Farmer Diaries

 I am a huge fan of Tesla, but the recent price action on the stock confirms that the world has gone mad!  Tesla is trading at a multiple of 1,038x earnings...Yep, it will take 1,000 years for Tesla to earn its profits.  Now I always thought that for the manufacturing sector a p/e of 17 -- 25x was well priced and justifiable, and even you could say that Facebook and Google (in brand new sectors) would justify a P/E of 50 or even 100 times --- these were new sectors completely undiscovered and with tons of low hanging fruits.  Facebook proved again and again that theirs was a very lucrative niche.  But cars have been around for a while, it's not like Tesla has discovered the holy grail of a car that will last forever and cost nothing to run.  Sure it is better than virtually all ICE vehicles. A few weeks ago a friend asked me if I would buy Tesla at $1,700 -- I thought no, I agree with the Motley Fool that there's some kind of craziness with the pricing of T...

Not entirely surprising, unemployment rose in August, it rose for two reasons:  First, all those employed by the Federal government to execute the 2011 census have now left!  Beginning in March and ending 31st July, the decennial census is now completed.  Second, the July private sector employment +95k was bound to lead to a slow down in August --- too much too soon too fast!   (source: StatsCan) Putting these numbers in perspective, nearly 1/4 million jobs were created during the pat 12 months, which is not that bad, in fact nearly 300,000 full time jobs were created -- and 77,000 part time jobs were eliminated -- full time work is always better than part time work.  The bulk of employment growth was in Ontario and Alberta. Construction is one area that saw a rather sharp decrease in employment, but then no one is surprised about this as permits for construction peaked a year ago.  Overall, the August job creation pe...

By yesterday's standard VERY.  Toronto Dominion Bank  (TSE:TD) raised $5 billion in covered bond yesterday, 40% 2 year 60% 5 year, oversubscribed largest ever bond offering for a Canadian bank, and the yield was not bad 0.875% and 1.62% for the 2 year and 5 year respectively (below projection) [Note: bonds were issued below par so that actual yield is a bit higher, still] How many banks could raise that kind of money at these yields, current Bank of Canada 2 year yield are 0.91% and the 5 year is at 1.46%. So TD (AAA rated by the way) raised money at zero premium to the Bank of Canada in the two year and about 25 bps in the five year. Impressive! Also for all those who think that Canadian banks are in trouble, the same pricing for a US bank would be at least 100 bps higher (if they could get it).

Interesting results this morning, since both Canada and the U.S. revealed their July merchandise trade.   Interseting because both numbers were positive, Both Canada and the U.S. saw a marked improvement of their trade balance. (Source: StatsCan) For Canada its June trade balance of -$1.2 billion was reduced to -$0.7 billion for July, the result of exports rising by 2.2% (while imports only rose by 0.5%).   Looking into the numbers Canada’s trade performance is even better since volume rose by 4.1% - a 1.9% price decline reduced the upside numbers.   As for imports it was the opposite trend with price rises (0.9%), and volume was down 0.4%.   The Japan effect is now gone (trade is back to its pre March level), trade direction reverse towards the U.S. again.   Funny enough energy exports keep on falling (they were not part of the increase here) partly due to the forest fires here (thing of those as the equivalent of Hurricane in the Golf of Mexico) that halted...

This commentary about the global economy is fascinating, written by a well respected hedge fund manager, who year in year out generates good returns for his clients (He's a global macro player).  His name is Josh Brown he writes on the Big Picture Blog here . Also this morning HSBC downgraded the US GDP growth for 2011 from 2.8% to 1.3%.

In a country that has more than 100 million employed (and I mean America here), that each month 100,000 jobs are created or that none are created is almost immaterial.  Think about it, its a statistical aberration, its a 4th decimal rounding error!  What it is important is the trend indicator, the reality of America is that this non-recession since the summer of 2009 has been one of the weakest in terms of job creation.  The only thing that has been growing are profits (and executive pay).  Overall with the other ISM numbers that have been coming out of the woodwork for the past few weeks, there is no doubt that North American's economy is in a rough spot.  Personally I don't see how QE3 will help, the impact of QE2 has been muted (and expensive). But that's my opinion and its worth... not much.  However, it seems to me that repeating actions that have produced no results is in the hope this time it will be different is a form of madness (see cart...

It would appear that overnight reality has reared its ugly little head in Greece.  Austerity has never worked when the debt load is as heavy as it is now in Greece, it didn't work in Latin America and its not working in Greece -- big surprise.  I guess that someone somewhere (probably in high school today) will get his/her PhD on the fallacy of the European plan for Greece, Portugal and Ireland.    Guess what the world now knows that a budget deficit that was to top out at Euro 23 billion for the YEAR is now a Euro 21 billion, six months into the fiscal year.  The sheer incompetence exhibited by all the players -- and the ultimate desire not to face reality will probably kill the Euro.  One thing for sure its future as the common currency of all of Euro is closer to the end than the beginning.  The question is how will the bubble pop.  Will Germany, Benelux, Finland quit or will, or will some of the PIIGS have to leave the allianc...

The Teranet National Bank House Price index came out this morning.  As the headline shows, the Canadian market continues its unstoppable price rise.  Year of year the price increase at 4.5% (up only 0.1%).  June's "winner" was Toronto which is up 2% for the month.  One notable aspect is that Calgary's house price are still 10.9% below their 2007 peak -- a combination of high oil price and an absolute shortage of housing (professionals were clogging hotel rooms as temporary housing -- while their condo were being built).  Overall, the Canadian housing situation remains worrying for the Bank of Canada.  Clearly this kind of price acceleration is unsustainable, is leading to excess consumption and indebtedness. BTW Montreal and Vancouver lead the race for YoY price increase with 5.9% and 7% respectively. Note:  There is some thought that these June number were inflated by the March deadline for revised terms for max mortgage terms.  Sometim...

OTTAWA – The Canadian economy shrank in the second quarter, the first quarterly fall since the 2008-09 recession, largely due to temporary factors such as Japan’s earthquake and tsunami, Statistics Canada said on Wednesday. Real gross domestic product fell at an annualized rate of 0.4% from the first quarter, worse than the median forecast of a 0.1% increase in a Reuters survey of economists. The first quarter grew by 3.6%. However, most economists expected a rebound in the third quarter from the temporary disruptions in the second. If this is the case, Canada would escape the technical definition of recession — two quarters of negative growth. The decline was marked by a 2.1% fall in export volume. This, in turn, was influenced by a supply disruption in the auto industry caused by the earthquake and tsunami, as well as wildfires and maintenance shutdowns that helped cut oil and gas extraction by 3.6%. Business investment, housing investment and consumer spending we...

I realize that I’ve not written anything about the loonie in a while (as the CAD is affectionately known here in the great white north – because of the image of the loon on side of the dollar coin).   The reason is that the CAD “weakness” was obvious caused by oil prices falling of the cliff (correlation is around .85 – there are issues with the correlation when the CAD nears parity – one way or the other that break down the relationship).   Guess what has been happening to both oil prices and the CAD over the past few trading sessions:   You got it they’re both gone up.   The CAD was trading around parity for about a month as the perception of the U.S. economy was the recession was at the door step.   The only thing that has changed (aside from higher oil prices – although not NatGas prices) is the Jackson Hole last week, where the Fed Chairman’s “non” statement was perceived by everyone as a sign that things were going their way (what ever way that was – th...

As an economist I grew up in the shadow of Keynes -- literally every morning walking from my hall of residence to the London School of Economics I would walk in front of J.M. Keynes London home (the homes of famous residents are remembered with a blue circulate plate on the façade), where I was trying to become an economist.  Yes, LSE had a large number of professors (and students) where were very much in view of the western system was raping the world, and were into a balanced growth model, but LSE was one of the premier Austrian schools (Robins & Hayek both taught there), and a surprisingly large number of its professors were (mid 1980s) in monetarist think tanks.  BTW the reason LSE got a left wing image was simply that the BBC headquarters were literally down the street (about 50 yards) – so reporting from the front line of the “revolution” was easier at LSE than Oxbridge (50 km away) [So I got that chip of my shoulder]. Experience teaches that massive shifts in the ...

I didn’t want this to be a rambling post, but it is because there are many interconnected issues here.   I also insist on being amusing! The problem with additional data that sometime it confirms you worse fears.   More data points this morning confirm that Canada is now operating at stall speed.   Today’s data is unemployment benefits and wholesale trade.   Last May both had been going in the right direction (fewer people were receiving unemployment benefits and wholesale trade was rising 2% -- annualized rate), both these metrics are just about flat in June which augurs poorly for June’s GDP numbers; overall Q2/2011 could be slightly negative! ( Source: StatsCan ) So far I’ve counted 7 data points that all say the same thing.   Canada is decelerating fast.   While Q1 was on fire, that’s no longer the case.   Inflation has been tamed (more or less), interest rates are still ridiculously low and will probably drop further.   Since this new...

This morning reading a number of blogs and newspapers every mention of Canada was that we are either near a recession or in a recession.  I guess it just doesn't feel like a recession yet.  Granted the market is pricing a reduction on short term interest rate before the end of the year (around 25 bps), but that is all.  Canadian bank stocks are down a bit from their high, but are still within 10% of their historic highs -- maybe that's a signal.   Not that I am in the secrets of the gods, but rumors in the market is that all Canadian banks are doing remarkably well with predicted strong Q2 performances ... again, I have no special knowledge here but it is interesting that National Income numbers, retails sales, construction (Industrial commercial and personal) are all strong (and rising) demand for construction permits is up in all three of the last quarter... Maybe the missing link is that since about 1/3 of Canada's GDP is trade related it doe...

A fortnight ago GDP Q2 numbers emerged and were troubling, while the first quarter GDP was up 4%, second quarter is looking flat overall (April was up a bit and May was down).  Now more data is emerging (its not only the German's that are seeing slowdown after all) which shows that manufacturing for June 2011 was down 1.5% (which is rather a lot -- BTW should't "a lot" be one word...) looking at the trend below it is worrying. (Source: StatsCan) No wonder the market is pricing a solid 25bps fall in CAD interest rates. At the same time sale of durable goods was down 1.9% -- granted much of that drop is due to the oil sector (Don't ask its complicated... but its true) because not only did volume collapse in June (so did prices).  On the bright side inventories are flat -- so it would appear that Canadian companies have been good at tracking the drop in sales without the build up in inventory (although with interest rates as low as they are its hardly expensive...

Somehow a Mail on Sunday article about SocGen's difficulty in funding its operations is being blamed on a typical Franco-British failure to communicate:  A fictional account published in  Le Monde  (12 part series) of a financial crisis impact on the 2012 French election cycle.  The story used the liquidity collapse of  SocGen and Unicredit two large banks well known in France, to mark its story line  First, despite the attractiveness in blaming the Mail on Sunday for misunderstanding a "fake" story on the impact of the demise of two European institutions as being the real thing forgets two important facts:  First, Italy is going through a spot of difficulty which is true.  After Greece, Italy has the highest level of state debt (120% of GDP) of any European country, and a government who has been otherwise busy (Bunga Bunga Parties).  That's its banks (large holder of sovereign Italian banks) would be in difficulty is not t...

This morning StatsCan released its June 2011 trade data, and while import track a growing economy (with a strengthening currency), exports tell a different story.  Canada's trade deficit that had grown to $1 billion in May is now $1.6 billion, and in view of the price for natural resources (including energy) over the past two months, I would suggest that Canada has "worse to come" in terms of trade balance. (Source: Stats Can) The usual culprits are to blame;  Energy and automotive (but considering their importance in export trade) this result is hardly surprising.  Exports dropped by 2.2% to $ 36.5 billion.  Import volume rose by 1.9% but there was a nearly identical drop in import prices (its easy to forget that the CAD become very strong in early June -- and that this trend -- peaking at 1.05/0.95 in early July) will reverse throughout the summer.   One issue because Canada is very dependent on energy import/exports summe...

Where is Canada ’s economy going in 2010 and 2011, this is not only idle curiosity on my part but also part of my day job. At heart I am agnostic, I believe raw data, but I’m not married to any one indicator, because it is easy for indicators to morph from leading to following, usually when an indicator becomes a policy tool… My favorite data point is credit creation (12% per annum – at no time has credit creation in Canada become negative), and number of hours worked (growing in Canada after a dip in 2009), in a deep recession I disregard unemployment numbers as too much can be hidden to make the information useful as a barometer of economic activity (especially since a large percentage of new jobs are created in small and medium size companies – not the large caps). Personal experience/history is also important (history doesn’t repeat itself, but it usually rhymes). My take: OECD economies are facing two or maybe three contraction drivers: deleveraging by consumers (n...

so, what have we learned in 2,063 years ? "The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance." - Cicero - 55 BC evidently nothing... Thanks little sister for this enlightened thought