Projected federal budget deficit not as ugly as it looks.

Day 552

Ottawa will run its biggest-ever budget deficit this year. "We will run a substantial short-term deficit this year which I would estimate at more than $50 billion," Jim Flaherty (pictured), the federal finance minister, told the Commons yesterday.

That's a whopping 50 per cent jump over the Tories' previous deficit estimate just four months ago. The culprits? Higher than expected EI payouts, a bigger than forecast drop in tax revenues, an auto-industry bailout that could end up costing more than $10 billion, and unplanned stimulus initiatives.

But that projected deficit amounts to a little over 3 per cent of GDP. Federal deficits of the 1980s equalled 8 per cent of GDP. And the record deficit inherited by the new Chretien government in 1984 equalled 5 per cent of the economy. Obvious reason: the economy has grown a lot since then. Meanwhile, the U.S. deficit this year is expected to equal a stunning 12 per cent of the American economy.

The big worry is "structural deficits" - continued budgetary red ink even after an economic recovery. There's a sharp difference of opinion here about the likelihood of a permanent deficit.

Don Drummond, influential chief economist at TD, and a former federal finance official, believes Canada was already heading into structural deficit before the recession. Why? Ten years of excessive growth in government spending; the biggest-ever federal tax cut, by then finance minister Paul Martin; and the 2 per cut in the GST by the Harper government.

But Dale Orr of Dale Orr Economic Insight believes Ottawa's long-term spending commitments will not exceed the rebound in tax revenues when the economy revives. A reversal of surging EI payouts and of slackening tax receipts come the economic recovery should keep Canada out of structural deficit, Orr says, provided Ottawa is disciplined in new spending initatives.

 

Tastes like chicken

Okay, what the GG actually said was that her first taste of seal heart Monday reminded her of sushi. Gotta say we're with Michaelle Jean on this one - the imbibing, that is, and the honouring of Far North traditions in her Nunavut tour. Especially when your loudest critic is the mis-named People for the Ethical Treatment of Animals, the "ethics" of whose conduct has been highly suspect on more than one occasion.

The GG's main job, it's always seemed to us, is celebrate the country - all 6.1 million sq. kilometres of it - empathize with residents over tough regional conditions, and share in local rituals. To give folks a sense of pride:  

"For [Michaelle Jean] to go to an Inuit community and get involved, not just making speeches in support of our traditional hunt of the seal, but actually participating in the skinning and eating of the animal ... it was a very, very strong statement of support."
– Mary Simon, Inuit Tapiriit Kanatami president

Indeed. 'Course, if you're not on the side of the sealers, and their way of life for centuries, as I am, we'll have to agree to disagree. Meanwhile, if you're feeling a bit peckish, here are some culinary tips about seal-heart preparation - a.k.a. the "caviar of the north." 

Pictured above: Governor General Michaelle Jean stands for an honour guard yesterday in Kugluktuk, Nunavut, celebrating the territory's 10th anniversary.

Related

* Roy MacGregor: In relishing seal heart, Jean showed grace.

 

Today's leading indicators

* Poll of U.S. biz economists finds recession ending this summer. GR on encouraging recovery prospects here.

* U.S. consumer confidence sees biggest jump in six years.

* Canada's Big Five bank stocks rally on rising U.S. confidence.

* Oil hits $63 (U.S.) on belief in imminent economic recovery. See our forecast for $100 - $200 (U.S.) crude here.

Read it here first

* Reuters: Tech execs say two mobile devices will soon suffice. CrackBerry is one of them. Here and here.

* G&M: Ottawa promises research scientists that R&D funds will flow again. See our rant on Canada's R&D deficiencies here.

* Reuters: GE heartens "green" researchers with vow to boost eco-R&D spending to $1.5 billion (U.S.).

* Reuters: Macau poised to eclipse Vegas as top global gambling den.

Note: For the purposes of this blog, the inception of the Great Recession in the U.S., the epicentre of the crisis, is taken as the start date for the global slump. The U.S. has been in recession since December 2007.

Our friends at the Globe and Mail

have lost a competent editor-in-chief and superb journalist, Edward Greenspon. He is replaced by John Stackhouse, 46, veteran Globe section editor, exemplary as both a foreign correspondent and Toronto-based feature writer, winner of more NNAs than any of his colleagues (five) and author of two well-received books. Nice to have bench strength like that.

 

Phillip Crawley, publisher, and John Stackhouse, new editor-in-chief, of the Globe and Mail.

I declare my conflict of interest, of having inherited John as one of two staff writers at the Globe's Report on Business Magazine when I became editor in 1991. I still haven't forgiven then Globe editor-in-chief William Thorsell for his wise decision to take John away from us to become the Globe's first foreign correspondent to focus on developing world issues, based in New Dehli. (Actually, a first for any NA daily.)  

This post is to congratulate both Ed and John. When John told staff yesterday of his fealty to "journalism of consequence" (unspoken was the din of inconsequential noise we endure), that's a direction in which Ed was taking the paper. It shed its ill-advised bid after the National Post's 1998 launch to mimic its new rival in showcasing a great deal of trivia.

Mostly though, I'd like to put in a word for Globe publishier Phillip Crawley, the Brit who stepped into a confused, demoralized Globe newsroom and soon restored order and the Globe's place as a widely relied-upon source of journalism of consequence. I had a Globe columnist friend, one of its most popular voices, tell me a couple years ago, "I thank God every day we have Phil Crawley as publisher."  

Crawley, whom I've not met, issued an internal memo about the Globe management changes, committing to the same heavier Internet emphasis that the Star and other NA papers are embracing with ever more urgency. Crawley's memo was a minor masterpiece of obscurantism, for which he has been widely ridiculed.

The cure for this intolerance of obfuscation - was Greenspon pushed or did he leave of his own volition? (a topic of no proper interest to anyone outside of a handful of Greenspon's friends and colleagues) - is to imagine oneself and one's enterprise described in complete candor by the boss at a moment of upheaval.  

To wit:

Our organization is being ravaged by massive defection of customers to the Internet. The current editorial leadership aren't the radicals we need if we're to have any hope of survival. So I've shot them from a cannon and brought in the next wrongful-dismissal candidates. Our cash burn is probably worse than Chrysler's. If not for our patient owner, the Sisters of Perpetual Agony, we'd all be for the high jump. (Read a copy of the Rocky Mountain News or Seattle Post-Intelligencer lately? Didn't think so.) I'm in a frenzy to (a) figure out how to reclaim our relevance in the digital era, and (b) identify people who can advance that cause. Those in the building who can't should bookmark Monster.com. (Not on company time). Have your Oxycontin (or Effexor or Jack Daniels) at the ready, because it's going to be non-stop chaos until Britney Spears learns how to sing. Tough as they are now, things are going to get worse until we stumble onto a new business model for the first time since Gutenberg.

How would you feel after reading such a communique from your ultimate leader? How would GE's 323,000 employees feel, after CEO Jeff Immelt says, "I've lost the confidence of Wall Street and might be canned any day now"? Apart from such speculation having aleady been widely reported - as the struggles of NA dailies have been - GE workers should not be needlessly distracted from re-engineering jet-aircaft engines to prevent a flock of pigeons forcing an emergency landing in the Hudson.

CEOs are rightly chided for jargon, and Crawley's May 25 internal memo gives us a beaut with its "reimagination-inspired teamwork." But here's the deal: If you can avoid demoralizing staff by withholding fears and facts that would sap their strength, you do so unless your sense of morality says they do need that information. (Enron employee/shareholders did need the information CEO Ken Lay withheld from them.)

And, jeez, when you write anything you know will be leaked before you hit the send button, you don't disclose your competitive strategy. You merely allude to it, incomprehensibly. The essence of competition is that you keep your rivals guessing about your new products under wraps, the industry stars you hope to recruit, and planned acquistions that will embellish your key strengths.

As a journalist, obviously I crave clarity. But as an employee of the Star, I'd rather our leadership didn't disclose its innermost hopes and worries except selectively in the most discreet means possible. Which is manifestly not the function of an office-wide memo to Globe staffers that I at a rival paper read about an hour after my Globe counterparts did. As I began reading it, I knew it wouldn't contain anything Phil Crawley wouldn't be happy having every newspaper publisher and editor-in-chief in the country reading - which is to say, not much.

The only thing that miffs me in the coverage of the Globe's recent personnel changes is to learn that Stackhouse - who once interned at Procter & Gamble - began to act on his entrepreneurial urges with a Globe carrier route he took on at age 9. I thought I was ahead of the curve as a tenderfoot Star carrier at 11.  

A kindred spirit in 10-worst-ever vehicle raters.

Day 552

Our Star colleague Jim Kenzie, one of the nation's top auto writers, correctly notes (about time someone did) that in trying to learn what went wrong in the decision-making behind the industry's biggest flops, we almost invariably dwell on the likes of the Edsel and the defunct AMC's Pacer and Gremlin on top-10 lists of worst vehicles.

 

The original 1986 Taurus, with above-average handling and reasonably priced, was a bestseller that rescued a Ford Motor Co. then flirting with bankruptcy. The Taurus was then allowed to languish, bereft of subsequent upgradings in styling and technical innovations, while mid-size rivals Camry and Accord made inroads in the 1990s. Ford's belated 1996 Taurus redesign (1997 model shown) was a styling blunder for the ages: Even rental fleets were reluctant to take it at a discount. New CEO Alan Mulally, a fan of the original Taurus when he was an executive at Boeing, where visiting Ford designers took some of their design cues, intends to revive the model, discontinued in 2007.

Much more relevant as an insight into what contemporary vehicle designers and marketers get wrong is  where they've failed lately. We should be less forgiving about these more recent blunders, because duds from the early 1970s like the Chev Vega and Ford counterpart Pinto emerged at the dawn of the small-car import era, when Detroit was reluctant in putting out its own rival small cars. Detroit really didn't know from small vehicles, to which the North American market had never taken a shine. Still hasn't, to judge from dwindling small-car sales and rising SUV sales as gas prices have fallen.

Detroit makes much better vehicles today. On reliability, quality, safety and responsiveness to consumer needs (everything from extra cupholders to fold-away rear bench seats in minivans), both Detroit and its foreign competition are providing the market with their best vehicles ever. It's a solid foundation for the further advancements required in safety and fuel efficiency.

And that makes spectacular failures like the Edsel (wrong car at the wrong time), the Vega and Pinto (shoddy workmanship, unsafe) and the Pacer and Gremlin (ugly, impractical) far less excusable in a current era in which the industry's had plenty of time to learn from past mistakes.

There will always be misses, sometimes near-misses - good vehicles that were unfortunately timed in their arrival on the market; or the PT Cruiser and the Saturn line-up, which got off to a strong start but were then starved of funds to keep the models fresh and innovative. (Chrysler inexplicably waited about three years to come out with convertible version of its, by then waning, PT Cruiser, one of the ultimate beach-party cars.) Even Procter & Gamble doesn't bat 1000. But the survival for the industry's players will require a higher batting average. 

All the more reason to ask, as Jim does, "What were they thinking?" about these 10 particular flops: Porsche Cayenne (2002-present), Suzuki X-90 (1996-1998), Toyota Previa minivan (1991-1997), Pontiac Aztec (2001-2005), Subaru Baja (2003-06), Honda del Sol (1993-97), Ford Taurus (1996-1999), Lexus SC430 (2002-present), Ferrari Enzo (2003), and the Mercedes-Benz R-Class (2006-present).

What the duds generally had in common was failure to understand the target customer base, or having understood it, failing to deliver the vehicle it wanted. As the global industry fragments - more producers and more selection, especially as Indian and Chinese makers enter the NA market - we'll still see hits and misses. But there will be more rapid overhauls of models that don't quickly meet with buyer acclaim.

Aside

I'll have to differ with Jim that "Celine Dion is the Edsel of female singers." On aesthetic grounds, sure, I'd pick the elegantly designed Edsel over the monotonous Dion. But, in commercial terms, Dion is the alpha to the Edsel's omega. Ford turned out a pitiful 118,287 Edsels over the ill-fated model's three-year life, losing $350 million on the venture in 1959 dollars. Dion has sold over 200 million albums in a career spanning more than 20 years, enough to make her the bestselling female vocalist of all time.

No argument that perhaps "Amy Winehouse is the Edsel of female singers."

 

Peter Zezel (1965-2009)

Day 552

Our condolences to the friends and family of Peter Zezel, one of the most decent and talented men to don a Leafs jersey, who died yesterday at 44 after a long struggle with a blood disorder. Zezel's Leafs of the early 1990s achieved a consistent success not seen since. Peter's specialty skills, in face-offs and penalty killing, made him a hugely reliable - and immensely liked - part of that happy era in Leafs Nation.

 

Peter Zezel, native Torontonian, with honourary Torontonians Ed Mirvish and Wendel Clark.

The Internet as imagined in 1969.

Day 551

Uncanny. And dig the campy soundtrack.

OMG, even Roubini is (sort of) optimistic.

Day 551

In her New Republic profile of the media's current fave gloomster, Nouriel Roubini, Julia Ioffe sums up with this passage:

"[Roubini has] been thinking a lot not just about the way down but the way out. With the help of the Obama administration’s policies (not great, he says, but better than nothing), he sees “a light at the end of the tunnel.” To actually get to the end of it, though, the United States will have to get used to consuming less, which means China, Germany, and Japan will have to get used to producing less, which means that all the intermediaries–Chile, Australia, Brazil–will have to scale back and turn inward like everyone else. The world may curve and warp a bit, and it will be difficult, but Roubini sees good in this. Given the right changes, perhaps the United States can develop with the productive long view in mind, and maybe its human talent can be spread more equitably. 'When you have more financial engineers than computer engineers, you know that the brightest minds have gone into something where, probably, the margin was excessive,' he had told me earlier. 'Maybe some of these bright people are going to do something entrepreneurial, more creative, or go into government. I think that’s actually a good change. The transition is painful, but the result may be good.'”

HT to FT blogger Felix Salmon.

Happier days.

Day 550

Some days it's safe to take the latest economic soundings without a jar of Percodan handy. Analysts preparing backgrounders for the June 12-13 G-8 finance ministers summit in Lecce, Italy expect to report more "green shoots" of economic recovery or at least slowing decline in the U.S. and in developing economies, notably China. (When this is over, I want a fireworks display - all green shoots.) The U.S. Labor Department reports a sharp dropoff in mass layoffs for April. The M&A market is coming to life: Two of the world's biggest cellphone operators, India's Bharti and South Africa's MTN, have revived merger talks for a $61-billion (U.S.) combination that would be the world's #3 cellular giant, after Vodafone and China Mobile, with 200 million customers in South Asia, Africa and the Middle East. Russian oligarch Oleg Deripaska (pictured), erstwhile partner of Magna International and emblematic of the recent crack-up of Russian tycoonery, is close to a deal by which he gets to keep his industrial empire. And, omigosh, doomsayer Paul Krugman says the global economy might start turning around as early as this year - an abrupt climbdown for the Nobel laureate economist.

Tipsheet

* Money Morning: Six ways to play Canada's oil sector.

* Motley Fool: Why the equity naysayers are dead wrong.

Distant early warnings

* WaPo: Preakness attendance drop is more trouble for Stronach's MEC.

* Reuters: The next bubble? Lithium.

 

Note: For the purposes of this blog, the inception of the Great Recession in the U.S., the epicentre of the crisis, is taken as the start date for the global slump. The U.S. has been in recession since December 2007.

Tragically un-hip Adam West's yard sale to cover Madoff losses.

Batman Garage Sale with Adam West from Adam West

Stormy weather.

Day 550

The abrupt move by Southwest Airlines to postpone code-sharing plans with WestJet tells you all you need to know about how tough conditions have become for U.S. carriers. Southwest, the pioneer discounter that was the model for WestJet's 1987 start-up, would at little cost have added passenger volume, particularly in the central and mountain time zones it dominates. WestJet would have had a terrific U.S. gateway.

But these two carriers, often described as clones, differ in one respect. WestJet began international flights long ago, mostly charter flights to southern hot spots. By contrast, Southwest stubbornly sticks to that part of its no-frills model that rules out international routes. Which is the point of code-sharing: WestJet would hand off passengers at Southwest terminals in the U.S. The Dallas-based Southwest wouldn't have to fly into Canada. But in these tough times - with passenger loads falling and aviation fuel back on the rise - Southwest would prefer not to incur even the minimal cost of marketing and ticketing in a code-sharing agreement. Read between the lines of Southwest's apology for breaking the deal, though, and you have the sense this pair will get cozier, after all, once travel volumes increase.

From its original Texas base, Southwest has expanded to serve all but a handful of U.S. states.

Note: For the purposes of this blog, the inception of the Great Recession in the U.S., the epicentre of the crisis, is taken as the start date for the global slump. The U.S. has been in recession since December 2007.

Gluten-free goes mainstream.

Day 550

The restaurant and prepared foods sectors have taken a beating in this recession. So at this year's National Restaurant Association Show in Chicago, exhibitors are showcasing novel twists on traditional dishes and rolling out extensive lines of gluten-free products. "Some of these things are fads," an exhibitor allows, "but the gluten-free market is only going to grow."