accounting fo…

A busy week!

I finally got my walking papers from my employer -- after waiting and hoping for more than six months, my (now former) employer finally came to its sense and made me an offer I could not refuse, I happily walked the plank, and I am now officially unemployed -- Yeah bitches!
Not entirely sure they were expecting my reaction, they are nice people, but I they keep on saying no to my deals!  What`s a guy to do?
My silence over the past two days was due first to the above mentioned:  "Your services are no longer required" episode, but also due to the fact that I had "minor" surgery yesterday morning -- the most painful part was when they removed the surgical tap that held the surgical cloth up (to keep the area clean).  No worries dear reader I was not emasculated -- no the "operation" was near my eyes -- I now look like a punch drunk boxer.
I`ve been out of it for 24 hours -- but the news this morning is far from glorious.  Don`t kid yourself, the ECB is cut…

Canadian Interest rates unchanged

Uncertainty around the global economic outlook has increased in the weeks since the Bank released its OctoberMonetary Policy Report(MPR). Conditions in global financial markets have deteriorated as the sovereign debt crisis in Europe has deepened. Additional measures will be required to contain the European crisis. The recession in Europe is now expected to be more pronounced than the Bank had anticipated in October, as a result of increased deleveraging and tighter financial conditions, as well as necessary fiscal austerity and structural reforms.(Bank of Canada)
Other topics; Canadian GDP growth for Q3 and Q4 are expected to be higher than the BoC had expected in October, also although inflcation is also at the upper range of the BoC's target (both Core and non-core) CPI are expected to fall before the end of the year.
Canadian futures market still takes the view that Canadian rates could go down Q2/12 by 25 bps -- depending on how serious things get in Europe and America (lest …

Soft Commodity production (final tally) for 2011

It was well known that 2011 was an excellent year for Canola and Wheat production in Canada each seeing an increase of 10.7% and 9.1% respectively -- partly because of increased of acreage 9% and 5% respectively, but also because of increased yields.

Soybean and corn has been a different story (Quebec and Ontario) that saw a slight drop in production despite "substantial increase in acreage"  the drop of 2.7% is not significant but the cost of production (fuel) means that the impact on Quebec and Ontario farmers has been significant.

Strong production of  Canola and Wheat (especially Durum) has been a boom to Western Canada farmers -- that were able to take full advantage of the summer's high grain prices (since then much lower).

Building Permits -- up after three bad months

Just when Canadians seem to have given up on the construction industry (I exaggerate for effect) numbers for the October 2011 shows a 11.9% increase in building permits, most of it in the non-residential sector (up 32% -- "Chinese like" growth really).



A break down by segment


The bulk of the growth was in Ontario, where the economy seems to be on firm footing.  Last week's disastrous employment numbers (down 32,000) was 175% attributable to Quebec which saw a 57,000 reduction in employment.  Indication again, that Ontario's economy seems to be on an even keel.  Moreover, since the bulk of the permitting relates to non-residential projects an indication that this building "boom" is driven by industrial demand.
Good news indeed!

Too strange: real estate in China

Several years ago (2003) the inner-mongolian city of Ordos decided to build a new city for one million people.  Until recently Ordos was a building site, despite the fact that most of the city that has been built was a ghost city -- amazingly enough despite this city having a capacity of nearly a million, no more than 50,000 people living there.
Surprisingly, real estate prices in Ordos are only now beginning to fall, to the despair of the owners (20 to 30%).  For nearly 10 years the city of Ordos has been empty, these property generated no income for the owners and despite this, property prices remained high.  
There are some Chinese peculiarities, first off, Chinese home buyer will pay a premium for a brand new home (for some reason they think its like a new car), so speculators buy real estate and keep them empty -- waiting for prices to rise, and not relying on rental income.  Hence, China probably has more than 65 million empty homes -- to give an order of proportion, in America…

Models say: Go bonds!

This morning talking to three money managers -- they work exclusively with very wealthy individuals.  They get paid a flat commission and have no reasons to churn their clients' books.  All three this morning told me that they ran their models over the weekend, all three came to the same conclusion, move clients money from 100% equity to 100% bond.
The metrics they use a relatively common, nothing mysterious, all three note that the year has been flat (all Americans) so that clients are not worse off. Their trading strategy means that their clients are actually up a little, these are not buy and hold managers, the actively manage their clients' money.  Anyway, all three had the same perspective; the economic risk is very high, all those who plead that the banks (in America) are fine are not only talking their books (which is fine) but also hoping that the derivatives books will not blow up (because of a counterparty failure) -- BTW there were rumors of a big European bank hav…

Two in a row

That's not so good, after the excellent September numbers 54,000 jobs were lost in October.  November, where everyone was expecting a rebound (Prediction +20k) turns out to be negative too (actual -19k).  That's two bad months in a row



On the bright side, full time employment rose by 35,000 and part time fell by 54,000 so its not all doom and gloom, but looking at historical data (above) for the past 3 years seems to indicate that this could be the start of something more serious.

Is it too late for the Euro?

I’m in the bear camp on that one, unfortunately the decentralized nature of the EU means that because there are so many decision makers that have conflicting objectives it is difficult to address serious problems (remember Kosovo?).  The likelihood of the Euro surviving beyond 2012 is probably less then 50% -- because the EU needs to take real decisions instead of kicking the can down the road. The first thing which has to happen, call it a “12 step program” for Europe is to admit the problem.  European countries have been making promises they cannot keep. All of Europe’s governments have been playing extend and pretend, and while the German are better than almost anyone in Europe they are not exactly paragons of virtue. Second, European leaders have to admit that it is a solvency issue and that some default will occur (some debt will be forgiven – and it will be a large number (BTW liquidity is simply a symptom). Third, Europe’s government cradle to grave program is unsustainable – t…

Cow Joke

Thank Ryk


SOCIALISM You have 2 cows. You give one to your neighbour. COMMUNISM You have 2 cows. The State takes both and gives you some milk. FASCISM You have 2 cows. The State takes both and sells you some milk. NAZISM You have 2 cows. The State takes both and shoots you. BUREAUCRATISM You have 2 cows. The State takes both, shoots one, milks the other, and then throws the milk away... TRADITIONAL CAPITALISM You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income. SURREALISM You have two giraffes. The government requires you to take harmonica lessons. AN AMERICAN CORPORATION You have two cows. You sell one, and force the other to produce the milk of four cows. Later, you hire a consultant to analyze why the cow has dropped dead. ENRON VENTURE CAPITALISM You have two cows. You sell three of them to your publicly listed company, using letters of credit opened by your brother-in-law at the bank, then execute a debt/equity swap with an associate…

Another reason not to use the "office mobile" for personal stuff

Turns out that virtually all mobile phone come with Carrier IQ, which allows the carrier (and maybe the company that owns the phone (hint hint) to track every keystroke!  Obviously the owner of the phone wants to know what it has been used to do, but it turns out now that it is far more pervasive, it records all keystrokes, it records your location (even when you switch this function off on the phone).

For the past 6 months my office smart phone stays home at night, every night, its actually switched off as of 8 pm and during the weekend (probably still recording location anyway), and I now have a personal mobile phone.

Its not that I am paranoid, its just none of their damn business.

funny Christmas card

Personal Debt for Canadians

Fascinating article in the National Post this morning:

Here are the highlights:

Canadian household debt as a share of personal disposable income stood at a record 150.8% at the end of June this year (Source:  Moodys')But according a report last week in the Economist, Canada is one of nine countries where housing prices are overvalued by at least 25% and one of just four where prices are on par with those in the United States prior to the real estate collapse . (Source:  national Post & The Economist)
And two images:



And this:



Yesterday's Action

I've been out of the market for a few weeks, but yesterday's activity (S&P500 up 4%) still amazes me.  None of the news was that good, the Chinese reduce fractional reserves because their economy is slow (because Europe's economy is in terrible shape) and then a "concerted effort" by all the central banks that matter (and Canada) to make swap line arrangements to facilitate liquidity between the central banks.
First, this is not a new program (they've lowered the cost from 1% to 0.5%), but this is central bank to central bank lending -- they don't really care and frankly its not 50 bps that are going to make a difference.  The liquidity crisis is mostly between Europe's banks.  It is primarily driven by a dead Eurobond market (that banks use to fund their day to day operations), the banks have been repatriating cash (to meet their home markets needs as fast as they can -- hence the strong Euro), they've agreed to raise tier one capital to 9% …

Japan and Lying

Years ago I worked for a Japanese financial institution (they no longer exist), these were my formative year and it gave me a taste of easy it is for financial institutions to hid information from regulators (that's the important bit).  Since this firm was "highly" regulated by the bank of Japan every year a number (4-6) Japanese auditors would arrive at the bank -- and then instead of working they got drunk with the staff -- every night till 3/4 AM. But more interesting is that the staff of my bank (the Japanese guys) would prior to the arrival of these auditors remove records from the filing system [highly coordinated, they had a list].  Now these auditors were clearly going through the motion (SEC anyone, anyone at all) since they could have sequestered themselves from the bank staff (like it is done here in Canada).
Since I was a "good friend" of some of the Japanese staff (I was probably the only Gaijin who actually liked Japanese food and culture) they t…

Canadian House prices stabilize

After an epic 9 month rise in prices, things seem to be cooling a little up in the great white north.  Obviously the Federal government enacted new mortgage provision in May of this year, it was always anticipated that it would eventually impact price/demand.  Maybe this is the first sign.

The Teranet National Bank House Price Index was release this morning, the news for the country as a whole was that growth on a national basis has been slowing for several months -- in  July price rose by 1.5% (not annualized) and in August the number was 0.9%, so September 0% growth is a clear indication of slowing.

Obviously, with a country like Canada the local picture is somewhat different.  Halifax (-1.1%), Calgary (-0.8%), Quebec City (-0.4%) were balance by increases in Winnipeg, Victoria and Toronto.  Interestingly other data points (from StatsCan) show that mortgage borrowing growth has "tempered" to 7% (it was as high as 16% in 2007), and construction for housing is also dipping.