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ROB Insight

Fresh, focused analysis of today's business news
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Entry archive:

Putin’s next major battle: ‘Stagflation’

IAN McGUGAN

Vladimir Putin has successfully butted heads with the West before, but now faces a more unpredictable foe: stagflation.

On Friday, Russia surprised global markets by raising its key interest rate for the third time in five months to put a lid on rampaging inflation, while announcing that its economy barely grew in the second quarter.

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Memo to Wall Street: More Ace Greenberg please

Antony Currie

Wall Street needs more leaders like Alan “Ace” Greenberg. The onetime Bear Stearns boss, famed for his pithy missives to staff, died on Friday. He was 86. Though he was no longer in charge, the firm’s 2008 collapse is a notable blemish on an otherwise illustrious career. The industry could use more of Greenberg’s scrappy PSD: poor, smart and driven.

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An open letter to Trade Minister Ed Fast

KEVIN CARMICHAEL

Dear Mr. Minister,

It’s been a while since you’ve been through town. I trust you’ve been well and that you are having a good summer. I see Washington again is toying with “Buy American” legislation. Sigh. This must be frustrating, especially as it comes on top of the whole Keystone XL fiasco. If only TransCanada Corp. had avoided that North Dakota aquifer in the first place, eh?

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Shareholders don’t hold back in punishing Amazon

Robert Cyran

Shareholders have punished Amazon with a whole new multiple.

The $165-billion (U.S.) internet retailer chalked up another stunning quarter of growth – revenue rose 23 per cent. Investors’ devotion to this figure over the years, rather than the at best anemic bottom line, explains why the stock now trades at 112 times next year’s expected earnings, according to Reuters data.

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Speed bumps still litter U.S. economy’s road to recovery

KEVIN CARMICHAEL

I’m not sure to what extent the readerships of Time and the Economist overlap. Those who picked up the print edition of only one of the two magazines this week would have been left with very different impressions of the state of the U.S. economy. Those who read both could be suffering from cognitive dissonance.

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Murdoch calls on European outposts for Time Warner

QUENTIN WEBB

Rupert Murdoch is calling on European outposts to help in his pursuit of Time Warner. The media mogul’s Twenty-First Century Fox is poised to sell its Sky pay-TV arms in Italy and Germany to Fox’s UK affiliate British Sky Broadcasting.

There’s strategic logic to the asset shuffle and the proceeds could help sweeten his $80-billion (U.S.) bid for the owner of CNN and Warner Bros. How Murdoch treats non-Murdoch owners is the linchpin.

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Allergan bosses put money where their mouths are

ROBERT CYRAN

Allergan bosses have put money where their mouths are. The drug maker says it is worth more on its own than the $52-billion (U.S.) hostile suitor Valeant Pharmaceuticals International is offering.

That’s straight from the empty-promise, takeover-defense playbook. Allergan, however, is linking stock and option grants to lofty profit goals. It’s a bolder gambit that should become an M&A norm.

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Doors opened wide for U.S. retail M&A

KEVIN ALLISON

The doors have been opened wide for U.S. retail mergers.

Amazon’s seemingly unstoppable march makes it harder for trust busters to prevent big merchants that cater to the same customers from uniting. Pressure on discounter Family Dollar and animal accoutrement purveyor PetSmart, two $7-billion (U.S.) chains, to merge with rivals shows that uppity investors have taken note. Expect more deals of a similar ilk.

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Apple’s growth in China less impressive close up

ETHAN BILBY

China was the star of Apple’s quarterly earnings on July 22. But the relationship isn’t reciprocal.

Seen from the People’s Republic, the U.S. tech group is far from the leader, and faces a bitter battle with large rivals U.S. consumers have barely heard of, like Xiaomi and Coolpad. As they gain share too, Apple will struggle to be more than an also-ran.

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Saudi opening puts Middle East on investor maps

UNA GALANI

Saudi Arabia’s opening will finally put the Middle East on the investor map. Foreigners will be allowed direct access to the kingdom’s $530-billion stock market from next year under reforms announced on July 22.

It gives investors good reason to pay attention to the region beyond oil and war. For an emerging market, Saudi Arabia is well regulated, growing fast, and is more stable than most.

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Two years after IPO, Facebook is the new Microsoft

IAN McGUGAN

Shortly before Facebook Inc. went public in 2012, a poll of more than a thousand professional investors, analysts and traders came to an overwhelming conclusion. The social media giant was overvalued, according to 79 per cent of those surveyed.

Two years later, the skeptics are practically extinct. Facebook vanquished the doubters by pulling out a weapon they never expected: strong, growing earnings.

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Bank of Canada keeps low interest rate possibilities alive

KEVIN CARMICHAEL

The Bank of Canada says it’s just going with the flow: If economic data in the months ahead get stronger than currently expected, it will ready for higher interest rates; if economic conditions unexpectedly worsen, the central bank says it is prepared to cut its benchmark interest rate from its already ultra-low setting of 1 per cent. For now, the central bank is totally neutral.

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Listen to Rupert Murdoch’s muzzled minorities

ROB COX

Time Warner shareholders pondering whether to surrender to Rupert Murdoch would be well advised to listen to the media mogul’s muzzled minorities.

Most Twenty-First Century Fox believers are relegated to owning non-voting stock in the entertainment conglomerate, the same second-tier paper on offer as part of the $80-billion takeover bid for the owner of HBO, CNN and Warner Bros. studios. Despite broad investor overlap in the two companies, the record shows a clear distaste for Murdoch’s imperialism.

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Club Med organizers can welcome latest arrival

QUENTIN WEBB

Club Mediterranee should go with this last-minute offer.

Andrea Bonomi, the financier better known for backing Aston Martin, is offering €790-million ($1.07-billion U.S.) for the French holiday group. The board should feel comfortable, even if this is still an off-peak price.

Over the years Club Med has gone, to quote the LA Times, from “socialist tent camp to sex haven to high-thread-count sheets.” But for investors this century has been more wilderness years than island paradise. Net profit has been skimpy or non-existent. The shares, which topped €130 soon after the millennium, began 2013 just above €13. The last dividend was for the year ending October 2000.

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Like the sound of a 3-day work week? Billionaire Carlos Slim does

IAN McGUGAN

Carlos Slim wants businesses to move toward a three-day work week. But don’t mistake the Mexican billionaire – who is still going all-out at the age of 74 – for an easy-going apostle of indolence.

For one thing, the world’s second-richest man isn’t suggesting that companies actually slash hours by all that much. His vision, which he outlined at a business conference in Paraguay, calls for employees to work 10 or 11 hours a day during their shortened work week, according to the Financial Times. One big payoff, in his view, is that such a system would encourage workers to keep on coming into the office until they’re 70 or 75.

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Bretton Woods and the collapse of global economic policy

KEVIN CARMICHAEL

Exactly seventy years ago, delegates from 44 countries were wrapping up work on a new world order. The next day, July 22, 1944, the attendees of the Bretton Woods conference agreed to regulate international exchange rates; to create the International Monetary Fund and the World Bank; and to lay the groundwork for what would become the World Trade Organization.

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AbbVie acquisition a bet on rare-disease drugs

Robert Cyran

AbbVie may find more than just tax charms in Shire. The U.S. pharmaceutical group’s fifth offer, at $55-billion (U.S.), finally persuaded its U.K. rival to sell. A 53-per-cent-premium is a hefty price to pay given the modest synergies and potentially ephemeral tax arbitrage savings. Shire’s rare-disease drugs, however, should have lasting benefits.

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U.K. banks have much to fear from latest probe

Chris Hughes

The latest competition review of U.K. banking should aim to be the last. An antitrust probe in 2000 led to limited price controls after concluding that British lenders made excess profit. There were two more big investigations after the financial crisis. Yet concerns about market inefficiencies persist. That suggests the Competition and Markets Authority (CMA) should do something radical this time.

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Market misreading the runes on new inflation data

DAVID PARKINSON

To hear the financial markets tell the story, Friday’s higher-than-expected Canadian inflation numbers have ratcheted up the chances that the Bank of Canada will change its tune and start raising interest rates sooner than it has been suggesting. Don’t be fooled. The central bank still has plenty of wiggle room before the rising inflation tide is going to swamp its resolve.

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Ouch: How inflation is outpacing wages

MICHAEL BABAD

When market players look at inflation, they tend to ponder what it means for consumer spending and monetary policy.

Unions, on the other hand, look at how it hits your pocketbook. And on that score, it’s not looking good.

Annual inflation in Canada picked up in June to 2.4 per cent, according to the latest reading from Statistics Canada. Driven by higher food, shelter and transportation costs, that’s the fastest pace in 28 months, and up from May’s 2.3 per cent.

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Germany’s Triple Crown of cartels

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. Inside the Market delivers up-to-the-minute insights on market news as it develops.

Here are our editors’ picks of some of the best reads available to Globe Unlimited subscribers this week.

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The economics behind Albertans’ love of dining out

TODD HIRSCH

Economists love poring over reams of statistics to see if they can find meaningful patterns and trends. One of the most popular sets of data for discerning economic vibrancy and consumer confidence is retail sales. But an often-overlooked set of data can also offer similar insight: receipts at food and drinking establishments.

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West needs tougher sanctions to budge Putin

BRIAN MILNER

Washington has expanded its sanctions against Russian oligarchs and companies with close links to Vladimir Putin, targeting banks, the defence sector and energy producers. The list includes OAO Rosneft, the state-controlled global oil giant with a raft of joint ventures in various parts of the world, including Canada. The European Union intends to follow suit, albeit with somewhat milder measures.

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Why interest rates are finding a ‘new normal’

DAVID PARKINSON

Bank of Canada Governor Stephen Poloz, fresh off the thorny question of inflation’s longer-term trajectory, tipped his hand on the next tough issue he is preparing to tackle: Will interest rates ever return to their previous normal heights?

Mr. Poloz, in a CBC Radio interview the day after the central bank’s quarterly monetary policy report (MPR), said the next MPR (in October) will delve into where the “new normal” for interest rates will be once all the post-Great-Recession dust settles. He believes that the normalized or “neutral” level for rates (i.e. the stable level for an economy operating at full capacity) will be lower than the previous historical norm, generally considered to be about 4 per cent for Canada.

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The future is content – and Murdoch’s empire needs it

BRIAN MILNER

The unsolicited $80-billion (U.S.) takeover bid by 21st Century Fox Inc. for Time Warner Inc. shows that, at 83, Fox proprietor Rupert Murdoch has lost none of his taste for wheeling, dealing and risk-taking on a grandiose scale. But there is more method than madness at work here.

Fox, Time Warner and other traditional media powerhouses are facing a growing threat from the Netflixes, Amazons and newer digital players streaming original content directly for modest fees to whatever devices people choose to view it on. The old cable and satellite-TV subscriber model that ensured a steady flow of monthly income is in the midst of a long decline, and broadcasters face the same challenges as newspapers in retaining advertisers willing to pay premium rates.

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Barrick shakeup signals more changes ahead

IAN McGUGAN

The unusual new management structure at Barrick Gold Corp. signals two things – that John Thornton is now clearly in command of the world’s largest gold miner, and that more changes lie ahead.

The company announced Wednesday that president and CEO Jamie Sokalsky will be resigning in September, after only two years in the post. He was a favourite of company founder Peter Munk and his departure suggests that Mr. Thornton, who was named chairman only three months ago, is eager to put his own stamp on the company.

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Bank of Canada finds new way to drive home message

KEVIN CARMICHAEL

I’ve been reading Bank of Canada publications fairly regularly for 14 years. For the past 13-and-a-half of those years, I’ve ignored the opening statement the Governor gives at the press conferences that accompany the release of the monetary policy report. The statements were treated as formalities, restating information that already had been published in a press release.

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How Microsoft’s Nadella is drawing a line under Ballmer era

ROBERT CYRAN

The careful dismantling of Steve Ballmer’s legacy is moving apace. Microsoft just announced 18,000 job cuts, more than two-thirds of which relate to Nokia, the handset maker the former boss bought for $7.2-billion (U.S.). Xbox also is gently being moved out of Microsoft’s central mission. Newish chief executive officer Satya Nadella is undoing his predecessor’s work in a tactful and value-creating way.

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Morgan Stanley discovers a new path to prosperity

ANTONY CURRIE

Morgan Stanley is dangling a sneak peak at prosperity. The financial institution run by James Gorman earned $1.9-billion (U.S.) in the second quarter, generating its best return on equity in years. It relied on a whopping $600-million tax break to get there, but results are improving, albeit slowly. And the path to beating its cost of capital, at least in the short term, may spring from an unlikely source.

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VW drive for Fiat-Chrysler would be journey too far

Olaf Storbeck

A Volkswagen bid for Fiat-Chrysler would be overambitious even by the grandiose standard sometimes set by the German auto maker.

Fiat-Chrysler has distanced itself from a report in the German business monthly Manager Magazin that it is in talks with Europe’s biggest car maker about a full or partial buyout. But investors seemed to think there was mileage in the idea, at least initially. In early trade on July 17, shares in Fiat rose up to 5 per cent. VW lost 2.4 per cent.

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How to fix Canada’s housing market

IAN McGUGAN

A smart way to cushion Canada’s economy from future housing bubbles involves nothing more than re-engineering our mortgages.

In their new book, House of Debt, Atif Mian and Amir Sufi argue that out-of-control housing prices tend to inflict long-lasting pain on a country’s economy, but much of that distress can be avoided. The key? Forcing banks and other lenders to share in the ups-and-downs of the real estate cycle by requiring them to bear part of the cost if a housing boom implodes.

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Russian adventurism just solidifying its economic mediocrity

GLEN HODGSON

Vladimir Putin’s Russia has spent the past year re-asserting its standing as a global political force. From its UN veto on sanctions in Syria, to the two-week extravaganza of the Sochi Olympics, to its regional aspirations in Crimea and eastern Ukraine, Russia appears to be trying to regain some of its past status. The only problem is that the Russian economy is slowly slipping into mediocrity and will be hard-pressed to support such adventurism.

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German watchdog sticks a fork into sausage cartel

BRIAN MILNER

Germany’s competition watchdog, the Bundeskartellamt, has been cracking down on companies producing some of the country’s most iconic food products and fixing their prices in the bargain.

If there was a world cup of cartels, the Germans would be heavy betting favourites. Earlier in the year, sugar producers and brewers felt the wrath of the agency and suffered big fines for their transgressions.

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A million more jobs, but Canadian labour in worse shape

DAVID PARKINSON

When Prime Minister Stephen Harper and his Conservatives defend their economic record these days, their main message centres on the “over one million net new jobs since the recession” that the Canadian economy has produced under (and even thanks to) their leadership. But a more detailed look at Canada’s pre- and post-recession jobs performance suggests that there’s a big gap between the government’s self-congratulatory boast and the less rosy reality.

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BofA running out of ways to bolster profit

Antony Currie

Bank of America is stuck in a low-profitability trap. Several businesses at the Charlotte, N.C.-based bank actually put in a good showing for the second quarter. The trouble is, BofA as a whole is still struggling to churn out solid earnings – even after aggressive cost-cutting.

The $2-billion (U.S.) earnings figure reported by the bank on Wednesday is, on the face of it, abysmal. It equates to an annualized return on equity of just 3.68 per cent – and was only that high because of a mere 18-per-cent tax rate.

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Murdoch’s Time Warner bid to stumble on governance

Rob Cox

Rupert Murdoch has one last big takeover left in him. Time Warner makes the perfect swan song for the 83-year-old media mogul. The HBO-to-Looney Tunes conglomerate sits at the top of a pyramid where content is king, has no controlling shareholder and poses few insurmountable antitrust hurdles for Twenty-First Century Fox. But winning won’t just be a matter of price.

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Is U.K. preparing for possible EU exit?

Hugo Dixon

David Cameron looks to be preparing for the possibility that his plan to renegotiate Britain’s relationship with the European Union will fail. The U.K. Prime Minister would then campaign for the country to quit the EU in a referendum he plans to hold by 2017. That seems the best way to interpret his appointment of a euroskeptic foreign minister and the nomination of a little-known former lobbyist as Britain’s European commissioner.

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U.S. tech feels the bite of Chinese policy

Robert Cyran

China’s “De-IOE” campaign is taking a bite out of some Silicon Valley stalwarts. For those unfamiliar with the term, it’s being used by tech executives to describe Beijing’s nudging of state enterprises to wean themselves off U.S. software and service firms, chiefly IBM, Oracle and EMC – hence, IOE. The drive, which has been going on for at least a year, but accelerated after Washington indicted Chinese army officials, has dimmed the brightest star in Big Tech’s otherwise dull constellation.

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Ontario takes the right step with $2.5-billion investment lure

KEVIN CARMICHAEL

Ontario’s government last made a jobs announcement in mid-April, when the Economic Development Minister Eric Hoskins pledged $796,672 to two local companies that plan to create 34 jobs – and retain 458 – in Simcoe and Owen Sound.

The dry spell could have something to do with the election campaign, although that really doesn’t matter, even if it’s the excuse. The world didn’t stop for Ontario’s politicking. Since the beginning of May, South Carolina Governor Nikki Haley has announced that 10 companies plan to invest or expand in her state, bringing pledges of 7,400 jobs in a period of less than two months. Ontario Premier Kathleen Wynne and Mr. Hoskins have managed less than half that amount over the entire calendar year.

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The obscure metal that could solve solar energy’s conundrum

Carl Mortished

On the fringes of global stock markets, fascination with materials continues and the latest obscure object of adoration is vanadium, a metal you may have never heard of but which is well known in the steel industry because it does the neat trick of making steel both stronger and lighter. Add a couple of pounds of vanadium to a ton of steel and you double its strength, a formula that excites Largo Resources Ltd., a Toronto-listed miner that is only weeks away from opening a Brazilian mine that could supply almost a 10th of the worldwide vanadium market in two to three years time.

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China’s role in Vancouver’s roaring real estate market

IAN McGUGAN

It would not shock anyone in Vancouver to be told that wealthy Chinese immigrants have played a role in propelling the city’s gravity-defying real estate market to ever greater heights in recent years. But what has long been murky is exactly how money is moving out of China, a country that in theory has tight controls on capital movement.

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How Yum Brands put profitability on the menu in China

Rob Cox

A year after the massacre of pro-democracy demonstrators in 1989, Tiananmen Square was a preternaturally quiet place. Unlike the heart of Beijing today, bicycles and pigeons outnumbered cars and people. The only exception to the calm was a bustling corner near the square: the Kentucky Fried Chicken outlet.

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Market gives trust busters a message on tobacco tie-up

Kevin Allison

American trust busters deciding whether to approve Reynolds American’s $55-billion (U.S.) deal with Lorillard will want to heed the market’s message. The combined market cap of the No. 2 and No. 3 U.S. cigarette makers has jumped more than $10-billion since merger talk surfaced. Those gains can’t be justified by the cost savings on offer. Expectations of an increase in pricing power, through the creation of an effective tobacco duopoly, may best explain investors’ enthusiasm.Camel maker Reynolds unveiled plans to pay $27.4-billion or $68.88 a share in cash and stock, for its smaller competitor, a 40-per-cent premium to the Newport maker’s share price before bid rumours came to light in early March. Including drops in shares of both today, Reynolds’ market value has increased by $5.4-billion and Lorillard’s added $4.6-billion.

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Only higher taxes will cure Ontario’s fiscal ills

CHRISTOPHER RAGAN

Ontario’s Premier Kathleen Wynne has a majority mandate and four years to make some serious, difficult decisions. One of her biggest challenges will be to balance her government’s books, but doing this sensibly requires understanding the nature of Ontario’s fiscal problem.

Ontario’s budget deficit is by far the largest of all the provinces, forecast to be about $12.5-billion this fiscal year. As a share of provincial gross domestic product (GDP), it is 1.7 per cent. This is considerably smaller than Ottawa’s deficit back in the late 1980s and early 1990s, but it will still require serious effort by Ms. Wynne’s government.

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Why Canada’s jobs picture is much rosier than you thought

DAVID PARKINSON

Canada’s disappointing June employment report didn’t so much highlight the problems with the labour market, as it did the problems with how we tally it. If we stopped counting part-time jobs as being equal in weight to full-time jobs, we’d quickly see that this is not nearly as stagnant a job market as it’s so often made out to be.

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Whiting’s no-premium Kodiak bid no deal for minority investors

Christopher Swann

Whiting Petroleum’s bid for Kodiak Oil & Gas leaves minorities in the Bakken oil driller out in the cold. Whiting is offering no premium in a $3.8-billion (U.S.) all-share deal. That may be fine for the 60 per cent of shareholders who the companies say own both stocks – like hedge fund titan John Paulson. And the deal’s logic is solid. But it short-changes the rest of Kodiak’s owners.

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Lindt deal’s details like a box of chocolates for shareholders

Quentin Webb

For Lindt shareholders, life is like a box of chocolates. They didn’t know they were going to get Russell Stover, the U.S. Midwest outfit whose gift box starred in Forrest Gump. They still don’t know what Lindt paid for the third-biggest U.S. candy maker. Or what it will get in terms of profitability.

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Shire shows the power of tax inversion leverage

Neil Unmack

Shire’s board has shown how to leverage the value of a recommendation in a bid situation. The U.K. pharma group says a $54-billion (U.S.) proposal from AbbVie is potentially acceptable – finally conceding to talks after five approaches by its U.S. suitor. The pitch is priced at a 50.5-per-cent premium to Shire’s value before takeover speculation intensified four weeks ago. That is not just an impressive result for Shire. It also helpfully vindicates rival AstraZeneca’s robust handling of Pfizer’s takeover attempt earlier in the year.

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Unilever finds what’s bad for waistline look good on bottom line

Jeffrey Goldfarb

Unilever is teaching a valuable lesson on gluttony – and investing. The Anglo-Dutch consumer giant hedged its bets when, on the same day in 2000, it gobbled up Slim-Fast and Ben & Jerry’s Homemade in separate deals. Unilever paid $2.3-billion (U.S.) for the weight-loss brand, which it is now selling for peanuts. Ice cream, meanwhile, has helped keep the $130-billion company fat and happy.

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‘Squishy-soft’ Canada left out of U.S. jobs party

IAN McGUGAN

Canada’s jobs numbers for June were “shocking,” “awful any way you cut it,” or “squishy soft,” according to economists. More worrisome yet, they raise the possibility that the domestic economy can’t count on the U.S. recovery to help drive job growth.

The two countries have travelled opposing trajectories in recent months, with the U.S. economy spitting out new jobs at a robust pace while Canada has struggled to generate any momentum at all.

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Why investors were taken in by Gowex

Fiona Maharg-Bravo

It’s easy to be wise with hindsight. Take the collapsed Spanish free WiFi provider Gowex. The company raised several large red flags that domestic regulators and investors should have noticed. It took a foreign investor, specialist short-seller Gotham City Research, to uncover the fraud by Gowex’s chief executive officer.

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German bid for U.S. auto parts maker would face potholes

Olaf Storbeck and Antony Currie

ZF Friedrichshafen may have just revved up long-idling deal making in the auto parts business. The German supplier is mulling an offer of around $11-billion (U.S.) for U.S. peer TRW, Bloomberg reports. That would make it the world’s third-largest automotive supplier by revenue, according to Berylls Strategy Advisors. It would also mark the largest tie-up in the sector since 2007. ZF, though, may lack the financial gas to get the deal done.

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The single hot spot skewing Canada’s housing picture

DAVID PARKINSON

The problem with trying to gauge the heat of Canada’s housing market is that it depends on where you insert the thermometer. Over all, the market still looks unsustainably warm, but the nationwide numbers are being skewed big-time by scorchingly hot Calgary. If we remove this one city from the equation, the national housing landscape actually looks quite refreshingly cool.

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Behind the facade of Canadian housing

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. Inside the Market delivers up-to-the-minute insights on market news as it develops.

Here are our editors’ picks of some of the best reads available to Globe Unlimited subscribers this week.

More »

Guns, bling, and networking: Earnings season trends to watch

IAN McGUGAN

Ultra-trendy Tesla Motors Inc. has grabbed all the headlines over the past few months, but an investor would have done even better by loading up on boring old Alcoa Inc.

The aluminum giant jumped in trading Wednesday after reporting better-than-expected earnings. Its stock price has now nearly doubled over the past 12 months, which puts it solidly ahead of Tesla’s mere 81-per-cent gain.

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How Wells Fargo could put $90-billion in the bank

Daniel Indiviglio and Antony Currie

Wells Fargo may be leaving as much as $90-billion (U.S.) in shareholder value on the table. At some $270-billion, it’s already America’s largest bank by market capitalization. Wells has the best-performing stock among major banks so far this year, up 14 per cent before it announced second-quarter results on Friday. Yet although the lender’s overall performance bests most of its rivals, there’s one exception that suggests Wells could do better.

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It’s time to rein in governments’ stealthy taxation by regulation

BRIAN LEE CROWLEY

One day a man walked into the café that my wife and I owned in Halifax and asked my wife if she “lived on the premises.” After some preliminary skirmishing, she discovered that this man was on Her Majesty’s Service and he was there to determine if we were entitled to write on the café window that our baked goods were “homemade.”

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There’s little to celebrate in Canada’s economic performance

ANDREW JACKSON

For all of the self-congratulatory rhetoric of the Harper government, the fact remains that Canada’s economic recovery has been built on a very fragile foundations. Growth has been fuelled by the growth of household and foreign debt rather than by business investment, and we have become dangerously reliant on the resource sector.

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Boeing can weather the loss of U.S. lender

Kevin Allison

Boeing should be able to weather the loss of the U.S. Export-Import Bank. The agency helped finance about 18 per cent of the aerospace giant’s deliveries last year, or roughly $8-billion (U.S.) worth of planes. If Congress fails to renew the lender’s charter before October, however, Boeing might have to extend more credit to maintain sales. That could cloud the company’s performance but shouldn’t ruin the overall forecast.

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The two big barriers to a national securities regulator

DAVID PARKINSON

If, as Canada’s Finance Minister Joe Oliver says, the addition of Saskatchewan and New Brunswick to the Co-operative Capital Markets Regulatory System is a “major step” toward the federal Conservative government’s dream of a national securities regulator, then clearly “major” has become a relative term on this file. While Ottawa has added two tiny provinces (in financial market terms) to the agreement-in-principle, the four biggest players remain stubbornly reluctant to co-operate – including two who have already signed on to the plan.

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Farewell, Fannie? So long, Freddie?

Daniel Indiviglio

It has been a long time coming, but the United States may finally have a mortgage reform blueprint. A bill introduced on Thursday would wind down Fannie Mae and Freddie Mac over five years and use a different vehicle and market-based pricing for Washington’s home loan guarantees.

The challenge is finding a plan that both Democrats and Republicans can stomach. The first attempt, from the House GOP, was a non-starter with Democrats. It largely privatized mortgage risk and, although that has proven workable elsewhere in the world, critics feared it would threaten home affordability in America.

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China’s capital flight crackdown would ripple around the world

Peter Thal Larsen

A Chinese crackdown on capital flight would be felt around the world. The government has long tolerated some cash finding its way around the country’s financial border controls. If Beijing decides to plug the leaks then banks, casinos and overseas property markets would suffer.

Many Chinese citizens have found ways to circumvent rules that prevent them from taking more than $50,000 (U.S.) out of the country each year without regulatory approval. Now there are signs the authorities are fighting back. State broadcaster CCTV on July 9 accused Bank of China (BOC) of helping clients launder money using a pilot program designed to facilitate cross-border transfers of Chinese currency.

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Australia’s foreign-fuelled deal frenzy shows no signs of slowing

Una Galani

Australian deal makers have sprung back to life. Merger activity Down Under is on course for its busiest year since 2011. Foreign buyers are leading the charge while a flurry of asset sales by cash-constrained local governments has helped to prop up volumes. As corporate confidence picks up, the recovery should continue.

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Why euro zone resolve is cracking under a strong currency

CARL MORTISHED

The dollar is too powerful; the dollar is too weak. You can’t have it both ways but the contradictory complaints about the greenback are coming from two pillars of the French establishment. French Finance Minister Michel Sapin this week called for and end to the dominance of the U.S. dollar in global trade while the chief executive officer of Airbus’s civil aircraft business, Fabrice Brégier said the euro-dollar exchange rate was “crazy” and urged the European Central Bank to take action to weaken the euro.

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In a bubble market, what's a new investor to do?

IAN McGUGAN

My 25-year-old nephew just landed his first full-time job and wants to start investing. But in what?

The answer would once have been simple. A well diversified portfolio of domestic and international stocks, with a reasonable helping of bonds on the side, could have been counted on to produce decent returns for him in just about any economic environment.

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Economy in a healthy transition to an investment-fuelled turnaround

CLÉMENT GIGNAC

Is the long-awaited rotation from debt-fuelled consumption to exports and investment starting to take shape in Canada? While we are not there yet in exports and investment, some interesting signs are percolating that, to quote the Bank of Canada, “constructive evolution” is under way regarding household balance sheets.

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Betting against Canadian banks is always a bad idea

BRIAN MILNER

Are the world’s bank watchers re-evaluating their long love affair with Canadian financial institutions?

It certainly appears that way, if the latest downbeat assessment from Moody’s Investors Service is anything go by.

The big bond-rating agency has changed its outlook on Canada’s banking system to negative from stable on the grounds Ottawa has no appetite to bail out too-big-to-fail institutions using taxpayers’ money in the event of a crisis. Instead, the government is proceeding with a so-called bail-in strategy that could force bondholders to shoulder part of the burden of any future restructuring.

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This dollar bull rally has no horns

DAVID PARKINSON

A bullish reversal in the Canadian dollar certainly has important implications for Canada’s exports, for inflation and for the Bank of Canada’s policy path. If, of course, we had such a bullish turn.

We haven’t. Not yet, anyway.

The Canadian currency raised these concerns after topping 94 cents (U.S.) last week for the first time in six months, up more than 2.5 cents in a month and more than five cents since mid-March. This week, news that speculative traders in the currency futures market had moved to a (small) net long position in the loonie for the first time since early 2013 – that is, more speculators hold futures contracts predicting that the dollar will go up than those with contracts betting it will go down – has raised talk that market sentiment has turned, signalling the beginning of a march upward in the currency.

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Pope Francis shows Wall Street how to clean house

Edward Hadas

Confessing one’s sins is relatively easy. Penance can be painful, but usually ends fast. Leading a better life, though, is a lot more difficult. Pope Francis is ensuring that the Vatican’s financial system is well on the way. And by doing so he is also schooling Wall Street on how to clean house.

God’s and mankind’s bankers share a patchy history. The financial sins of both stretch back decades, at least – as do efforts to overcome them. Every few years, there’s remorse. The headlines about corruption at the Vatican kept coming, though, while Wall Street hopped from one scandal to the next.

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Lufthansa departs on ill-fated no-frills journey

Olaf Storbeck

Lufthansa’s dash for no-frills flights on long-haul routes is bound to become a costly mistake. It relies on an unproven business model and suffers from strategic inconsistencies. Four weeks after abandoning former ambitious profit targets, new chief executive officer Carsten Spohr is taking another false start.

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SEC enforcers may hit a wall in Congress

Reynolds Holding

Wall Street watchdogs have picked a bad time to lose a case. Rengan Rajaratnam, brother of convicted Galleon Group founder Raj, was acquitted on Tuesday of insider trading. U.S. lawmakers, meanwhile, have been thumbing their noses at a Securities and Exchange Commission probe of their stock trades. The cases are unrelated, but appearances matter on Capitol Hill. If enforcers look like they’re overreaching, they can expect even more push-back from Congress.

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Why you should thank a short seller

IAN McGUGAN

The spectacular demise of Let’s Gowex SA is evidence that the world needs more short sellers – especially now, as stock markets reach new heights.

The failure of the award-winning Spanish WiFi provider followed the publication last week of a report by Gotham City Research, which alleged that more than 90 per cent of its revenues were pure fiction. Over the weekend, the company declared bankruptcy and said its founder had been falsifying accounts for at least four years.

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Corporate Canada offers central bank a little vindication

DAVID PARKINSON

The numbers have been saying that inflation has become a fast-growing concern for Canada. But the people who actually set the prices say differently – and they just gave the Bank of Canada about all the ammunition it will need to stick to its low-inflation guns.

The central bank’s quarterly Business Outlook Survey, released Monday, showed that despite the rapid acceleration in consumer prices over the spring, Canadian companies actually reported a weakening in price pressures on both their inputs and their outputs. Over all, the business sector still sees inflation in the bottom half of the Bank of Canada’s 1-to-3-per-cent target range over the next two years – this despite the inflation rate having surged to 2.3 per cent in May, from 1.1 per cent when the previous survey was taken.

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Shareholder meeting in the boondocks? Head for the hills

Reynolds Holding

Investors summoned by a company to the boondocks may want to head for the hills. U.S. shareholder gatherings moved far from corporate headquarters often portend trouble, new research suggests. Ensuing results and stock performance tend to disappoint. Owners could save the trip and vote with their feet. Burying bad news is almost a tradition. Slipping it out late on a Friday or the eve of a holiday weekend is popular. Obscuring financial performance with quirky metrics is another favourite ploy. Hiding fees or dangerous side effects in fine print is also a time-honoured practice.

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Greenback will reign supreme despite foreign grumblings

Swaha Pattanaik

America no longer overtly uses its currency as a trade weapon, but it is happy to deploy dollar diplomacy. While others may moan, the world’s sole superpower can still freely exploit its currency’s clout to enforce its political will.

The stiff punishment of BNP Paribas created some hostility. While the French bank admitted it had broken U.S. law and agreed to pay $8.9-billion (U.S.) in fines, some Europeans privately expressed resentment about rules which in practise compel foreign institutions to enforce U.S. government sanctions.

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Carney to find buyout barons a much trickier target than banks

Neil Unmack

Buyout barons may prove a tricky target for Mark Carney. The Bank of England Governor could follow U.S. authorities in tightening lending rules for loans backing leveraged buyouts by private equity firms. The sentiment is noble, and the U.S. model could be improved. But taming animal spirits is hard when markets are global and the banks’ influence is waning.

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Mega-fine against Commerzbank would test U.S.-German relations

Olaf Storbeck

U.S. regulatory scrutiny on Commerzbank’s dealings with blacklisted countries could turn into a financial and diplomatic stress test. Germany’s second-largest lender is still reeling from the fallout of the banking crisis and would be hit hard by a mega-fine of BNP Paribas-style proportions.

As the German government is the bank’s single-largest shareholder, any kind of punishment that looks arbitrary would bring Chancellor Angela Merkel to the scene. A banking brawl could stretch U.S.-German relations already strained by repeated spying scandals.

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Gloomy watchdog given a reality check

BRIAN MILNER

A week after the Bank for International Settlements fired its latest annual broadside against ultra-easy monetary policies, it’s plain that the people actually responsible for navigating a course through treacherous economic straits are not on the same page. In fact, they aren’t even reading the same book.

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KKR’s best odds on First Data bet are in doubling down

JEFFREY GOLDFARB AND RICHARD BEALES

Doubling down on First Data may have been KKR’s best bet. The extra cash just injected into the payment processor means the $29-billion (U.S.) acquisition has now absorbed over $10-billion of equity, one of the highest sums ever for a leveraged buyout. A Breakingviews analysis, however, suggests that a return finally beckons.

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ADM investors will find Wild Flavors has a bland taste

KEVIN ALLISON

Archer-Daniels-Midland is going merger wild – sort of. The $30-billion (U.S.) grain processor will pay about $3-billion for Wild Flavors, a Switzerland-based natural food flavouring and colouring specialist. Illinois-based ADM’s biggest-ever deal is a departure from its core milling and trading operation. Picking up a small add-on business with similar customers in a sexier part of the food chain makes sense, but it’s unlikely to change how investors see the firm any time soon.

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Five years of $100 oil – and the sky still hasn’t fallen

Kevin Allison

The five-year average oil price has entered triple digits for the first time. The occasion didn’t receive as much publicity as crude’s first trade above $100 (U.S.) a barrel in early 2008. But the rise in the long-term price of Brent, the main world benchmark, is arguably a more significant milestone for the global economy.

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U.S. inflation poses threat to the market calm

Ian Campbell

Perhaps Janet Yellen should think again. The Federal Reserve chair said on July 2 that monetary policy faces “significant limitations” as a tool to counter financial-stability risks. But thanks to the world’s big central banks, the markets’ fearlessness is uncomfortably reminiscent of the unhealthy calm of 2007.

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Chinese Internet stocks carry discount for good reason

Robyn Mak

China’s Internet stocks are red hot but investors would rather pay more for their U.S. counterparts. Shares of Chinese companies including gaming and social media giant Tencent and search engine Baidu trade at lower multiples than those of Facebook, Google and other American dot-coms when expected earnings growth is taken into account. The discount is deserved.

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The earnings numbers no one talks about

IAN McGUGAN

The latest deluge of U.S. corporate earnings reports begins next week, which means that investors will soon be subjected to an endless stream of commentary about what all those hundreds of profit results mean for the broad economic outlook.

Here’s a simpler alternative: Ignore the reported figures.

Look instead at the aggregate figure for corporate earnings calculated by the U.S. Bureau of Economic Analysis.

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Why we should cheer Canada’s new debt surge

DAVID PARKINSON

Canada’s credit situation has assumed a split personality – the debt loads of consumers and businesses are headed in opposite directions. But as households slow their debt accumulation while businesses ramp up their borrowing, this is a divergence that might suit Canada’s current economic needs just fine.

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Can activist investor Jana make PetSmart roll over?

BRIAN MILNER

It was inevitable that an activist hedge fund would be sniffing around PetSmart Inc.’s doggie door. The growing band of shakeup artists are constantly on the prowl for underachievers with strong brand names but lacklustre performance and languishing stock prices. And the largest U.S. retail pet products peddler certainly fits the bill after its latest difficult quarter and subdued guidance for the rest of the year.

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What the incredible shrinking trade deficit means for Canada

DAVID PARKINSON

Canada’s May trade numbers aren’t enough to declare that a trade boom has begun. But they certainly take the sting out of April’s stunning slump, which now seems to have been more an anomaly than an alarm bell.

Statistics Canada reported Thursday that the country’s trade deficit shrank to $152-million in May, from April’s $961-million shortfall. Yes, it’s still a deficit – and a far cry from the surplus of nearly $1-billion posted as recently as March – but it was better than the $300-million shortfall that economists had expected. And after April’s scare (which, after a revision, now looks even worse than the originally reported $638-million deficit that stunned the market last month), it certainly comes as a relief to observers, especially those at the Bank of Canada, who are counting on a trade revival to light a sustainable fire under Canada’s lukewarm economic recovery.

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What’s French for ‘car pooling’?

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. Inside the Market delivers up-to-the-minute insights on market news as it develops.

Here are our editors’ picks of some of the best reads available to Globe Unlimited subscribers this week.

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Why investors may not want to hitch a ride with BlaBlaCar

IAN McGUGAN

Nothing gets a capitalist heart beating faster than the thought of cashing in on socialism – at least, when socialism takes the form of the new “sharing” economy.

The latest beneficiary of the sudden passion for sharing goods and services among complete strangers is the wonderfully named BlaBlaCar, a French Web app that connects travellers looking for cheap transportation with drivers who have empty seats. It raised $100-million (U.S.) from venture investors on Wednesday, a huge amount for what amounts to an automated hitchhiking service.

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Europe’s big problem: Private investment has gone AWOL

OLAF STORBECK

Worries about government underinvestment in the euro zone may be misplaced. While many of the member states should probably put more money into infrastructure, a new study by Berlin-based economic think tank DIW shows that a protracted dearth in private-sector investment threatens the continent’s long-term economic potential.

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Sweden plays lab rat in the battle against deflation

Swaha Pattanaik

The Swedish central bank surprised the markets with a half percentage-point cut in its key interest rate on Thursday. Now the Riksbank will try to surprise the world with a successful campaign against possible deflation.

Stockholm is catching up with its central bank peers, which have already pushed their rates down to the new Swedish level of 0.25 per cent, or lower. They are all fighting the same fight, against an inflation rate which remains stubbornly low despite an economic recovery. They are also all happy to see weak currencies, although that is a game which is impossible for everyone to win.

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Robust U.S. jobs growth is more than a rebound

Daniel Indiviglio

Robust U.S. job creation in the second quarter confirms a bounce after a weak opening to 2014. But Thursday’s report, showing 288,000 new non-farm jobs in June, fuels a more promising outlook as well. With other data also positive, growth is finally building.

Hiring dipped in the bitter winter. The weather probably had a lot to do with America’s GDP shrinking at a nearly 3 per cent annual rate in the first quarter. But employment has roared back from April to June, averaging 272,000 new jobs monthly – nearly double the pitiful average for December to February. Fittingly, perhaps, the cheerful news was released a day earlier than the usual “Jobs Friday” because of the Independence Day holiday on July 4.

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China’s energy patent boom a bust for output

Christopher Swann

China’s energy patent boom is making output look like a bust. The Middle Kingdom topped the world in filings for oil and gas inventions last year, but that hasn’t translated into surging production. Many of the applications cover dodgy ideas fuelled by government incentives. It will take more than paperwork to speed the flow of crude.

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For Macau’s casinos, all bets are off

Ethan Bilby

Even Macau isn’t immune to China’s e-commerce boom. Online betting on soccer’s World Cup may have contributed to the first year-on-year drop in the enclave’s gambling revenue since 2010. That’s okay as long as tourist numbers keep rising.

For the past few years, investors in Macau only worried about the rate at which gambling revenue was growing: the upward trajectory was a given. That streak ended in June, as monthly gambling revenue fell 3.7 per cent year on year to $3.4-billion (U.S.) – the first drop since Macau started publishing the data in 2010.

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Blockbuster hunt leads Big Pharma to door of little pharma

Robert Cyran

Roche has delivered a biotech founder a double-dip bonus. The company is snapping up Seragon Pharmaceuticals for at least $725 million (U.S.) – and the possibility of another $1-billion if certain milestones are hit. Chief executive officer Richard Heyman only set up the one-drug biotech firm a year ago, spinning it out before getting $650-million for its parent company from Johnson & Johnson. With pharma giants desperate for new products, such deal making is likely to be replicated.

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How merger momentum could explode past $4-trillion

Quentin Webb

The merger boom could really explode. With about $1.8-trillion (U.S.) of M&A so far this year, 2014 is shaping up to be the biggest year since 2007. Looked at through the prism of history, though, it may only be the start.

Standard measures of M&A activity can be misleading. For one thing, they tend to ignore inflation. A dollar – or several billion of them – used to buy far more. The value of assets fluctuates, meaning in some years companies are far cheaper than others. Globalization also plays a big part these days. There were no merger surges in the USSR.

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Uncle Sam saves harshest punishment for foreign firms

Reynolds Holding

Uncle Sam is cooking up penalties with an anti-foreign flavour. New research suggests that overseas firms like BNP Paribas do in fact pay bigger fines and plead guilty more often than U.S. companies. One reason may be that prosecutors target only the most serious cases abroad. But the differences feed suspicions that America is playing favourites.

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Wall Street a target for Twitter’s headhunters

ROBERT CYRAN

Twitter Inc. is taking the Wall Street brain drain to new level. On Tuesday the microblogging site announced that Anthony Noto, a former high-ranking banker at Goldman Sachs, is to be its next finance chief. As enticement, the company offered a sign-on bonus worth more than $60-million (U.S.). That’s more than enough to price most of high finance out of the battle for talent.

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How tax-shopping M&A deals can destroy value

Robert Cyran

Tax-arbitrage M&A requires a deep discount. U.S. companies seeking to relocate by mergers in a bid to slash how much they remit to Uncle Sam were a big part of the $1.8-trillion (U.S.) first-half deal boom. The benefits of such ill-conceived combinations will be fleeting, though. The more so-called inversions there are, the more likely the law is to change.

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Time is running out for a Canadian energy delivery strategy

GLEN HODGSON

It’s fair to say that many Canadian policy makers and business leaders are transfixed by the status of the Keystone XL pipeline. The U.S. government’s approval of the Keystone project would add 20 per cent more pipeline capacity and greatly improve Canada’s ability to supply the U.S. oil market in the near term. However, Keystone is only part of a bigger energy issue: rapidly rising U.S. oil and gas production and the threat it poses to exporters, Canada included.

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Contributors

Scott Barlow

Scott Barlow is The Globe's in-house market strategist. He is a 20-year veteran of Canadian investment banks, including Merrill Lynch Canada, CIBC Wood Gundy and Macquarie Private Wealth (MPW).

Brian Milner

Brian Milner is a senior economics writer and global markets columnist. In a long career at The Globe and Mail, he has covered diverse business beats, including international trade, the automotive industry, media, debt markets, banking and the business side of sports.

Follow Brian on Twitter @bmilnerglobe

Dave Morris

Dave Morris joined the Globe and Mail in 2010 as Associate Editor of Report on Business Magazine.

Carl Mortished

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K.

David Parkinson

David Parkinson has been covering business and financial markets since 1990, and has been with The Globe and Mail since 2000.

Sean Silcoff

Sean Silcoff joined The Globe and Mail in January, 2012, following an 18-year-career in journalism and communications. He previously worked as a columnist and Montreal correspondent for the National Post and as a staff writer at Canadian Business Magazine.

Follow Sean on Twitter @SeanSilcoff

About ROB Insight


Presenting a selection of exclusive analysis from Report on Business and Reuters Breakingviews.


Reuters Breakingviews delivers agenda-setting financial insight. Every day, a global team of 30 correspondents comments on the big financial stories as they break.

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