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Showing posts from February, 2013

Inflation, inflation here is inflation!

Ok so the headline is a total lie, there is no inflation as far as the eye can see.  On Monday StatsCan published the data on Canadian inflation -- the trend is deceleration since early 2011.


Bottom line with or without Gasoline (the light blue line) there is no real inflation in Canada.  The greatest price increases over the past year (all below 1.5%) are for food and alcohol.  That's below the Bank of Canada's inflation target range.  It also means that real interest rates are positive, making economic policy slightly more restrictive.
2013's dilemma for Canada has to be China's slowing economy.   It was always ridiculous to think that China could continue to grow at 9-11% rate when Europe and North America (its primary markets) are facing stagnation.  Many commentators imply that China can change its economic make up -- moving from an export orientated economy to one of consumption, the reality is that Chinese economic policy continues to favor investments:  None o…

Sequestration, Italy and Canada

Last night I watched Man of the Year,  a Robin William movie about a comedian who is elected President of the United States of America... now imagine that this happened in real life, it did, but in Italy not in America.  I'm sure that the Beppe Grillo is a nice guy, but he's Italy's answer to Robin William (of course he's not president but you get the analogy -- what we have in Italy is gridlock).  
The first thing is that the voters reaction to Monti and his chums should not have been surprising -- its always been the failure of democracy, that you can avoid the hard choices if you lie!  The reality is that Italie (and a good chunk of Europe) are in deep trouble, that since 2011 the ECB has been buying off the market with a backstop debt buying program that has reduced the urgency to take action at the supernational level (where debt write-offs take place) and keep the focus on cutting wages and salaries at home (creating wage deflation) -- so that pension funds, ban…

Spain & Bankia

Euro 12.5 billion provision!

Now that's serious money , and its the kind of money that appears when banks become honest broker and sell their distressed assets for what they are worth today.  You see the Euro 12.5 billion hit (aka the largest bank provision, like for ever) is the result of Bankia selling its bad assets to a "bad bank" for what they are really worth.  In fact, this is usually done in a non-distressed context -- the buyer (really a government entity) looks at a reasonable treatment for the assets -- this is not a shark sale, but a friendly one where the buyer is not looking at making a killing just get its money (and costs) back.

On Wednesday I wrote about Spain & Greece, I didn't know that Martin Wolf from the FT had done a long piece on how things are getting really bad in Greece (we are talking social breakdown here).  I had no idea, although some inkling, that Greek hospital no longer have medicine for their patients; its like hospitals in sub…

Canadian Real Estate market: Will it crash?

Ok, so the Teranet-National Bank House Price index is out this AM, and as we say in physiques, its deceleration all around.  Yep, fancy that the BoC aggressive stance on new mortgage has finally paid off -- maybe.

Ok so the two really crazy real estate markets in Canada are Vancouver and Toronto (many other places in Canada are in the "crazy" zone but not nearly as bad).  Vancouver has been in free fall!  Well that's what you get when you read the press, in fact over the past 12 months house prices have declined by 2.5% -- that's after a 100% increase over the past decade -- so yes a bit of a correction.  According to the press, Toronto is also in free fall  and in a correction; so far total drop is 0.37% (really not that big a correction).  Now it is true that sales are dramatically lower, hence the bathed-breath headlines because in both markets sales are off by nearly 1/3 which is not inconsequent when you are an real estate agent! It was also the first marker tha…

Was I wrong about Greece, Spain and Portugal?

Two years ago now I stated that Greece and Spain were in a world of pain and about to default...boy was I wrong.  The problem with "short" views (this company is going bust next week) is that the market can fool you and things can last a lot longer than you can hold the position.

First question:  Was my position wrong?  Well since neither Greece or Spain have gone under clearly my position was wrong.  However, and this is a biggy, I was wrong in timing but maybe not in overall consequence.

For Greece the pain of restructuring is evident everywhere, yes bond rates have become tighter -- that's more a reflection of Europe's decision to do "everything in its power to keep Greece within the EU".  My problem was underestimating the willingness of politicians to spend other people's money to support their ideals -- because at the end that's the fundamental issue here.  The politicians in place (and the bureaucrats)  are willing to spend the future of Germ…

The curse of misused antibiotics

There have been some serious outbreaks of antibiotic resistant deseases across the world (and even here in Canada), for years doctors and health officials have been clamouring for people to fully use their antibiotic and for doctors to reduce the number of prescriptions... Well one of the early 20th century most debilitating (and contagious) deseases -- Tuberculosis is on the march again.

It appeared in South Africa where a new strain of TB has emerged that is untreatable even with the most modern forms of antibiotics.  See here

The Daily Mail‘s health site reports. They say doctors are warning “the world is on the brink of an outbreak of a deadly and ‘virtually untreatable’ strain of drug resistant tuberculosis unless immediate action is taken.” Fears of a repeat of the 1980s outbreak in New York City that killed 90% of the people who contracted the TB strain are being cited by those urging action in poorer countries where the disease is spiralling out of control.Dr Uvistra Naidoo, w…

Reversing Pipeline to Eastern Canada

Ok, so oil prices are complicated, first because although oil is fungible (its not really) it behaves a little like natural gas -- which has a more "local" pricing behaviour.  In North America, virtually all oil goes via Cushing in Oklahoma -- for those not in the "know" Oklahoma is one of those squarish states, and  it also has the largest concentration of oil storage facility; if all roads lead to Rome, then all oil pipeline lead to Cushing.

The problem is that there is (again) a shortage of storage capacity, it happens from time to time, mostly during the autumn as stocking rises to meet the winter demand.  This year the storage shortfall is very early, which has lead to a wide differential in price between Brent Crude and Cushing WTI crude -- it was always around $10 to $15 a barrel, but has been increasing as WTI crude prices are dropping.  The difference arises for several reasons; first, Brent is lighter and sweeter -- easier to refine, but also secondly, de…

Financing the political process

Up here in Quebec there's been all kind of disclosure at a specially created commission (Commission Charboneau) on the goings on in the province as to how infrastructure projects were used to funnel money to political parties.

Hearing the outcry in the rest of the country you would thing that Quebec is the only place (like really!) where these kind of games takes place -- you can bet serious money that this is not the case.  The problem here is that the small number of contractors available (Quebec is a small place), made it easy to create a merry-go-round of briberies that were channelled to certain political parties.

So far the dirt has been at the municipal level -- projects are numerous and generally small, elected officials have few ressources, they are not that smart and the job is essentially about garbage collection and cleaning the streets -- not very exiting.   The process is likely to move to the "provincial" level soon, although the game there is more compli…

One week is a long time!

Is this normal ship noise or are we sinking?

I wake up this morning and realize that things are going south (in a modest way).  In Europe, the Spanish banks admitted further substantial losses on their real estate portfolios (write down is up to 40%) -- with the central bank stating that the banks will need more tier one capital (that's the expensive stuff), a Dutch bank was taken over by the government -- shareholders will be wiped out, depositors guaranteed to Euro 100k.

In 'merica unemployment numbers are not good, and consumer sentiments are negative (while the market sentiment is positive -- go figure).  The SEC is getting tough on banks, turns out a small American bank didn't follow Fannie Mae's guidelines, and that criminal prosecution will be certain to be filed, this is the best bit, the bank with $250 MM in assets (no typo here) arranged some asset back loans -- investors are not exactly complaining, the portfolio has a default rate of 0.5% (the usual defaul…

RIM & RIMM

Ok so RIM finally is ready to release the new version of the Blackberry -- incidentally they have changed their name to Blackberry, no more of this Research in Motion crap.  I fell in love with BB in 1999 when they first introduced two way pagers -- they were the rage in NY's financial district.  Then I got my first BB in 2003 -- it was a pure email machine but you could see how quickly it became ubiquitous, for a simple reason, it worked well.

I got my first "Blueberry" a few years later, an excellent machine with a phone included.  It was again a tool as good as the Iphone (or Samsung) machine is in providing something you didn't even know you needed!

Then the next 7 years were hell for BB, in fact, aside from new machines (when you are a heavy user they don't last very long), very little improved.  The internet access program was lacklustre  adding new programs was difficult, and for investors it was the "Nortel story all over again".

BTW for those …