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A Canadian flag flies on under the Peace Tower. (Adrian Wyld/THE CANADIAN PRESS)
A Canadian flag flies on under the Peace Tower. (Adrian Wyld/THE CANADIAN PRESS)

The Week

Canada ranks near bottom on Economist's 'Misery Index' Add to ...

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Where Canada stands Canadians rank relatively low on The Economist magazine's Misery Index released this week.

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Canada stands at number 70, out of 92 countries measured on a combination of unemployment and inflation.

The jobless rate in Canada is now at 7.5 per cent, high but nowhere near as high as other countries, while inflation is running at 2.9 per cent.

Macedonia, whose unemployment rate tops 30 per cent, and Venezuela, where inflation is rampant, top the list.

At the bottom are Switzerland and Qatar.

There's an interesting, and in Quebec's case unfortunate, dynamic in Canada.

As Tavia Grant, Bertrand Marotte and Stephen Gordon noted this week, Quebec was not hurt as severely as the rest of the country during the recession, but is now suffering bigger job cuts, and a jobless rate of 8.7 per cent.

The jobs picture is better than average in western Canada, however, notably in Alberta, whose unemployment rate is now below 5 per cent for the first time since early 2009.

Unstoppable Canadian Pacific Railway Ltd. is headed for a showdown with its new biggest shareholder.

As The Globe and Mail's Jacquie McNish and Brent Jang reported this week, Bill Ackman, whose hedge fund Pershing Square Capital Management is pushing for change at the railway, wants to replace CP's chief executive officer Fred Green with Hunter Harrison, the legendary former CEO of rival Canadian National.

“We intend to run a proxy contest," Mr. Ackman said, discussing his plans for the first time since purchasing the 14.2-per-cent stake last fall. "We’re going to replace CP’s directors."

Mr. Ackman plans to put forth a minority slate of directors, rather than going for fuller control of the board.

Waiting in the wings is Mr. Harrison, who spoke for the first time in this saga by saying he's eager for the job, and excited by the possibility.

On Friday, though, CN said it warned Mr. Harrison to respect his "commitments" to the railway and not breach the non-compete deal he made.

Analysts are watching the fight closely.

"We believe that activist shareholders will step up the pressure on management and will ultimately increase the likelihood that the operational turnaround story unfolds sooner rather than later," said analysts at UBS Securities, who boosted their price target on CP shares to $73 from $85 but maintained a "neutral" rating on the stock.

S&P downgrades several euro countries Standard & Poor's painted a picture of a region in crisis as it cut the ratings of nine euro zone countries on Friday, including France, and warned the group's leaders that they have to do more. It cited weak economies and, notably, infighting among euro zone leaders.

"In our view, the policy initiatives taken by European policy makers in recent weeks may be insufficient to fully address ongoing systemic stresses in the euro zone," the ratings agency said.

It cut the long-term ratings of Italy, Portugal, Spain and Cyprus by two notches, and those of France, Austria, Malta, Slovakia and Slovenia by one notch. The ratings on Germany, Finland, Belgium, Estonia, Ireland, Luxembourg and the Netherlands were affirmed. France and Austria were stripped of their triple-As.

"Today's rating actions are primarily driven by our assessment that the policy initiatives that have been taken by European policy makers in recent weeks may be insufficient to fully address ongoing systemic stresses in the euro zone," the agency said.

"In our view, these stresses include: (1) tightening credit conditions, (2) an increase in risk premiums for a widening group of euro zone issuers, (3) a simultaneous attempt to delever by governments and households, (4) weakening economic growth prospects, and (5) an open and prolonged dispute among European policy makers over the proper approach to address challenges.

"The outcomes from the EU summit on Dec. 9, 2011, and subsequent statements from policy makers, lead us to believe that the agreement reached has not produced a breakthrough of sufficient size and scope to fully address the euro zone's financial problems. In our opinion, the political agreement does not supply sufficient additional resources or operational flexibility to bolster European rescue operations, or extend enough support for those euro zone sovereigns subjected to heightened market pressures."

There's also more trouble in Greece, where talks with creditors for a restructuring hit a snag Friday, raising the likelihood Athens could default.

Until Friday, it had generally been a more upbeat week in the euro zone, with successful debt auctions and comments from the new chief of the European Central Bank that the region was showing some signs of stability.

Oliver on a rant "The Mackenzie Valley Gas Pipeline review took more than nine years to complete. In comparison, the western expansion of the nation-building Canadian Pacific Railway under Sir John A. Macdonald took four years." Natural Resources Minister Joe Oliver, Jan. 9, 2012

"The conditions under which these men worked were at best harsh, and at times impossible: tragically, some 1,000 Chinese labourers died building the CPR." Prime Minister Stephen Harper, June 22, 2006

With his comments Monday, Mr. Oliver sparked a controversy, not over the people who died building the railway in the late 1800s but over the government's comments in advance of regulatory hearings into the proposed Northern Gateway pipeline.

In an open letter, Mr. Oliver went on an honest-to-goodness rant about how the regulatory system is broken and how "environmental and other radical groups" are threatening to hijack the process "to achieve their radical idological agenda." He didn't mention the pipeline in his letter, which came on the eve of the hearings.

I was struck by two things.

First, Mr. Oliver didn't specify who these "radicals" are, thus tainting all who oppose whatever forestry, mining and other projects he was talking about. As I wrote earlier this week, if he was referring simply to sanity in the regulatory process, I agree with him. But you wouldn't know that from the letter.

Next, his comments about how fast you can build a railway were heartbreaking given how Chinese workers died, toiled under horrid conditions, and were paid less for their work. All of which led Mr. Oliver's boss, the prime minister, to apologize in 2006 for the conditions and subsequent head tax.

There were other issues at the time, as well, notably talks with First Nations, negotiations that ended with Treaty 7, and which are a source of debate.

Nine things 1. Even central bankers understand that sex sells. The Federal Reserve has apparently known for some time that it needs to spruce up its communications strategy, and here's what former Fed governor Frederic Mishkin said at an October, 2006, meeting, according to transcripts released this week: "Another key issue is that we need to greatly improve the quality of the written documents that go with this process. The current Monetary Policy Report is really terrible. It’s dull; it’s sex made boring. I don’t want to criticize too much, but it is."

2. Dr. No tells James Bond in the 1962 film that: "The Americans are fools. I offered my services, they refused. So did the East. Now they can both pay for their mistake." According to the chief of the Royal Society of Chemistry, this has had a lasting impact on how the world views nuclear power. (It also had a lasting impact with teenage boys who dreamed of being spies and romancing Honey Ryder, but the Royal Society of Chemistry didn't say that.) In an interview with the BBC before the film's 50th anniversary, Professor David Phillips said that the famous villain, who died along with his reactor, helped to leave a "remorselessly grim" perception of atomic energy.

3. Tony Clement's office put out a statement on Wednesday noting that the Treasury Board president would be speaking the next day to the Rotary Club in Barrie, Ont., on his government's "balanced approach to economic growth." Nice place to talk about said balanced approach. Barrie is saddled with a jobless rate of 10.2 per cent, second highest among cities measured by Statistics Canada and well above the national average of 7.5 per cent.

4. Here's something I learned this week from the Canadian Plastics Industry Association, which was, in a news release, heralding how plastics have advanced hockey: "When ice hockey originally came to North America from Europe, a ball, rather than a puck, was used. Early players found that the wooden ball was too bouncy on ice, so they cut the top and bottom off, to form the hockey puck. A hockey puck is manufactured by vulcanizing synthetic and natural rubber - both of which are plastics."

5. From the University of Oxford: "The sound of babies crying is uniquely able to get adults to react at speed, Oxford University researchers have found. They compared the scores of 40 volunteers on the classic arcade game 'Whack-a-mole' after listening to babies crying with their scores after hearing sounds of adults in distress or birdsong similar in pitch and variability to infants' cries." They used Whack-a-mole?

6. Being a city slicker, I'd never really considered the unique challenges of romance on the farm. Until I read a news release this week from FarmersOnly.com, a U.S. online dating site for farmers and ranchers. FarmersOnly lumps Americans into two groups: Those who drink $4 cups of coffee, wear blue suits and travel in taxis, and those who love blue skies and open spaces. "Instead of asking what your astrological sign is, at FarmersOnly.com we ask if you raise or breed alpacas, horses, cattle, chickens, dogs, goats, rabbits, sheep, grow crops, or if you're an organic farmer, student farmer, cowboy, cowgirl, or just a farmer wannabe! How many singles sites do that?!" (I hope that countrydude04, who bills himself as "just a good ol boy" from South Dakota, gets together with BeautifulBeer," a "blonde cowgirl" in Colorado."

7. Britons should have some "drink-free days every week," a parliamentary committee recommended, and the government should take into account that "sensible drinking message may conflict with the business objectives of drinks companies."

8. Spaced out: The European Space Agency is allowing some of the region's troubled member countries a grace period to pay their share of its funding, The Associated Press reports. Europe's leaders do need to get their heads out of the clouds.

9. Denmark took over the presidency of the EU on Jan. 1, and is already setting an example where its budget is concerned. According to Agence France Presse, it plans to serve tap water only at official meetings of the group. "It's the last time you'll see these bottles of water," says its European Afffairs Minister Nicolai Wammen.

Required reading this week Canada's communications giants have tended to treat rural areas, with their thin customer density, as an afterthought in rolling out high-speed Internet and its array of video, data and music services. But the Barrett brothers of Woodstock, N.B., have tackled this niche with laser-like intensity, Gordon Pitts writes.

Canada’s housing market is showing signs of peaking, one of the country’s biggest lenders says, as the banking sector expresses more caution about the outlook for real estate in the coming year. Grant Robertson reports.

The bumpy global recovery is pinching the world’s 1 per cent, and the bling industry in turn, Nicolas Johnson and Tavia write. Rosy forecasts about sales of some high-end luxury goods are suddenly withering, highlighting the growing caution among the rich in the U.S. and Europe.

Canadian governments are bracing for major changes to banking rules in the U.S. that would make it more difficult and expensive for them to borrow money, Karen Howlett reports.

Federal Reserve policy makers watched all the signs of the pending housing apocalypse develop over the course of 2006, but failed to grasp the implications. Boyd Erman reports on transcripts of the 2006 meetings.

What to watch for next week Mark Carney returns to centre stage with the Bank of Canada's rate announcement Tuesday and its monetary policy report a day later. Mr. Carney and his colleagues won't be changing interest rates from their low levels, but markets will be watching for what they say.

"We believe that the BoC will keep its policy rate unchanged at 1 per cent at its 17 January meeting, as the downside risks and uncertainty over the situation in Europe remains very high," said Charles St-Arnaud of Nomura in New York.

"The January meeting coincides with the release of the monetary policy report in which we expect the BoC to increase its growth expectations for 2011, but to lower them for 2012 because of prospects for weaker global economic and weaker momentum in the Canadian economy. We think that the BoC will remain on hold until the second half of 2012."

In the markets, fourth-quarter earnings season picks up with reports from many major companies, including Citigroup Inc., Goldman Sachs Group Inc., American Express Co., Google Inc., Intel Corp., IBM Corp., Microsoft Corp., Morgan Stanley and General Electric Co.

"The recent strength in equities will now be put to the test as earnings reports ramp up in the coming weeks. Expectations for Q4 S&P 500 profit growth have been ratcheted down to less than 7 per cent year over year from 15 per cent year over year in early October, as negative preannouncements have been curiously high in recent months," said Robert Kavcic of BMO Nesbitt Burns.

"While the expectations bar is now that much lower, this week’s results were not exactly a ringing endorsement that upside surprises are on the way. Most notably, JPMorgan missed the mark as investment banking earnings were down sharply amid a rocky capital markets environment, even though retail and small business profit saw decent growth."

In Canada, Viterra Inc. posts its quarterly results. Earlier this week, Viterra said the end of the Canadian Wheat Board monopoly on wheat and barley in western Canada would bump up its profits, beginning in the fourth quarter of this year.

 
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