Scores of manufacturing workers in Ontario won't be pried from family gatherings because of work this holiday season but not for a reason they're likely happy about.
In what may well be remembered as the Christmas Ontario's factories went silent, manufacturers from cars to steel are shutting down operations to clear bulging inventories and save cash, forcing an unpaid vacation upon thousands of their employees.
Thursday, Hamilton's rusting steelworks were caught in a mounting economic downdraft that has already resulted in a series of unusually prolonged production freezes at auto-manufacturing plants in the province.
ArcelorMittel, the biggest steel producer in the world, said it will be shuttering its Dofasco plant for a two-week period beginning Dec. 21 in an effort to slash $1-billion in company-wide spending.
Some 5,000 workers will go without pay during that time.
The stoppage is also designed to alleviate rising inventory levels, said company spokesman Larry Meyer.
Steadily falling demand across the economy has hit virtually every manufacturer regardless of industry. Steel, a building block in countless products, is no exception.
"It's not a surprise," said Wayne Fraser, president of the United Steelworkers Canada. Production has be slowing for months at Canadian smelters, he said, adding that member workers are braced for similar announcements from others.
"Companies are preparing for the worst. We have to be patient and hope this thing turns around."
Limited Christmas shutdowns are normal for Ontario's auto assembly factories, but this year is different.
U.S. auto sales have plunged 12 straight months through October to lows not seen since 1991 as consumers defer spending. And Canadian plants, which ship almost every vehicle they produce to the United States, are cranking down output far more than in previous years.
General Motors Corp., the largest vehicle producer in Canada and the U.S., is extending the typical Christmas shutdown of its Oshawa, Ont. car plant and the CAMI Automotive Inc. plant it shares with Suzuki Motor well into January.
The automaker is also idling its Oshawa pickup plant, which makes the Chevrolet Silverado and GMC Sierra trucks, for four weeks starting Dec.15, said company spokesperson Patty Faith.
"We don't typically take [inventory adjustments] in December," Ms. Faith said. "Of course, nothing about this year is typical."
GM's U.S. sales last month plunged 45% while Chrysler LLC's dropped 35% and Ford's fell 30%. All three automakers are readying "viability" plans due to Congress by Dec. 2 as part of their bid to win US$25-billion in emergency aid.
The companies are also asking the Canadian and Ontario governments for financial help.
Ford's assembly plant in Oakville, Ont. will be idled four weeks starting Dec.15 to adjust inventory, said company official Lauren More. Ford's St. Thomas, Ont. factory will suspend production for four weeks starting Dec. 8, she said.
Privately-held Chrysler confirmed only that its Brampton, Ont. factory would be shut down next week.
Tighter credit markets are serving to exacerbate the downturn, as companies are forced to stockpile cash for common functions they would normally be able to borrow for, like payroll, said Michael Gregory, a senior economist at BMO Capital Markets.
As a result, temporary production halts in industries traditionally unaccustomed to using the tactic are beginning to look long and hard at the option.
"Manufacturers across the board are looking at ways to pare back," he said.
"Will this become more of a norm going forward? Well, that will depend on what happens in the U.S. economy."
The tens of billions of U.S. taxpayer dollars being asked for by Detroit could be the tip of the iceberg, analysts at JP Morgan said Tuesday.
With Congress preparing to hand struggling automakers General Motors Corp., Ford Motor Co. and Chrysler LLC US$25-billion in loans, JP Morgan analysts said any emergency cash would just be a lifeline until Barack Obama's administration takes over in January.
Mr. Obama's economic team would be put to work quickly, tasked with crafting a second, more comprehensive bailout package involving concessions from creditors and labour in what would amount to a sweeping restructuring of the Big Three.
Structural costs would be a primary target under any Washington-brokered overhaul, JP Morgan said, with concession from creditors and the United Auto Workers "inevitable."
The so-called "shared sacrifice scenario" would take months to negotiate, analysts said, likely equating to further injections of operating capital for Detroit.
What all of this means for Canada, which has already shed more than 10,700 auto-manufacturing jobs this year, is uncertain.
Ottawa, too, is mulling a co-ordinated effort to prop up the North American industry, as GM, Ford and Chrysler's Canadian operations pine for up to $6.5-billion in loan guarantees here.
What is certain is that a significant turnaround is of paramount importance. Reeling from a maelstrom of economic headwinds, Canadian auto manufacturers are expected to collectively lose $1.7-billion this year, according to a report by the Conference Board of Canada, also published Tuesday. The loss will be the third in as many years.
Moreover, as demand crashes in the United States, where 90% of Canadian automotive production heads to, 2009 is shaping up to be equally as bleak. New vehicle sales are expected to fall to their lowest point since 1992, leading to another loss of more than $1-billion.
The decline in the Canadian dollar will provide little support, the Ottawa-based independent research association said, adding it expects the loonie to recover to US85¢.
"At this level, the dollar dampens prospects for vehicle exporters, who are being forced to contend with competitive headwinds from low-cost foreign suppliers and more competitive U.S. labour settlements."
Another certainty is that the lines of communication between the federal Conservatives and the Canadian Auto Workers union are quiet for the time being.
Industry Minister Tony Clement said on Monday any restructuring effort would require concessions from the union, but has yet to begin in earnest any dialog with CAW officials.
"He's not talked to me. I've sent him a letter asking for a meeting," said Ken Lewenza, CAW president. "He has not followed up in terms of talking to us about what role the labour movement can play. And until I hear from [the Minister], I prefer to continue to do what we've been doing, and that's building cars."
"Big profits! Quick turnovers! Everyone's getting into the act! Live the dream of working for yourself while raking in the cash."
House flipping -- the act of buying, renovating and selling a property for profit -- was a seduction that tempted many during the real-estate market's near decade-long boom that's now sputtering.
Nowhere was that dream more enticing than on television, where networks in Canada, the United States and Europe crafted dozens of entertaining shows making the whole process look just so damn easy.
"How hard can it be to successfully flip a house?" the shows on HGTV, TLC and elsewhere, all seem to say.
As it happens, very hard, says Sam Kamoutsis, a veteran property flipper from Toronto.
"It's not easy," the 42-year-old says. "All these shows rarely show the hard work and knowledge that goes into it. You can't renovate a property in one week."
Mr. Kamoutsis, a former information technology consultant, rode the market between 1998 and 2006, when price wars were the norm across Toronto's red-hot housing sector.
In all, it took eight years to flip eight houses before he exited the market to focus on his real-estate business finding distressed properties for other, mostly commercial, flippers.
With falling home prices and credit more difficult to get, the ranks of speculative flippers are thinning by the day.
"It's becoming more and more difficult now," confirms Mr. Kamoutsis. "Even our regular deals are failing due to financing."
The Canadian housing index fell for a fifth straight month in October due to slumping home sales, Statistics Canada said this week. And last week, the Canadian Real Estate Association (CREA) said that nationally, the average price of a resale home last month suffered its steepest decline in 26 years, down 10% from a year ago, to $281,133.
Hardly the stuff of quick turnovers and big profits.
"We're seeing a lot of the homes that were renovated and are on the market now unfortunately sitting there," Mr. Kamoutsis says.
Not surprisingly, it's precisely at the market's peak that popular interest is highest, says Lawrence Smith, a professor on housing in the University of Toronto's economics department.
The boom in flip-style television programming since 2005, when U. S. network A&E first aired the seminal Flip This House, is a natural extension of this.
"You've got to view them in the context of the cycle," says Prof. Smith. "The programs start coming in the period when the market has been showing great increase for a few years. In that kind of environment, there's nothing really wrong with it in the sense that it's going to work. But it's going to work because of the basic market fundamentals."
Between 2002 and the end of 2007, home prices in Canada soared 78%, to $315,800 from $177,100, according to CREA figures.
Clearly, there was room to flip.
But there's an inevitable time lag that comes when a trend is identified by a network, a series is commissioned and is finally aired.
By the time Canadian shows, such as HGTV's The Big Flip (first aired in October, 2006) launched, there was little growth left in the market, Prof. Smith says.
"Now you're bringing people into the market and enticing them to go buy a house, renovate and think they're going to flip," he says. "And they're going to lose."
Home To Flip, another of the network's four flip-themed programs just debuted in October.
"All these kinds of shows have fueled this sense that flipping houses is a great way to make money," says Anna Gecan, vice-president of content at the lifestyle network. "And up until recently it probably has been."
It was also a great way for the network to rake in viewers. Through 2005 until August, 2007, viewer numbers grew by 40% on the strength of its real estate and renovation programming.
It was at the beginning of this year that numbers began to slip, Ms. Gecan says. Focus groups in March resulted in altering programming "to reflect the changing market."
That means cheaper renovation options explored by its shows, and "loving the home you're in," she says.
As for the future of flipping on HGTV, after two seasons, The Big Flip won't be returning for a third. The other three remain on the bubble.
"I do think we're going to have to look long and hard at whether this is really the right kind of programming for the moment," Ms. Gecan says about renewing the network's other flip-based shows.
The rate of inflation cooled to 2.6% in October as a slowing economy put the brakes on gasoline and other consumer prices, Statistics Canada reported on Friday.
Economists had expected a slowdown from September's clip of 3.4% as the financial crisis moved into the broader economy, however, the drop is sharper than expected, with notable slowing in a variety of core components.
Price declines for vehicles, clothing and computer equipment as well as a slowdown in transportation costs all contributed to an actual fall of 0.5% in consumer prices last month on a seasonally adjusted basis.
Prices at the pumps, however, were the biggest drag on inflation, "easing" to just 13% higher than a year ago, compared with a 27% rise in the cost of gas in September, the federal agency said.
Excluding gasoline, consumer prices rose 2% year-over-year in October. Excluding all energy components in the index, prices advanced 1.8%.
The core inflation rate, which excludes consumer segments subject to erratic price behaviour such as energy and is the metric used by the Bank of Canada to help determine the overnight interest rate, advanced 1.7%, identical to September. On a seasonally adjusted basis, core inflation posted no growth last month.
The lower-than-expected report "gives the all-clear signal to the Bank of Canada to continue cutting rate," said Douglas Porter, deputy chief economist at BMO Capital Markets in a morning commentary.
The Bank of Canada, which has stated it would cut interest rates further to boost the flow of credit, is set to review the key rate, currently at 2.25%, on Dec. 9.
Beyond falling energy prices, the cost of buying or leasing a vehicle fell by 9% for the second straight month. The clothing and footwear component declined 2.8% from a year ago, led by a sharp decline in women's clothing prices, Statscan said.
Food prices continued to exert upward pressure on inflation though, as the average price for groceries was 7.3% more expensive than last October, marking the eighth straight month food prices have gained. Mortgage interest costs also increased.
By province, Manitoba and Saskatchewan were the only two provinces to not report a slowdown. P.E.I. experiencing the biggest decline, to 3.9% from 5.5% in September.
October's results could mark a pivotal point. As the national economy braces for recession and demand for energy abates, some say inflation will continue to fall sharply in the remaining two months of the year.
"Inflation is poised to plunge again next month, as gasoline prices have dropped in the double-digits again this month - probably down about 18% - which alone could take the annual inflation rate well below 2%," said Mr. Porter.
The central bank's targeted inflation rate is 2%.
Some have even warned of a period of deflation in the coming months as developed economies slow rapidly. However, the threat of deflation, or a self-reinforcing period of falling prices combined with limited consumer spending, here in Canada is distant at best, said Avery Shenfield, economist at CIBC World Markets.
"It’s hard to even think about a wage [and] price tumble when average hourly earnings have still been rising at a 4% clip, the employment rate is still close to record highs, and when a weaker [Canadian dollar] promises to offset some of the drop in global prices for goods set in U.S. dollars."
September's record rush for the exits by Canadian mutual fund investors grew to a full-on stampede last month as they pulled more than $8.2-billion of their savings out of volatile financial markets, preliminary data showed Tuesday.
Net redemptions from mutual funds for October are estimated to total between $8.2-billion to $8.7-billion, the Investment Funds Institute of Canada said, far exceeding the $4.5-billion redeemed in September.
IFIC estimated that net assets across the mutual fund industry fell 10% to $633.6-billion.
The news Tuesday came just hours after new data from mutual fund research firm Morningstar Canada showed virtually every mutual-fund category suffered sharp declines of 10% or more in October.
"These are some of the ugliest numbers," said Philip Lee, a fund analyst for Morningstar, who said most fund categories suffered their worst drops since the Russian financial crisis in 1998 and market crash of 1987.
"Some of the funds could have been uglier if we didn't get that big currency move."
All but four of 43 fund indexes -- a basket of mutual funds within one category such as U.S. equity or real estate-based funds, for example -- tracked by Morningstar suffered losses, as markets tumbled and credit circulation "came to a grinding halt," Morningstar said in a report measuring the change in funds' net asset values per share.
Twenty fund categories in all declined more than 10% over the 31-day period.
Indeed, a rally to the U.S. greenback followed by some respite on American equity markets in the last four trading sessions of the month staved off even deeper declines in some categories, Mr. Lee said.
The historic run-up in the interbank lending rate, or Libor, through the first half of October exacerbated investor anxiety, Mr. Lee said, triggering massive sell-offs among mutual funds. "Credit essentially came to a grinding halt in the middle of the month," he said.
Indexes that tracked financial funds - once the definition of stability in equities - as well as other blue chip stocks absorbed declines between 13-18%, Morningstar's data showed. The domestic financial services index fell 15.1% led by an almost identical fall in the category's biggest fund, the iShares CDN Financial Sector Index.
Precious metals and other commodity-laden fund indexes witnessed declines of 30% or more in October as investors fretted that demand in energy and base materials was evaporating. "[The declines] certainly didn't play out well for the Canadian equity market, which is heavily influenced by energy and materials stocks," Mr. Lee said.
Not surprisingly, the four fund indices that did not lose ground were global fixed-income, which actually earned 4.5% "primarily on currency moves" in the month, Mr. Lee said; Canadian short-term fixed-income, advancing 0.6%; and Canadian and U.S. money market funds, with almost negligible returns of 0.04% and 0.02%, respectively.
The 12.9% rise in the greenback against the Canadian dollar in October benefited "any fund that owned a U.S. bond," Mr. Lee said. "You're getting that currency kick."
If necessity is the mother of invention, regulation must surely be its unwanted sibling.
It was mid-September in a small boardroom on Bay Street when the thought occurred. Oscar Jofre (pictured, above),the 43-year-old chief executive of BoardSuite, had just run down a laundry list of requirements that new legislation introduced last spring had imposed on business.
In June, Bill C-25, a federally-mandated expansion of The Proceeds of Crime, Money Laundering and Terrorist Act, came into force, requiring banks to collect information on virtually every stakeholder, financial interest and transaction for every incorporated account holder.
"That touches six and a half million commercial accounts currently open with all major banks in Canada," Mr. Jofre said. "It doesn't matter if it's private or not-for-profit; every single one of these entities will have to adhere to the new banking laws."
The expansion was built on rules erected in the wake of the Sept. 11, terrorist attacks in the United States, as well as the accounting scandals of Enron in the United States and Nortel Networks Corp., to keep tabs on illicit bookkeeping.
It has become the latest regulatory cross all businesses big and small must bear.
That was in mid-September, when the towers a few blocks south were just beginning to feel the bite from the biggest failure in regulation in living memory. What will the fallout be from the current financial crisis? Even more rules, said Mr. Jofre, whose firm, BoardSuite (www.boardsuite.ca) aims to make corporate record-keeping more transparent and cheaper than ever before.
Through an easily navigable Web site, the firm has streamlined that process from the smallest tasks like tracking events on a calendar and maintaining the minute book, to mandatory obligations such as insurance reapplications and annual return filings.
Some company data must still be manually inputted into the system; however, once it's there, it stays on the record.
Concerned about complying with Bill C-25 at the risk of having an account frozen? "[BoardSuite] has all the data organized and sent to the bank rep without encumbering your business operations," said Dean Peloso, a former Toronto Stock Exchange regulator. "It's the institutional repository for all this information.
"All the elements you normally rely on your professionals to tell you to do, it's now telling you," said the 50-year-old career regulator who helped design Sedar, the electronic filing system for Canadian public companies.
Mr. Peloso's involvement with BoardSuite, where he's a director, is a testament to the rigorous planning that went into the product early on, Mr. Jofre said.
It was in 2003 when Mr. Jofre, an entrepreneur from Edmonton, learned his lesson in the regulatory pitfalls small businesses can stumble into.
A routine offering memorandum transferring assets from his company to another filed with the Alberta Securities Commission failed to disclose a bankruptcy of one of its officers.
The commission returned the filing and fined each director and Mr. Jofre $3,500, he said. "It was in the minute book, the shareholders knew ... that wasn't the issue. Guess what the issue was -- one little line in the first page ... indicated no director or officer had filed for bankruptcy in the last 10 years. "The lawyer's backing away saying, 'It's not my responsibility,' but yet he's got the book. At the end of the day, I have to know exactly what I'm signing," he said. "The only way you can do that is by having access to information. That's the reason Board-Suite got started."
Of course, having the information on an encrypted Web site is another caveat of the service.
It's accessible around the clock anywhere there's an Internet connection. But perhaps best of all, BoardSuite is absolutely free. At least, it is to the company using it.
Through partnering with major service providers such as Aon Corp., the largest insurance broker in the world, BoardSuite can offer itself for free to clients. It generates income through service fees from Aon and other partners every time a company uses a partner's service.
Not that clients are compelled to use BoardSuite's sponsors, Mr. Peloso said, but "we think they will. It's easier, it's going to save them [time] and money and it's going to be that much more convenient."
"By helping your organization, we help the partners and everybody wins," Mr. Jofre said. Since mid-September, the financial crisis has deepened with the possibility of a recession looming. The talk of increased regulation has begun in earnest.
While it may be good news for BoardSuite, it likely means more red tape for businesses of all sizes.
"This will only impose more regulations," Mr. Peloso said. "Just like last time, the really big mistakes are made by the really big corporations, but the rules are made for all. The small guys end up having to live with the new rules. So you have to organize yourself better."
The carnage across global stock markets continued into the second week of October. A bottom is at hand, some say, but then again, we've been saying this for awhile
By Jamie Sturgeon, Financial Post | 10. 10. 2008
Toronto stocks slipped below 9,000 Friday afternoon as North American markets continued their week-long freefall despite a pledge from the Department of Finance in Canada of more capital injections and an address from U.S. President George W. Bush intended to calm markets.
At 2 p.m. EST, Toronto's S&P/TSX composite index was down 743.1 points at 8,863.1, virtually erasing the gains of the previous four years. Canadian stocks were last closed below 9,000 in December, 2004.
U.S. stocks also declined steeply on Friday. The Dow Jones industrial average had lost more than 7% by early afternoon after having sunk as low as 8% earlier. The benchmark Standard & Poor's 500 Index had fallen by 7.4%.
"Fear is essentially gripping the market today," said Benjamin Reitzes, economist at BMO Nesbitt Burns in an interview. "That has not gone away."
Stocks in Toronto were down despite the Ministry of Finance's pledge to buy up to $25-billion worth of assets from banks in an effort to increase liquidity in the Canadian financial system.
Jim Flaherty, the Finance Minister, said the government would begin buying assets as early as next week to keep the flow of credit to consumers from tightening further.
The declines follow a deep sell-off across world markets on Friday.
In London, the FTSE 100 index of top European shares shed nearly 9% earlier to hit its lowest level since June, 2003. The Dow Jones Stoxx 600 index tumbled to its worst week on record at the end European trading on Friday.
Japan's Nikkei plunged 9.6% as Japanese stocks ended the week 24% lower -- the steepest decline since records began in 1949.
"I would say that this is the day that's the transcending moment, where there's been no negative news -- you could even make a case that there's positive news," said Paul Gardner, portfolio manager at Toronto-based Avenue Investment Management. "This is what you call despondency and capitulation."
Investors are looking to the weekend's meeting of leaders from the Group of Seven major industrial nations in Washington for the latest attempt to salvage confidence in global markets.
Coordinated interest rate cuts by the Federal Reserve and other major central banks this week failed to relieve investor fears that the freeze in credit markets will damage banks further and provoke a deep recession around the world.
"It's a proper strategy," said Mr. Gardner in Toronto. "But no one's listening."
"Essentially we're flying blind. No one has a clue what's going on," DZ Bank currency strategist Sonja Marten said. "The uncertainty is too great and volatility is incredible. It's a question of market confidence and somehow we're going to have to get it back."
U.S. President George W. Bush said on Friday the government would move aggressively to address the financial markets crisis, but he acknowledged that anxiety was feeding on itself which was sending stocks plummeting.
"The United States government is acting; we will continue to act to resolve this crisis and restore stability to our markets," Mr. Bush said in the White House Rose Garden. "We can solve this crisis and we will."
He also said the Treasury Department would work quickly to implement the US$700-billion financial sector rescue plan approved a week ago and that the Securities and Exchange Commission was stepping up its efforts to fight manipulation in the stock market.
The U.S. Treasury plans to start injecting capital into U.S. banks as soon as this month, according to a financial policy source familiar with Treasury Secretary Henry Paulson's thinking.
"You have to say we're at capitulation and despondency ... which technically, you're supposed to buy [into] aggressively," said Mr. Gardner in Toronto. "We're at the conditions for a bottom."
Unprecedented uncertainty in capital markets has wilted all demand for initial public offerings in North America.
In Canada, not a single IPO was launched on the Toronto Stock Exchange in the third quarter, marking the first quarter in at least a decade that Canada's largest equities market failed to attract a new listing, according to a report from PricewaterhouseCoopers.
"Over the years we've been doing this, I don't think there's ever been a quarter or six-month period with zero," Ross Sinclair, partner and national leader for PwC's IPO and income trust services, said yesterday.
Indeed, the previous low for new TSX offerings was in the third quarter of 2007, when four issues raised $254-million.
For the year, there has been a total of 53 offerings launched across all Canadian exchanges, raising $680-million, marking the slowest pace of new offerings since PwC began tracking Canadian IPOs in 1998.
In contrast, 63 offerings were made through the first three-quarters of 2007, totalling $1.2-billion. Two years ago, 95 new issues valued at $4.7-billion were brought to market through the first three quarters.
"You're looking at a market that used to generate five or six billion dollars to now hundreds of millions -- it's down to a trickle," Mr. Sinclair said. "There's nothing happening."
Activity for the three months ending Sept. 30 would be at a virtual standstill if not for the 14 new issues on Toronto's Venture Exchange, which raised $66-million.
The downtrend partly follows a long-term slowing in IPOs dating back to late 2006. It was then that new federal taxation curtailed the explosion of income trusts -- a significant driver of new issues at the time.
Yet the "worsening environment" in capital markets through the year culminating in September has dried up demand wholesale, Mr. Sinclair said.
"A market is a meeting point for a willing buyer and a willing seller, and until some degree of stability returns, and we regain some certainty and predictability, we won't have a market," he said.
Moreover, given unfolding events, "there's not much hope for much IPO activity throughout the rest of 2008."
The bleak assessment extends south of the border.
Not a single American company attempted a public offering in September, according to an IPO tracking service, Hoover's Inc.
It's indicative of the constricted position the remaining underwriters on Wall Street are in as investment banks typically contribute their own capital to a client's public offering, said Tim Walker, IPO research manager at Austin, Tex.-based Hoover's.
"There's no stability in the market," he said.
According to Hoover's data, a mere five IPOs were launched across all American exchanges in the third quarter, raising US$917-million. A year earlier, there were 38 offerings valued at more than 10 times that.
The results bring the amount of new issues in the U. S. for the year to 30 companies, compared with 134 through the first three quarters last year, and 133 in 2006.
Total proceeds from this year's U. S. IPOs are US$24-billion. A "low" figure, Mr. Walker said, but even more disconcerting when one considers that US$18-billion or 75% of that stems from the IPO of Visa in March.
"That's what tells you how abysmal this IPO market is."
A news bite from the FP Posted, the running blog on the Financial Post Web site. I found the item particularly interesting because up until then, no one had really address how all those bad assets would be valued (Left, Bill Gross, fund manager of massive Calif.-based Pimco):
By J. Sturgeon, FP, 09.25.2008
One of the more contentious issues delaying the passage of the U.S. Treasury Department's colossal US$700-billion bailout package is that no one in Washington is quite sure how much a distressed asset is worth, nor how to go about ascribing a value either.
Given the 'depths of the crisis,' stamping a value on the sour debt-backed securities and other distressed investments held by financial institutions across the United States is paramount in moving the assets onto the government's balance sheet.
But at what cost, and to whom? Paying the same firms that helped create the crisis to now measure their own carnage is not an option.
Enter William Gross, the manager of the largest bond mutual fund in the U.S., who has offered to sort through the toxic assets — for free.
“We have a large and brilliant staff that can analyze and has analyzed subprime mortgages that can help the Treasury out,” Mr. Gross, the co-chief investment officer for the Pacific Investment Management Company, said in an interview with the New York Times on Wednesday.
He added: “And I’d even be willing to say that if the Treasury wanted to use our help, it would come, you know, free and clear.”
There is a sense that a private-sector appointment for the job will create an inescapable conflict of interest, particularly in the case of Mr. Gross, who has considerable influence in the bond market.
Yet with the current liquidity crisis touching virtually every sector, any firm in a position to advise the Treasury on its rescue plan would have potential conflicts of interest, Mr. Gross, who's funds began moving heavily into government bonds at the onset of the crisis last summer, told the Times.
“There’s fewer of them here than anywhere else,” he said. “Simply because we saw the crisis coming and we don’t have much of this paper.”
The bear awoke on the Canadian market yesterday as tumbling share prices lopped 2.9% off the main stock index in Toronto.
Led by heavy losses in financial stocks still reeling from the unprecedented developments on Wall Street this week, Canadian shares finished the day in official bear territory -- defined as a retrenchment of 20% or more off the last high. That was back on June 6, when soaring commodity prices propelled the S&P/TSX composite index to 15,154 points.
Since then, markets have been rocked by the loss of confidence in American banks, taking Canadian financial stocks along to finally break the bull market's back. Sun Life Financial Inc. (SLF/TSX), for example, fell to its lowest level in four years after admitting it will take a charge on its exposure to American International Group Inc. (AIG/NYSE).
Technology stocks also suffered as Nortel Networks Corp. (NT/TSX) cut its third quarter outlook due to an "expanding economic downturn." The prognosis prompted the beleaguered telecom equipment maker's shares to fall to their lowest level in a quarter century.
At the end of the carnage, the index stood at 11,877, bringing the weekly loss to more than 7% and the decline since the beginning of the month to more than 13%.
"The party probably went on a little bit too long and the TSX is going to be feeling a little bit of a hangover," Phil Flynn, senior trader at Chicago-based Alaron Trading Corp. said yesterday.
"It was one hell of a party though."
The plunge placed Canada alongside 23 other developed countries which have suffered a 20% bear market retreat this year, according to Bloomberg News.
The prospect of a sustained period of downward selling that typifies a traditional bear market holds negative implications for the broader economy, said Douglas Porter, deputy chief economist of BMO Capital Markets yesterday.
"The risk now is that with the market dropping ... it can act as a serious dampener on business confidence in this country as consumers and businesses respond to the financial turmoil."
Yet there is hope.
"It's not a normal bear market caused by normal things like earnings going down because there's a recession, or interest rates are going up so people are selling stocks so they can move money into bonds," said David Baskin, president of Toronto-based Baskin Financial.
"This is a particular situation caused by the financial abuses in the system that had to be cleaned out."
The unwinding of the financial crisis in the U. S. has shifted undue blame on Canadian banks, Mr. Baskin said.
As well, Canadian banks and insurance firms have largely avoided the financial maelstrom in the U. S., he said, and the group is on sound footing compared to its American counterparts.
Yet, with so much investor uncertainty on both sides of the border, Canadian banks alone won't be prompting a rally in stocks in the near future, Mr. Porter said.
"It would take a very brave person to say the coast is clear on that front. Sentiment will largely be driven by events south of the border."
The Toronto Stock Exchange roared well over 600 points on Friday as news broke that the United States federal government is orchestrating a massive plan to take on toxic assets that have wreaked havoc on the global financial system this year.
Led by a strong rebound in financial stocks, the S&P/TSX composite index had climbed 641 points or 5.5% higher to 12,708.8 by early afternoon. The Dow Jones industrial average moved more than 325 points higher to 11,347.1, while the S&P 500 was 54 points or 4.5% higher at 1,261.
"The triple-header of a proposed ... fund to buy distressed debt, a temporary ban on short sales, and a guaranty program for money market mutual funds sent all markets into a stunning U-turn," said Douglas Porter, deputy chief economist at BMO Capital Markets in an afternoon research note.
In Toronto, battered financials led the remarkable rise, as Toronto-Dominion Bank (TD/TSX) rose $4.12 or more than 7% to to $63.38 by the early afternoon. Canadian Imperial Bank of Commerce (CM/TSX) was also sharply higher, rising almost $2.82 or 4.7% to $62.50. Royal Bank shares (RY/TSX) were up $1.81 or 3.7% to $49.77, while Bank of Nova Scotia (BNS/TSX) was $2.37 or 5% higher at $49.74.
"We were overdue for a rally [but] I don't know if this is necessarily the beginning of the recovery," said John Zechner, chairman of Toronto-based money manager J. Zechner Associates Inc in an interview. "I think its going to be shaky going forward but the market was oversold on the downside.
"You needed some event to get it turned around."
Gold stocks were also lifted by the broad rise even as futures slide to their lowest level in 28 years in New York as investors poured back into equities.
Goldcorp (G/TSX) saw its shares rise by $2.21 or 7.2% to $32.65, while Barrick Gold Corp. (ABX/TSX) was up by $2.90 or 8.9% to $35.40.
No sub-indices were left behind, as other commodity stocks also soared. Potash Corp. (POT/TSX) rose by $18.50 or 11% to $185.40, while metals miner Teck Cominco Ltd. (TCK.B/TSX) rose $1.90 or 5.3% to $37.83.
Technology stock were sharply higher as well. BCE Inc. (BCE/TSX) soared over 8% to $37.45 as Scotia Capital upgraded the telecommunication giant's stock as it nears going private. Research in Motion Ltd. rose $12.50 or 13% to $109.03 as well.
Nortel gained back 18 cents a share or 6.2% to $3.08 after losing over 50% of its value just days earlier in what has been one of the most volatile weeks for stocks in memory.
The price of crude rose above US$100 a barrel on Friday as well, lifting energy giant Encana Corp. more than $2.33 or 3.3% to $74.11 in early afternoon trading. Suncor Energy Inc. (SU/TSX) was up more than $4.22 or 9.2% to $49.74.
The surge on North American exchanges follows huge gains in Asia and Europe as Markets gave a resounding endorsement to the U.S. government's actions.
U.S. Treasury Secretary Henry Paulson announced plans on Friday morning to hammer out a bipartisan legislative package by the end of the weekend that will allow the U.S. federal government to purchase asset-back securities from beleaguered banks that are at risk of failing.
Congress will likely vote on a bill sometime next week, Mr. Paulson said in speech in Washington, D.C.
Both the London FTSE 100 and French CAC 40 surged more than 8%. In Asia, the Nikkei 225 rose sharply, as did the Hang Seng index in Hong Kong.
"We may retest the lows again but this reminds me a lot of where we were in January," Mr. Zechner said. "There may be more bad news ahead, but I think the market was just overly pessimistic."
Still, there are "no iron-clad guarantees that this puts an end to the financial crisis," BMO's Mr. Porter said. "After all, there have been many false dawns before in the past year."
Ontario, Saskatchewan help Canada create 15,000 jobs
By Jamie Sturgeon, Financial Post | 09. 05. 2008 (see article)
Two provinces helped the Canadian labour market add 15,000 new jobs in August and gain back some ground from July's steep decline, Statistics Canada said on Friday.
Saskatchewan and Ontario both added jobs in the month and partially offset losses in Nova Scotia and Manitoba, while "employment was virtually unchanged in the other provinces," the federal agency said.
The unemployment rate remained unchanged as well, at 6.1%.
The uptick was higher than many economists had forecast. Most called for a net addition of about 10,000 jobs in August after a decline of 55,000 jobs in July -- the sharpest one-month fall since February 1991.
"While not exactly a picture of robust health, the decent August job gain helps to relieve some of the sting from July's big drop," said BMO economist Doug Porter in a morning commentary.
It didn't lessen the sting of another plunge in employment in the United States, however.
The news comes as nonfarm payroll figures in the U.S. revealed that the world's largest economy shed 84,000 jobs last month.
"These results do not take away from the fact that Canada's labour market is cooling, but it certainly is not deteriorating at nearly the pace the U.S. job market is softening," Mr. Porter said.
Job gains at home in August, which could play into fall federal election campaigns, were led by a broad range of sectors.
"In August, employment increased in educational services, construction, utilities, and accommodation and food services," StatsCan said. "These gains were partially offset by decreases in health care and social assistance, agriculture and public administration."
Manufacturing managed a modest recovery in August, picking up 13,800 additional jobs across the country. The education and construction sectors had the biggest pop in new jobs, however. About 30,000 jobs were added in education.
The construction labour market grew by 7.4% or 19,000 jobs, "continuing the strength seen over the past few years," StatsCan said. Most increases took place in Ontario, British Columbia and Alberta.
The higher-than-expected job growth provided some evidence that July's plunge was an "overstatement" of weakness in the economy, according to Paul Ferley, assistant chief economist with RBC Economics.
"It also reinforces the Bank of Canada's contention ... that though the domestic economy has slowed it still remains strong," he said in a note to clients.
The central bank held its benchmark interest rate at 3% this week after stating Canada's economy was in better shape than most for the time being.
With the looming possibility of a federal election this fall that could hinge on the state of the economy, August's employment figures "took on a bit more importance," Mr. Porter said. "But the main theme is that it is a bit better than expected."
Following two months of heavy losses Ontario, a critical electoral battle ground, saw net-job additions jump by 14,000.
Still, increases in construction and several service industries were dampened by the year-long decline in manufacturing in the province, StatsCan said.
Saskatchewan added 6,000 jobs in the month, mainly in mining, oil-and-gas production and construction.
While Quebec's employment was little changed in the month, Canada's second-most populous province saw unemployment increase to 7.7% as more people entered the labour force looking for work, StatsCan said.
On the downside, the agricultural labour market retracted by almost 18,000 jobs, while health care and social assistance saw more than 21,000 jobs disappear.
Both Nova Scotia and Manitoba shed about 4,000 jobs in August.
In total, employment has increased by just 0.5% or 87,000 new jobs this year compared with the 1.3% or 221,000 jobs added through the first eight months of 2007.
"We take one-month numbers with a grain of salt given the huge standard error associated with a survey of this size," said Avery Shenfeld, economist with CIBC World Markets.
The scale of the rebound could be due to a statistical overestimate of the decline in July the CIBC economist said, given that each monthly result is only accurate to within 55,000, 19 times in 20.
"The broader picture is that Canadian employment gains since the start of the year have been soft," Mr. Shenfield said.
A Toronto Stock Exchange market wrap from Aug. 16, when gold and other resource stocks plunged in tandem with worldwide commodity prices.
By Jamie Sturgeon, Financial Post
While gold remained the medal of choice at the Beijing Games yesterday, investors poured out of the precious metal, leading it to its biggest weekly decline in a quarter-century and contributing to another sell-off of the S&P/ TSX composite index.
As investors continued to rally to the U. S. dollar on concerns that worldwide economic activity is ebbing, gold for August delivery ended the day at US$786.00 an ounce, down US$22.20, or 2.7% for the session. The five-day loss of 8.3% is the worst one-week drop in the commodity since Feb. 25, 1983.
In lockstep with the commodity's decline, Barrick Gold Corp. fell $1.71, or 4.8%, to $33.94 while Goldcorp Inc. slid $1.77, or 5.4%, as the S&P/TSX gold subindex fell 4.8%.
The exodus from gold and other resource stocks plunged the main index to its lowest level since March. The S&P/TSX composite fell 262.21 points, or 2%, to close at 13,096.70.
"Gold got bid up because people were moving out of the U. S. dollar and as they're beginning to move back in, they're taking their money out of commodities, and gold specifically," said Keith Summers, chief investment officer for Toronto-based Stonegate Private Counsel LP.
The U. S. greenback continued to rise against pretty much every global currency and its 11-day winning streak against the British pound is the first time that has happened in at least 37 years, according to Bloomberg News. The greenback has gained 6% against the Canadian dollar since July 18.
Negative economic data concerning economies across the globe have begun to surface, while conditions in the United States may be reaching a bottom, said John Stephenson, senior vice-president at First Asset Investment Management.
"People are saying that things aren't so bad -- the U. S. is improving," Mr. Stephenson said. "The world is weak overall but the U. S. was the first to start turning down economically and it will be the first to start turning up."
The big pop in the greenback sparked steep declines in other commodity prices as well. Silver performed the worst yesterday, falling 10% to US$12.84, bringing its loss over the past month to 33%.
The slump in commodity prices took its toll on Canadian resource equities, as both energy and material stocks were hammered. Oil giant En-Cana Corp. fell $3.06, or 4.2%, to $70.04 a share as the energy sector fell to its lowest level since early April.
The broad materials sector, where mining and metals stocks reside, has now lost a quarter of its value since the beginning of July.
"The whole commodity play is over right now," said port-folio manager Terry Shaunessy, of Calgary-based Shaunessy Investment Counsel.
That includes oil, which slipped below US$113 a barrel yesterday in New York trading. Crude prices are set for a retreat to between US$75 to US$80 a barrel as global demand slows and speculator dollars flow from the commodity, Mr. Shaunessy said.
"It's a broad change of sentiment that commodities aren't a one-way ticket up," Stonegate's Mr. Summers said. "They hit a peak and they started to retreat and as more and more investors who got into commodities start to see that you could actually lose money buying these things, they've pushed prices down even further. This is probably a longer-term thing."
Telecom and beer. Those are my only two areas of interest if anyone reading this thing doesn't glance beyond the last four posts.
Suffice to say, that's not true -- I've got a small business feature on a Toronto-based cigar company being published on Monday.
The following is after Molson Coors Brewing Co. wiped our beloved Canadian brands off their books on Aug. 6.
Jamie Sturgeon, Financial Post
Molson beer, once described as the one symbol of iconic Canadiana that the nation "could arguably slap a label on and sell around the globe," was further reduced to a footnote in the worldwide beer market yesterday after Molson Coors Brewing Co. wrote off the entire brand value of Molson in the United States.
Molson Coors Brewing Co. reported a US$51-million second-quarter charge as the beer brands' value was erased from the books after a prolonged period of declining sales combined with soaring freight and packaging costs, the company said.
The move is an accounting measure and does not have any direct impact on current operations for Molson brands, including Canadian, Canadian Light, Export and Golden, in the United States, according to company spokesman Paul De Laplante. But it is perhaps a symbolic one.
"The Molson brands in the United States are not as strong as they once were," said Edward Jones analyst Brian Yarbrough yesterday.
Molson paired with Denver-based Coors in 2005, after a series of missteps abroad. It was seen at the time as the loss of a Canadian icon, but many still speculated the U. S. parent could now grow the brand south of the border.
It hasn't.
Since the merger, U. S. sales of Molson brands have deteriorated to well under 10% of the combined company's U. S. portfolio.
"The brands have really been faltering," said Eric Shepard, the executive editor of U. S. industry publication, Beer Marketer's Insight. "It's one of the very few weak links, and certainly the performance of the Molson brands in the U. S. have just not done well."
By-the-barrel sales volume of Molson brands was 600,000 in 2007, according to Mr. Shepard, off from 825,000 in 2002. A steep decline from Molson's heyday in the mid-1990s when the then-independent brewer sold upward of 1.9 million barrels annually in the world's biggest beer market.
In comparison, Labatt, now owned by Belgium-based brewer InBev, has sold 1.6 barrels under its Blue and Blue Light brands in each of the past two years. Labatt "hasn't been able to grow but it has been able to hold volume," Mr. Shepard said.
"I guess [Molson Coors] felt it was time to alter the value of the brands."
The company reported a decline in second-quarter profit of 56% related to the brand writedown as well as another US$52-million in charges related to its MillersCoors venture.
Overall, Molson Coors' net sales rose 4.8% to US$1.76-billion, as the company sold 11.6 million barrels of beer, a 0.9% increase.
In 2002, Molson tepidly made a last-gasp attempt to join the global game and preserve its independence by buying Brazil's Cervejarias Kaiser. But "it didn't dare to introduce its own trademark brand into the world's fourth-largest beer market," wrote journalist Andrea Man-del-Campbell in 2007's "Why Mexican's Don't Drink Molson.'' Now it seems it's in retreat in the world's biggest.
"It's the one symbol of iconic Canadiana we could arguably slap a label on and sell around the globe," she wrote then.
Another newser from the iPhone launch. Jamie Sturgeon, Financial Post
TORONTO - Rogers Wireless Inc. literally rolled out the red carpet for the next-generation iPhone 3G yesterday, as Apple Inc.'s latest wonder device was launched in Canada as well as more than 20 other countries around the world.
In Toronto, a throng of about 200 customers -- dozens of whom had been camped there since Thursday evening -- wrapped itself around the corner at a downtown Rogers outlet as new and old subscribers jostled to be the first in this city to get their hands on the coveted piece of technological and marketing wizardry.
Surrounded by media, Jordon Brown, a 16-year-old high school student, stood first on the red carpet laid before the store's entrance.
"I've been waiting for this phone for a long time now," said Mr. Brown, who had been at the store near Yonge and Dundas Square since 4 p. m. Thursday. "Standing outside for one day is nothing." Such was the case at storefronts of cellphone outlets across the country yesterday, where supplies of the wireless phone and media player were easily outstripped by demand.
By mid-morning heavily-stocked Rogers Plus stores in Halifax and Ottawa had run out. The two Rogers Plus outlets in Montreal soon followed suit.
"It's definitely going to sell out across the country -- and we had a lot of inventory," John Boynton, Rogers chief marketing officer, said shortly after the doors opened in Toronto.
Rogers said it girded more than 1,000 retail outlets and authorized dealers with supplies of the 3G, which boasts between three and five times faster Internet service as well as access to new, third-party software applications.
However, some stores, such as Rogers Video Plus in Aurora, Ont., 45 minutes north of Toronto, had but half a dozen for sale.
"People were arriving and were told there was only six," said Web developer Brandon Hill, 32, who was third in a line of about 15 people. "When I got in there, someone said there was eight, but as far as I know there was just six."
Unsatisfied demand wasn't the only problem to plague the telecom and wireless giant yesterday. The crush of new subscribers temporarily crashed Rogers' system in the morning and resulted in slower activation service in some areas throughout the day.
Rogers, Apple's only authorized provider in Canada, wouldn't say how many 3Gs, which retail for $199 for an 8-gigabyte model or $299 for 16GB, had been delivered to it. Worldwide, though, the Cupertino, Calif.-based company projects sales to exceed 10 million by the end of the year.
An RBC Capital Markets report yesterday said initially short inventory as well as some consumer backlash from higher-than-expected plan prices could be a concern.
"Limited stock may frustrate buyers," RBC analyst Mike Abramsky wrote in a note to clients, but added, "carriers, not Apple, are likely to face ire on service plans or activation."
Newser from July 30, on Rogers. Your basic earnings story; profits were up but market sentiment was down on lower-than-expected sales figures in the telecom giant's wireless division.
By Jamie Sturgeon, Financial Post
A double-digit rise in second-quarter revenue reported by Rogers Communications Inc. yesterday did little to dispel the perception the telecom giant faces a difficult road ahead.
Total revenue for Toronto-based Rogers climbed 11% to $2.8-billion from $2.5-billion in the year-earlier quarter. The company posted a profit of $301-million, or 47¢ a share, in the three months ended June 30, compared with a loss of $56-million (9¢) in the year-earlier quarter.
The company gained 92,000 new subscribers to its all-important wireless business in the quarter, while average revenue per user (ARPU) rose 4% to $75.48 a month.
Yet both figures were below market expectations, sending Rogers shares down almost 7% to $34.96 on the Toronto Stock Exchange.
"The market is reacting pretty negatively," said UBS analyst Jeffrey Fan. "The results were a bit mixed. The financial results were in line or slightly better than what we were expecting, but the subscriber results were not."
Rogers' stock price has slid more than 16% this year, due to the looming spectre of squeezed margins, due to increased competition from existing and launching wireless rivals.
"Things are getting tougher," said analyst Davi Ghose of Genuity Capital. New plans and marketing strategies from rivals such as Telus Corp., Bell Mobility and Virgin Mobile "clearly took some market share" in the quarter.
The loss of subscribers could be a taste of what is to come for Rogers, Mr. Ghose said, as a pair of new rivals in Shaw Communications Inc. and Globalive Communications Corp. are ready to hit the national market after winning a fair share of licenses in Ottawa's recently concluded wireless spectrum auction.
"The competitive pressure is only going to get worse over the next 18 months," Mr. Ghose said.
Adding to the market's concerns was a lack of raised revenue estimates for the third-quarter yesterday, despite Rogers' exclusive launch of Apple Inc.'s vaunted iPhone 3G on July 11, according to UBS's Mr. Fan.
"They talked about some of the costs, but they didn't raise their subscriber estimates or their revenue estimates," Mr. Fan said. Yet he added that it is likely too early to estimate sales going forward, and expected to see "the iPhone have a pretty meaningful impact" next quarter.
In its other businesses, Rogers added 41,000 new home-phone customers, as well as 23,000 digital cable subscribers. Internet customers grew by just 13,000, hit in part by sluggish economic conditions, the company said.
Still, even as the market reacted unfavourably to the results yesterday, colourful chief executive and company founder Ted Rogers rebuked doubters.
"Whether it's radio, cable or wireless, Rogers has seen the number of competitors ebb and flow over the years," he said in a conference call. "We've not only survived, but thrived. We will continue to do so. That is the DNA of Rogers."
Newser from July 9's Financial Post on Apple's provider in Canada, Rogers Wireless, introducing a new price plan on data usage.
By Jamie Sturgeon
TORONTO -- Rogers Wireless Inc. caved to consumer pressure yesterday, temporarily slashing data fees on its smartphone plans just ahead of the carrier's launch of the vaunted iPhone 3G in Canada tomorrow.
"This is in direct response [to] what we heard from our customers," said Rogers spokeswoman Liz Hamilton yesterday. "They said they needed more data."
Customers who sign up for the new iPhone between July 11, when the device goes on sale, and the end of August will pay just $30 a month for access to six gigabytes of data usage. That's down significantly from the company's original 6-GB plan of $100 a month.
"I'm not surprised they came out with something that is a little more in line with consumer expectations," said new media strategist Alan Sawyer of Toronto-based Two Solitudes Consultants. "Consumers looked at the pricing for the iPhone in other markets and were clearly not satisfied with what Rogers was offering."
Still, the move has not completely satisfied some.
"It's an improvement, but it's still outrageously priced," said Robert Sheinbein, cofounder of consumer activist Web site ruinediphone.com.The Toronto-based Web developer said the site had received hundreds of e-mail messages from consumers yesterday in response to the price cut.
By noon, it posted a response: "Thank you Rogers for helping out. We still need more help. We need your offer to be (1) unlimited data, (2) not a limited time offer and (3) competitive rates on existing voice plans," the Web site said.
Other international wireless companies such as Verizon and AT&T in the United States offer the iPhone without any contract at all alongside near-unlimited voice and data usage, Mr. Sheinbein said.
"Why can you get a Verizon phone and talk throughout Canada and the United States without roaming or long-distance [charges] but you can't get a plan in Canada?"
There are many who share the sentiment. Mr. Sheinbein's Web site has collected more than 56,000 names on a petition it plans to present to Rogers in Toronto tomorrow.
Yet the 6-GB plan would enable a customer to send and receive more than 157,000 e-mails a month, or visit more than 35,000 Web pages, according to figures provided by Rogers.
Users can now use the iPhone the way it was intended, said Amit Kaminer, a consultant with Montreal-based Sea-Board Group, adding the promotional rate is "well within each customer's comfort zone."
However, buyers will still be required to sign a three-year contract with Rogers, and the new offer would be in addition to any voice plan a wireless customer subscribes to.
The promotional offer also extends to any Rogers customer who signs up for a next-generation smartphone, such as the forthcoming Black-Berry Bold.
The much-anticipated device goes on sale tomorrow at select Rogers Plus stores in Toronto, Montreal, Ottawa, Halifax, Calgary and Vancouver. Potential subscribers will have until Aug. 31 to take advantage of the offer.
Once it expires, the "jury is out" on whether or not consumers will begin to clamour for better rates again, Mr. Kaminer added.
As Andrew Oland sits back with his family tomorrow and basks in the adulation that fathers have earned over the year, his job running the family business, Moosehead Breweries Ltd., will be far from his mind.
"I think the nice thing about my family life over the last couple of years has been the clear separation of business and family," he says. "Father talks to me about business at work," he says, referring to chairman and owner, Derek Oland. "I never have to worry about going over there for Sunday dinner or something and hearing, 'Geez, your numbers were crappy last week,' which can create a lot of issues. You could imagine how my spouse might feel if every family engagement was a Moosehead board meeting."
Andrew, 40, became the president of the New Brunswick brewery in April, the sixth generation to take the helm of the company that Susannah Oland started in Halifax in 1867.
Despite ups and downs in the fortunes of the 140-year-old business, including its near-obliteration in the 1917 Halifax explosion, the company has steadily grown under the family's direction into a popular national brand.
Yet, in the pantheon of great Canadian family businesses, Moosehead is a rarity. The incompetence and infighting that has undone so many prosperous companies once the patriarch is no longer in control has missed Moosehead.
Smarts and a passion for the beer business -- not nepotism-- have pushed Mr. Oland, a Harvard MBA graduate who started out as a foreman in the bottle shop, to the top of his family firm.
"If people feel that a family member is going to come right in, it makes it difficult to attract and retain top-quality management," Mr. Oland says.
The story of the Olands stands in stark contrast to some of the most prominent family firms in Canada that have disappeared because of bad leadership or family squabbling.
The Eatons are one example. The grocery fortunes of the Steinberg and Wolfe families have also been lost to either ineptitude or infighting, according to Diane Francis, author of Who Owns Canada Now, and editor-at-large at the Financial Post.
"In today's Darwinian global economy, incompetence or well-meaning but inadequate owners cannot be foisted on an organization without imperilling its existence," Ms. Francis writes.
In short, nepotism is no longer an option. Ask the Eatons.
The 130-year-old retailer controlled by the family laboured under a bloated management run by less-than-focused heirs through the final decade of the company's existence, according to Joseph Martin, director of Canadian business history at the Rotman School of Management.
"Top management got pretty lax, and this went on for years and years," Mr. Martin says. "When Simpsons and Sears came in, [Eaton's] missed the move to the suburbs, they missed offering their own credit cards. There were many things they missed."
Eaton's finally succumbed in August, 1999, and the remaining heirs, John Craig, Fredrik, Thor and George, watched as their $190-million stake in the department store chain withered away as it was acquired by Sears.
"The fact is that business aptitude is not genetic," Ms. Francis writes.
Even when the baton is passed to capable hands, ferocious feuding between rival offspring can kill the family firm. "Sisters and brothers sometimes brawl to the point of estrangement, as in the case of the Steinbergs and Wolfes, who had to sell their companies following internal disagreements about which sibling, or sibling's husband, would be CEO," Ms. Francis writes.
Bad blood now threatens to disassemble the vast empire of the Irving family, a $6-billion conglomerate that spans forestry, real estate, media, transportation and media holdings. The 126-year-old family business founded by J. D. Irving in New Brunswick, will be divvied up among the three grandsons -- J. K., Arthur and Jack -- all in their seventies, and their heirs. It will surely survive, but not as a family-run business, according to Ms. Francis. "The task will be to divide the spoils, and for those who want to run parts of the empire to buy out those who do not."
Of the 75 most successful Canadian businesses or partnerships of the last 20 years featured in Ms. Francis's book, only 13 have made their heirs CEO.
"I think these companies have learned the lessons of the past," Mr. Martin says. "The crucial thing is if can you make the transition from the family ownership to sophisticated managers."
Turning over the company, or a good portion of the decision-making, to hired executives if the family candidate doesn't make the grade is a common recourse.
The next big patriarchal company facing a changing of the guard is Rogers Telecommunications Inc. Ted Rogers just celebrated his 75th birthday, but his succession plan remains a mystery to outsiders. His son, Edward, and daughter, Melinda, both hold senior positions within the family-controlled company, and both are reportedly in the running.
"I know managers who have worked with both of them, and they say they're very competent and very hard-working. I'd say they've learned from their father," says Toronto analyst Eamon Hoey.
Yet Mr. Hoey says there are other senior executives in place who could take the reins once Mr. Rogers is gone.
"I think Ted is a very pragmatic individual," Mr. Hoey says. "The reality is that over the last three or four years there has been a slow succession plan being executed, from my perspective, and it's one that's putting professional managers in charge."
Back at Moosehead, the feeling is mutual.
"A point my father has always made, and I agree strongly, is that we can be owners, but we don't have to be managers," Mr. Oland says. "The family can still own the business."
At the feverish height of speculation over what nuclear energy could do for electricity generation in the mid-1950s, Lewis Strauss, the chairman of the U.S. Atomic Energy Commission famously proclaimed that it would become "too cheap to meter."
That never materialized of course, but it's an effective example that author and Wired magazine editor-in-chief Chris Anderson often uses to explain the power of "free," a concept that he says will come to define the new digital economy, and is the natural title of the book he is writing.
"If you think about electricity - which is not free though we thought it might be in the '50s - it's an input into every aspect of the economy. It's one of the costs of doing business, and if you take that cost and set it to zero you would do business differently. So as a thought experiment, what if nuclear power had made electricity too cheap to meter?" he asks. The answer: "You'd have an electronic economy."
The cost of everything electricity touched (which would become everything) would be several orders of magnitude cheaper than they are now, Mr. Anderson says.
Worried about rising food prices? Virtually free electricity would have solved that long ago. "One trickle down implication would be say, desalination of water," he says. "If freshwater is free, than agricultural products become next to free."
But where the promise of nuclear-generated electricity failed, digital technologies are succeeding, Mr. Anderson, one of Time's top 100 influencers, says.
"There are three technologies in the digital age as ubiquitous as electricity that are becoming too cheap to meter, and that is bandwidth, storage and processing."
The revolution of this digital trinity has been moving at a clip that sees the costs to house, compute and move data on the Web halved every 18 months, Mr. Anderson says.
As an example, transistors (processing) used to cost tens of dollars each only a few decades ago. Intel's latest quad-pro chips use transistors valued at 0.00001 cents - ostensibly free to the consumer.
"This has never happened in history before," he says. "So you open up this new world - and it's probably literally like the New World."
What this Web-based world enables is an economic model where a myriad of products and services, at least to consumers, cost $0.00, or close enough to zero to make the expense irrelevant.
This is the root message contained in Free, set to be released sometime in 2009, and the one Mr. Anderson brought with him to Toronto this week where he was invited to speak at the Interactive Marketing Conference.
"Free doesn't mean that you don't make money," he reassures during a brief interview before his speech on Thursday. "Free means that you don't charge the consumer."
Driven by those underlying technologies, "freeconomics" means Yahoo! Mail can offer unlimited storage capacity for no cost at all to users. It means a product like the Wall Street Journal may only need 1% of its online readers to subscribe to its premium stuff in order to subsidize giving away most of its content for nothing while still making a profit.
The list grows daily.
Not surprisingly, Free was borne in part from The Long Tail, Mr. Anderson's breakthrough book in 2006 that revealed the power of digital technology to create micro-markets out of the sheer cheapness to do so.
"The long tail is basically this explosion of niches which happened because distribution became free - we got infinite shelf space. The only way shelf space can become infinite is if it doesn't cost anything."
Think of that rare music gem discovered amid the immense databases of iTunes, or was downloaded for free somewhere else.
"It was when I thought about the economics of when distribution is free and you can be indiscriminate about what you offered that realized how powerful free could be," Mr. Anderson says. "I looked around me, and said the Internet economy is based on free - Google doesn't show up on your credit card bill and neither do most other Web companies."
Mr. Anderson envisions this Web-based model moving quite comfortably into the physical world too, though.
In his March cover story in Wired, he posited that everything from movies, to urban transit could become free, either through cross-subsidization - free movie, expensive popcorn; conventional third-party pays - the Google model where advertisers pay to get noticed; even labour-exchange - where consumers produce value through a free product which a company can then turn around and sell.
Mr. Anderson explains: "I think free will come to every industry in its own way. For example, there's a company that I'm writing about in the book that makes electric cars and they give away the car and they sell the electricity."
Digitally, the march toward a free-based business model is inevitable, Mr. Anderson says.
"Once upon a time you had to pay for a travel agent, now you don't (see expedia.ca), et cetera. Industry by industry there's somebody using free as a way to differentiate and gain marketshare."
There are numerous paths Mr. Anderson says can be taken in the new world of "freeconomics," but each orbits the same principle.
"In each case, someone will invoke that powerful word 'free.' "
Crises, by their nature, are usually preceded by a good deal of oversight.
The dithering of British Prime Minister Chamberlain on the eve of the Second World War, or more recently, the United States federal government's response to Hurricane Katrina's levelling of New Orleans stand as two examples of historic idleness.
In both cases, foresight was nowhere to be found, with devastating results.
It’s safe to assume the implosion of America's sub-prime mortgage market and the ensuing global credit crisis among the world’s pre-eminent banks can summarily join history’s long list of the grossly overlooked-until-it-was-too-late.
“People say over and over again, how could this collapse in the U.S. housing market, and in particular, the low end of the U.S. housing market cause this global financial meltdown, which is what we came pretty close to,” says David Olive, a senior business columnist at the Toronto Star.
“By the early fall [2007], you had Citibank, the biggest bank in the world, and Merrill Lynch, the biggest brokerage in the world, each declaring multi-billion dollar write-downs. That was unprecedented.”
Equally disconcerting was how easily the underlying cause of those write-downs failed to be noticed.
It’s become glaringly apparent in recent months that everyone – from American regulators to global bankers and, not least, media – was left holding their hats when the shaky foundation of America’s sub-prime housing boom began to crumble last year.
Some background may be useful here:
Without garnering much attention, a combination of unmitigated lending from suspect mortgage brokers and Wall Street greed approved and sold off an astonishing US$600-billion in risky mortgage-backed securities to institutional clients around the world by 2006, according to Inside Mortgage Finance, an industry newsletter.
“It was in effect, the passing on of credit from the original lenders,” says Michael Veall, chair of economics at McMaster University in Hamilton. “You’re not going to take the same care to ensure it was a safe loan.”
It was like playing hot potato with a hand grenade. When a trickle of U.S. sub-prime defaults grew into a torrent by the beginning of last summer, the value of those securities plunged.
Euphemistically, what followed has been called a ‘liquidity’ crisis. In reality, a panic shot through the global financial system as losses mounted, and stricken banks reined in lending money to one another – the lifeblood of modern global commerce.
“I must admit, I didn’t foresee this,” Veall adds.
Few did. After all, the sub-prime boom of the previous five years had been fuelling skyrocketing home values across the United States. Glowing real estate data amid robust economic figures beguiled the vast majority, including many journalists, even the experienced Olive.
“When things are going really well, it’s not the sort of thing you complain about,” he says. “The tide of euphoria was very powerful and you really don’t know for sure that it’s not justified.”
Only after two sub-prime-stuffed hedge funds, managed by the (formerly) fifth-largest investment bank on Wall Street, Bear Stearns, “utterly collapsed” in July 2007 did Olive begin to seriously doubt the spectacular housing boom south of the border.
“To have this happen to a company the size and of prestige of Bear Stearns meant this was trouble,” the former editor-in-chief of Report on Business magazine says. “It was at that point that I began to look at the health of the U.S. housing market.”
By the time summer turned to fall, the chilly repercussions of the failing sub-prime market, and the internationally held securities tied to it, became fully understood, and widely reported on.
Here in Canada, Canadian Imperial Bank of Commerce sent shivers through the market after it announced a $750-million write-down tied to sub-prime losses and warned of more (it has escalated to over $3-billion since).
“I blew it,” Olive says, offering a mea culpa of sorts. “I monitor the U.S. economy as closely as any financial journalist in Canada is able to, and I blew it … I did not see the warnings.”
In America, the story is much the same, albeit, intermittent coverage did prevail at times, says Jonathan Higuera, deputy director at the Reynolds National Center for Business Journalism at Arizona State University.
“This is how media work, we find something and write a story, even a great story, and then we move on to the next one. Unless someone else picks up the ball, we don’t stay on top of it,” he says. “This is one of the cases where we should have stayed on top of it.”
It’s true that The New York Times brought the entire ugly business -- the rising tide of slippery lenders and their tie to Wall Street -- into plain view as early as March 2000 in a far-reaching investigative report by Diana B. Henriques and Lowell Bergman.
But Higuera says: “I don’t think even they knew what they had on their hands or how deep this was going to go.”
More often than not, the glare emitted by the housing boom proved more attractive and easier to report than the avaricious lending that was at the core of it, Higuera, a former business reporter at the Arizona Republic, says.
“[As a reporter] am I going to write a story about predatory lending practices or am I going to talk about how housing prices have gone up 50 per cent?
"The other side was harder to write. It would take a lot more research, a lot more time and a lot more resources,” he says.
“Media in many cases opted to tell the up-side story — the one the real estate community and mortgage industry would rather have you write.”
But the degree of culpability among journalists, whatever it may be, fails to explain why America’s sub-prime mortgage industry was permitted to run amok in the first place.
That responsibility rests squarely on the rise of morally dubious lending practices, and negligence among politicians and regulators to mitigate it, argues columnist Eddie Roth of the Dayton Daily News.
“Here, I know our business reporters and reporters on the social justice beat were keenly interested in this,” the former civil lawyer says. “[But] unscrupulous mortgage lenders have been permitted to thrive in Ohio because of near complete absence of consumer protection.”
“What’s become obvious is that there were no controls in the end.”
Since 2002, Roth has written dozens of editorials decrying predatory lending in the state, one of the worst afflicted alongside Nevada, Florida and California. Ohio now suffers from the sixth-worst foreclosure rate in the country.
“State lawmakers weren’t interested in doing anything, federal lawmakers weren’t willing to do anything, regulators weren’t willing to do anything.
“They didn’t appreciate how bad it could get,” Roth says.
Wherever the blame may lie, there is one certainty: the fallout from America’s sub-prime debacle has yet to be fully meted out.
Bear Stearns’s well-documented demise will see the 85-year-old bank annexed and eventually dissolve under rival JP Morgan Chase over the course of the year. We’ll surely hear of more mega-write-downs, too.
CIBC revealed in late March it still has staggering exposure to the U.S. housing market and it’s far from alone. Congress is now tabling suggestions on the wholesale overhauling of that country’s lending and brokerage industries.
As for journalism, Olive, a cynic to the end, quips:
“I would like to say that we learned something new from all this. But regrettably, there’s that saying ‘it’s not one thing after another, it’s the same damn thing over and over again.’
“All I really learned is that we are apparently destined to be suckers every decade or so.”
By Jamie Sturgeon | Financial Post | 11. 28. 08
