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Showing posts from January, 2012

Big day My Barbour is back

For nearly 15 years I have been the proud owner of a Barbour coat, you know these coats thte Brits wear, they are green and covered in wax...

Now, my coat is been "away" for some months (nearly 3 month) being repaired and re-waxed.  Well today at 12:55 the postman came and delivered the waxed and repaired coat.


Industrial Producer Price Index -- down again

The IPPI decreased in December after posting a 0.3% increase in November. It was the IPPI's largest decline since the 0.9% decrease in June 2010. The downturn in the index was largely a result of lower prices for petroleum and coal products (-3.7%) and primary metal products (-2.4%). Chemical products also contributed, though to a much lesser extent, with a 0.7% decline( StatsCan).
So the massive IPPI increase of earlier this year has tempered, on a YoY basis, IPPI is up 2.8%, not great but better than the 5.5% in May.  Again, fuel costs are at the center of the reduction, but they are joined by raw material prices (as metal prices have dropped).  Overall, its a win for Carney, that had resisted raising interest rate (because of global economic concernes) to meet inflation expectations, because he believed these pressures to be transitory.  Like the the Bank of England, the BoC was right on that call.

Looking at the data in greater depth, what is remarkable is how little price mo…

On thing you can say about the MSM -- They like yesterday's story

Ok, so for more than a year, the governor of the Bank of Canada, Canada's minister of finance and a number of "important folks" have been making a point in speeches that Canadians are borrowing too much and are taking on too much debt, usually to buy a condo in Toronto or Vancouver.  Well guess who's finally joined the party, but the Main Stream Media (that's what MSM means).  Anyway suddenly the papers are awash (awash I tell you) with stories about the forthcoming large scale bankruptcy of Canadian facing impossible mortgages.
First off, yes Canadian have taken on too much debt, there is frothiness in the market, as is normal for any real estate market that has had a virtually uninterrupted boom for the past 13 years., but (and its an important But) comparing what's going on in Canada with the situations that has afflicted our American cousins miss the point.  First off, Canadian have seen a constant improvement in national income -- granted the mean has n…

DIP Financing - ECB & Greece

This is almost unbelievable but it is apparently true.  The ECB (and the IMF it has to be said) have decided (BTW this is a long held position) that their exposure to Greece is worth 100 cents on the Euro!  In effect the ECB takes the view that they provided new money (not always) and that their loans to Greece cannot be redeemed for less than parity.  It gets even better, all the bonds that the ECB bought from the market should also get 100 cents on the Euro!
Now the concept of Dip (Debtor in possession) financing is clear, after a bankruptcy new money gets preferential treatment in the waterfall of repayment.  Of course, the problem here is that non one in Europe wants to contemplate a Greek bankruptcy.  
The "funny" bit is that now the ECB wants to make a profit on the bonds it bought in the market, because if they are redeemed at par, since the ECB bought them at a discount (yield of 7% vs coupon of 3%) they would make a gain on their bonds.  In fact, this is exactly wh…

David Rosenberg

Mr. Rosenberg and I sing from the same hymn sheet.  We both take similar views (I have never met DR) that the current recovery in Canada is driven by externalities (Good for Canada), but that the economy faces some massive challenges; specifically the China ride seems to be over -- how many more cement or steel plants will the Chinese build?  For China the next shift has to be its consumption -- right now less than 35% of its GDP (compared to 69% and 55% for the U.S. and Canada respectively).
DR also takes the view that more debt for over-indebted countries is not the solution.  Canada is in relatively better shape (still not good), but the U.S., the U.K and parts of Europe are in terrible shape and it will take years for this debt burden to be reduced (or forgiven).  
Obviously the housing sector in America, the UK and part of Europe still have some way to go.  America will permanently reduce its single family units, so construction will be in multi-units will rise, but the UK still…

Canadian CPI tampering

Well, the BoC finally got its wishes and the CPI has finally taken a breather.  Granted most of the move was driven by lower fuel costs (its not over yet folks).  CPI was 2.3%, down 0.6% from last month while core CPI was down to 1.9% -- both figures are closer to the BoC target of 2%.  Yet worries remain, because although prices have tampered, the real "saviour" here is fuel cost.  As of November 30th they were up 13% for the year, but only 7.2% for the year ending December 31st -- a massive deceleration in fuel costs has helped, both measures for December.
Bottom line, 30 year BoC TBonds are still trading around 2.5% for 30 year money.  Granted there's a lot of foreign appetite for CAD sovereign bonds -- after all Canada has one of the few central banks not printing like mad.  The Americans are pricing the Feds printing an extra $777 billion (real cash) over the next few months.
Granted there is zero sign of inflation in the US economy... still that kind of printing h…

Bank of Canada, Banks and Baltic

Eagerly awaited by pundits across Canada are this morning's Bank of Canada director rate.  Absolutely no one is expecting (and 30 seconds ago the BoC made the announcement) a rate hike, but they are all awaiting with baited breath the "wording" hoping to extract some guidance on when (and if ) rates are going to rise.  First off, Mark Carney has made it clear that a rate hike will be governed by the global economic outlook -- he has exactly (more or less) the same data that anyone else has (with the predictable laggs).
The first line of the statement starts with: "The outlook for the global economy has deteriorated and uncertainty has increased..." so the BoC will have to wait until things improve.  Needless to say that the futures are still flat as far the the eye can see (Q1/13) so no guidance there.  Canada's economy seems to have grown by 2.4% in 2011 -- there the BoC has an edge, most commentators were working on the basis of weak Q4 -- in fact Year o…

I told you so: I get no pleasure in this, but...

Greece is near the inevitable edge, no surprise there, the reality is that its American hedge funds that will be blamed, because they bought the debt that the French and other European banks were selling.  The tragedy is that the writing was on the wall months ago, at no time in history has a solvency problem been solved with more debt.  
So now we are days away from an Greek default, and instead of having a process that is orderly, it will be a free for all, that will create even more pain.  Its nice to see that Mrs. merkel got exactly what she was hoping for (maybe not what she wanted but what she played for).
As of 6 am this morning it is the Portugese debt market that is blowing up, because if Europe was incapable of solving a tiny problem such as Greece, you can bet that they cannot solve Portugal (which is a small problem).  Next up is Spain, where the current official unemployment rate is around 24%.  The question now is really, will these countries leave/be pushed or will Ger…

I gota be more diligent about this!

2012 is not starting well, I've been less than diligent in writing my blog.  There are a few reasons for this; I am surprisingly busy for an unemployed dude.  Secondly, the economic news (Canadian anyway) is less than interesting.  Europe is still in trouble (obviously), the Euro is slowly falling (which should help but we must not forget that most of Europe's trade is internal), so the impact of a falling in Euro is higher energy prices -- that cannot be good.  China is still in line for a "landing" hard or otherwise.  Since Chinese statistics are generally unreliable... we will never know.
America's corporations continue to defy gravity.  Yes, lots of bad news is already priced in the market, but the question is; how will Q4 earnings hold up.  A great deal of ink has been used to state that US corporate earnings had benefited greatly from a strong Euro -- its now trading at 1.26, substantially lower.  American consumers still seem to be doing their bit (despit…

Fun stuff and Canadian Real Estate predictions

I'm just back from several weeks in sunny Mexico, enjoying the sun and the margaritas... anyway the stark reality that is winter really hit the spot this morning, with very uncomfortable conditions, with snow on the way -- maybe even some rain (we are so lucky here!).
A friend of mine woke up last saturday at his cottage,a bout 1km from mine to see on his snow covered dock two wolves.  I have never seen wolves near our cottage, or even wolf tracks (which are rather distinctive), although we have seen increased dear population and foxes so its natural that their predators would follow.
On a more amusing note, and in the "Shit you not" category, was the announcement by Royal LePage, one of Canada's largest real estate brokerage group that:  "Housing prices will continue to rise in 2012". Very much like NAR in the US these groups will never (even if earth is destroyed by aliens) acknowledge that prices could stop rising or even fall.
Canada has seen its longe…

2012 and all that

The new year is now 12 days old, and 2012 feels a lot like 2011.  Few of the core issues have been addressed in any meaningful way.  Here in Canada the debate is about the possible price deflation in housing, for although Canada is one of the few OECD countries that has seen reasonable growth since 2007, there is a feeling that the party is overdue to end.

First and foremost is the now 13 year old housing boom; as a participant in this sector until recently, my feeling are that on average 7% annual price growth is not sustainable.  Although national income has risen continually over that period (bar for a brief period in 2008) it remains that Canadian house prices are driven by ultra low (and in the long term unsustainable) low interest rates.  The question is not so much on the likelihood of a correction, but rather a question of timing and size! 

Other issue of interest last week was IPPI

Remove fuel from the equation (not that this is entirely justifiable) and a picture emerges of…