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David Rosenberg on NAFTA: ‘Gracias for nothing’ (and why we should call a new deal AFCM2)

Briefing highlights

  • Rosenberg on NAFTA
  • 15 far-out cannabis facts
  • Markets at a glance
  • National Bank profit rises 10 per cent
  • Current account deficit narrows

‘Gracias for nothing’

David Rosenberg is in fine form today on the NAFTA talks, railing against the Trump administration and the Mexican negotiators, and even coming up with a new name for the trade pact:

AFCM2. Or, as the chief economist at Gluskin Sheff + Associates put it, America First, Canada/Mexico Second.

Some snippets from Mr. Rosenberg’s morning note as Foreign Affairs Minister Chrystia Freeland is back in Washington today to continue talks after the U.S. and Mexico agreed to a revised deal:

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“Ottawa is putting on a brave face, to be sure, but what else can it really do? Drawing the ire of Donald Trump after the G7 meeting didn’t end up doing a whole lot of good, not to mention peeving off the Saudies.”

“What I find interesting is the rush to get this deal through because, God forbid, that the new government about to take over in Mexico, or the fresh faces we will see in Congress following the midterms, should have an opportunity to weigh in on this trade file.”

“It is very clear after the way Canada was ordered to stay home and not partake in the agreement just inked, that the USA under this Trump administration is no friend at all. The Mexicans (of course with a lame-duck government) did a very good job of stabbing Canada in the back, as well, backtracking on issues that it had previously agreed with Canada were non-negotiable. Not to mention that our amigo to the south had earlier pledged to engage only in tripartite talks … What happened to that? Gracias for nothing.”

Mr. Rosenberg said he’s also irked by the fact that America’s average tariff rate is 3.4 per cent, while Canada’s isn’t much higher at 4 per cent, but in Mexico it’s 6.9 per cent.

And, as did Capital Economics today, Mr. Rosenberg said a deal will probably see the markets price in the Bank of Canada raising its benchmark rate in October.

“Markets are pricing in an 80-per-cent chance of a rate rise by October,” said Stephen Brown, senior Canada economist at Capital Economics in London.

“We have pencilled in an increase as well, but we would caution that NAFTA negotiations still present a big risk to the outlook."

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The ‘Cannabis Economic Account’

If you've never scanned Statistics Canada's 'Cannabis Economic Account,' you'll want to.

Particularly if you’re an investor, producer or consumer. Particularly if you’re a consumer, and you can see how prices are falling.

Even if you're not, it makes for interesting reading in the runup to legal marijuana in mid-October.

The statistics agency is drawing its data from several areas, including a crowdsourcing site for prices (anonymous, of course).

Because it's not legal yet, Statistics Canada is compiling and reporting "experimental" historical data beforehand.

(Not your usual fare for a statistician, but presumably the experimenting stops at the stats.)

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And it sounds just like a regular report on, say, gross domestic product or unemployment.

(Being a child of the sixties, just once I’d love to see Statistics Canada include something like: “These data are far out, and will blow your mind.” But, no, instead it says “quarterly estimates are seasonally adjusted, expressed at an annual rate.” Having said that, someone there has a sense of humour, calling the crowdsourcing site StatsCannabis, with a little pot leaf as an emblem.)

"Apparently, consumption is up 72 per cent since 2001Q1," said Bank of Montreal chief economist Douglas Porter, who ran through the report.

"All sounds impressive, but note that total consumer spending on all items has risen at roughly a 1-per-cent quarterly pace through the recovery, and overall spending is up more than 100 per cent since 2001," he added in his own report.

"So, it appears that Canadians have not shifted their cannabis consumption preferences in recent years ... insofar as we can believe the official stats."

That, Mr. Porter added later, is no statement on the federal agency, but rather on how hard it would appear "to get accurate data on the consumption of something that isn't 100-per-cent legal yet."

Indeed, Statistics Canada said earlier this year that some are “provisional estimates” subject to revisions as “they rely heavily on a number of assumptions, models and sparse data sources related to the production of the mostly illegal cannabis industry.”

Besides what Mr. Porter noted, here are some highlights from Statistics Canada’s recent second-quarter report and an earlier 1961-2017 study. Some of the numbers from the broader report have changed, and are updated here.

1: Household spending on medical and non-medical pot rose 1.2 per cent in the second quarter, almost matching the 1.4-per-cent pace of the first three months.

2. Household spending on cannabis has been on the rise since 1961, the annual average topping 6 per cent.

3: Annualized, consumers dropped $5.7-billion on cannabis products in the second quarter. Almost 85 per cent of that was for non-medical, and, thus, illegal, use. That percentage is down from 98 per cent four years ago, “reflecting increases in cannabis consumption for medical use.”

4: Spending on medicinal pot hit almost $784-million in the second quarter.

5: The “average combined” reported price, for medicinal and non-medicinal, was $6.74 a gram in the second quarter, bringing the decrease since early 2016 to 10.6 per cent.

6: Prices hit their ceiling in 1989 and have been “trending downward since.” Statistics Canada pegged the national average price per gram at about $5 in 1961, $12 in 1989 and $7.22 last year.

7: Bank of Canada, take note: The 3.3-per-cent annual price increase between 1961 and 1989 was well below annual inflation of 5.7 per cent. Since 1990, prices for non-medicinal pot have fallen at an average annual pace of 1.6 per cent, compared to total inflation of 1.9 per cent, which was “likely due to an estimated increase in supply compared with cannabis demand.”

(Talk about bring you down.)

8: Almost five million Canadians between the ages of 15 and 64 spent what’s estimated to be about $5.5-billion for medicinal and non-medicinal cannabis last year, or about $1,200 for each consumer who partakes.

(Hey, what about the 65-and-up crowd? Seniors can’t have some fun? Retirement is a natural high? Here’s to an Early Bird Special, said this soon-to-be 65-year-old writer. As 77-year-old rock icon and pot enthusiast David Crosby told me recently, “I’m elderly, and kind of pissed off about it, but aside from that I’m fine.”)

9: As points of comparison, households spent $22.3-billion on alcohol and $16-billion on tobacco a year earlier, in 2016.

10: The average annual increase in Canadian production since 1961 was more than 7 per cent.

11: Canadians spent $5.2-billion on home-grown cannabis last year, and $300,000 on illegal foreign stuff.

12: Statistics Canada estimated illegal foreign sales of home-grown marijuana at about $1.2-billion. The proportion of foreign sales of Canadian cannabis has climbed to 20 per cent of what’s produced from about 2 per cent in 1961.

13: The proportion of imported cannabis consumed in Canada has dropped to 5.5 per cent per cent from about 40 per cent in the sixties.

14: Here’s a breakdown of buyers, on average, between 1961 and 2017: The 15-17 age group accounted for 12 per cent, the 18-24 cohort for 48 per cent, the 25-44 group for 29 per cent, and those 45-64 for 10 per cent. Since 2000 alone, the corresponding numbers are 18 per cent, 33 per cent, 40 per cent and 9 per cent.

15: Younger folks seemingly didn’t abandon pot as they grew older. Either that, or they just got more hip. (Sixties hip, not hipsters.) Since 1975, the 45-64 bracket has increased its share of household spending to 23 per cent from 4 per cent.

(Back to that age thing, Statistics Canada economist Conrad Barber-Dueck said the 65-plus age group reported no spending or consumption in the initial surveys. I’m not sure why: Perhaps they didn’t want to come clean, missed the sixties or spent their misspent youth on other endeavours. But I’m reminded of the phrase “Never trust anyone over 30.”)

16: “The size of the cannabis-producing industry in Canada (on a value-added basis) was estimated at $3.4-billion in 2014 and had fallen to $3-billion in 2017, mainly the result of declining prices. By comparison, the size of the tobacco industry in 2014 was $1-billion and the size of the brewery industry was $2.9-billion. A substantial amount of the tobacco and alcohol consumed in Canada is imported, which contributes to the smaller size of these industries compared with cannabis.”

(One wonders what value-added means in this case.)

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Markets at a glance

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Deficit narrows

Canada’s current account deficit narrowed markedly in the second quarter as goods exports perked up.

The shortfall shrank by $1.6-billion to $15.9-billion, Statistics Canada said today.

The goods deficit alone narrowed by $3.3-billion to $5.3-billion, the agency said, because of – oops – a higher surplus with the U.S.

The gap in goods and services pulled back to $12.3-billion, the lowest in a year.

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