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The European Central Bank's €conomia game
The European Central Bank's €conomia game

The Week

Real estate: All's going to get quiet on the western front Add to ...

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Real estate steady Canada's real estate market is expected to hold steady for the next year, kind of a Goldilocks thing in that it won't be too hot and it won't be too cold.

"Canadian housing continues to look balanced, with some local markets performing better than others," Robert Kavcic of BMO Nesbitt Burns said this week after the Canadian Real Estate Association reported that prices in Canada rose 5.5 per cent in October from a year earlier, below September's 6.5 per cent and the slowest pace since January.

"Low mortgage rates are offsetting weaker consumer confidence and cooling job growth. Relatively stable sales and price trends are likely in the year ahead."

Separately, Royal Bank of Canada released a new study indicating that house prices will continue to rise next year, except in British Columbia.

RBC senior economist Robert Hogue projected home sales would rise in Alberta, Saskatchewan, Manitoba and Quebec in 2012, but decline in B.C., Ontario and the east, where they'll dip 3.3 per cent, 0.1 per cent and 0.4 per cent, respectively. The average price of a detached bungalow is forecast to rise in all regions, expect B.C. alone, where prices are projected to slip by 1.7 per cent.

"Developments in global financial markets since July have somewhat altered the economic landscape but, perhaps surprisingly, not the bottom line for Canada’s housing market," Mr. Hogue said.

He forecast sales would climb by 2.1 per cent in B.C. this year before falling in 2012. Sales in Alberta are forecast to rise 7.8 per cent in 2011 and 6.7 per cent in 2012, in Saskatchewan by 7.3 per cent and 1.7 per cent, and in Manitoba by 3.8 per cent and 0.7 per cent.

Ontario will see a gain of 1.5 per cent in 2011, before 2012's dip, Quebec will mark a decline of 4.5 per cent this year before a slight gain in 2012, and the eastern provinces will gain 0.4 per cent this year and a slight decline in 2012.

Where prices are concerned, Mr. Hogue projected an increase of 8.9 per cent in B.C. before next year's decline. Prices in Alberta will rise 0.5 per cent this year and 3.5 per cent in 2012, in Saskatchewan by 3.3 per cent in each year, in Manitoba by 5.6 per cent and 2.3 per cent, in Ontario by 4.9 per cent and 0.5 per cent, in Quebec by 4 per cent and 0.7 per cent, and in the eastern provinces by 6.2 per cent and 1.5 per cent.

Who is John Galt? Our most popular story this week was Simon Houpt's tale of how Lululemon has upset the intelligentsia with its controversial take on Ayn Rand's Atlas Shrugged.

It all comes down to a shopping bag. And your interpretation of objectivism and yogic values, but let's start with the bag.

Late last month, Lululemon Athletica Inc. unveiled bags stamped with "Who is John Galt?" That's in reference, of course, to the 1957 novel. Founder Chip Wilson, having read the book when he was 18, was struck by its message, according to the yoga retailer's blog.

"Only later, looking back, did he realize the impact the book’s ideology had on his quest to elevate the world from mediocrity to greatness (it is not coincidental that this is lululemon’s company vision)," the blog post says, adding that the shopping bags are a reminder to live life and overcome mediocrity.

What's wrong with that?

Onkar Ghate, a senior fellow at the Ayn Rand Institute in California, told our marketing writer that the blog post wasn't an accurate reflection of Ms. Rand's philosophy, objectivism: “She wouldn’t put it as an issue of living life fully or mediocrity."

Not only that, but one fitness type felt Ms. Rand's philosophy clashed with yoga values.

For its part, a spokesperson for the company said it wants to "create conversation among our guests."

(When, by the way, did companies start calling paying customers guests? Tim Hortons did that, too, in its latest earnings release. I know these things are cute - theme parks call their workers cast members - but give me a discount if I'm a guest.)

ECB in hot seat The European Central Bank now has an app available on iTunes for its €conomia: The Monetary Policy Game. It's for the iPhone, iPad and iPod touch, and the goal is to hold inflation below 2 per cent. I hope the electronic version is simpler, and more fun, than the real-life game. Otherwise, you'd be sitting there just trying to keep the hordes at bay and their hands out of your pockets.

The ECB has been buying debt, helping to bring down crippling bond yields, and is under mounting pressure to do much more, and become a lender of last resort to ailing governments. France and Germany are divided on the issue - Angela Merkel doesn't want it - and the new central bank chief Mario Draghi is standing firm against it as well.

Indeed, Mr. Draghi told a conference Friday that euro leaders should be moving at a faster pace. He cited the euro zone's bailout fund, which is known as the EFSF, asking: "Where is the implementation of these long-standing decisions?"

It's complex, of course, and with so many parties involved it's hard to keep track of the comments. But Carl Weinberg, the chief economist at High Frequency Economics, sums it up well:

"The markets are watching the big boys stake out positions around the newly recast question of getting the ECB to finance a big bond bailout. Germany says no way. France wants the ECB to finance the EFSF by making the bailout fund a bank. The markets want the ECB to buy bonds in size, rather than just tinker, to stabilize the markets. The ECB, according to President Draghi, just wants to focus on price stability and asks the governments to do their jobs implementing - and, we suppose, funding - the various half-baked rescue plans already on the table."

As The Globe and Mail's Brian Milner reported, many see the ECB as the last hope for saving the euro zone. But if Mr. Draghi is any indication, that's not going to happen.

"Disagreements between France and Germany over the role the European Central Bank should play in trying to end the debt problem is hardly helping confidence, and once again it looks like we are back to the crisis being a couple of steps ahead of the politicians," said Ben Critchley of IG Index in London.

The Full Monti Italy has found an answer to squabbling politicians: Get rid of them, and let technocrats do the job.

There are now new governments in both Italy and Greece, following the resignations of Silvio Berlusconi and George Papandreou, and the appointments of Mario Monti and Lucas Papademos. In the case of Greece, the new government has just a three-month window before a mid-February election.

There's are questions now about how much they can get done, particularly in Athens, and what happens after that.

"Both Italy and Greece have moved towards technocratic governments, not beholden to electors, in the hope of getting structural reforms through," said economist Andrew Grantham at CIBC World Markets.

"While this may be no bad thing in the near term, there remain concerns of what will happen when voters do go to the polls in these countries. Greek elections as early as February could potentially result in a weak coalition government, raising the possibility that austerity implementation becomes derailed and placing at risk the much-needed bailout disbursements from the IMF."

The focus now is on how fast the new governments can act to turn things around. But as RBC European economist Gustavo Bagattini notes, the markets are still worried despite the changes in government.

"How strong will their mandate be? Will they have political backing to reform over and beyond previously agreed packages? How long before the popular tide turns, allowing opportunistic politicians to try to step back into the picture? This situation looks more worrying in Greece, where the real prospect of snap elections in February, as desired by the opposition, means PM Papademos could have very little time on his hands."

There's a lot to do, and much at stake. On Friday, Greece's Finance Minister Evangelos Venizelos unveiled a budget that envisions the country's deficit shrinking to 5.4 per cent of GDP next year, from its current 9 per cent. But that's based on an agreement with all bondholders to take a 50-per-cent hit.

In Italy, the situation is more complex, and Rome found itself in the eye of the storm when the yield on its 10-year bond breached 7 per cent, the point at which Greece, Ireland and Portugal began to topple. That 7 per cent is high, to be sure, and some observers see it as the trouble spot, but others, like Mr. Bagattini and Benjamin Reitzes of BMO Nesbitt Burns, believe it won't kill Italy, at least not in the short term.

Rome, Mr. Reitzes noted, faces rolling over some €330-billion in debt by the end of next year, while requiring €40-billion more to finance its deficit.

"Currently, Italy pays between 3 per cent and 4 per cent in interest on the maturing debt," Mr. Reitzes said. "Even if yields are at 7 per cent for all of next year’s new issues, the interest bill would only rise about €13-billion, or 0.8 per cent of GDP… not insignificant, but hardly crippling. Even so, such elevated interest rates are not sustainable in the long run. The real near-term risk is of a buyers’ strike, when investors shy away no matter how high the yield."

Mr. Bagattini also doesn't accept the view that Rome will be crippled.

Italy's debt burden may be a high 120 per cent of GDP, he said, but the country has scraped through with a debt level that eclipses the size of its economy since the early 1990s. He also pointed out that Rome ran a primary surplus for years, allowing the government to cut its debt level, though the financial crisis and the stimulus needed ate away at its efforts.

Still, he expects that erosion to end after this year. And by his calculations, its debt-to-GDP ratio would peak at about 122 per cent next year and then start to dip a year later.

"The structure of Italian debt makes it very resilient to interest rate shocks in the short term," Mr. Bagattini added.

Race to the Gulf It is, to put it simply, now a race to the Gulf Coast.

As Nathan VanderKlippe, Shawn McCarthy, Carrie Tait and Kevin Carmichael reported this week, two major energy players are now rushing to win approval for rival pipelines that would push Canadian oil to the Gulf's refining hub.

Enbridge Inc. did a $1.5-billion (U.S.) deal this week to take a half stake in the Seaway pipeline, which links the hub at Cushing, Okla., with refineries on the coast of Texas. Along with its new partner, it plans to reverse the direction of the flow. It's an underused line initially meant to move oil from Texas to Cushing, which is backed up. So now, the idea is to turn that around and move crude to Texas.

TransCanada Corp., in turn, is also pushing to build the southern end of its Keystone XL project, which would move oil to the Houston area from Cushing.

TransCanada is also, of course, chasing the full 2,700-kilometre Keystone XL pipeline, which would run from Alberta to Texas. To call it controversial would be an understatement. The U.S. State Department told the Canadian company it had to skirt an environmentally sensitive area in Nebraska, which it now plans to do.

The state's top politicians are now onside.

"We believe the market has essentially decided that the Keystone XL and Seaway reversal projects will be the primary carriers of incremental Canadian and northern U.S. oil to Gulf Coast markets, opening the door to significant earnings upside for the owners of those projects," said analyst Chad Friess of UBS Securities Canada.

In the markets Even amid indications that the U.S. economy is picking up a bit of steam, Europe's troubles continue to dog stock markets. The S&P 500 shed 3.8 per cent this week, and Toronto's S&P/TSX composite sank 3.1 per cent.

"While equity markets have firmed up since late summer, the overriding concern about a messy outcome in Europe continues to act as a ceiling on sentiment and equity prices," said Mr. Kavcic of BMO.

"One can argue that, if not for the uncertainty in Europe, stocks would be flaring higher in typical late-year fashion right now, thanks to a low base of sentiment, still-strong earnings results and firming U.S. economic momentum. Equity market sentiment was extremely depressed by late summer, with most measures registering bearish tones not seen since the Great Recession, and the mood remains quite downbeat today."

Required reading this week Personal finance columnist Rob Carrick takes his annual look at online brokerages, and Qtrade, the Vancouver-based independent, again comes out on top. Find out why.

The turmoil in Greece is increasingly affecting the Greek diaspora, including the 250,000-plus members of the Greek-Canadian community and their many businesses, Tavia Grant and Nicolas Johnson write.

Central banks are once again major buyers of gold, a dramatic shift that will buoy prices at their elevated levels and sow doubt about the future of an international monetary system based on the U.S. dollar. Kevin Carmichael reports.

The coming of cheap-chic Target Corp. has raised fears among domestic retailers, but drugstore chains see a silver lining. Marina Strauss reports.

Something completely different 1. German Chancellor Angela Merkel's Christian Democratic Union held its conference Monday in Leipzig, where delegates were given an orange to mark the party's colour. But, Reuters reports, the security types quickly took them away lest anyone decide to throw them at the German leader.

2. Leon's Furniture Ltd. Monday boosted its quarterly dividend to 10 cents from 9 cents. This is the retailer, of course, that's known for its Don't Pay a Cent Event.

3. Here's what AIG chairman Steve Miller told Bloomberg TV Wednesday as he remarked that no one will ever know what would have happened had the insurer collapsed: "The understanding of the Occupy Wall Street crowd of what makes our country work is probably fairly limited." Um ...what's making the country work are mega-bailouts and government ownership.

4. Spot the connection: In vitro fertilization using donated sperm increased markedly last year in Britain, the Human Fertlization Embryology Authority said in a new report Wednesday. Britain's Office for National Statistics reported separately that 2.6 million people are unemployed amid the highest jobless rate in 15 years. The number of young people out of work topped one million while the unemployment rate in that group climbed to almost 22 per cent. As Bloomberg News reports, donors to the European Sperm Bank are paid €25, and about half are students.

5. You can still hike naked in the Alps, but not, apparently, in front of children having a picnic near a Christian rehab centre for addicts, according to reports Thursday. The Federal Supreme Court of Switzerland upheld a fine equal to about $100 against a man who was doing just that in what is known as the canton, or state of Appenzell Ausserhoden, Reuters reports. This region, where, according to the news agency, women won the right to vote just two decades ago, is apparently popular for naked walkers. But citizens got fed up with it and voted to ban it in 2009, according to the Swiss edition of The Local.

What to watch for next week The so-called U.S. supercommittee is racing against the clock amid reports that it has stalled. "The U.S. supercommittee, tasked with finding at least another $1.2-trillion of deficit reductions over the coming decade, are running out of time before their formal Nov. 23 deadline," said CIBC World Markets economist Andrew Grantham. "Failure to reach an agreement could trigger unpopular automatic cuts from 2013 onwards. But if Congress softens its tone in enforcing the unpopular automatic cuts, the US sovereign rating could come back under the microscope."

Third-quarter earnings season is clearly slowing down, but Hewlett-Packard reports results Monday, and George Weston Tuesday.

Economists expect to see a modest gain of 0.5 per cent when Statistics Canada reports Tuesday on how the country's retailers fared in September. Douglas Porter of BMO Nesbitt Burns: "Following a fast recovery from the recession, Canadian retail sales have cooled considerably in recent months. A combination of sagging confidence, slow wage growth, rising food and energy costs and a lack of pent-up demand have weighed on sales growth this year. The lure of cross-border shopping amid a still-strong loonie has also dampened domestic sales somewhat."

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