Every day ROB Insight delivers exclusive analysis on breaking business news and market-moving events. Streetwise offers news and analysis on Bay Street and the world of finance. Insight the Market delivers up-to-the-minute insights on developing market news.
Here are our editors’ picks of some of the best reads available to Globe Unlimited subscribers this week.
Loonie flies into airlines’ profit engines
WestJet and Air Canada have been flying high since the recession ended, with greater passenger traffic and fuller planes even with an expansion in fleets. Revenues, profits and stock prices have all been carried aloft in the updraft – but like all good things, they look set to be coming to an end, David Parkinson writes in ROB Insight. A cloudier domestic outlook for the economy and high household debt levels are playing a part, but the biggest culprit is the fast descent of the loonie. With fuel – priced in U.S. dollars – accounting for a big chunk of airlines’ expenses, the cost proposition for Canadian carriers has changed almost overnight.
Why the 4.3-trillion-dollar man is upbeat on U.S. stocks
Larry Fink, the key figure behind asset management behemoth BlackRock and one of the richest, most successful investment managers of all time, recently stated that 2014’s market volatility is largely “the unwinding of large hedge fund behaviour.” In Inside the Market, Scott Barlow explains the forces Mr. Fink thinks are at work here, and the investment manager’s belief that this volatility will be short-lived and a boon for U.S. stocks for the remainder of the year. If the man is right, this is an excellent entry point for investors to look to add to U.S. equities.
IMF takes magnifying glass to Canada
When it comes to overseeing a financial system, everyone wants to put their two cents’ worth in. The IMF is no exception, and recently dipped its oar into the water to pronounce on Canada, Kevin Carmichael writes in Streetwise. It generally gives high marks to Canada, but has a few reservations, including OSFI oversight of banks, which it claims relies too much on trust rather than statute. It also takes exception to the lack of any one agency with sole responsibility to deal with financial crises. But the IMF’s voice may not get much of a hearing in Ottawa. Finance Minister Jim Flaherty adheres to the if-it-ain’t-broke-don’t-fix-it approach to policy making, and Canada’s current system of regulation has helped it avoid the kind of blow-ups seen in other countries.
GM judders down a very bumpy road
Profit for GM fell far short of estimates for the fourth quarter, some of which the company attributed to higher taxes and the costs of restructuring meant to put the auto maker on a firmer footing. And considerable progress has been made in strengthening the balance sheet and producing better, more marketable vehicles at lower cost, while refilling its depleted coffers and raking in a steady stream of profits. Making money shouldn’t be too difficult a challenge when you’ve had tens of billions of dollars of debt forgiven, says Brian Milner in ROB Insight. And with more dark clouds ahead, particularly in its international operations, GM still has a lot of work to do.
While global stocks rallied, Canadians played it safe
As equities around the world surged last year, the top ETF that investors in Canada piled into was the decidedly defensive BMO S&P/TSX Laddered Preferred Share Index (ZPR). As Canadians exited low-return bonds ETFs, you would have thought that money might have flowed into their equity equivalents, writes ROB Carrick in Inside the Market. But instead many picked ZPR, whose distribution yield of 4.6 per cent looks good in taxable accounts because the dividend tax credit comes into play. But while the S&P 500 was making 35 per cent last year, ZPR lost 3.3 per cent.
OMERS returns rocket in 2013
Pension fund manager Ontario Municipal Employees Retirement System (OMERS) had a pretty good 2013. Its private equity arm managed to more than quadruple its money on the three investments it agreed to sell, Boyd Erman writes in Streetwise. That’s a big advance on its 2012 performance, when it booked a return of 19.17 per cent, trailing a 22.09-per-cent gain for its benchmark.