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Some Canadian provinces lurching toward ‘unsustainable finances,’ study warns Add to ...

These are stories Report on Business is following Thursday, Oct. 18, 2012.

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'Unsustainable finances'
Several Canadian provinces are lurching toward “unsustainable finances,” according to a new study that warns of severe ramifications.

Done by San Francisco consultant Marc Joffe of Public Sector Credit Solutions, and released today by the Macdonald-Laurier Institute, it warns Canadians of the possibility of a euro-style debt crisis.

I find that a bit too much, personally, but agree, of course, that Canadian provinces need to get their act in gear even more, and that trouble looms.

“Canadians may be too complacent if they think that the debt crisis wracking Europe cannot happen here,” the 52-page study warns.

“In the medium- to long-term, public finances in several provinces are unsustainable, raising the spectre of debt crises, damaged credit ratings, and federal bailouts if corrective steps are not taken. If such crises occur, they will harm not only the provinces directly concerned, but could affect the entire economy.”

It’s not overly surprising that Mr. Joffe, a former senior director at Moody's Analytics, found Ontario to be a flashpoint, with what the institute termed the “highest probability” of default in up to 20 years.

What is arguably surprising is that he found Alberta has the highest probability over a 30-year timeline, despite its solid standing now.

Quebec has the lowest risk.

“The most vulnerable in the 10-20 year window is Ontario, due to its large annual deficits,” the study says.

“Alberta has the most risk at the 30 year threshold as its annual deficits swing its net financial position from a surplus to a large debt. Alberta’s risk is attributable to high deficits, the fact that its population is expected by [Statistics Canada] to age more rapidly than other provinces and because it is heavily exposed to volatile energy revenues.”

Mr. Joffe found that the risks among the provinces are seemingly not reflected in what are now low and uniform long-term interest rates.

“The fact that long-term rates do not incorporate the solvency risks detailed in this report could show that (1) investors expect the federal government to rescue provinces down the road, or (2) they have confidence that provinces will take corrective action, or (3) they have not fully evaluated the long-term credit picture.”

What Larry Page didn't say
Google Inc. surprised the markets in more ways than one today, driving down its stock with the premature release of third-quarter results.

It wasn’t just that the Internet search giant reported before the expected time, after markets close, it was also that the company missed the projections of analysts.

And, stock losses aside, it wasn’t without its humorous moments, notably the line in a prepared statement, in a regulatory filing, that read “PENDING LARRY QUOTE.”

Google profit sank some 20 per cent to $2.18-billion (U.S.), or $9.03 a share when certain items were excluded, down from $2.73-billion, or $9.72, a year earlier. Analysts had expected earnings per share of about $10.65.

Revenue meanwhile, was also below what analysts expected, at $11.3-billion.

Google blamed print company RR Donnelley & Sons, whose stock also dropped after filing "our draft 8K earnings statement without authorization."

Normally, of course, there would be a quote or two in the press release from senior executives, and, of course,  "Larry" is chief executive officer Larry Page.

Normally he says things like this, which he did in the second-quarter statement: ““Google standalone had a strong quarter with 21% year-on-year revenue growth, and we launched a bunch of exciting new products at I/O – in particular the Nexus 7 tablet, which has received rave reviews.”

Well, who knows what he might have been prepared to say this time. “OMG!” comes to mind. But not “rave reviews.”

More Canadians collect jobless benefits
The number of Canadians collecting jobless benefits is on the rise again.

After three months of flat readings, Statistics Canada said today that 534,400 people were collecting regular benefits under the Employment Insurance system in August. That’s up by 3.2 per cent, or more than 16,000 people.

Numbers were up in several provinces, particularly Quebec.

Initial and renewal claims, though, dipped by 1.3 per cent in August to 229,400.

EU leaders gather
Markets are watching closely as European Union leaders begin meeting in Brussels today, but the summit is expected to simply lay groundwork, rather than yield major developments.

EU chief Herman Van Rompuy takes center stage and he pushes his vision. This comes amid as the euro crisis calms somewhat in the run-up to a request by Spain for a bailout in some form, though police and protesters clashed yet again amid anti-austerity demonstrations.

“There will be plenty of scope for headline risk with the European council meeting kicking off later today,” said senior currency strategist Elsa Lignos of RBC Europe.

“The two main items on the agenda are progress on implementation of the ‘growth compact’ and the interim report presented by President Van Rompuy laying out a roadmap ‘toward a genuine economic and monetary union,’” she said in a research note.

“Within that second topic, there will be much debate on the plans for banking union (and a single supervisory mechanism) and the moves toward an integrated budgetary framework.”

Before heading to Brussels, Germany's Angela Merkel proposed the group establish an aid mechanism to boost the continent's competitiveness.

“To give all member states the opportunity then to improve their competitiveness and to actually be able to implement these commitments, I propose that we introduce a new element of solidarity,” the German chancellor said, according to Bloomberg News.

“Yes, we need solidarity, but we need a form of solidarity that leads to what we need: more competitiveness.”

Ms. Merkel also told her Bundestag that she did not agree with the concept of “shared liability,” which High Frequency Economics said appears to rule out hopes for a unified approach.

“A draft of the summit’s communiqué, leaked to the press, reveals no positive agreements emerging from this confab on the critical and immediate issues facing the euro zone,” said chief economist Carl Weinberg.

“These include progress toward a bank recapitalization scheme, advances in proposals for euro zone deposit insurance protection, funding for Greece’s government and an extension of the time frame for its economic adjustment program.”

Comments from Dennis Gartman, publisher of The Gartman letter in the United States, sum up how markets have come to see this long-running crisis.

“We’ve absolutely no idea what wisdom or nonsense shall be derived from this meeting and we shall avoid trading the [euro] as a result, awaiting brilliance or lunacy as the case may be,” he said today.

China buoys hopes
China’s third-quarter growth numbers are “the strongest signs yet” that the economy is finding its footing, though, as always, there are questions surrounding the data.

As Carolynne Wheeler reports from Beijing, economic growth slowed in the quarter to 7.4 per cent, the slowest pace since early 2009 but one that has buoyed hopes among investors given the importance of China’s economy to the global recovery.

“Today’s data releases provide the strongest signs yet that China’s economy stabilized in Q3, along with glimmers of hope that a recovery began towards the end of the quarter,” said Mark Williams and Qinwei Wang of Capital Economics in London.

“But we are skeptical that the rebound is as strong as the official numbers imply,” they said, pegging growth at closer to 6.5 per cent.

Still, this is a good sign, though Capital Economics projects “only a tepid turnaround” over the next several quarters in the absence of more stimulus.

“Our forecasts remain that the economy will expand around 7.6 per cent his year and only 8 per cent in 2013, with one final benchmark rate cut still likely, probably before the end of Q4.”

CRTC scenarios
Seven months after bidding $3.38-billion for Astral Media, BCE Inc. will find out at the close of markets this afternoon if the controversial union is going to receive the blessing of the Canadian Radio-television and Telecommunications Commission, The Globe and Mail's Simon Houpt writes.

If the acquisition is approved, BCE – which operates as Bell Media – will be one step closer to owning more than 100 radio stations and almost 90 TV channels, setting competitors on edge with the prospect of an extraordinary level of market concentration.

It's probably never good to joke out about an alleged terrorist plot but ...
Given that no one was hurt because the suspect allegedly only thought he was going to hit the New York Fed with a 1,000-pound bomb, and no one was ever in harm's way because the accused bungling terrorist wannabe was duped by undercover agents into thinking he was getting real explosives, and that they were his accomplices, let's give it a try:

1. He thought QE3 was a cruise ship getaway for rich, pampered people.

2. He misunderstood what's involved in a "currency war."

4. He heard the term low-yield and thought ... I'll show them.

5. He misunderstood upon hearing that the central bank wants independence.

6. With inflation at just 2 per cent, he couldn't believe the deal he got on the detonator components.

7. He didn't quite get the difference between "deflation" and "implosion."

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