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The Week

In Toronto, they pave paradise and put up ... condos Add to ...

These are stories Report on Business followed this week.

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Just sayin'
There's hand-wringing in Toronto over the rapid cooling of the condo market ... and plans to shut down a cookie factory and build more condos.

First, the stats.

Research firm Urbanation Inc. reported this week that sales of new condos in Toronto fell in the third quarter by 30 per cent, to 3,317, and are headed for a 35-per-cent slump overall this year compared to a strong 2011.

Resales also sank, by 32 per cent to 3,413.

Unsold inventory in the city is down from the record set in the second quarter, but is still at 17,182.

Needless to say, some projects have been delayed, according to Urbanation.

Nonetheless, the firm said, starts have outpaced completions for eight quarters in a row, and there are now more than 200 projects under construction, accounting for more than 56,300 units.

“Look at the bright side,” said David Rosenberg, chief economist at Gluskin Sheff + Associates.

“There is evidence of the beginning of a rational supply response, as projects without presold units are being shelved. This will help to limit any price correction.”

Still, along comes Mondelez Canada, which used to be part of Kraft Foods Inc. As The Globe and Mail’s Elizabeth Church reports, Mondelez is closing the former Christie Cookie plant in the middle of Etobicoke’s Lakeshore condo strip next year, at a cost of some 550 jobs.

Mondelez came to meet with city councillors after the announcement, pushing a plan for 27 condo towers on the 27-acre site.

Growth of 2 per cent may be 'as good as it gets'
Canada’s economy is running out of steam. The question is when it can get back into a groove.

Gross domestic product slipped in August by 0.1 per cent, Statistics Canada reported this week.

That was the first monthly dip since February, and flew in the face of projections for growth of 0.2 per cent.

It was driven by losses in manufacturing, mining and energy, while the real estate sector also took a hit amid a cooling housing market.

Economists now expect to see growth at an annualized pace in the area of 1 per cent, and a pick-up in the fourth quarter but still below 2 per cent.

"There are limits to how fast the Canadian economy can grow," said economist Diana Petramala of Toronto-Dominion Bank.

"The global backdrop is expected to remain weak over the next six months, particularly as the European recession continues. In addition, a softer housing market and high household debt are likely to remain as two key headwinds to Canadian economic growth. Overall, a 2-per-cent pace may be as good as it gets for Canadian economic growth over the next six to eight months."

Bank of Nova Scotia now expects economic growth to average about 2 per cent this year and next.

All of this does not bode well for Canada’s high unemployment rate, which stands at 7.4 per cent, and underscores expectations that the Bank of Canada will wait well into next year before raising interest rates.

“These numbers are consistent with the Bank of Canada’s forecast released last week that projected a Q3 gain of 1 per cent,” said assistant chief economist Paul Ferley of Royal Bank of Canada.

“Activity at this pace falls well short of a rate that can put downward pressure on the unemployment rate,” he added.

“Thus the Bank of Canada is likely to keep monetary conditions highly accommodative maintaining the overnight rate at its current 1 per cent until there are indications of growth strengthening to a rate that allows sustained improvements in labour markets.”

Pay $4.05-billion, you will
Where can you find Yoda, Mickey Mouse, Darth Vader, Kermit the Frog, Indiana Jones, Thor, the Hulk and Buzz Lightyear under one roof?

Walt Disney Co.

Disney this week struck a $4.05-billion (U.S.) deal for the celebrated Lucasfilm Ltd., the creator of Star Wars and more, pledging to carry on the lucrative science fiction franchise with more films, including Episode 7, which is scheduled for 2015. Others will follow every two to three years.

About half the deal will be in cash, the rest in some 40 million shares, giving founder George Lucas a stake of more than 2 per cent in Disney.

Disney has now put together an enviable fantasy empire.

"Following the purchase of Pixar in 2006 and Marvel Entertainment in 2009, Disney’s acquisition of Lucasfilm will add a roster of globally recognized characters to the Disney portfolio – namely Darth Vader, Yoda and friends from Star Wars as well as the Indiana Jones characters," said associate professor Mark Fuller of the Schwartz School of Business at St. Francis Xavier University (Can I call him an X-man?) in Antigonish N.S.

"Building on their existing relationship – Disney already has Star Wars and Indiana Jones attractions at many of its theme parks – this will enable Disney to reach out to a new generation in ways they have been unable to previously," he said.

"The Disney Co. has been effective at reaching young girls through their princess franchise, and will now inspire a generation of young boys with tales of interstellar adventure and earthbound exploration."

Bank of Japan's timid response
The Bank of Japan gave a nod this week to the need for more stimulus for an economy fighting inflation and running dangerously close to recession.

The central bank, under pressure from politicians, pumped  ¥11-trillion ($136.83-billion U.S.) into its asset-buying program, but still came up short as far as markets were concerned despite the fact it was the second move in as many months.

And in a rare move for a central bank, it also announced it will join the government in a plan to battle deflation and bring the country's annual inflation rate back to 1 per cent.

"I don't know where to start with Japan," said Kit Juckes, the chief of foreign exchange at Société Générale.

"Lovely people, wonderful country, policy paralysis. [Industrial production] fell 8.1 per cent in the year to September. Vehicle production fell 12.4 per cent. Household spending fell 0.9 per cent, all even weaker than expected. If ever a country needed policy-making imagination, it's Japan."

The government has been putting intense pressure on the central bank, and observers believe this won't be the last move.

" It remains likely that more stimulus measures will be unveiled further down the line as exporters berate the BOJ for its timid approach," said senior analyst Michael Hewson of CMC Markets in London.

Hurricane hobbles business
Stores closed, businesses shut down, and even the New York Stock Exchange took time out as Hurricane Sandy battered America's east coast this week.

When all was said and done, direct damages were estimated at up to $50-billion (U.S.), well past the initial $20-billion, though observers expect a limited overall hit to the economy, given the billions that will pumped into rebuilding.

"The main reason for this is that most of the economic output lost as a result of the disruption caused by the natural disaster will be made up for in the future through reconstruction efforts, the replenishment of inventories, and the resumption of activities halted during the storm," said senior economist Martin Schwerdtfeger of Toronto-Dominion Bank.

"Granted, there is uncertainty about the timing in which this economic healing will happen, but it will indeed happen," he said in a report Friday.

"Our estimates  indicate that fourth-quarter GDP growth could come 0.2 percentage points lower than our previous estimate as a result of the storm. However, the level of economic output should bounce back over the following two quarters, and it will likely outperform relative to the output had Sandy not happened."

This week also marked the first storm-related shutdown of the NYSE since 1985's Hurricane Gloria, and the first spanning two days since the late 1800s.

Ten things
A lot of businesses lost a lot of money during the G20 summit in Toronto in mid-June. Including the Zanzibar Tavern strip establishment. No lap dance for the money, I'm guessing, but the club has been reimbursed by Ottawa to the tune of $5,886. It was one of many that received funds, The Canadian Press reports.

The European crisis is playing out in strange ways, and, if you'll pardon the pun, biting where it hurts. Latoxan, which supplies snake and scorpion venom to drug manufacturers, projects a drop in sales of up to 30 per cent this amid retrenching across Europe, Bloomberg News reports.

Quote of the week: “The costumes of the bunnies, who are integral to the Playboy culture, will be based on Indian sensibilities and morals,” Sanjay Gupta, the chief executive of PB Lifestyle, told Reuters, referring to a licensing deal it struck for India.

Yes, you should be worried when your security pass doesn't get you into your office. It may not be a malfunction. It may be more like the situation many UBS traders found themselves in this week when, having been on special leave for two weeks, their passes didn't get them into the London headquarters, according to Reuters. Many of them gathered at the local pub.

Everybody complains about what a drag older folks are on things like the health system and pension plans. But they tend to ignore the upside, like the fact that they're going to account for a hefty boost for Canada's wine industry over the next five years, according to Bank of Montreal. "The increase has been the result of an aging population - as older individuals are key consumers of wine and tend to have more income - and reports of wine's beneficial health effects," the report says.

E-mail PR pitch of the week: "Dear Michael Babad: Did you wake up happy this morning? It's likely a number of people in your audience did not." (That's you she's talking about.)

Are we getting boring, lazy or just running out of ideas? A new survey from Deloitte suggest the most popular holiday gifts this year will be … gift cards.

Redefining the "carry trade," according to Bloomberg News: "Airline passengers carrying gold in their baggage were the biggest contributors to a narrowing in Turkey's trade deficit, extending the best bond rally in emerging markets this year."

From Reuters: "The Church of the Holy Sepulchre, said to be the site of Jesus' crucifixion and burial, is struggling with a 9-million shekel ($2.3-million) unpaid bill owed to the Jerusalem water company."

Also from Reuters: "A Polish firm that makes coffins has angered the Catholic church by trying to drum up business with a calendar depicting topless models posing next to its caskets."

Required reading
Arctic Fibre Inc. is proposing to build a sub-sea fibre-optic network that stretches more than 15,000 kilometres to connect Tokyo to London via Canada’s Northwest Passage, the frigid waterway that has frustrated explorers for centuries. Rita Trichur reports.

As CNOOC Ltd. seeks Canadian government approval for its massive takeover of Calgary's Nexen Inc., the public persona of the publicly listed arm of state-owned China National Offshore Oil Corp. is a jumble of contrasts, Carolynne Wheeler writes from Beijing.

The new chief of the Canadian Radio-television and Telecommunications Commission says he is on a mission to “rebuild” the trust of Canadians by renewing its focus on consumers, creators and citizens. Read Rita Trichur's interview with Jean-Pierre Blais.

The massive leadership change expected to sweep though Canada’s banking sector in the next few years began this week as Bank of Nova Scotia became the first of the major banks to strongly signal its next CEO, Grant Robertson reports.

Suncor Energy Inc.’s three major oil sands projects are facing delays as soaring costs and competitive oil markets force the energy giant to join the growing ranks of Canadian resource companies pulling back from expensive growth plans, Carrie Tait writes.

What to watch for next week
Given the combined angst over the housing market and the strong Canadian dollar, Thursday's a day to watch.

First, Canada Mortgage and Housing Corp. reports on construction starts for October, and economists expect to see a mild drop to an annual pace below 214,000, or possibly lower.

"The starts will be watched closely for initial signs that recent sales weakness is causing builders to rein in earlier high levels of activity," said Peter Buchanan of CIBC World Markets.

On the trade front, observers expect Statistics Canada to report that the country's trade deficit swelled in September to $1.5-billion, possibly more, from August's $1.1-billion shortfall.

"Recall that the significant improvement in the August trade deficit (to $1.1-billion from $2.5-billion) was largely the result of a steep drop in imports, which could be partly reversed," said Robert Kavcic of BMO Nesbitt Burns.

"Also, with the loonie stronger, energy prices only modestly higher and auto production down in the month, exports are unlikely to act as a major offset."

Of course, the biggie for the market will be the U.S. election, particularly after Friday's better-than-expected jobs report went in President Barack Obama's favour.

"Prediction markets continue to discount an Obama win, based on electoral college projections, so a victory by the challenger would have much greater market-moving potential," said CIBC's Mr. Buchanan.

"An outside chance, given the tight race and possible state recounts, is that no victor may emerge on election night, as in 2000, saddling markets with a period of uncertainty."

There's plenty next week for shareholders, as well, including those in Canada's major airlines and insurance companies as Air Canada,  WestJet Airlines Ltd., Manulife Financial Corp., Sun Life Financial Inc. and Great-West Lifeco Inc. report quarterly results.

Also reporting are Nissan Motor Co., Toyota Motor Corp., CI Financial Corp., News Corp., Office Depot Inc., Agrium Inc., Bombardier Inc., Canaccord Financial Inc., Enbridge Inc., Kraft Foods Inc., Molson Coors Brewing Co., Macy's Inc., Onex Corp., Canadian Tire Corp., Canadian Natural Resources Ltd., Cineplex Inc., Dorel Industries Inc., Groupon Inc., IGM Financial Inc., Magna International Inc., Walt Disney Co., Brookfield Asset Management Inc., GMP Capital Inc., Telus Corp. and TMX Group Inc.

Follow on Twitter: @michaelbabad

 
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