These are stories Report on Business is following Tuesday, Nov. 12, 2013.
Flaherty eyes housing
Canada’s finance minister says he’ll intervene in the housing market for a fifth time, if that's what's needed, to head off any bubble.
“We have to watch out for bubbles – always – in markets around the world, including our own Canadian residential real estate market, which I keep a sharp eye on,” Jim Flaherty said today in Edmonton, where he unveiled his fall economic and fiscal update, The Globe and Mail's Carrie Tait reports.
“And I’ve intervened four times in the last several years, and I’ll intervene again if I have to to make sure we don't create a housing bubble."
Mr. Flaherty’s latest move came in the summer of 2012, when he tightened mortgage insurance rules and deliberately sparked a slump in the residential real estate market.
The effect of that has faded, however, and, as The Globe and Mail’s Tara Perkins has reported, sales have rebounded, at least partly because of expectations of higher interest rates.
Canada’s housing market is seen by some groups as among the frothiest in the world, though most economists do not expect a U.S.-style meltdown.
Mr. Flaherty’s comments highlight the continuing concern among policy makers over the strength of Canada’s real estate market as families continue to juggle record debt burdens.
Indeed, the Canadian Real Estate Association is expected later this week to report another month of strong home sales in October, somewhere in the area of 12 per cent.
- Tara Perkins: Strength of Canadian housing market surprises economists
- Financial Times (subscription): Canada’s housing market teeters precariously
- Tara Perkins: Amid condo glut, Toronto developers luring buyers with fat discounts
- David Parkinson in ROB Insight (for subscribers): Canada’s housing numbers don’t measure up
- Canadian homes among most overvalued in OECD ranking
- OECD chief on Canadian housing: It’s not a bubble (just way overvalued)
- David Rosenberg on Canada: So much for the housing bust
Canada revises its numbers
As for his fall update, Mr. Flaherty now forecasts a budget surplus of at least $3.7-billion for fiscal 2015-16, the year of the next election, The Globe and Mail’s Bill Curry reports.
Spending cuts, control of public sector wages and asset sales helped push the government to that projection from an initial forecast of just $800-million.
The government now also forecasts a 2013-14 deficit of $17.9-billion and a 2014-15 shortfall of $5.5-billion.
Going forward, the 2015-16 surplus would widen to $5-billion in 2016-17, $5.7-billion a year later and $9.8-billion in 2018-19.
“The emphasis placed on responsible fiscal management has made Canada a recognized leader on the international economic stage,’ the government said in the document.
“Canada’s total government net debt level, which includes the federal, provincial/territorial and local governments as well as the net assets of the Canada Pension Plan and Quebec Pension Plan, is the lowest of any G7 country, standing at less than half the G7 average in 2012, at 34.7 per cent of GDP.”
The Canadian government relies on private sector forecasts for its economic assumptions, the average of which calls for economic growth of 1.7 per cent this year, 2.4 per cent next and 2.6 per cent in 2015.
Air Canada flies
Air Canada shares climbed sharply again today as the airline wins upgrades from stock analysts as its fortunes turn.
The stock rose up a further 4.6 per cent to $6.90, having gained more than 18 per cent over the past five days alone.
Its 52-week range is between $1.59 and $6.97.
Analysts began raising their price targets after Air Canada reported strong third-quarter results last week, citing the airline’s success at holding down costs and boosting profits.
“While AC.B’s legacy issues have typically made it ‘untouchable’ for many investors, it is in the midst of a turnaround to create a more sustainable business model,” said analyst Kevin Chiang of CIBC World Markets, referring to the airline by its stock symbol.
“And we have the benefit of looking back at what the U.S. legacy carriers have done in order to peer into AC.B’s potential future,” he added in a research note.
“As the U.S. legacy carriers have embarked on their own turnaround strategies, we have seen an improvement in unit profitability and a re-rating in valuation. At this juncture then, while AC.B does need to continue to execute on its plan, there is significant earnings and valuation upside.”
As The Globe and Mail’s Greg Keenan reports, Air Canada posted an adjusted profit of $365-million or $1.29 a share as costs per average seat mile declined and revenue per average seat mile rose.
Mr. Chiang raised his price target on Air Canada shares to $8 from $5. Walter Spracklin of RBC Dominion Securities raised his to $8 from $6, and David Tyerman of Canaccord Genuity hiked his to $7.50 from $7.
“The early gains in a turnaround story are often daunting,” said RBC’s Mr. Spracklin.
“However, like in many transformational stories, the fundamental re-rating and step-function lift in share price valuation points to – in our opinion – substantial further gains.”
- David Berman’s Inside the Market blog (for subscribers): Is the airline rally a sign of friendlier skies or short-term lift?
- Greg Keenan: Air Canada eyes big European expansion, but keeps eye on Asia-Pacific
- Formation of world's largest airline clears major hurdle
China pushes reform
Don’t try to read too much into today’s announcement from China’s Communist Party because the answer may well be elusive.
The communiqué released after the four-day meeting of the central committee called for economic reform and a "decisive role" for markets: “The core issue is to straighten out the relationship between government and the market, allowing the market to play a decisive role in allocating resources and improving the government’s role.”
The party plans to establish a group that will push these efforts, aimed at marked reform by 2020.
“It would be foolish to rush to a snap judgment on whether the Third Plenum was a success given how little was revealed of leadership deliberations and the long period over which reforms will have an effect,” said Mark Williams, the chief Asia economist at Capital Economics in London.
“Relative to expectations, though, our initial sense is that it has fallen some way short,” he added in a research note.
“Some disappointment was probably inevitable given the unrealistic belief in some quarters that it would deliver a detailed policy package. But the purpose of this meeting was to achieve backing for a clear and comprehensive blueprint for reform, what President Xi had referred to as a ‘master plan.’ The Plenum doesn’t seem to have delivered that either.”
The “decisive role” for the markets could mean a lot or a little, Mr. Williams said. Missing from all of this is an “overarching view” of how the various moves fit into the overall puzzle.
“The biggest question that the communiqué throws up is what role will be played by a new group tasked with ‘deepening economic reform,” he said.
“Its creation might signal that the leadership has had to defer discussion of certain areas after failing to reach agreement at the Plenum. But the creation of a small, focused team at the senior party level might also be the best hope for pushing comprehensive reform over the years ahead.”
British inflation eases
Falling inflation is giving Mark Carney and his Bank of England colleagues something to think about.
Britain’s annual inflation rate slipped at its latest reading to 2.2 per cent, the lowest in more than a year and below the 2.5 per cent expected among economists.
“The drop in the cost of living exceeded analysts’ estimates and actually boosted equities,” said market analyst Davic Madden of IG in London.
“It’s clear that the bond-buying scheme by the Bank of England (BoE) is burning the candle at both ends: Output and growth are increasing while inflation is declining, leaving the door open for a longer-than-expected [quantitative easing stimulus] program,” he said in a research note.
“The major risk when operating a stimulus package is that an accelerated inflation rate will outstrip the level of growth, but as this is not an issue for the BoE it’s £375-billion scheme is unlikely to be reduced any time soon.”
OPEC to regain importance next decade
Expanding production of unconventional oil outside OPEC will diminish the importance of Middle East production over the next decade, but the region will reclaim its leverage over oil markets after 2020, the International Energy Agency says in a new report.
The IEA said technology and high oil prices are opening up new sources of crude, but that does not mean the world can expect an abundance of cheap oil, The Globe and Mail's Shawn McCarthy reports.
“Although rising oil output from North America and Brazil reduces the role of OPEC countries in quenching the world's thirst for oil over the next decade, the Middle East - the only large source of low-cost oil - takes back its role as a key source of oil supply growth from the mid-2020s,” the agency said in its annual World Energy Outlook.
The United States is forecast to surpass Saudi Arabia as the world’s leading oil producer by 2016, one year earlier than the IEA’s previous estimates. But by 2020, the light, tight oilfields of North Dakota and Texas will be in decline, and the Middle East will re-assert its dominance over oil markets.
App tells you rights and obigations
A Toronto law firm has developed an app that lets you know (after you’ve been escorted out the door) how much severance you’re entitled to if you’re fired.
Or you could just check your iPhone (while you’re still sitting in the HR department and they’re telling you how much you’re getting).
Or, the other way around, it lets you know if you’re a business owner or manager how much you’ll have to pay (before you escort someone out the door).
You can download the Severance Calculator on your iPhone or iPad – it’s coming soon to Android devices (hopefully before you’re fired) – and input some personal information.
Samfiru Tumarkin LLP, a labour and employment law group based in Toronto, says the app is the brainchild of partner Lior Samfiru, and was developed by Play Dynamics Inc.
The law firm says Mr. Samfiru came up with the idea after the firm sued Ontario’s labour ministry on behalf of two manufacturing workers who relied on information from a government help line. They “unwittingly” accepted the legal minimum rather than what was due.
There’s an “employer mode” on the app that means business owners and HR folks can calculate a fair severance package, as well.
Samfiru Tumarkin says it hopes the app will help employers and staff understand their obligations and right, in turn helping to reduce expensive legal battles.
The app is free, but it presumably gets the law firm’s name and business more exposure. The description on iTunes includes its website and phone number.
Streetwise (for subscribers)
ROB Insight (for subscribers)