Canadian Business

According to CIBC World Markets, the Canadian economy will “outperform” the United States economy in 2008. Looks like the strong Canadian loonie (dollar) will set pressures on the country’s manufacturing sector, but will not hold the economy back at all. CIBC World Markets’ economic forecast indicated the loonie will hit $1.05 U.S.. This will be the dollar’s highest level in nearly 50-years.

• “The loonie’s flight is far from over,” said Jeff Rubin, chief economist at CIBC World Markets. “By the end of next year, you’ll get as much as a nickel back when you trade your loonies for greenbacks, the biggest premium since 1960.”
• “A much stronger domestic economy north of the border will in turn translate into divergent monetary policies in the two countries, with the Federal Reserve Board following through with another 50 basis points of easing while the Bank of Canada remains on the sidelines,” said Mr. Rubin.
• “With interest rate spreads turning against the greenback, and commodity prices buoyant, the Canadian dollar should climb to a 5 per cent premium against the U.S. dollar by the end of 2008.”

While the U.S. market is expecting a “significant drag” from its hardships in the housing market (Bernanke), the Canadian economy is expected to remain in good health; A huge turnaround from the past where Canada is traditionally, metaphorically described as the mouse who needs to run for cover when the elephant (the United States) falls / rolls over. Today we see Canada strategically positioned, and prone to economic fluctuations from south of the border.

Yes, the American economy and its dollar is sinking - BUT it does not by any stretch mean that the Canadian economy and its dollar is not soaring. The Canadian dollar is up quite strongly against the Euro, the British Pound, the Japanese Yen… as a matter of fact it’s really hard to any currency that has done better than the Canadian dollar.

What else do we need to consider before jumping up and down, across the streets? Well according to CIBC World Markets, “the strong currency combined with U.S. economic weakness has pushed manufacturing in Canada close to its lowest share of the gross domestic product in the post-war period”. The bank also expects the Canadian jobless rate to fall as low as the United States’ for the first time since 1982.

However, the recent 300,000 job loss in the manufacturing industry have been offset by job creation in other industries with lowest employment levels in decades. What next? Right now it is really up to the federal government’s budgets and how it utilizes the country’s healthy budget in order to provide positive stimulation to the challenge-faced manufacturing industry.

How many pennies have you dropped… how many did you bother picking up? That’s why some are pushing for Canada to drop the penny from our money circulation. The Royal Canadian Mint, along with the Department of Finance recently conducted a study on this issue - 64-percent of us wouldn’t dig into the couch to salvage a coin that had fallen from our pockets.

• 27-percent of Canadians are strongly in favour of removing the penny from circulation
• 18-percent are strongly against the idea of dropping it
• Economists say that inflations has led to the penny being more hassle than it’s worth
• Many Canadians believe the penny is part of our heritage
• 4-percent of consumers describe it as “dirty, smelly, germ-ridden”
• It costs “slightly” less than a penny to make a penny, at the moment

The ultimate decision rests in the hands of Finance Minster Jim Flaherty.

“The Canadian Mint and the Department of Finance review the coinage system from time to time, and examining the penny’s usefulness is always a part of those reviews,” Chisholm Pothier, a spokesman for Mr. Flaherty’s office, said Wednesday. “But, at this time, there are no changes to the penny planned.”

If the penny were to be removed from circulation, my question would be how certain things would be rounded to the nickel after taxes… Sure you can round something from $0.99 to $0.95; but what about when you add the taxes? Who keeps the extra 2-3 “pennies”?

“Free markets do not mean a free pass. Canada is open for business, but it’s not for sale. And like other countries around the world, it’s important that we have safeguards in place to protect our interests.” –Jim Prentice, Industry Minister

(Some strong words huh…)

Canada’s industry minister, Jim Prentice, said the federal government will be looking to make policy/rule updates on foreign state-owned companies investing in Canada. Well, with words like Canada is “not for sale”, its pretty obvious what these new rules would impose - barriers to investments by foreign state-owned companies and hurdles in the way of foreign companies looking to invest in strategic sectors.

He also said that, according to Statistics Canada, the country’s outstanding stock of direct foreign investment stands at $523-billion, while other countries have only invested $449-billion here. I can understand there being a few sectors which require some form of protectionist barriers, but sticking the middle-finger up at the rest of the world is not an option - which Prentice is seemingly doing through his words.

Looking back in history, it is exactly this type of “leadership” behavior that led to the 1930’s Great Depression. There are countless examples in world history proving that the market is the most efficient allocator of resources. Canada itself has done extremely well by opening itself up to trade and investment.

The only room for intervention in the Canadian economy is its natural resources sectors. Americans are buying Canadian energy, steel and mining companies at an incredibly fast pace. In fact, in the first half of 2007, American companies acquired 61 Canadian companies valued at almost $118-billion CAD, while Canadian companies acquired 159 American companies worth only $28-billion. (Crosby & Company)

If Prentice is looking to put protectionist barriers on anything, it should not be the entire business sector that has been key to the wealth and development of Canada. Rather, these barriers should be put in place to prevent Canada’s “resource drain” to the United States.

Consumer debt is on the rise in the United States. Who would’ve guessed? I mean the credit crunch wasn’t that bad was it? Guess again… Yankee consumers have been borrowing at the fastest pace in three months, with increased usage of their credit cards.

The U.S. Federal Reserve reported that consumer credit rose at an annual rate of 5.9-percent in August, the biggest increase since May. The rise was due to an 8.1-percent increase in revolving credit (credit card loans) and an 4.7-percent (annualized) increase in non-revolving credit (auto loans, etc.).

Most of the increase is a result of consumers looking to credit card debt as an alternative to home equity lines of credit to finance purchases - as the lines of credit are now harder to attain.

Our economies, both the Canadian and American, are increasingly revolving around the “buy now-pay later” philosophy. With all the spending, comes more debt, loans, and other bads stuff. With our banks (still) throwing credit at consumers beyond their means, credit education is becoming increasingly important in the sustainment of this credit economy.

Waterloo, ON - based Research in Motion [RIM-T] beat all expectations on their second-quarter profits report. RIM stated earnings of $287.7-million U.S., or 50-cents a share, for the three months ended Sept. 1. That figure was up from a profit of $140.2-million, or 25 cents a share, in the same period - the previous year.

RIM also added 1.45 million subscribers in the quarter, versus the predicted 10.5 million. It said more than three million of its devices were shipped in the quarter. RIM forecasted revenue between $1.6-billion and $1.67-billion and an earnings per share of between 59-cents and 63-cents for the coming third quarter. It also expects to add about 1.65 million new subscribers.

The company has also continued its aggresive push into the retail market during the quarter. The BlackBerry has always been a symbol for many executives, politicians, lawyers and other professionals. Today RIM is taking on the challenge to penetrate the retail consumer market in the same manner.

At the moment, Resarch In Motion says more than 30 per cent of its subscribers are non-enterprise. The number of RIM-subscribers would rapidly grow if the BlackBerry became common to the Average Joe, as it is in the business environment.

“RIM’s second quarter results were exceptionally strong on all metrics including revenue, subscriber account additions and net income,” RIM co-chief executive officer Jim Balsillie said in a statement. “This growth is fuelled by the depth of the BlackBerry product portfolio and the continued diversification of our business across market segments and geographies.”

Mr. Balsillie said the company is also working to enter China’s markets, where currently its service is available, but not its handsets.

RIM’s share price has more than trippled since September 2006 as strong demand for its devices continues to hold and grow. Analyst and investor views on the company and its prospects has also reinforced a surge in their stock prices.

Way to go, RIM! They have well-established an innovative company with natural, reliable growth. Great model chages, and agressive rollouts. Looks like RIM isn’t handing out its market share for dinner to anyone - not to Microsoft’s VM-devices, not to Apple’s iPhone.

The Bank of Canada’s new governor (from Feb. 1) was announced today, as former Golman Sachs investment banker Mark Carney. Carney, 42, will become the the youngest central bank governor among the G8 nations when he begins his term. Finance Minister Jim Flaherty trumped youth over experience when choosing Carney, currently the senior associate deputy minister at the Department of Finance. Most anticipated governor David Dodge’s successor to be Paul Jenkins, the Bank of Canada’s senior deputy governor.

“Mark is eminently qualified to lead the Bank of Canada and we are confident he will provide a steady hand to help maintain the stability of Canada’s monetary system,” Flaherty said.

Mark Carney resigned from his position in Golman Sachs in 2003 to accept his post as deputy governor at the BoC, after being recruited by governor David Dodge. In 2004, he moved to the Department of Finance’s No. 3 job.

Carney did not issue comments as to where he leans on issues such as inflation, the dollar, the credit crunch and troubles in manufacturing. He did however reassure sticking to the bank’s objective to maintain “low, stable, predictable inflation”.

Carney has been appointed with a seven-year term, with a salary of $340,000 to $400,000 annually.

The worst year in a decade for IPO activity in Canada… That’s where “2007″ will be in the history books, unless we see a drastic change in the final three months remaining.

2001 had only 46 issues, but with a total value of $2.1-billion. The-year-to-date, 2007, had 63 IPOs with a combined value of only $1.2-billion. This means that more than $900-million in new issues would need to be done in the fourth quarter of this year just to match 2001 (the decade low). Last year, at this time, there were 95 IPOs with a value of $4.7-billion.

“At the current rate of activity, it is unlikely we will even reach the 10-year low-water mark, set in the aftermath of the collapse of tech stocks in 2001,” said Ross Sinclair, national leader of PricewaterhouseCoopers’s IPO and income trust services.

What caused IPOs to lag this year? A number of factors - most notably the federal government’s policy changes to income trusts, blocking that source of financing.

(Source: survey by PricewaterhouseCoopers LLP)

That’s right… You can now walk into your nearest Bank of Montreal branch and request help with bereavement services. If a client’s relative or loved one passes away, he/she can now let BMO Trust Company handle everything from planning the funeral, to asking Canada Post to redirect mail, and even to settling outstanding debts.

The Bank of Montreal has been training its branch staff all across the country in the area of bereavement services this past spring, and the operation is now underway. The Royal Bank of Canada is also in the process of introducing a similar service to executors of an estate.

I find the extent to which the chartered banks are beginning compete for Canadians, and their wealth, very impressive. With Canada’s aging population, the banks have now shifted a lot of their focus on Wealth Management.

“The growth rate for this industry is probably twice what the GDP growth rate is,” said Gilles Ouellette, chief executive officer of BMO’s private client group and deputy chairman of BMO Nesbitt Burns.

“Because it’s attractive, it’s attracting more and more competition. The banks are competing in this, the independents, the life insurance companies, everybody’s in this space because of its growth prospects. I mean, it’s the most attractive part of the finance industry.”

We have seen a huge evolution in Canadian banks from the 90’s - since the allowance of banks to participate and compete in other areas of the financial services industry. The fight between the chartered banks for customer loyalty has been very aggressive, and ultimately benefited both the Canadian consumer/business banker, and of course the chartered banks themselves.

The banks have also been desperately grasping at any market available for target. “Wealth Management” has traditionally been viewed as “mutual funds” - we now see what it has evolved to, and more importantly what it will evolve to tomorrow…

“Bet your mother’s banker never asked her whether her kids might fight over her estate, or when her daughter is getting married, or how her divorce is coming along. Depending on their level of wealth, Canadians might be surprised to find out some of the things some banks are willing to do for them these days – for a fee, of course – from guiding boomers on how to get proper health care for their elderly parents, to helping them decide which child to leave the family business to, to connecting them with a good dog-walker.” –Tera Perkins, Globe and Mail