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Top Business Stories: 'Cult of equities' not dead, David Rosenberg declares

These are stories Report on Business is following Tuesday, Sept. 11, 2012.

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Rosenberg on equities
The "cult of equities" is not dead, David Rosenberg declares today.

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Some believe it is, and Mr. Rosenberg himself wrote on it a few months back.

In a research note today, the chief economist of Gluskin Sheff and Associates said he realizes "that this line of thinking isn't entirely accurate."

First, he noted, U.S. households still have 42 per cent of their mix in stocks, which is a bit below their historical standing, but still within the range.

Next, he pointed out that the most recent Investors Intelligence survey put the bulls at 51 per cent and the bears at 24.5 per cent. The spread is at its greatest since April, but that's "hardly a sign" of the end of the cult.

Unlike the early 1980s.

"If you were a Merrill broker in the early 1980s and cold-called a prospect with a 15 per cent utility offering, there is a strong likelihood that the recipient of the call would have threatened back then to call the cops - well, that is a classic capitulation in terms of the 'cult being dead,'" Mr. Rosenberg said.

"Not to mention the famous 1979 Business Week cover about the 'Death of Equities,'" he added in his report.

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"Compare and contrast to the current cover of Barron's ('Tough Stuff') … you'll see what I'm getting at. Believe me, in 1982 nobody was ringing the bell - like we see today with published reports out of asset managers like BlackRock using demographics (we're living longer … like a whole extra year every decade according to the life expectancy table!) as a reason to raise exposure to the equity market."

Third, retail investors aren't bolting, moving rather toward a different kind of equity exposure by way of hybrids.

"So if you are bullish on the market, have a reason beyond the 'capitulation' theme," he told his clients.

Luxury takes a hit
Britain's Burberry Group PLC sent the luxury good sector tumbling today with a profit warning that raised fears of the industry finally succumbing to global uncertainty.

The warning from Burberry, known so well for those raincoats, highlights not only Europe's waning fortunes, but also slower demand in emerging markets such as China.

"As we stated in July, the external environment is becoming more challenging," said Burberry CEO Angela Ahrendts. "In this context, second-quarter retail sales growth has slowed against historically high comparatives."

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Shares of Burberry plunged, as did those of other luxury goods concerns such as LVMH and, to a lesser extent, Tiffany & Co.

"The biggest mover on the U.K. index today has been luxury fashion retailer Burberry, the stock sliding over 18 per cent after the company issued a profits warning, saying that its full-year profits would be at the lower end of expectations due to a significant slowdown in Chinese demand," said senior analyst Michael Hewson of IG Index in London.

"Always keen to kick a man when he's down it wasn't too long before city scribblers jumped on the bandwagon with a host of downgrades, with Nomura and Seymour Pierce cutting the stock to a 'hold.' Nothing like shutting the stable doors after the horse has gone!"

Market analyst Chris Beauchamp of IG Index in London, however, said the Burberry warning highlights the downside of being the "darling" of the markets.

"The company might be down, but it is certainly not out, and perhaps a gentle toning-down of overhyped expectations on the part of investors is now in order," he said.

Burberry's comments today follow those in late August of Tiffany chief Michael Kowalski, who warned that "sales growth has been affected by economic weakness in a number of markets."

Jaana Jatyri, the chief of, a research firm, said the results illustrate the impact of global uncertainty on the luxury sector.

"The global economic crisis is dragging on and the longer it drags on the less confident even wealthier individuals become. Unfortunately, people lacking confidence do not shop at Burberry."

Trade deficit swells
Canadian exporters took it on the chin in July, though imports also fell as the country's trade deficit swelled to $2.3-billion from $1.9-billion a month earlier.

That's the largest deficit on records dating to the early 1970s, and economists had expected a better showing.

Canadian exports slipped 3.4 per cent in July, Statistics Canada said today, largely on lower energy products, which slipped 8.5 per cent on both lower volumes and prices.

Imports fell 2.2 per cent, also on energy products, as well as machinery and equipment.

Exports to the United States, Canada's biggest market, fell 5 per cent, and imports 2.1 per cent. That narrowed the Canada-U.S. trade surplus to $2.1-billion.

In the United States, according to the U.S. Commerce Department today, America's trade deficit with the rest of the world rose by 0.2 per cent in July.

Notable, though, was a widening in the U.S. deficit with China to a record. That comes amid continuing trade tensions between Washington and Beijing.

"The trade reports in both Canada and the U.S. were ugly and suggest that weakness seen in Q2 extended into Q3," said senior economist Krishen Rangasamy of National Bank Financial.

"For Canada, the surprise was that the commodity price rebound had little impact, with the energy trade surplus actually dropping in July. The poor performance of autos exports was also surprising given the good U.S. vehicle sales. Perhaps we may see a rebound in our auto exports in subsequent months. Still, overall trade which was a huge drag on Q2 Canadian growth, seems to be worsening in synch with tepid economic growth south of the border."

Housing starts climb
Today's data from Canada Mortgage and Housing Corp. may get tongues wagging among those who are worried about a bubble in Toronto's condo market.

Construction starts in Canada climbed in August to 224,900, at an annual pace, up from 208,000 in July, CMHC said, but that was largely the result of of a handful of big multi-unit projects in the country's biggest city.

"This increase is primarily a reflection of the high level of pre-sales in some of these large multi-unit projects in late 2010 and early 2011, which is in line with job gains at that time," said deputy chief economist Mathieu Laberge, suggesting the market is not overheating.

Indeed, sales are already pulling back.

"The higher level of starts recorded in Atlantic Canada and British Columbia in August reflect low levels of activity in July rather than an increasing trend that was registered in August," he said.

"Over all, moderation in housing starts activity is still expected for the remainder of 2012 and 2013."

Construction in that mult-unit segment is now 35 per cent above the levels of a year ago, noted Emanuella Enenajor of CIBC World Markets.

On thin ice
An NHL lockout would upset hockey fans, but its impact on the Canadian economy would be tiny.

Scrapping the season would shave up to 0.1 per cent off gross domestic product, according to deputy chief economist Douglas Porter of BMO Nesbitt Burns.

Mr. Porter based his estimates on potential gate receipts, concession sales, broadcasting revenue and other factors.

The impact of a lockout would start this month and then hit "full force" in October, he said.

The National Hockey League and the NHL Players' Association are heading toward a weekend deadline, and are said to be far apart in their contract demands.

A lockout at midnight Saturday would shut down 30 hockey clubs.

(Yes, the hit to the economy would be marginal, but arguably every little bit helps in this climate, even one-tenth of 1 per cent. So come on, guys.)

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More


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