These are stories Report on Business is following Tuesday, Oct. 11. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.
The good, the bad and the kind of funny A collection of dumb, smart and weird things in the business world today:
1. "When bourses fall and shares go down, let them. They will be cheaper and more people will buy them. This is called supply and demand." Though this is just about the clearest thing yet that anyone connected to the euro troubles has said, this comment by Richard Sulik, leader of the Freedom and Solidarity party that makes up part of Slovakia's governing coalition, illustrates why someone who doesn't understand banking crises, meltdowns and wealth destruction shouldn't have a say in Europe's fate.
2. Smart idea, or dumb idea? The mayor of Esparreguera wants the citizens of the tiny town in northeastern Spain to sweep the streets and water plants and trees themselves because "the town hall does not have the financial means at the moment to improve municipal cleaning and gardening services." Unemployment in Spain is 20 per cent, and, one elderly jobless man told Agence France Presse, "in addition they want to put me to work for free to clean the rubbish."
3. "I am not your mother. I don’t have to be obeyed. But today I am here to urge you to consider something that will be good for you. I want you to consider public service as part of your career path." No, Finance Minister Jim Flaherty was not speaking to grade school pupils today. He was speaking to students at the University of Western Ontario’s Ivey School of Business.
4. High income earners? Marijuana Inc. says the U.S. listing regulator, the Financial Industry Regulatory Authority, has approved HEMP as its over-the-counter ticker symbol. That coincides with the company's plans to unveil its business plan and market models, which will be tied to "huge peripheral businessess" spawned by the growing medical pot and hemp industries. "Marijuana Inc. will not be involved at the current time in growing, transporting or marketing medical marijuana itself - however it will be creating an infrastructure to do parts of this upon the company’s expected legalization federally in all 50 states (pending any federal licensing or other requirements that may be enacted after marijuana prohibition ends)," the company said.
5. In an interview with Die Welt that's posted on the European Central Bank's website today, outgoing president Jean-Claude Trichet ponders life after the central bank and what he'll do with his spare time: "My greatest privilege will surely be that I will have more time for reading, for meditating on the present history of Europe and to spend with my four granddaughters: Eléonore, Diane, Anna and Marie." I get the reading, I get the family time. But the present history of Europe? Aren't there any video rental stores nearby?
6. The Federal Reserve Bank of Atlanta, one of the regional Feds, is doing a smart thing by urging teachers to go beyond the "standard textbook" with non-fiction works on economics that give students real-life applications for economic theories. The Atlanta Fed today lists 10 books. It's not clear what level of education the list aims for, but I sure hope it's university because a couple of the descriptions won't get past the PTA. For example, for Freakonomics: A Rogue Economist Explores the Hidden Side of Everything, the bank says that "chapter titles range from 'Why Do Drug Dealers Still Live with Their Moms?' to "How is the Ku Klux Klan Like a Group of Real-Estate Agents?'" And then there's the simple title of Super Freakonomics: Global Cooling, Patriotic Prostitutes, and Why Suicide Bombers Should Buy Life Insurance.
7. A Carlton Cards birthday greeting I saw at a Target store in upstate New York asks on the cover: "Do you know what a card is in a recession?" Inside: "A gift. Happy Birthday."
8. A British bioethics group recommends the government pay for the funerals of organ donors as an incentive to get more donors. "The possibility of sparing relatives the financial burden of a funeral might encourage more people to register as donors," said Professor Dame Marilyn Strathern, who chaired an 18-month study into the issue. There is a catch: You have to be dead. It's against the law in Britain to be paid for donating organs to treat others. "We endorse this and agree that living donors, such as kidney, blood and bone marrow donors, should not receive payment other than direct and complete reimbursement of the costs brought about by their donation," she said.
9. This doesn't fit into any category, it's just an interesting fact, noted today by New York's Office of the State Comptroller:One in eight jobs in New York City and one in 13 in the state is tied to Wall Street.
10. Best title for an economic report today: "The House of Fog and Sand(bags). North America markets were left to ponder and await Wednesday’s expected release of the oft talked about EU bank recapitalization. While the plan is unlikely to hit the reset button on EU financials, it is nonetheless needed to be seen as providing sufficient bags and the sand to fill them in order to ring fence European financials against the tide of moldering peripheral debt." - Stewart Hall, senior fixed income and currency strategist, RBC.
Slovakia says no The tiny country of Slovakia - it's a speck on the world map in central Europe - packed a mighty punch today as its Parliament voted to reject measures that would enhance the euro zone's rescue fund.
Slovakia, whose population numbers 5.5 million, was the last of 17 governments to vote. All the others approved the changes to the rescue fund, known as the EFSF. To make matters worse, Prime Minister Iveta Radicova made it into a confidence vote.
Still, most of the parties in the governing coalition still support the deal, and another vote will be held.
Markets had been generally upbeat lately on signals from the monetary union that it's finally getting a grip on its debt crisis, particularly after Germany's Angela Merkel and France's Nicolas Sarkozy, who, to their credit, are taking a leadership role, promised to make everything work.
But, as always with the European debt crisis, the euphoria is not likely to last long, given the divisions among the union's leaders over many issues, including a proposal to use the bailout fund to shore up the region's banks.
"As things stand there is still no agreement on the use of the EFSF for recapitalization of banks with France in favour of using it for that purpose and Germany against such a measure," said Mr. Hewson.
"It is not hard to see why France wants to do this given how susceptible to a ratings downgrade it would become if they had to recapitalize their biggest banks, and in the process increasing their contingent liabilitie," he said in a research note. "Germany, on the other hand as the largest net contributor to the EFSF, doesn’t really want to become lender of last resort to every undercapitalised bank in Europe, which they would do if they agreed to such a measure."
Troika completes review There's so much at play here that it's hard sometimes to keep track of it all.
On another front, the debt inspectors from the European Union, the European Central Bank and the International Monetary Fund said today they've reached an agreement with Athens that will allow the next tranche in bailout money to be released.
But the picture they painted is a harsh one for Greece and its people.
"Regarding the outlook, the recession will be deeper than was anticipated in June and a recovery is now expected only from 2013 onwards," the EU, ECB and IMF said in a statement.
"There is no evidence yet of improvement in investor sentiment and the related increase in investments, in part because the reform momentum has not gained the critical mass necessary to begin transforming the investment climate. However, exports are rebounding - albeit from a low base - and a shift towards a more dynamic export sector, supported by a moderation of unit labour costs, should lead to more balanced and sustainable growth over the medium term. Inflation has come down over the last year and is expected to remain below the euro area average in the period ahead."
They said they believe that additional measures will still probably be needed. But, for now, the next €5.8-billion from the euro zone and €2.2-billion from the IMF should be available in early November once the euro zone and the IMF executive board have approved the latest review.
It's notable that the three groups, the so-called Troika, said in their statement that the money will "most likely" be available early next month. As so much in this saga, everything is "most likely" or a plan in progress. As many observers see it, officials are simply kicking the can down the road and delaying an inevitable default by Greece.
A key EU meeting, for example, was delayed by a week so the Troika could complete its review.
"The delay by a week of next week’s EU Summit until the 23rd October has been dressed up as an excuse to give the Troika more time to compile their dossier on Greece, but in reality it is probably because EU leaders are struggling to agree on a comprehensive crisis response," said CMC's Mr. Hewson.
Alcoa shy of estimates Alcoa Inc. today kicked off third-quarter earnings season with a miss.
Profit climbed sharply to $172-million (U.S.) or 15 cents a share, from $61-million or 6 cents, but the company still fell shy of analysts estimates.
What's the outlook overall for earnings?
"S&P 500 operating earnings are expected to be up 12.7 per cent year over year in Q3, down from expectations of 17 per cent year over year growth at the start of July and compared to a near-20 per cent year over year pace in Q1 - the uncertainty that has brewed since the summer has dragged expectations down," said Robert Kavcic of BMO Nesbitt Burns.
Wall Street to lose more jobs Wall Street can expect more job losses and shrinking bonuses, according to a new report today.
Already, says the report from New York State Comptroller Thomas DiNapoli, thousands of jobs have been lost since the beginning of 2008, and more are expected in banking and other areas of the financial services sector, so key to New York's state of mind.
"The Office of the State Comptroller (OSC) forecasts that the city could lose nearly 10,000 additional jobs by the end of 2012, which would bring total job losses in the securities industry to 32,000 since January 2008," according to the report.
"It now seems likely that profits will decline sharply from last year’s level, job losses will grow, and cash bonuses will be smaller," it adds. "Such developments would have a ripple effect through the rest of the local economy and hinder the recovery."
RBC seeks to settle Dexia Royal Bank of Canada is in talks to buy out struggling Dexia from its partnership in RBC Dexia Investor Services, as the European bank looks to jettison assets and shore up capital, The Globe and Mail's Grant Robertson report.
An official with the Luxembourg government said RBC intends to use its right of first refusal to buy the remaining 50 per cent of the joint venture from Dexia’s Banque Internationale Luxembourg (BIL).
The 50-per-cent stake RBC Dexia Investor Services is among Dexia’s collection of so-called ‘good’ assets that are now being sold off to raise capital.
CPPIB in dollar store deal The Canada Pension Plan is getting into the dollar store business.
The CPP Investment Board said today it has teamed up with Ares Management LLC in a $1.6-billion (U.S.) deal for 99 Cents Only Stores (something of a misnomer given that the stock has been climbing over takeover jostling).
The two have struck a deal to pay $22 a share cash, and the family behind the outfit has agreed to it, The Globe and Mail's Tim Kiladze reports.
In March, the founding family and an L.A. firm bid $1.3-billion, but shareholders weren't keen.
Housing starts rise Residential construction in Canada picked up in September, but don't take that to the bank.
Housing starts climbed last month to a seasonally adjusted annual rate of 205,900 units, compared to 191,900 in August, Statistics Canada said today. This was driven by condo developments in Eastern Canada, Quebec and British Columbia.
However, the agency said, “multiple housing starts are expected to move back towards levels consistent with demographic fundamentals in the near term.”
And think back to last week, when Statistics Canada reported the value of building permits plunged in August by 10.4 per cent, marking the second month in a row of decline and a signal of construction intentions going forward.
"The Canadian housing market continues to get help from low interest rates," said senior economist Krishen Rangasamy of National Bank Financial.
"However, all good things eventually come to an end. We are already seeing a slow move in the real estate market towards 'buyers’ market' territory. Disposable income is flatenning out and, if as we expect the labour market also moderates, the housing market should cool further."
Headlines of note
- Reviews negative as U.S. regulators unveil Volcker rule
- OPEC slashes oil demand forecast
- Apple books a million iPhone orders in 24 hours
In Personal Finance Older Canadians are nearing or entering retirement more indebted than ever before, piling on debt at a much faster pace than their younger counterparts, according to a report from TD. The Globe and Mail's Roma Luciw reports.
In Economy Lab Calling for Ottawa to ‘do something’ about job creation when hiring rates are already at pre-recession levels is puzzling, Stephen Gordon writes.
In International Business Global regulators insist the economic cost of implementing tough new rules on bank capital requirements will have only a tiny effect on global growth, Patrick Jenkins of The Financial Times reports,
In Globe Careers Is there room for one more Nobel prize, this one for management? Andrew Hill of The Financial Times examines the issue.
From today's Report on Business
- Failed China deal turns up heat on Encana
- Asian investors cast eyes on junior energy players
- Auto sales slow from earlier blistering pace
- Boyd Erman: Banks should pay heed to Occupy Wall Street protests