Tuesday, January 27, 2009

Thoughts on the Budget

The budget is out and there is nothing meaningful there. Opportunity to cut taxes substantially or even send some stimulus checks that are commonplace in the US and heck even in Alberta, at least in circa 2005 has been squandered. Keynes would have been delighted had he been alive today at the tremendous following his works are getting worldwide. Canada will issue over 85 billion in debt to finance this increased spending. So much for the 'better fiscal shape' of Canada. And the consequent prospects for rise in the loonie. I think deficits will be even worse than the current projections as the full magnitude of commodities collapse trickles down to the various sectors of the Canadian economy and the government tax and royalty revenues.

In addition to the above, at tax payers expense, the government will buy more of toxic garbage, this time not confined to only homes but securities backed by used Hummers and Dodge Durangos.

It’s clear that the only trick known to the government worldwide is the one taught to them by the bankers and that is-credit is everything.

There’s no point of putting money directly into people’s pockets even as hundreds of billions are given to bail out inefficient and corrupt bankers.

And by the looks of it, I doubt very many people are going to be impressed by the little tax cuts that are offered.

Looking at the budget, all I see is future tax increases for our progeny while we get little if any benefits out of it.

Your thoughts?

Friday, January 23, 2009

Weekend Canadian Delusion Edition

  • This morning while perusing some Canadian news, I come across a headline "Home Depot buys its way out of project." Sure, bad times mean such decision are likely. But this is what I find instead as an explanation:
"Home Depot's decision is further proof some Canadian retailers are paying a high price for the economic woes south of the border, some observers said.

"They're (Home Depot Canada) definitely getting pressure from their U.S. parent just because things are so bad in the U.S.," said Michael McLarney, editor and publisher of the Canadian online home improvement retail magazine, Hardlines.

Are these guys for real? Don't they still see any problems with Canadian economy? When will they admit Canada is for twice the pain as the US.

  • Continuing on the topic of bigger pain, I think Canada experienced two bubbles while most other first world economies (Except say Australia and New Zealand) experienced just one. Our first bubble was the housing bubble and our second bubble was the commodity bubble. Which is why we are likely to be hit twice as hard in terms of falling employment exacerbated by falling commodity prices leading to further problems with the housing market.
  • The symptoms of deflation are here in Canada: "Canadian consumer prices fell a third consecutive month for only the second time since 1931 as energy prices plunged, giving policy makers room to lower interest rates to revive the world’s eighth-largest economy." They still believe in the infallibility of the central bankers and their ability to cut rates and force the economy out of the mess. The falling loonie will give some encouragement to Canadian 'inflationists' but purely Canadian items such as housing and wages will continue to fall further. A friend of mine in IT recruitment said that she has change a sea change in the attitude of lot of job seekers since November.
  • Your thoughts?

Tuesday, January 20, 2009

Who could have thought this? Suncor making loss

It's probably an aberration as the prices plunged a lot faster than they had time to adjust their cost base. But it doesn't' bode well for Capital spending that a lot of Edmonton and Fort McMurray bulls had their expectations tied to.

The board this month approved a revised 2009 capital spending program of C$3 billion, with about one-third of that for “growth projects” and the remainder for the “base business,” Suncor said in the statement. An October plan had targeted spending of C$6 billion this year, 21 percent less than in 2008.

And as we have said numerous times in the past, clinging to historical highs is stupid. Suncor CEO admits,

“I think there’re some people hanging on to the history of it rather than the go-forward basis,” George said during the call.

What's the plan B for Alberta's future prosperity?

Saturday, January 17, 2009

Weekend Open Thread

  • Based on the amount of spam left on previous thread by someone not too happy with the existence of this blog, it seems the blog is still serving a purpose. I've been incredibly busy with a few project deadlines and will resume posting more frequently soon.
  • I'm working on getting a better comments system in place so that the spammers' IP Addresses will be banned and publicly posted on this blog.
  • Just as I've mentioned a number of times in the past, as soon as resource revenues fall, there's going to be a big trouble with provincial government employment levels. The big guys are finally admitting it and we know it won't end happily. The funny thing is that nobody questions how the governemnt was able to generate massive surpluses a few years ago with oil prices at $35 and now the same governemnt is going to be solidly in red at the same prices of oil. Perhaps the natural gas prices are the factor but they haven't admitted it yet.
  • Have a good weekend.

Wednesday, January 14, 2009

Few will escape this unscathed

Residents of Alberta island, especially those with strong vested interests in high commodity and real estate prices are about to wake up to a harsh reality. The falling prices of oil were affecting the future prosperity and project based construction and engineering employment. But now there’s another potentially dangerous animal circling on top of Alberta economy-falling natural gas prices.

A lot of people don’t pay much attention to natural gas prices, but they are the bread and butter of the province, especially of big corporate in Calgary and the provincial government royalties. Oil royalties are merely a drop in bucket as compared to what the Alberta government collects from natural gas (by a factor of 6).

Today natural gas prices fell to 2 year lows of around $5. Should the natural gas prices fall further, as they just might in face of severe demand contraction, there will be massive further fallout from this in provincial government and corporate employment levels in the province.

Natural gas business is the cash cow for most businesses in the province while oil sands was the future growth business.

The growth business is now in dumpster and the cash cow will likely come under severe duress. There’s no way this will have a happy ending for the provincial economy.

Right now it’s hard to find a sector of economy that is booming or even going steady, bankruptcy specialists excepted.

If worldwide demand continues to fall across the board as it has, there’s no one that will escape unscathed.

Despite a significant fall in the oil prices, there was a noticeable decline in consumption of gasoline in the first week of this year. Unemployed people don't take skiing trips , take extended vacations or go for frequent shopping trips to the mall. Those who are fearful of losing their jobs show similar behavior.

Everything ranging from dental hygienists to entertainers will feel the pinch of this slowdown. A lot of demand of everything in last several years was just as fictitious as the NINJA loans and demand for virtually everything is falling apart worldwide. In face of this, Canada’s (and Australia, Brazil, New Zealand’s ) economy cannot remain insulated.

It wouldn’t take a genius to figure out what a further collapse in commodity prices will do to Canadian economy and Alberta real estate.

Those who are contemplating buying in this environment at ridiculously inflated prices will have severe cases of post purchase dissonance for many years.

Friday, January 9, 2009

Weekend Open Thread

Some thread starters:
  • NFP in the US is bad, but could have been worse. Still the year ended with an unemployment of 7.2 per cent. Very few except those on the 'lunatic fringe' had predicted such a high rate by the end of 2008. It's very likely that we'll see 2009 end pretty close to double digit unemployment in the US.
  • Closer home, the unemployment jumped here as well, with the biggest fall in construction activity. The quintessential migratory worker to Alberta- single male in early 20s-will soon find Alberta to be too expensive, too cold and with too few job opportunities in an area of his expertise. Result: falling demand for rental units, putting further pressure on residential prices.
  • From the same report, Alberta recorded the largest loss of full time positions (-16000). Alberta still has the lowest unemployment rate in the country but one must wonder for how long. I guess some of us had it right when we saw the commodity bust coming. This is only going to increase foreclosures and make rentals even cheaper.
  • It should be little surprise that with all the negative news firmly getting entrenched in the minds of consumers, sales have ground to a halt in Calgary and Edmonton. People fearful for their jobs and prospects don't buy overpriced shoe boxes. Especially when they have to pay part of it from their pockets in the form of higher down payment.
  • And coming from the 'heard from friends' section, layoffs are affecting Calgary's engineering workers. Jacob's, Colt, Bantrel and others. Most mining projects have been delayed by six to 9 months and a severely truncated workforce is keeping the projects alive so that if the oil prices do bounce back (another on the wish list of most Albertans), the projects can be brought back online quickly. So much for the 'long term' and strategic thinking of the Alberta Energy companies. You can go through the entries in this blog and see what a lot of Alberta RE bulls had to say about the energy sector- this time they are doing things differently. And short term price fluctuations don't impact the long term, 'peak oil' driven perspective these companies have taken. But guess what, all that stuff amounts to zilch when it costs $60 to produce something and you can only get $40 for it in the market. The economically unviable operation will soon cease to exist no matter what the company's 'long term plan' says.
  • And in another return to fundamentals, a quick perusal of Kijiji shows asking rents are falling steeply and based on my personal responses to some of the ads, most of the 'landlords' have come down from their high horses. You can negotiate rents down by upto 10 or 15% off from the asking prices. And falling rents don't make the underlying properties more attractive.
  • Another variety of salesmen is having a good time selling the fix for the forthcoming gloomy conditions. But despite what you read here on this blog, I'm not afraid of the gloom and doom that is being used to sell some of the 'life saving' things. If one has spent certain amount of time in Africa or the poorer parts of Asia, what is being termed as 'catastrophic' in Canada will be taken as business as usual. Power failures are common there and so is a lack of potable water and sewage. But life goes on. People live and are happy. And the same is the case with this recession, severe recession or depression. There will be pain, unemployment and other problems. But our system in Canada, with all its flaws, is still amongst the best in the world and will prove to be a lot more resilient than some think.
  • Have a great weekend.
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