Long article but dash interesting


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Canadian economy loaded for bear
The Canadian economy is expected to chug along on solid fundamentals next year, but much depends on what happens south of the border, Jeff Buckstein finds
JEFF BUCKSTEIN


Wednesday, December 12, 2007

While much of the Canadian economy appears to be humming along, that good fortune isn't spread evenly throughout the country.

Clear signs of economic distress south of the border are creating uncertainty on the economic horizon.

Yet many positives remain. "The fundamentals of the Canadian economy are really very strong - strong consumer prices, housing markets, fiscal policies, and so on," says Mark MacDonald, director of the public sector advisory with KPMG LLP in Toronto.

Here's a look at how four economists view Canadian prospects in the coming year.

Aron Gampel

Vice-president and deputy chief economist, Bank of Nova Scotia, Toronto

Domestic demand is likely to keep the Canadian economy humming quietly in 2008, a year that will see the country grow faster than the U.S., predicts Mr. Gampel. He expects the Canadian economy to expand by 2.2 per cent in 2008, compared with U.S. growth of 1.9 per cent.

In large part this will be fuelled by "the non-stop growth we continue to expect in our resource-rich regions, which are in the midst of an epic construction boom to develop the energy, mining, and agricultural resources in demand by an expanding global economy," he says.

Nevertheless, he warns of black clouds on the horizon. Unlike the United States, where a recession in housing is beginning to "morph into a broader consumer-led slowdown," domestic activity in Canada generally "remains relatively solid, both from a consumer- and housing-related performance."

Instead, it is "weakness in the net export position which is dragging down growth," Mr. Gampel says.

He cites such factors as "competitive inroads made by lower-cost economies from abroad," a slowing U.S. economy, and the rise of the Canadian dollar to "essential parity, which has short-circuited our ability to export in many sectors."

He expects Canada's dollar to be at $1.05 (U.S.) by the end of 2008 in response to its stronger economic position. He predicts the Bank of Canada will cut its interest rate by another quarter point to an even 4 per cent by the end of the second quarter of 2008, where it will remain for the rest of the year - a half percentage point more than the U.S. federal funds rate.

Whereas economic weakness is already "manifesting itself in the United States," in Canada "it will probably show up more on a delayed basis in the first quarter and into the second quarter," says Mr. Gampel, who predicts pre-tax corporate earnings in Canada will be significantly reduced, to minus 2 per cent next year, from 4.8 per cent in 2007.

Mr. Gampel expects Canadian inflation, based on the consumer price index, to be at 1.7 per cent in 2008. He predicts that oil prices will average about $86 a barrel next year, down slightly from today, and that natural gas prices will fall to $6.95 per million BTUs in 2008, from $7.15 in 2007.

Don Drummond

Senior vice-president and chief economist, Toronto-Dominion Bank Financial Group, Toronto

Mr. Drummond expects the Canadian dollar will drop in 2008 from its current position near parity to average 97 cents (U.S.), but end the year at 94 cents. This will, in large part, be a reaction to "a pullback on commodity prices, particularly oil," he says.

He predicts "some slippage in oil and some increase in natural gas" prices, with oil worth about $75 a barrel at the end of 2008, after averaging the year at $79.25, and natural gas at $8.25 after averaging $7.79.

Commodity prices will generally stay at a fairly high level, albeit with a slight overall decrease; plus "we still have not seen the end of the woes of the manufacturing sector, so commodity strength favours the west and manufacturing woes hurt the central part in particular," he says.

Ontario and Quebec will each experience weak growth of about 1.75 per cent in 2008, below the national average of 2 per cent. In contrast, British Columbia (3 per cent), Alberta (2.8 per cent) and Saskatchewan (3.2 per cent) will lead the country, predicts Mr. Drummond.

The United States will avoid a recession, technically defined as two consecutive quarters of negative growth, but experience only a 2.1-per-cent gain in 2008, Mr. Drummond forecasts. "The U.S. definitely is a drag, but we're in very different situations. It's housing that's pulling down the U.S. Our housing is solid. The weakness in Canada is going to be on the export side - partly because of the U.S. weakness, but also partly because of the strength of [our] dollar," he says.

Mr. Drummond anticipates that corporate earnings, which are close to 5 per cent this year, will remain close to that level in 2008 as well. He expects the Federal Reserve Board will cut the U.S. federal funds rate to 3.75 per cent by the end of 2008, compared to a Bank of Canada rate of 4 per cent, thus leaving a 25-basis-point differential in Canada's favour.

Inflation will be kept in check either below or near the Bank of Canada's targeted 2-per-cent range, he says.

Mike Percy

Dean, University of Alberta School of Business, Edmonton

The torrid pace of growth in Asia will finally slow in 2008, predicts Mr. Percy. Combined with lower expected growth in the United States, this is likely to lead to a "lessening of international demand for energy and natural resource exports," which will have a somewhat negative impact on Alberta, he says.

Mr. Percy expects oil prices in 2008 to drop fairly significantly as a result of slower global growth, with prices ranging from about $60 to $70 a barrel next year, down from about $90 currently. He also expects the Canadian dollar to drop into the 92-to-95-cent range relative to the U.S. dollar in 2008, in part because of this reduction in demand as well as a reduced Bank of Canada rate that is 25 to 50 basis points behind that of the United States.

However, growth in Western Canada will continue to outpace that of the central and Atlantic provinces, predicts Mr. Percy. Alberta will experience approximately 3-per-cent growth in 2008 - about 25 to 50 basis points above the Canadian average, he says.

Should the United States tip into a recession - he says there is about a 50-per-cent chance of that happening - Alberta and Saskatchewan will be largely protected because of demand for their energy production. British Columbia may also be largely immune because of capital investment related to the 2010 Winter Olympic Games in Vancouver, Mr. Percy says.

It will be a different story in Ontario and Quebec, however. "I think close to 88 per cent of Canadian exports go to the U.S.," with much of that trade, particularly in Ontario, driven by automobiles and automobile parts. "That's why I'm relatively pessimistic about central Canadian growth prospects," stresses Mr. Percy.

He predicts pre-tax corporate earnings in Canada will be about 2.5 per cent in 2008, down a couple of points from approximately 4.5 per cent in 2007, and that the Toronto Stock Exchange will pretty much "flat-line" at about the 13,500 point level by the end of 2008, close to where it is today.

A potential federal election in 2008 could constitute a bit of a wild card for Alberta's energy industry if the Liberals win and try to invoke tougher environmental standards with respect to greenhouse gas emissions, says Mr. Percy.

Sherry Cooper

Executive vice-president, global economic strategist, Bank of Montreal Financial Group, Toronto

Both the Canadian and U.S. economies are slowing and will continue to do so for at least the first part of 2008, predicts Ms. Cooper, who expects the Canadian economy will grow only a sluggish 1.5 per cent or so in the final quarter of 2007, before trending upward to between 2 per cent to 2.75 per cent over the course of 2008.

She sees the Canadian dollar generally "hovering around parity" with the U.S. dollar, probably with "a fair bit of volatility" throughout 2008. Ms. Cooper predicts inflation will remain near, or below, the Bank of Canada's target 2-per-cent band. She also says the Bank of Canada is likely to ease monetary policy by cutting its rate to approximately 3.75 per cent by the end of 2008, placing it 50 basis points higher than the U.S. Federal Reserve rate of 3.25 per cent.

Ms. Cooper does not see a recession taking hold in the United States in the wake of a sub-prime mortgage lending crisis, which many experts fear would have negative repercussions for Canada.

"Many are saying that a recession is inevitable. I say the Fed will take whatever actions are necessary to forestall a recession," she says, although she concedes that a serious slowdown might appear as a growth, or profits, recession, if not one where consumers shut their wallets.

Regardless, Canada as a whole will not rise or fall as a result of U.S. fortunes, says Ms. Cooper, who expects manufacturing-rich Ontario and Quebec, with considerable ties to the U.S. auto industry, to take the brunt of the slowdown. Those two provinces will likely experience growth of less than 2 per cent in 2008, while British Columbia, Alberta and Saskatchewan will likely register "closer to 3 or 4 per cent thanks to the commodity markets and trade with China."

Ms. Cooper predicts the federal government's next budget will "dramatically" cut both personal and corporate taxes, and also increase government spending, thus providing "fiscal stimulus before the next election," which she expects in 2008.***

What to watch in 2008, according to the experts

ARON GAMPEL

Vice-president and deputy chief economist,

Bank of Nova Scotia, Toronto

A STRONGER LOONIE

Expect a strong currency in 2008, which means that beleaguered manufacturers in Ontario and Quebec may not be able to count on a weaker dollar to lift their fortunes.

CONSTRUCTION BOOM

The activity in "virtually every region and province" is likely to continue but will be "much more oriented toward non-residential, as opposed to residential, construction as (both the) private sector and governments continue to boost our infrastructure-related expenditures."

SERVICE-ORIENTED GROWTH

The Canadian economy will continue to become "higher-value-added, service-oriented" and pull "away from the traditional manufacturing-based-type economy" of the 20th century. Whether the growth is in business services, education or health services, "that's an area we are likely to continue to see the focus of employment growth and overall performance right across the country."

DON DRUMMOND

Senior vice-president and chief economist,

TD Bank Financial Group, Toronto

U.S. HOUSING MARKET

"This has to be the number one risk," he says. So far there has not been much of a housing price decline, relative to inventories, but if that happens there could be a lot more writeoffs, which could in turn push up interest rates. That might also "spill more into U.S. consumption, and the domino [effect] would be weaker exports."

COMMODITY PRICES

The direction that commodity prices take, especially oil, could have a major influence on inflation and currency values. Rising prices, for instance, could weigh on the economy and create "a greater sectoral divide between the west and the east."

BUSINESS MACHINERY

Increased investment in business machinery and equipment can boost productivity, and a stronger Canadian dollar can make imported machinery cheaper.

MIKE PERCY

Dean, University of Alberta School of Business,

Edmonton

CHINA'S ECONOMY

Continued growth in China, and the ability of that country to manage its tools of monetary policy, especially its state-owned banking assets, is of concern given that the nation "is on the margin driving energy prices and growth in the global economy."

U.S. HOUSING MARKET

Housing starts in the U.S. bear close scrutiny, given their effect on consumer confidence.

GLOBAL WARMING

An economic wild card is the public response to ecological concerns and the extent to which economic means are used to curtail greenhouse gas emissions.

SHERRY COOPER

Executive vice-president, global economic strategist, BMO Financial Group

MARKET

VOLATILITY

Indicators such as the S&P Bank Index (BIX), the TED Spread as well as credit spreads generally, need to be monitored. Especially at a time when there "is tremendous concern about asset-backed securities."

U.S. HOUSING MARKET

The leading indicators here bear close scrutiny, "because once the housing market in the U.S. bottoms out, I think that will be a very strong impetus for global economic activity."

COMMODITY PRICES

There has been a "great deal of uncertainty" regarding how the world will react to the U.S. slowdown. "We'll be able to see that through commodity prices. If there is a sustained decline in commodity prices, we'll know that's got to be telling us something either on the demand or the supply side, and probably a combination of both."

Jeff Buckstein

© The Globe and Mail

Belay your Bernanke rage
John Heinzl


Wednesday, December 12, 2007

You're a mean one, Mr. Ben.

Heading into yesterday's meeting, Ben Bernanke had a choice: He could have donned his Santa outfit and delivered a half-point cut to interest rates. Or he could have played Grinch and chopped rates by a quarter point.

The U.S. Federal Reserve Board chairman chose the latter, and the stock market wasted no time registering its disappointment: In the minutes following the announcement, it charged downhill faster than the sleigh in The Grinch Who Stole Christmas.

The Dow Jones industrial average had been up more than 50 points before the Fed's policy-making committee statement. Less than 10 minutes later, it was down 170 points - a violent swing that underlined the depth of investors' disgruntlement. By the close, it was off 294 points.

"This will not bode well for the markets," said Adrian Mastracci, portfolio manager with KCM Wealth Management in Vancouver.

"I expect more selling pressures in the near term."

What exactly were investors so upset about?

Good question. After all, most economists and investors were expecting the Fed to cut its benchmark rate by a quarter point to 4.25 per cent, and that's precisely what it did. Including the half-point cut in September and quarter-point reduction in October, it has now lowered the federal funds rate by a full point - the biggest reduction in borrowing costs since the recession of 2001.

That hardly seems Grinch-like. But investors and economists found plenty of other reasons to squawk as they delved into the statement. Apart from disappointing the minority of investors who were expecting a half-point cut to the federal funds rate - the rate on overnight loans between banks - the Fed also cut its discount rate, the rate it charges banks for direct loans, by just a quarter point.

The latter move was especially troubling for those who were hoping for a deeper cut to address liquidity problems in the financial system.

Ian Shepherdson, chief U.S. economist for High Frequency Economics, called it a "grave disappointment ... with no changes to discount window operations, it seems likely [yesterday's] actions will not ease market pressures much, if at all.

"This is baffling, and we wonder if it is indicative of a real split in the Fed between those who believe the market turmoil is a genuine threat and others who perhaps view it as a temporary storm in a teacup."

The stock market shared Mr. Shepherdson's bafflement. Home building stocks, in particular, were clobbered as investors worried the cuts won't be enough to keep the U.S. economy out of recession. Pulte Home Corp. sank 12.1 per cent, KB Home 11.3 per cent and Lennar 10.5 per cent.

Financials also got hammered, with Citigroup and Bank of America both sliding more than 4 per cent.

But maybe folks are being a little hard on Mr. Bernanke.

Although the cuts didn't live up to everyone's expectations, the Fed left the door open for more reductions in the months ahead, noting an "intensification of the housing correction and some softening in business and consumer spending."

It added that "recent developments, including the deterioration in financial market conditions, have increased the uncertainty surrounding the outlook for economic growth and inflation."

That's why, barring a sudden and dramatic improvement in the economy, the Fed will almost certainly cut rates again, and perhaps two or three more times after that.

Even the Grinch came around, eventually.



© The Globe and Mail

Canada’s High Commissioner to India gives India thumbs up!

Toronto:“India is set to be a leading global economic power in the near future and a major geo-political power soon after,” claimed His Excellency David Malone, Canada’s High Commissioner to India, at an informal gathering in downtown Toronto on November 29.
“India should not be looked at as a source of cheap labour but as a source of highly-talented professionals. Apple went in there looking for cheap labour and had to close its operations within a few months. IBM, on the other hand, based on a different business model, went in looking for motivated individuals and found what it was looking for. About 1/6 to 1/5 of its (IBM) labour force is now in India.”
He went to say that the Indians, rich, poor and middle-class, all have a great emphasis on education and save hard to ensure their children have a good education which will serve the country in good stead in the long run. He also commented that Indians have a driving work ethic.
Currently, India and Canada enjoy a $4 billion two-way trade with Canada being the 2nd or 3rd largest exporter of pulses to India. About $1 billion in raw diamonds finds its way to Indian shores via Belgium to be cut and processed there. However both countries have the potential to increase this figure and Canada should work hard so it can be a principal provider of natural resources for the ever growing and hungry middle-class of India. Also India’s collapsing and inadequate infrastructure is in dire need of full-bodied repair and expansion. It is best for Canadian companies to seek partnerships with Indian companies, so there is no time lost in understanding the needs and ethos of the market, for their mutual benefit.
“Canada should not worry about the stability of the Indian government. The rule of law governs there, unlike in other countries, and it is the world’s largest democracy. It is time that Canada makes strong overtures to India and started to think positively about having binding business and social ties. As it is, India will soon be the number one provider of immigrants to Canada.” His Excellency went on to cite several positive factors that would result from stronger Canada-India relations and that Indo- Canadians should take a leading role in shaping these relations.
The energized afternoon was co-hosted by the Canada India Business Council and The Indo Canada Chamber of Commerce.

Momentum Investing - The fine art of buying high and selling low.

Value Investing - The art of buying low and selling lower.

Broker - Poorer than you were in 1999.

P/E ratio - The percentage of investors wetting their pants as this market keeps crashing.

Standard & Poor - Your life in a nutshell.

Stock Analyst - Idiot who just downgraded your stock.

Bull Market - A random market movement causing an investor to mistake himself for a financial genius.

Bear Market - A 6 to 18 month period when the kids get no allowance, the wife gets no jewelry and the husband gets no sex.

Stock split - When your ex-wife and her lawyer split all your assets equally between themselves.

Market Correction - The day after you buy stocks.

Insiders - the only ones who know how to make market gains.

EBITDA - Useless acronym used to allow firms to report a profit when there isn't really one.

Liquidity Crisis - swimming in red ink.

Market Cap - something to protect us from bumping our heads too often.

Shiamak’s Sizzling Saturday!

Is it “Hair”? Is it “Cats”? No, it’s Shiamak!

On a cold evening on Saturday, December 6, inside the John Bassett Theatre in downtown Toronto, the heat was on as students of the famed Shiamak’s dance school once again dazzled the packed auditorium for 2 ½ hours with its pulsating performances.
The evening, dubbed Winter Funk 2007, started with a video on the “I believe” extravaganza that took place in Mumbai recently, featuring the irrepressible Shiamak alongside Hollywood Latin dance star Katya Virshilas(co-star of Take the Lead with Antonio Banderas) and about 300 dancers, including the physically and mentally challenged stars of his Victory Arts Foundation. What a fabulous beginning to an energized show!
After that came the real live spectacle with “Kya Mujhe Pyaar” setting the mood. As usual, the attendees grooved to the superlative moves and music. The first half of the show continued with the performers in brilliant costumes wowing the crowd with their display of Indian fusion, Broadway, Latin, pop, jazz, hip-hop, Bollywood and Hollywood. The dances were at times enhanced with amazing visual effects on a background screen.
After a short break, the second half slammed into “Mind Blowing”, literally blowing the minds off everybody. The “Aika Dajiba” number, a classical koli dance from Maharashtra, done with performers in colourful traditional dress and a slight tinge of modernism was the midway highlight drawing thunderous applause. The second set finished with “Mauja Mauja.” At the end, one of the resident instructors, Mittul, came on stage and prompted the receptive audience to learn a very easy and popular Bollywood dance measure and then invited everybody, parents and students, to come on stage and just let it all hang down by dancing as if nobody was watching.
“Have feet, will dance”! and “ Be yourself, no matter what they say”, are Shiamak’s famous lines. That evening, the members of the audience joined the performers up on stage in a grand interactive finale, to dance and to be themselves, no matter what anybody said, and transformed Toronto’s John Bassett Theatre into a veritable stairway to heaven!

Where paradoxes reign supreme
byShashi Tharoor
It has become a cliche to speak of India as a land of paradoxes. The old joke about our country is that anything you say about India, the opposite is also true. We like to think of ourselves as an ancient civilisation but we are also a young republic; our IT experts stride confidently into the 21st century but much of our population seems to live in each of the other 20 centuries. Quite often the opposites co-exist quite cheerfully.

One of my favourite images of India is from the last Kumbha mela, of a naked sadhu, with matted hair, ash-smeared forehead and scraggly beard, for all the world a picture of timeless other-worldliness, chatting away on a cellphone. I even suggested it to the publishers of my newest book of essays on India as a perfect cover image, but they assured me it was so well-known that it had become a cliche in itself.

And yet, cliches are cliches because they are true, and the paradoxes of India say something painfully real about our society.

How does one come to terms with a country whose population is still nearly 40% illiterate but which has educated the world's second-largest pool of trained scientists and engineers, many of whom are making a flourishing living in Silicon Valley? How does one explain a land where peasant organisations and suspicious officials once attempted to close down Kentucky Fried Chicken as a threat to the nation, where a former prime minister bitterly criticised the sale of Pepsi-Cola since 250 million of our countrymen and women don't have access to clean drinking water, and which yet invents more sophisticated software for the world's computer manufacturers than any other country on the planet? A place where bullock carts are still an indispensable mode of transportation for millions, but whose rocket and satellite programmes are amongst the most advanced on earth?

The paradoxes go well beyond the nature of our entry into the 21st century. Our teeming cities overflow while two out of three Indians still scratch a living from the soil. We have been recognised, for all practical purposes, as a leading nuclear power, but 600 million Indians still have no access to electricity and there are daily power cuts even in the nation's capital.

Ours is a culture which elevated non-violence to an effective moral principle, but whose freedom was born in blood and whose independence still soaks in it. We are the world's leading manufacturers of generic medication for illnesses such as AIDS, but we have three million of our own citizens without access to AIDS medication, another two million with TB, and tens of millions with no health centre or clinic within 10 kilometres of their places of residence.

Bollywood makes four times as many movies as Hollywood, but 150 million Indians cannot see them, because they are blind. India holds the world record for the number of cellphones sold (8.5 million last month), but also for the number of farmer suicides (4000 in the Vidarbha district of Maharashtra alone last year).

This month, in mid-November, the prestigious Forbes magazine list of the world's top billionaires made room for 10 new Indian names. The four richest Indians in the world are collectively worth a staggering $180 billion, greater than the GDP of a majority of member states of the United Nations. Indian papers have reported with undisguised glee that these four (Lakshmi Mittal, the two Ambani brothers, and DLF chief K P Singh) are worth more than the 40 richest Chinese combined.

We seem to find less space in our papers to note that though we have more dollar billionaires than in any country in Asia - even more than Japan, which has been richer longer - we also have 260 million people living below the poverty line. And it's not the World Bank's poverty line of $1 a day, but the Indian poverty line of Rs 360 a month, or 30 cents a day - in other words, a line that's been drawn just this side of the funeral pyre.

Last month, the Bombay Stock Exchange's Sensex crossed 20,000, just 20 months after it had first hit 10,000; but on the same day, some 25,000 landless people marched to Parliament, clamouring for land reform and justice. We have trained world-class scientists and engineers, but 400 million of our compatriots are illiterate, and we also have more children who have not seen the inside of a school than any other country in the world does.

We have a great demographic advantage in 540 million young people under 25 (which means we should have a dynamic, youthful and productive workforce for the next 40 years when the rest of the world, including China, is ageing) but we also have 60 million child labourers, and 72% of the children in our government schools drop out by the eighth standard. We celebrate India's IT triumphs, but information technology has employed a grand total of 1 million people in the last five years, while 10 million are entering the workforce each year and we don't have jobs for them.

Many of our urban youth rightly say with confidence that their future will be better than their parents' past, but there are Maoist insurgencies violently disturbing the peace in 165 of India's 602 districts, and these are largely made up of unemployed young men.

So yes, we are a land of paradoxes, and amongst those paradoxes is that so many of us speak about India as a great power of the 21st century when we are not yet able to feed, educate and employ our people. And yet, India is more than the sum of its contradictions. It may be a country rife with despair and disrepair, but it nonetheless moved a Mughal Emperor to declaim, if on earth there be paradise of bliss, it is this, it is this, it is this... We just have a lot more to do before it can be anything like paradise for the vast majority of our fellow citizens

NOAH BLACKSTEIN
Dynamic Power Global Growth Class (global equity)
One-year return to Nov. 30: 40.1 per cent
Year to date to Dec. 21: 44.26 per cent
Mr. Blackstein is upbeat on global stock markets for 2008 despite expectations of slower growth. "There is a risk of a recession [in the U.S.], but I think that the actions of the central banks will stave it off," said the manager with Dynamic Mutual Funds Ltd.
Co-ordination among central banks to cut interest rates and take measures to increase liquidity "will buoy the stock markets next year," he said.
Mr. Blackstein is also upbeat because his growth investing style - out of favour since the Internet bubble popped seven years ago - has come back into vogue. In an economic slowdown, investors will pay up for growth, he said.
"I think this is the beginning of a multiyear cycle for growth," said Mr. Blackstein, who buys companies that can deliver above-average revenue and earnings growth.
He likes U.S. technology stocks and alternative energy companies in Europe. "The shift to alternative energy is a big, long-term secular growth trend," and will continue to play out next year, he said.
Mr. Blackstein owns stocks of alternative energy companies like Q-Cells AG; SolarWorld AG, Vestas Wind Systems AS and First Solar Inc., a big driver for his fund this year.
He is less sanguine about the emerging markets coming off a strong year. But he owns a few names in the wireless telecom sector, including China Mobile Ltd. and India's GTL Infrastructure Ltd.
Research In Motion Ltd. is his only Canadian stock. "The smart phone revolution, of which RIM and Apple are at the forefront, has a very long way to go," he said.