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Showing posts from February, 2011

Mixed message from the Canadian economy

Last week, Statistics Canada revealed that for December 2010, an expected small trade deficit ($300 million) turned out to be a relatively large surplus $3 billion.  This morning, retail sales came out for the same period, and whereas the previous four months had seen rather large increase in retail sales, the December numbers were disappointing, down 0.4%.
Again, this is a month on month change, over the past 12 months, retail sales rose by 5.1%, which is actually greater than the growth in income.  Canadians have the dubious honor of having the world's largest personal indebtedness.  Which goes to show that not all things are well in the Great White North. 
So in a nutshell, Christmas sales were not great (hence lower imports) but exports were gangbusters!

Canadian Inflation in January -- Slightly lower than December 2010

Turns out the Canadian CPI has tempered a little over the past month, "falling" from annualized 2.4% t0 2.3%, while core inflation (removing fuel and food) remained unchanged at 1.7%.  Canada is bucking the trend, but then again the CAD is up 5% over the past 12 months, so that took some sting out of the inflation data.

Nothing to see here

Quebec to hold public hearing on the LSE acquisition of TSX

If it was not so sad, I would laugh!  Really, this is what the Quebec government focus on?  Lets be clear, Quebec has some very strange securities rules.  For example, you cannot have a IPO sold in Quebec unless the offering documents are fully translated into French... not even the French securities regulator requires this, so when there are global IPO (like Visa a few years ago), Quebec and North Korea are the two places in the world where you could not buy the IPO (no kidding here).  However, once the stock is listed you can buy it on the secondary market! 
Quebec's politicians want Montreal to retain the derivatives business/expertise, sounds a reasonable position -- but public hearing?  The Montreal branch of the TSX does all the derivative transactions on Canadian securities (Puts, Calls exotics etc), this was a condition for the acquisition of  the the Montreal Stock Exchangeby the TSX.  Public hearing seems a bit much:  First, the derivatives market is primarily an institut…

Capital inflow continues Part Deux

Over the past 12 months, total capital inflow into Canada exceeded 6% of GDP ($112 billion).  Big winners are Corporate bonds which saw the largest increase, followed by Federal Gov't bonds.  The lowest growth was experienced by the provincial bonds -- maybe an overflow of the perception of municipal bonds in the US following Meredith Whitney's comments on that market...
(Source: StatsCan)
Most Canadian economists are talking about the CAD trading around 105/0.95 range tot he USD, recent studies (and trade numbers) show that Canada's manufacturing sector remains very competitive with America's despite the strength of the Canadian dollar (that will further improve as Canadian CAPEX programs initiated in 2009 and 2010 begin to bear fruits).
In a world of massive bank stimulus, and easy money Canada's central bank stands apart (or at least on the side).  The growth of money supply in Canada has been somewhat more reasonable
(Source:  Statistcs Canada & Bank of Canada)

Matt Taibbi Strikes again

This has to be read, Mat Taibbi, he of "Vampire Squid" fame strikes again against the U.S. banksters.  It almost makes you sick to read what goes on here.  No wonder Maddoff was able to pull his Ponzi scheme; no one wants to know. BTW the only reason is in jail...he stole from the rich!

In a nuttshell the U.S. financial system is set up to protect fraudsters, and not catch them in the act

Tea Party and mental disfunction

Interesting comment by Mark Thoma, of Economist's view blog, why the Tea Party can take the view that Gov't expenses need to be cut, but that Social Security and Medicare should stay "out of the clutches of Government". Many "wealthy Americans" believe that the have actually paid for these services, that over the years their taxes created their personal reserves, and that therefore these are not entitlement, but the use by ordinary americans of what they have saved. Medicaid and other social programs on the other hands provided mostly to poor people are in fact unearned and these deadbeat should pay their own way.

Since social security has been underfunded (to meet the baby oom generation) and that longevity has been rising for years, it is unclear that this is the case, nevertheless it explains how the Tea Party cn say less government at the same time as they say stay away from Social Security and Medicare....

Interesting analysis, and it explains their …

$3 billion trade surplus

I cannot believe how well this news fits into the narrative I have been building. January's trade surplus clocked in at $3 billion, while most economists were expecting a small deficit. The reality of Canada's manufacturing is that despite a rise in the CAD Canadian manufacturing remains competitive.

BTW it also means that our trade surplus with the US passed the $5 billion level, although this was to be expected with Canada becoming America's no 1 energy provider

Why I cannot stand the American right!

I've been getting angrier and angrier at my southern neighbors, especially the right,the latest was New Jersey's governor decision to not only cut services by a cool $5 billion and cut taxes by $4 billion. NJ is in trouble, as are Texas and California. But it seems to me that America's right is missing the point.

A few weeks ago the same Governor proposed that to trim school budgets that class size should rise from 32 to 65! I don't have children, but I can bet that little learning will occur in classes of 65 students. America has a fundamental problem, it has to be one of the few countries that manages to outspend almost everyone else on education, and have ranking in math and reading that puts it firmly in 39th place in the world. Moreover, it's politicians see or care for no solution, they seem not to care that jobs are being shipped abroad, not because it is cheaper, but because foreign workforces are better educated.

America's right seem not to care …

Rag Tag Stuff:

Snow in Canada:
Saturday we got a foot (20cm) of snow in Montreal, the city is beautiful all in white, sidewalks are still a little slippery, but the streets are more or less clear of snow.I guess we are used to the white stuff, which reminds me I cannot think of anything scarier than flying from a “southern” airport after snow storm.These guys don’t know what deicing is all about.
Canadian dollar, Yield Curve and Interest rates
Still trading above parity with the US dollar, it seems a permanent fixture now.The interest rate differential on 30 year bonds between Canada and the U.S. (89 bps) seems to be permanent.The Bank of Canada has the option of raising rates on March 1, 2011.Some (David Rosenberg) believe that the BoC will retain overnight rates at 1%, I disagree, although 65% of the new January jobs were government related, 23k were created by private enterprise (which is more than the target jobs growth penciled in for Canada by pundits).The only issue for the BoC is can we afford …

69,000 new Jobs in January

A huge print for Canada, 69k is the equivalent of 600,000 jobs in the U.S. (they are hoping for $150k… later this morning).  This will create an opportunity for the Bank of Canada to raise interest rate prior to May 2011 (the initial date on which the market anticipated that Carney & Friends would begin considering interest rate hike).

As usual, the “good feeling” has lead to an increase in the unemployment rate as more Canadians are encouraged to look for work (yes a perverse effect, nevertheless, it is what it is).  Over the past 12 month, employment in Canada rose by 1.9% (+327k jobs).  On the down side of the equation, half the jobs created in January were part time. 

Women over the age of 25 were the biggest winners here accounting for a large percentage of the total increase in new jobs (80%).  In terms of geographical distribution Ontario was the big winner, followed by Alberta (not entirely surprising with oil prices over $90/bbl).  Quebec (Canada’s second most populous prov…

Could the CDS market make the Euro stronger?

In the closing days of 2010, the credit default market for European sovereign names hit a speed bump when the debt for Italy started to be infected by the PIGS problems.Whereas Portugal, Ireland and Greece are small, Italy is large (10% of Europe’s GDP).It is possible that with Italy’s credit swap market imploding (or at least showing some signs of contagion) that Europe’s governments have finally realized that some form of fiscal centralized action is required.
Obviously, there are still many hands to play, since elections and “domestic” politics will intrude on the proposed pan-European fiscal model. So far, it is more hope that action will bond holders do their share of the heavy lifting? Germany’s government has been its worse enemy during this crisis.It now seems to have learned its lesson and appears to only speak sparingly with a clear message..
Europe’s first step was to realize that liquidity was not the problem, rather solvency was the issue; and it seems apparent that certain…

Oil is in serious contango again!

About two years ago, the forward curve on oil prices rose dramatically, this means that oil delivered in the future was more expensive than oil delivered today.  Generally futures’ prices are in backwardation, since goods delivered in the future are worth less than goods delivered today (think cost of money).  However, every so often contango occurs (actually more often than most would think), it is also a statement on the anticipated future demand for oil, what the futures indicate is that the markets anticipates the price of oil (in USD terms) to rise by at least 10 dollar over the coming 12 months:  January futures for oil (West Texas) are priced around $100/bbl, compare to $91/bbl this morning.

Assuming no storage costs and no transaction cost, oil traders have the opportunity to lock in a 12% profit by buying oil today for delivery in one year – futures do not have optionality, the trade must be executed on the purchase date.
My guess is that many hedge funds (since so many investm…