Canadian Business

The U.S. housing sector slumps, fewer job growth, stagnant wages, negative savings, high debt, high interest rates, high energy prices — relax, don’t run for the exits just yet. All this only leads to a possibility of an economic recession, as you have probably already heard from your respective media sources. The problem is a conflict of interest. When you have media channels spreading scary news - it sells. On the other hand, when it drives a bunch of investors withdrawing from the marketplace in herds, it only turns the possibility into a more likely event.

Now don’t get me wrong, there is of course reason to “worry”, but not necessarily panic. On Friday, the S&P posted its worst single-day drop since the Shanghai surprise which led to a global selloff on Feb. 27. But a few bad weeks of market turbulence does not tell us there is a recession threatening us. The difficulties that lies in the road ahead of us is the subprime mortgage meltdown, slower job growth, but mainly keeping CONSUMER CONFIDENCE.

As always, what keeps the economy moving, is the consumer. So far, people have cooped positively despite painful asset declines, tightened credit conditions and growing job concerns. When housing dipped, Americans were told not to worry, because equities were so strong and there was still plenty of cheap credit available. Now the markets have given up about half of this year’s gains, the job market is looking more gloomy and bank loans are getting more costly and difficult to attain - all of which point to a lot less borrowing and spending.

IF the consumer decides to pack up and call it a year, and the markets keeping tumbling, then do we need to worry (or rather “panic”). But of course there is always yankee Fed Chairman Ben Bernanke to the rescue at that point. But we can definitely manage without his rescue efforts, at least as of yet.

There is quite a bit of slowdown, and I’m sure there’s quite a bit ahead of us as well. But the main question is: Does all this leads to an economic recession? At this point, I don’t see it happening.

I am guessing you are looking forward for an answer in this post. I’m sorry, but you won’t find one. Unfortunately, I myself am looking for an answer… I am frustrated at the fact that we are currently paying too much for imported goods. The recent surge of the Canadian dollar should reflect on the prices we pay for imported products. The savings from a high dollar versus other currencies should ultimately be passed on to the consumers; in other words, prices need to be adjusted lower.

Top 3 reasons to why the savings should be forwarded to the consumers:

1. I enjoy buying things when they are cheap
2. Canadians might start shopping in the United States, where savings can reach 40 per cent.
3. I really enjoy buying things when they are cheap

All jokes aside, this is an important issue for the Canadian economy, and should be dealt with accordingly. These currency imbalances could seriously hurt the economy, among the build-up of reserves in China and the credit crunch stemming from the sub-prime mortgage meltdown in the U.S.

Please respond to our poll this week: Do you think the Canadian Dollar will soon hit parity with the U.S. dollar?

I’m sure the title’s got your attention - probably not used to seeing Tim Horton’s or Starbucks beside the word “losers”. For those of you don’t know Tim Horton’s, you’re definitely not Canadian. Tim Horton’s, rather “Tims” (as it is affectionately known in Canada), is Canada’s largest fast food chain. Now you’re probably wondering why then I’m calling it a loser.

The coffee and doughnut chain (thus it’s comparison with Starbucks) said Friday that second-quarter profit fell 12%, despite higher revenue, because of a higher tax rate. Owned by U.S. fast food chain Wendy’s International, Tim Hortons said it earned $67.2-million ($63.4-million USD), or 36 cents a share; which is down from a profit of $76.3-million, or 39 cents, in the year-before period. The company is looking to push its stores south of the border, where it faces stiff competition and lack of brand recognition.

Speaking of south of the border (that’s you - Americans), I now come to the suffering Starbucks. Unlike in Canada, Starbucks actually sells in America - right? Apparently their stocks don’t tell the same story. There are several reasons the stock is trading near a 52-week low. First of all, the company is being over-optimistic. The chain is looking to expand itself to 40,000 stores. Apparently, when a company says that it plans on growing as big, or even bigger than a company like McDonald’s, investors think it’s just a fairytale - yes, even for a company like Starbucks. The company has also come short in sales for the quarter, versus Wall Street estimates - a big deal when you’re planning massive expansion. The company also had senior executives selling nearly half-a-million shares during the past 6 months, despite the stock’s slide - insider selloff?

All in all, you can now make some sense out of the title. We are also now seeing other fast food chains such as McDonald’s, Dunkin’ Donuts, and Burger King, heating up their menu with fancy coffee lines. These introductions have, and will continue to undoubtedly slash some business from the coffee and doughnut franchises. Maybe a plain cup of coffee isn’t like the blue jeans after all - it needs some innovation to survive.

Toy-maker Mattel Inc., parent company of Fisher-Price, is recalling nearly 1 million toys - which will cost it about $30 million from its second quarter profits. The toys, including the popular Big Bird, Elmo, Dora and Diego characters, are being recalled due to excessive amounts of lead on their paint.

The worldwide recall, announced today, involves 83 different types of plastic toys made by a Chinese vendor, and sold in the United States. A total of 967, 000 toys are affected. It is the latest in a wave of recalls that has heightened global concern about the safety of Chinese-made products. Because this is not the first of recalls from Chinese manufacturers, especially with parts containing lead, it may lead to the ultimate cost of consumer fear during the holiday season. I personally believe Mattel Inc.’s quick response should be praised, and should provide a future lesson not only for Mattel, but the entire industry.

There isn’t anything, on a blazing hot summer day, like a fresh bottle of Aquafina or Dasani… tap water? Yes, that’s right… For those of you who didn’t know what the simply innocent looking “P.W.S” on Aquafina’s water bottle stood for: it’s “Public Water Source” (a.k.a. tap water). Last week PepsiCo announced that the label on its Aquafina brand of bottled water will soon carry the words “public water source”, instead of “P.W.S.”. Coca-cola is being pressured to do the same with its Dasani brand, although currently refusing to do so.

So will Aquafina’s new label have a disastrous effect on its sales? Well, it’s probably inevitable. At least it’s not like it will be to Dasani’s advantage; as it’s water source is being equally exposed to the public as simply “filtered tap water”. Coca-cola defends its stance by saying “We don’t believe that consumers are confused about the source of Dasani water.”

- I think not. There probably has been a lot of confusion, considering the sales of bottled water booming in the recent past. The reason is probably because consumers hold an image of bottled water being fundamentally more clean and safe versus the water provided by the government (the tap). Possibly it is, but definitely not to the extent where consumers will pay up to a 1000 times the price of tap water. Indeed, even with oil prices sky high, a litre of bottled water can cost more than a litre of petrol. And on top of that, there are the environmental costs of transporting bottled water and of manufacturing and disposing of the bottles.

Finally, whether Aquafina and Dasani survive, we are yet to see. But the industry’s past success is definitely an example of the waste inherent in capitalism. This is proof that consumers are manipulated into buying things they ultimately don’t need.

Studies show that tap water is much purer than bottled water - not including those that contain only tap water, which are estimated to 40 percent of the total by volume. (Tested at the plant, before traveling through pipes)

Canadians appear to be switching off conventional broadcasting media (including radio and television), and now logging on to the Internet - according to a new report on broadcasting by the CRTC.

The Canadian Radio-television and Telecommunications Commission’s eight annual report on the state of the industry, found that 70 percent of Canadian households subscribed to the Internet in 2006, a six percent increase from 2005, and 60 percent use high speed internet, up from 51 per cent in 2005.

Although Canadians have more choice to both television and radio media than ever before, they are watching and listening less. More and more Canadians are using relatively new technology for everything from research, to watching and listening to radio and TV shows. The report revealed that 22 percent of Canadians listened to radio over the Internet in 2006 and six percent watched television. Internet advertisers benefited with revenues totalling $1-billion in 2006, as opposed to $562-million the previous year.

I guess this is one of the challenges conventional broadcasting media must face in the short future. With the rapidly moving technology today, the radio and television industries have crossed maturity and are in decline. The CRTC report also revealed that 58 percent of Canadians used a cellphone to access the Internet 2006, 14 percent had an MP3 player and 4 percent used a BlackBerry.

Ontario is trying to help smokers quit by providing all residents a PST (Provincial Sales Tax) break on smoking cessation aids in two weeks. Beginning August 14, those who wish to quit smoking won’t have to pay the 8 percent sales tax on nicotine replacement therapy products (patches, gums, inhalers, pills…). The credit will be given at point of sale, as per Health Promotions Minister, Jim Watson.

Congratulations to Ontario for taking such a bold step - NOT. Sure we will save $5-million a year, but is that really an incentive for smokers to quit? If the financial costs of smoking itself (about $10 a pack) isn’t enough of an incentive to quit, what makes Mr. Watson believe that cutting costs on therapy products will help? What we can do, is take that $5-million every year and use it to continuously educate the public of the harmful effects of smoking - a proven strategy.

An average of 16,000 people in Ontario die each year from smoking; tobacco-related diseases cost the health care system about $1.6 billion/year.

The latest of attempts in keeping the world’s fourth-largest economy from overheating, was today when China’s central bank raised the level of deposit that lenders must hold in reserve (the bank reserve requirement) for the 9th time in thirteen months.

Again this is not a surprising move, as the policy makers have been continuously tightening policy measures to constrain the economy. Today’s step follows an increase in interest rates on July 20, and a reduction in the tax on interest income from bank deposits - an attempt to lower the incentive of individuals looking to bet on the country’s blazing-hot stock markets.

China has already raised this reserve requirement 6 times this year. The country’s central bank has also raised interest rates three times this year so far. We can most likely expect further action; higher reserves, and higher interest rates.

I warn you all once again, this is the time to step out. The bomb’s ticking is getting louder as China’s economy further heats. For those of you who survived the dot-bomb, don’t be too optimistic - you lucked out. But the chances of lucking out with China’s economy blowing, are very slim - no matter which part of the world you are in.