Canadian Business

Microsoft RIM… doesn’t sound too bad, eh? Well, definitely doesn’t sound too bad for Research in Motion (RIM-T) shareholders, whose shares rose today on speculation that the Canadian-maker of the BlackBerry handheld device could be bought by Microsoft Corp (MSFT-Q).

Waterloo-based RIM’s shares rose $2.10, or 2.42 percent, to $88.90 in Toronto. Meanwhile in the U.S., the stock climbed $2.18 (USD), or 2.66 percent, to $84. Microsoft shares also seemed to be advantageous to the rumours, who rose 24 cents, or 0.8 percent, to $28.83.

The takeover chatter also made its way into the currency market, helping send the Canadian dollar up by a third of a cent. The Canadian dollar traded at 94.65 cents from Tuesday’s close of 94.30.

My bet: just a rumour. A very good one though. Currency trading is not at its best right now, so investors are extra quick to react to any speculations (not that they usually aren’t anyway). Logically, the rumour sounds a bit too -umm… illogical? For those of you who have been living on the moon: Microsoft already has a handheld product.

Then again, the rumour can’t be totally invalidated either. And if true, partly-living in Waterloo, I can say the takeover would not please the area residents, Blackberry users, or ambitious Canadian entrepreneurs. There are more than 20 RIM buildings in Waterloo, employing many in the software and hardware industry - including many neighbouring university students from the University of Waterloo and Wilfrid Laurier University.

RIM holds the image of a distinguished and innovative brand, which is partly the reason for its Blackberry users’ loyalty. The buildings in Waterloo provide ambitious young university students with a entrepreneurial passion while passing the buildings everyday. Perhaps that’s the reason RIM CEO, Mike Lazaridis, chose RIM to be based in Waterloo - not California. Research in Motion spells out a Canadian success story. It would be a shame if this really happened. Sorry about the emotion, but once again, my bet: just a rumour.

A New Jersey teen, George Hotz, 17, confirmed last week Friday that he has unlocked Apple’s iPhone from the AT&T Wireless Network. This frees the most hyped cell phone for use in other networks worldwide. Calls to AT&T and Apple for comment were not immediately returned.

The iPhone unlock is still a bit complicated, and requires both soldering and software skills. It is estimated to take about two hours to perform the hack. The details are publicly posted on Hotz’s personal blog. There is, supposedly, another iPhone unlock method for those who do not wish to physically (open, solder, etc.) unlock their iPhones. The details of this unlock can be found on iPhoneSimFree.com.

With the iPhone unlocked, and the process publicly available, there will most definitely be a form of arbitrage in Apple’s iPhone market. The industry will involve the purchase of U.S. iPhones, unlocking them, and sending them for use in Canada, and other countries worldwide. I will be eagerly watching to see how Apple responds to this challenge…

“That’s the big thing”, said Hotz, “That’s exactly, like, what I don’t want. I don’t want people making money off this.”

Although Canadians, in general, seem to be more comfortable with the Conservatives, they hold mixed feelings when asked about Prime Minister Stephen Harper. A poll conducted by the Strategic Counsel shows the Conservatives and the Liberals deadlocked, with each being named as the first choice of 33 percent of respondents.

In general though, Canadians seem satisfied with where the country is headed with its current Conservative party. When asked if the country is on the right track, 57 percent said “yes”. That’s down 4 percentage points from last year at this time, but up more than 10 points since the final days of the Liberals in early 2006.

Traditional views on Canadian politics and parties also seem to be changing. Liberals who say they might vote for another party, list the Conservatives as their second option - a reversal from the period before the 2006 election. In the suburbs of Toronto, where Liberal support is known to dominate, the Conservatives have climbed seven percentage points, to hold 38 percent of popular support, since the last election.

Is it going to happen (a majority)? My bet: most probably. When asked if the country is on the right track, 57 per cent said “yes”. 37.5 gets you a majority. It is perhaps more remarkable that 81 percent of respondents said their thoughts of Mr. Harper would improve if he were tougher on crime. That’s a huge number; and if campaigned with reducing hospital waiting times, I feel Harper can definitely achieve a conservative majority government.

As a leader, I’m not too fond of PM Harper, but I do like the way things are headed - at least with this minority. These minorities seem to be more dependable, and accountable. They also work harder to achieve public goals because of the increased pressure from the opposition - similar to perfect competition, versus a monopoly in a marketplace. Things seem to be a bit more balanced this way. Conservatives can cut a bit here, and the Liberals can spend a bit there. I think keeping the minority would be ideal, and equally beneficial to Canadians, and Canada as a country.

The Canadian dollar fell today in the wake of an inflation report that economists said is more likely to keep the Bank of Canada on the sidelines next month. The central bank raised interest rates to 4.5 percent on July 10, and suggested that further increases were a possibility - due to inflationary pressures. Although the Bank of Canada will probably hold off an additional rate hike because of the recent credit worries, the U.S. Federal Reserve is no longer expected to stay put on Sept. 18. Economists predict the U.S. Feds to cut rates to mitigate the increased downside risks to economic growth. Some economists see the lack of Bank of Canada tightening, and a weaker starting point to take away the Canadian dollar’s shot at parity.

Whatever the case may be, there are many other issues to consider. Many foreign countries are looking to reduce their holdings of US dollars for a variety of reasons. Countries like Iran, and even European nations and Japan are looking to move commodity trading to other currencies, such as the Euro or Yen. Many other countries hold so much US dollar debt that they do not want more US dollar exposure.

While on the other hand, the Canadian dollar may be volatile, but its position as being one of the most appreciating currencies in the world, not just against the USD, is backed by strong fundamentals including a growing demand for our commodities, a strong economy and well managed finances.

We are well past those days where we could simply put Canada and America side-by-side to forecast their respective currencies against one another.

Let’s take a look at some of the effects of a strong Canadian dollar:

• Canadian exporters lose ground because their products become more expensive for U.S. buyers
  • Since 2002, Statistics Canada says 189,000 manufacturing jobs have disappeared in Canada. The agency places the blame squarely on the soaring loonie.
• Canadian exporters will need to improve efficiency and innovation in order to sell (a good thing), rather than relying on a cheap loonie
• Canadian companies can invest more in U.S.-made tools to help improve efficiency and competitiveness
• As the Canadian dollar rises, the cost of repaying U.S. dollar debt falls
• Canadian visitors to the U.S. will find their money buying a lot more south of the border
• Conversely, U.S. visitors to Canada will find their money buying less here

A class action lawsuit has been filed against Mattel Inc., by Attorney Jefferey Killino, for its lead poisoned toys. The lawsuit, filed today, is aimed at forcing the world’s largest toy maker (Mattel Inc.) to pay for the testing of children who might have gotten lead poisoning from the Chinese-made toys.

The 1.5 million toys have been recalled during the past weeks. (More info on the recalls here)

Killino is the same attorney who’s lawsuit helped to a recall of defective Chinese-made tires.

Mattel officials, or representatives, were not available for immediate comment; but Mattel’s CEO stated during the company’s latest recall, that due to the company’s more aggressive testing methods, more toy recalls may announced in the near future.

What is subprime mortgage?

A mortgage given to a home-buyer with less than sufficient credit, or who lacks a proven income source to support loan payments. Lenders with excess money in the U.S. were giving loans to almost anyone who asked - charging a little more interest in return for the riskier loans. The lenders made their bet on (U.S.) house prices to rise. Well, that’s not exactly what ended up happening. When housing prices began to fall, and interest rates started to rise, many borrowers wound up in trouble - causing to default on their loans.

How did the problem spread to Canada, and the rest of the financial world?

Many of the lenders (American Home Mortgage, HSBC, …) were selling the loans to other parties, including hedge funds and pension funds - who were also looking for higher returns. The subprime loans were bundled and sold to third-party investors. As the loans started to go bad (and default), people all across the financial world were affected. As others were affected, concerns over losses started to grow. The concerns causes investors and lenders to ask for higher rates, or stopped activities completely - the concept of the credit crunch.

What is commercial paper?

Commercial paper is short-term debt (with maturity dates less than a year) issued by companies. Institutional investors - money-market mutual funds, low-returning funds, etc. - tend to be the largest buyers of the market. As a result, only highly rated companies with strong balance sheets can generally issue commercial paper, limiting the size of the market.

What is asset-backed commercial paper?

Asset-backed commercial paper is exactly what it sounds like. Commercial paper, backed by assets such as car loans, mortgages and credit-card receivables. Which companies are involved? Trusts and other financial companies; the one’s you’ve probably heard on the news - Conventree Capital, National Bank of Canada, and so on.

So what’s the problem in the commercial paper market?

As concerns about the housing market bubble about to burst grows, portfolio managers at money-market mutual funds are doubting the investment in asset-backed commercial paper - especially those backed by assets such as mortgage loans. In consequence, this leaves the trusts short of cash, because no one is willing to buy their paper. Other banks are providing loans, and central banks are helping to provide liquidity.

What about my money-market mutual fund?

If your money-market mutual fund has invested in a trust that’s in trouble, it could spell out losses for the fund, and ultimately you - the investor.

Reminder: this is only a small portion of the market that’s in trouble, and not every money-market mutual fund holds paper issued by the trusts in trouble.

An Abu Dhabi, United Arab Emirates energy investment company has started operating a Canadian-based oil and gas firm after completing a two-billion-dollar acquisition.

“Beginning today, Abu Dhabi National Energy Company (TAQA) will own and operate TAQA North Ltd, following the completion of the acquisition of Northrock Resources Ltd, a subsidiary of the US firm Pogo Producing Company, for two billion US dollars,” a statement said.

“The new entity, TAQA North, is set to provide TAQA with an additional 142 million barrels of proven oil and gas reserves, over 37,000 boe/d (gross) and a best-in-class exploration and production team.”

The Calgary-based oil and gas exploration production company will have “access to significant development and exploration opportunities in Saskatchewan and Alberta, with key exploration plays in Canada’s Northwest Territories, British Columbia and the Alberta Foothills,” it added.

Founded in 2005, TAQA is majority-owned by the government of Abu Dhabi. Just under a quarter - 24.9 percent - of TAQA’s shares is traded on the Abu Dhabi Stock Exchange, while the rest is owned by the emirate’s government.

Much of the foreign investment in the Canadian oil industry has been aimed at exploiting the oil sands, which contain reserves second only to Saudi Arabia. Companies like Royal Dutch Shell Plc. and Statoil ASA have spent billions this year bolstering their access to the 174-billion barrel resource.

Say ‘Goodbye’ to your 2007 gains (if you haven’t already done so, on reading the title of this post). For those of you who seen your mutual fund gains vanish after the China scare earlier this year, and haven’t checked on them ever since, your funds are probably just the way you left them - umm.. that’s bad news. Canada’s stocks fell today, wiping out the country’s main index’s gains for 2007. The reason: Investors worldwide sold raw materials and energy assets on concern a credit crunch may hurt the economic growth and curb demand for oil and metals - a vital part of the Canadian economy.

The S&P/TSX dropped 200.06, or 1.5 percent, to 12,848.70, with a record numbers of trades and volume in Toronto. The benchmark has dropped 12 percent from a record it reached last month on rising commodity prices and record takeovers metals companies.

Canada is just one of a large number of stock markets around the world suffering heavy selloff. Markets all over the world, in Europe and Asia, are facing similar problems. The fear has spread beyond the borders of the United States and its subprime mortgage market. The international fear continues to grow with concern that a global credit crunch will hurt profits and growth. People are starting to be more and more afraid of a possible global slowdown.

Many Canadian firms have already announced difficulties to this massive selloff. Toronto’s Coventree Capital, announced on August 13 and 14, 2007, that it was experiencing market disruption and as a result was unable to meet its repayment obligations until its liquidity providers fund such repayments. Today Vancouver’s Redcorp Ventures Ltd. said that it is awaiting more than $100 million of its unspent cash, frozen in distressed paper issued by Toronto’s Coventree Capital. Redcorp’s share price fell nine cents to 28 cents, and Coventree’s dropped another 20 cents to $3.70 today.

Before you run off and kill whoever made your investments, remember this ‘Goodbye’ isn’t forever. Finance Minister Jim Flaherty, Governor Dodge and the Bank of Canada are all monitoring the global situation, and ready to provide all means to help. The Bank of Canada injected another $370-million in temporary credit into the financial system in its latest bid to help loosen the credit squeeze.

“It’s a shock, but a necessary one for expansion to continue. Financial shocks can create tremendous opportunity, but if you buy at the wrong time you can have your head handed to you.” –Peter Gibson, vice chairman and head of portfolio strategy at Desjardins Securities in Toronto

The situation right now is simple: market correction - getting stocks out of weak, and into stronger hands. Look at your hand now. DO IT! Tell me if you see strength of weakness. If it’s weakness… no comment. If it’s strength, you should also see all the reasons you have to BUY. Look for for both smart Canadian AND international buys.

The following is a list of some of New York’s bellwether stocks. (Courtesy of Capital IQ) Look what’s happened:

… I think you get the picture.