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Canada, through the eyes of Ed Yardeni Ed Yardeni, the president and chief investment strategist at the U.S. firm that bears his name, spent a couple of days in Toronto recently and came away with some thoughts on the Canadian dollar , the Canada Pension Plan, deficits, and what we might think of Americans.
Thoughts today from the chief of Yardeni Research Inc., a former Wall Street economist and official at the Federal Research and Treasury Department:
"The Canadian dollar has had quite a rally over the past two years ... The Canadian dollar is at the top end of this year's range, and is likely to move higher in 2011 along with the other commodity currencies, in my opinion. That's because I expect that global economic growth will remain robust next year, pushing commodity prices still higher."
"America's fiscal policy makers should visit their counterparts in Canada. They might learn something too. In 1993, most Canadians believed that big government deficits were permanent and that the Canada Pension Plan (CPP) was in such deep trouble that younger Canadians would never collect a retirement pension. They believed too that Canada's politicians were incapable of dealing with either problem. Yet by 1998, both were essentially solved. Instead of a 'pay-as-you-go' structure, the CPP is expected to be 20 per cent funded by 2014, with this funding ratio to constantly increase thereafter towards 30 per cent by 2075. In other words, unlike the U.S. Social Security Trust Fund, which has nothing but worthless 'nonmarketable' promissory notes of the U.S. Treasury, the CPP actually is accumulating marketable assets to offset more of its future liabilities."
"Just the way that the U.S. dollar is sometimes called the 'greenback,' the Canadian dollar's nickname is the 'loonie' ... In my meetings with our accounts in Toronto, I sensed that many of them are wondering if Americans are going looney. Some of them see the U.S. as a declining global military and economic superpower. Some are worried that Americans are turning more isolationist and protectionist. They note that many candidates running for congressional offices recently bashed China in their campaign ads. They view the Fed's pursuit of QE-2.0 despite vocal objections from abroad as another sign of America's go-it-alone approach."
Ireland launches tough plan Ireland today unveiled a four-year austerity plan aimed at saving €15-billion - that's $20-billion U.S. - as its embattled government scrambles to assure financial markets and secure a crucial bailout from the European Union and International Monetary Fund.
Its debts swollen and its banks in crisis, the government of Prime Minister Brian Cowen said it would slash social welfare spending and hike its value-added tax to 23 per cent. But it plans to keep its coveted low corporate tax rate.
That may not be the best way to win a looming election, but Ireland is desperate to prove it can bring its deficit under control. It plans to trim the deficit to 3 per cent of gross domestic product by the end of 2014, down from 12 per cent this year, but the details aren't yet clear and the proposal has already been met with some skepticism given that the government has not changed its projections on economic growth.
"It seems they're planning very stringent fiscal measures and yet they expect the economy to grow against that background," Monument Securities chief economist Stephen Lewis told Reuters. "That seems highly unlikely."
Earlier, Mr. Cowen said the rescue package under negotiation could reach €85-billion.
That's still to be decided in talks with Dublin's saviours, the EU and the IMF, Mr. Cowen said amid growing doubt that that amount will be enough.
"The government is completely in denial about the amount of money they'll have to borrow," Constantin Gurdgiev of Trinity College Dublin told The Associated Press.
European tensions mount The markets see Europe as a financial powder keg today, looking well past Ireland, which hasn't even settled the details of its bailout yet, to Portugal and Spain.
The euro was under extreme pressure, borrowing costs for Portugal and Spain surged, Standard & Poor's downgraded Ireland, Irish bank stocks sank, and Portuguese unions struck.
"Concerns about Portugal, and more importantly Spain, following the route of Ireland has investors running scared with Spanish debt spreads blowing out to record highs above 230 points," said CMC markets analyst Michael Hewson.
"The continued political turmoil in Ireland appears to have become almost secondary as fears about a Spanish contagion roiled investors, as fears rise that European leaders are starting to lose control of the situation, in what could fast become a slow motion train wreck."
Spain, of course, is the major concern. While Ireland, Portugal and Greece, which started Europe's debt crisis, are not insignificant, Spain is a far bigger economy whose troubles would take a far bigger toll.
Scotia Capital currency strategist Camilla Sutton said she doesn't believe Europe will blow up, but the markets are certainly concerned about that possibility.
BMO Nesbitt Burns economist Benjamin Reitzes noted today that there may not even be enough money in the pot for a Spanish rescue package, should it come to that, which would raise the stakes in the debt crisis markedly.
"Portugal is the next weakest sovereign and the storm clouds are already building," Mr. Reitzes said.
"If the trouble can be contained there, only 6.1 per cent of the euro area economy, the region should eventually prevail. If Spain (11.6 per cent) is sucked into the storm, the current bailout fund may not be large enough."
- Europe seethes as economies wilt
- Portugal, Spain hit by investor fears over debt
- Spain gets a taste of the bond 'vigilantes'
- Investors target weak euro zone banks
- EU needs 'courage' to make investors share risk, Merkel says
- Should euro weaklings just default?
German confidence rises Well, at least the Germans are happy. Confidence among German businesses, measured today by the widely watched Ifo institute index, surged to its highest level since reunification.
Germany is, of course, Europe's economic powerhouse and a key factor in any talks about bailing out its weaker neighbours.
There has been talk that Germany could grow increasingly fed up with the debt crisis and quit the euro zone, but some observers reject that, as well as talk that the monetary union itself could fall apart.
"A strong pillar like Germany leaving of its own accord would be rather unlikely as it would be a technical nightmare to go back to the old deutsche mark, and again eventually result in domestic contagion as the loss of a strong euro zone member would undermine the remaining members in the eyes of the financial market," said Scotia Capital currency strategist Sacha Tihanyi.
"Unfortunately the group of countries involved in the euro zone are trapped in a tight embrace of mutually assured destruction should any major player opt for the nuclear option and exit the currency bloc."
What some Fed members think It appears that some policy makers at the Federal Reserve aren't all that put out by the idea of a softer U.S. dollar, which, of course, helps juice the economy by making exports cheaper.
The U.S. central bank has been the target of criticism, partly from those who say its recent quantitative easing program - a $600-billion (U.S.) plan to drive down longer-term interest rates through purchases of longer-term Treasuries - is debasing the greenback.
The Fed has defended its plan in rare aggressive style, saying what has become known as QE2 is meant to spur lending and borrowing, in turn giving the recovery a push.
But minutes of the Fed's Nov. 2-3 meeting, where the policy-setting panel agreed to the program, show that some of committee members believed the plan could drive down the value of the U.S. dollar, Globe and Mail Washington correspondent Kevin Carmichael reports today. But, the minutes released yesterday indicated, that sat well with some of the panel members.
"Most expected these changes in financial conditions to help promote a somewhat stronger recovery in output and employment while also helping return inflation, over time, to levels consistent with the committee's mandate," the minutes showed.
The U.S. dollar indeed softened in the run-up to the plan, on simple speculation, but now of course is firming because of Europe's debt troubles.
In the battle between quantitative easing and Europe's debt crisis, said BMO Nesbitt Burns economist Michael Gregory, the latter won out where the greenback was concerned.
Sirius, XM to merge Canada's two satellite radio companies have struck a deal for a long-awaited merger, The Globe and Mail's Susan Krashinsky reports.
Sirius Canada Inc. and XM Canada's parent company, Canadian Satellite Radio Holdings Inc. said today the all-stock deal values the combined company at $520-million, including $130-million in long-term debt.
The combination of the two companies has been a question in the industry since their U.S. counterparts merged in 2008, when Sirius Satellite Radio Inc. bought rival XM Satellite Radio Holdings Inc. in a $5-billion (U.S.) deal. The Canadian companies rely on their American counterpart for much of their programming.
Cameco in China deal Cameco Corp. has struck a long-term deal with China to supply 29 million pounds of uranium concentrate through 2025.
Cameco, one of the largest uranium producers on the planet, said in a statement today that the deal with China Guangdong Nuclear Power Holding Co. marked a major step for the company in the world's fastest growing uranium market.
"China Guangdong Nuclear Power has 14 nuclear power units currently under construction and is commencing preliminary work on another nine units," said chief executive officer Jerry Grandey. "This deal leaves us well positioned to serve the company's growing uranium requirements."
From today's Report on Business
- Flaherty pressed about changes to Bank Act
- Scotiabank's stake helps seal deal for DundeeWealth
- Teachers unloads Maple Leaf stake
- Bombardier boosts C series sales team
|USD/JPY-I U.S. Dollar/Japanese Yen||104.23||
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|CAD/USD-I Canadian Dollar/U.S. Dollar||0.938||
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|XSR-T Sirius XM Canada Holdings||10.06||
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|CCO-T Cameco Corp.||22.26||
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