Skip to main content


Showing posts from March, 2011

Canadian Producer Prices Index:

Forgetting the monthly data (it’s still accelerating!) the more interesting analysis is the 12 month picture. Don’t forget that both the Canadian CPI and Core CPI are low, around 1.9% and 0.9%, and trending down.Looking other side of the transaction we are seeing fast rising producer input prices (creating a profit squeeze for manufacturing and other industries).
The annual IPPI rose 3.4% in February after advancing 3.0% in December and 2.9% in January (in a nutshell its accelerating). The IPPI rise was driven by higher fuel costs (+16.0%), and metals (+15.6%).Even fruits, vegetables, feeds and other food products all saw rises that substantially outstrip CPI and Core CPI (+5.0%).
Unlike the U.S. which saw a 12% increase in food price over the past 12 months, Canada’s food prices were tempered by the 7.0% YoY appreciation of the CAD against the USD. Currency appreciation reduces IPPI increase by more than 0.5%.Finally, the Raw Material Producer Index rose by 19.2% YoY, the highest growt…

You want scary, I got scary!

‘Ethereal Blue Flash’
Nuclear experts call such reactions "localized criticality." They consist of a burst of heat, radiation and sometimes an "ethereal blue flash," according to the U.S. Energy Department’s Los Alamos National Laboratory website. Twenty-one workers worldwide have been killed by criticality accidents since 1945, the site said.
         (Source:  Bloomberg)
This is where it gets scary, no one fully understand these nuclear events.This is the very edge of nuclear science.At the same time TEPCO is saying – don’t worry we’ve got this baby under control, really, why would we lie about such a thing.

Interesting data points

Canadian retail sales remained sluggish in January – following on the previous 4 months, consumers are being careful with their wallets. It could be that Canadians are finally “hearing” the message that excessive indebtedness is becoming a real problem in Canada.Also, while the rest of Canada experience strong economic growth in Q4/10 (+3.3% GDP growth), Quebec lagged with 1.2% GDP growth, and January 2011 saw a 0.2% contraction while the rest of Canada saw growth (1.2%). Moreover, the trade deficit shrank in real terms. Businesses drew down inventories in order to meet domestic and foreign demand, which explained the modest GDP growth relative to demand growth.
Canadian businesses are seriously retooling, a trend that I had though run its course in Q3/2010 seems to be back investment in machinery and equipment jumped 19.6% annualized for a third consecutive quarter of double-digit growth.
Finally, for those who are interested, Canadian federal elections on May 2.  Rumors are that the…

OSFI is worried!

While the world’s central banks and banking regulators from Japan, via Frankfurt and Washington are screaming from the rooftop that all is well in “Bankland”, the one country that has seen no banking run, failure or rescue (aside from some rather substantial liquidity facilities when the international money market froze during the peak of the crisis). Canada’s banking regulator is taking a very different tack, fear that the next banking crisis is around the corner – and not years way. Canada central bank’s quarterly analysis of the international financial system takes the same view.
"I think we have seen this movie before, but the amazing thing is we continue to expect a different ending," said Ted Price, assistant superintendent of the Office of the Superintendent of Financial Institutions (OSFI), according to the prepared text of a speech in Calgary, Alberta.
The world's banks are now entering a "dangerous" phase from a regulator's point of view, where prof…

Japanese work mentality

Many million years ago I worked for a Japanese bank. An aggressive institution with a very high number of Japanese expats. This firm, the result of a merger about a decade earlier had three HR departments, one for each of the old employees from the pre-merge firms and one for all the employees hired after the merger (it tells you something about efficiencies in Japanese financial institutions).
These were the Go-Go years of the late 1980’s when deregulation came to the City.I had started in the City for a money centre US banks a few weeks prior to the crash of 1987.  The day I joined this bank had more than 600 employees in London.  Two years later it had less than 50!
I had joined this Japanese bank on the counsel of a friend who said that they were the only ones with “gobs of cash” which was true by the way.I lasted about two years there before being head hunted away.Although regulations were lax then, by the Japanese standards it was still restrictive.
Famously, every year before the …


That’s Canada as of December 31, 2010.  Almost exactly 1/10 of America’s population!  The two largest provinces Ontario and Quebec account for 39% and 23% of Canada’s total population.  In 2010, about ¼ of million people emigrated to Canada – not huge but it adds up.
Speaking of growing population an interesting observation was made by a fellow blogist talking about house statistic.  Unlike the rest of the OECD, Canada (and Australia) saw virtually no dip in the value of their housing stocks – partly due to different lending rules in Canada (far more conservative with full lender recourse), but also a result of the strength of Canada’s resource based economy that has powered on.  So this blogist wrote about a commonly used statistic for determining whether housing is over or under priced:  price divided by the median income; generally speaking excessively high prices (aka bubble) are reached when the ration exceeds 400%.  Below are the figures for the period ending December 31, 2010:


Round up of News:

Retail Sales
January’s Canadian retail sales failed to impress faling 0.3% when market economist were expecting 1% growth. Weather could be the issue, but this is the great white north for God sake, snowstorm just slow us down a little. Car sales were the biggest culprit, but the rest of the market was hardly inspiring. One aspect could be rising fuel and food prices (the two aspect of cost inflation that consumer see the more directly), its is after all the fourth month of disappointing sales data. Personally, I cannot think of a reason, except that Canadians are overexposed to the U.S. news market, and there the news is simply not good at all.
Federal Deficit & Friends
Canada’s conservative government’s budget is a dead duck, as all three opposition parties have said they will vote against it, and this will result in a non-confidence vote that will trigger elections (in about 5 weeks). However, there are a few aspects of Canada’s budget (even if its not passed whoever wins will pr…

Canadian Federal Elections in five weeks?

Last night the Conservative federal government presented its annual budget, it was not really an austerity program.  The 2010/11 federal government deficit is pegged at $40 billion, while the 2011/12 is $29 billion. There was one massive change, the minister of finance announce that many tax loopholes would be closed generating additional revenues of $3/4 billion per annum.  It was widely anticipated that the Conservatives would try to buy-off the NDP (Canada's "far left" party -- which puts them at the right of the U.S. Democratic party) but it turns out that there was not enough  "give aways".
The other segment where the government has been generous was in the accelerated depreciation for capital assets -- which is a good idea insofar as the CAD is so strong (and going stronger according to virtually everyone) that capital expenditure on plan and equipment is essential -- in fact the National Bank of Canada wrote a sensational piece on the productivity of Cana…

Canadian Economic Data this week: Nothing!

having somewhat of a Magritte morning, this week there is absolutely no Canadian economic data (the U.S. is another story...).  Canada is watching the situation in Japan and the Middle East, WTI is now around $103 (yet the S&P500 futures are pointing towards a huge open, go figure), and the Brent crude index is around $115.  What is truely amazing is that while Americans like to quote the WTI (priced on Cushing data), the market reality for consumers is the Brent Crude -- at $115.  This is a wide gap (caused in part by the surplus of oil in Cushing -- its a physical delivery issue).

On the bright side if you are invested in refineries you are doing very well, two years ago, cracking margins were negative, today they are around $24 a barrel -- great business.


This morning StatsCan released the February CPI and Core CPI, the first rising by 2.2% and the latter rising by 0.9%.  In both case these represent small reduction over the previous month (0.1% and0.5% respectively).  The biggest price increase has been fuel which rose 15% (year on year), after having risen 12% (again YoY) in January, followed by food...
For most Canadians their most obvious view of inflation is when they fill at the pump!  I remember, not so long ago filling up our car (when it was really empty) was around $40, now its near $75!  This is closely followed by food purchase, so the average Canadian's experience of inflation is somewhat different than what the headline suggests, but it remains that on a global basis, Core CPI is now below the BoC's target zone, more food for thought for Carney & Friends.
Inflation pressures are worse in the transport sector (obviously), with only cloth of footwear seeing a reduction in price (since nearly 95% of goods in this s…

Canada’s manufacturing sales increased 4.5% in January

I don’t know if this proves anything about Canadian productivity, but it remains that Canadian manufacturing is firing on all cylinders!In constant dollar, the sales number were a bit higher at 5.5% growth, an indication that there is some margin compression here, which is not surprising if one considers that the CAD has gone from parity to 1.03 in the space of a few weeks.
(Source:  StatsCan)
Moreover, the advance was broad base, with 17 of 21 industry showing increase in sales (but the big winners were cars, car parts, and aerospace). Part of the January increase is weather related (December was brutal in the U.S.) the automotive segment saw a 26% increase in January (accounts for 10% of all Canadian manufacturing sales), but the aerospace growth of 25% had nothing to do with weather (3% of Canada’s manufacturing sales) and this increase was the single largest for the past 18 months.
In terms of geographic concentration the big winners were Ontario (+5.8%) and Quebec (+7.4%). But since…


Focusing on Canada with the drama that is unfolding in Japan is near impossible.  Figuring out the economic impact (never mind the untold human carnage) is near impossible.  What we know, is that Japan's economy will be on its knees for some time, that Nuclear power is in the dog house -- and that Japan will need to use different sources of power to create electricity.

The first natural source of energy for Japan is LNG, already a very big importer of LNG from Malaysia and Indonesia demand is bound to increase, Canada is a major producer of natural gas -- lots of our "classic" oil business is in fact natural gas.

Lumber industry will do remarkably well, once reconstruction starts a new in the summer.  Canada is already gearing up with exports to China, Japan shouldn't be too much of stretch.
The unknown are when the world's second largest economy grinds to a halt, what happens.  this is not an "Indonesia" 2004 it is something else entirely.  One thing fo…

The Euro

Somewhat off topic from my usual Canadian fair, today I’m having a brief look at the survivability of the Euro.
On the Pro side: ·Euro has cut transaction costs ·Helped European integration
On the Con side: ·Imperfect union has made it easy for irresponsible behavior ·Increased systemic risk
There are many other aspects to the Euro, but for Germany and France (the main sponsors) the reality is that the Euro has created an easy to access market for their exports.  In fact, the vast majority of trade occurs within Europe, with China and Canada being two notable exceptions.  The argument for the Euro is strong, and in fact the weakness are really not that serious – Canada has a very similar make-up, with each province able to borrow in its own rights, although taxes are paid at both level of government (Federal and Provincial) for most Canadian this is only one tax document (notable exception is Quebec).  Each province borrows in the international capital market and is responsible for its own c…

Some places are just different

Reading an article in the Economist this week, where among other things they talk about the building boom in China, and the fact that aside from Canada and Australia, OECD countries are trying to stimulate housing demand.
Halfway through the article the economist talks about a 15 story hotel that was completed in 6 days – yeah I know god created the world in six day, and the took Sunday off, still building an entire hotel in 6 days is remarkable.
Here’s the video from Youtube.

The Dollar

The Canadian dollar continued strength is the last element of a complex situation; first Canada is in the enviable position of having a healthy financial system, a somewhat healthy housing market (there could be a correction of 10% to 15%), and a central bank that has the confidence of the market.Finally, and this is the surprising element, a healthy manufacturing sector, with growth in exports of 17% in the 4th quarter of 2010 – flying in the face of the generally agreed position that Canada’s manufacturing could not sustain parity with the U.S. dollar – when in fact, via heavy capex program, Canadian manufacturing is doing rather well (productivity has to be rising..right?).
Canadian manufacturers know the currency appreciation game well.In June 2002, the Canadian dollar stood at 0.62 to the US dollar, an all time low, since then the Canadian dollar has appreciated by 66% -- so Canadian manufacturers are well versed in dealing with an appreciating currency.My bet was that Mark Carne…

Moose on the loose!

Too cool for words

When the Koch Brothers talk well of Canada

Imagine my surprised when I read the WSJ editorial written by Charles Koch – one of America’s most infamous ultra right wingers praising Canada for reducing government’s involvement in the economy. Now, as a Texas based and wide supporter of all things right wing (Cato, AEI etc) Koch doesn’t actually say why Canada was able to reduce the presence of Government in the economy – because according to the “Right-speak” it is support for Planned Parenthood, and NPR that is at the root cause of all evil, and government expenditure.
Not what is truly amusing is that Canada’s government limited role in the economy can be directly traced to Canada’s single payer system for the health care sector. A policy that is an anathema to America’s right wing lobby. Canada’s expenditure on defense (1.3% of GDP) is another important factor as it is so much smaller than what America spends (4.3%). Leaving social security aside (similar in both countries), we have a situation in Canada where all levels of g…

Damn! I hate being wrong

Was I talking my book when I predicted that Canadian interest rates would rise by 0.25%? I guess I was because the Governor of the Bank of Canada and his buddies decided that the external risks are too great to Canada’s economy and that interest rates should remain at the current 1% rate.
In fact, the current interest rates are very accommodative, for an economy that just saw spectacular trade numbers (Canada is back at having a trade surplus), moreover, with oil prices remaining around the $100 mark, the trade surplus is bound to remain. Inflation pressure are certain to be relatively muted in Canada, the strength of the CAD (now at 1.03 to the USD) will insure that imports will act as a deflator.GDP growth for 2010 is now estimated to have topped the 3.2% (well ahead of the BoC’s 2.8% target), exceeding the U.S. numbers that have just been revised downwards.
I want to get back to interest rates, because their current level is so very low (by historical standards). The interest rate wh…