We're not betting on "the new frugality."

Day 577

David Rosenberg, Gluskin Sheff's star analyst, was early getting on the "frugality" bandwagon. The theory is that (a) this recession is different because it's driven by consumers, and to a lesser extent business, frantically "deleveraging," or cutting debt, after two decades of living beyond their means. A more typical, and briefer, economic downturn is one driven by too much inventory held by corporations. In that more common scenario, times get better once retailers have bare shelves, developers finally have rented the last square feet of excess office space, and manufacturers resume orders for raw materials they now longer have in surplus.

We don't buy the new "frugality ethic" because it's counter to a core impulse among residents of the world's biggest consumer economy. It's not just that old joke that shopping is America's #1 cure for depression, although there is something to that. It's that Americans are born acquisitors. They are fixated with "new" and with having more. Yes, the U.S. savings rate has miraculously emerged from negative territory and may well move from its currrent 5 per cent or so to the astonishing 12 per cent many forecasters see. But with an aging U.S. consumer auto fleet, Steve Jobs and RIM cranking out new must-have status symbol gadgets at an unrelenting pace, global airlines hankering for more fuel-efficient Airbus superjumbos, and the lion's share of Obama's unprecedented $787-billion (U.S.) stimulus package not kicking in until next year (liberals complained it was "backloaded," and Obama's poll numbers on economic management are sliding as a consequence), we can't help believing there will be robust times ahead. And that today's unusual frugality is not, as some are now saying, the "new normal."

Another current canard is that credit is still almost impossible to come by. Yet even in the peak of the global banking crisis, last fall, it was also evident that a lot of traditional borrowers did not want money, even with central bankers pushing their key lending rates practically to zero. Which strongly suggests corporate borrowers saw the consumer-economy collapse coming, triggered by the bursting of the epic U.S. housing bubble, and simply stopped expanding until consumers were healthy again.

In today's gloomy Globe report on the third straight month of declining bank lending, we see a silver lining a mile wide:

"Demand for credit is down because Canadian companies are sitting on very high inventories and are trying to sell them before taking out loans and ordering new products, said Toronto-Dominion Bank economist Grant Bishop.

“'This is consistent with the inventory pressures faced by manufacturers and wholesalers, and the ongoing rapid reductions in inventories,” he wrote in a note.

"While banks have tightened lending standards and raised prices on loans, the numbers appear to show something that will please policy makers: The evidence suggests the drop in demand for loans is a story not so much of lack of access to credit but lack of demand.

"In fact, bank lending to Canadian households rose 0.9 per cent in May from April, to $984.1-billion, as Canadians took out more mortgages and used lines of credit and credit cards.

"And while companies are cutting back on bank borrowing, they are making up for it by selling vast numbers of bonds into a newly welcoming market. The value of corporate bonds outstanding increased by $7.5-billion in May, a record advance, Mr. Bishop noted."

"Frugal" Canadian consumers are borrowing again, which means their more spendthrift U.S. cousins won't be far behind. And as for the "credit drought," business has found no difficulty raising billions of dollars in the bond market. Recall that North American corporations came into this recession with an atypical low level of debt. So any resumption in corporate borrowing - from banks or the bond market - along with cash hoarded from slashing dividends and surprising success in tapping a buoyant stock market these past few months, will be applied not to shoring up strong balance sheets but to expansion, new product development, and eventually to hiring - always the lagging indicator in a recession. 

If the mid-term outlook is as bleak as consensus opinion holds, why the current upswing in M&A activity - huge deals like Xtrata's $68-billion (U.S.) offer for Anglo American? And why would software giant Oracle, a bellwether, be turning in profits that beat analysts' estimates and boasting record profit margins?

Oracle executives were more optimistic on Tuesday, saying customers are telling the company they need to move forward in implementing new projects to keep their businesses running.

For those begging to differ, address correspondence to Pollyanna, c/o Emerald City. I've been wrong before.

As we were saying

Howard Dean, on MSNBC's Countdown said, "One of the problems in the Senate is it becomes about the Senate instead of what's good for the country. The idea that 40 members of a determined minority can obstruct what 72% of Americans want is ridiculous. ... A health insurance plan without a public health insurance option is not health care reform."

Meanwhile, a major public-policy group claims inclusion of a Canadian-style government-administered health insurance option, as Dean and the Obama administration seek, would save Uncle Sam $1.8 trillion (U.S.) more than rival reform proposals.

Drawing conclusions

 

Stuart Carlson, Milwaukee Sentinel, Universal Press Syndicate.

Parting shot

David Letterman: "President Barack Obama's approval rating" of "61%, which I thought was staggeringly high, has now dropped to 56%. ... So don't kid yourselves. Hillary could still win this thing."

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.

 

Next time we catch you with this car other than this one we'll tow it away.

Day 576

Lest you think Detroit has a monopoly on dumb management, here's BMW, whose design and engineering gurus have elevated that once-obscure firm to the North America's highest-volume seller of luxury vehicles, exhorting its own employees during this global auto downturn to buy the cars they make.

That long-standing practice of insisting executives and shop-floor employees alike restrict themselves to driving their own employers' vehicles has, of course, figured into Detroit's decline. The practice is hard for employees to resist. For executives, company vehicles are made available free. For rank-and-file employees, there is a steep discount for buying the vehicles of one's employer.

But by chronically not driving Asian imports - by tacitly being forbidden to do so - GM, Ford and Chrysler employees at every level for decades denied themselves the chance to learn first-hand why Toyotas and Hondas were finding such favour with U.S. motorists.

So it's a bit stunning that the well-managed BMW has taken lately to identifying 7,000 of its own workers who drive Audis, Mercedes and other non-BMW products, and reprimanding them with a note placed under the windshield wipers of the offending vehicles parked in company lots, Which reads:

"What is wrong here? You like working for us. You are fond of your workplace and salary. But you are driving a competitor's car."

Signed by two members of BMW's board and the head of the BMW workers' council, these postcard messages are intended to spur employees to seek a test drive, a sales talk, or the details on how to trade a rival vehicle for a new BMW. 

Here's our stab at such a note:

"Please tell us what it is about your car that made you choose it over a BMW? Ride? Comfort? Styling? Cost? If BMWs aren't appealing to the folks who make them, we're doing something wrong. Unless you're just trying out the competition to see what they're up to. Either way, please consider returning this postage-paid card with tips you've learned driving a rival's vehicle, and suggestions on how we can improve the cars you help build."

At least the authors of this brainwave resisted bold-facing the veiled threat, "You are fond of your workplace and salary."

 

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.

Logic, trouble, following.

Day 576

In its report on the latest Statscan tourism survey, which shows a slight further decline in U.S. day trips to Canada of 0.6 per cent in April over the same month a year earlier, the Globe offers this explanation by Robin Ritchie, a Carleton University marketing professor:

"I think Americans felt less safe, more inclined to stay home [after the 9/11 attacks]."

Since 2001, there has been 68.2 per cent drop in American daytrippers to Canada. But think about it: If your country had been attacked, wouldn't you feel safer abroad? At the least, why would you think Canada more dangerous because Lower Manhattan and the Pentagon had been hit?

 

Tourism Marketing 101 is something Ottawa has yet to master. Probably not more than 1 American in 500 knows about Ontario's Agawa Canyon getaway, which city hosts the world's biggest rodeo, or Quebec City's status as a World Heritage Site.

So far as 9/11 goes, the U.S. over-reaction on border security certainly has been a factor - in both directions. Canadian day trips to the U.S. dropped more than 13 per cent last year, yet Canadian trips to non-U.S. locations outside Canada jumped 6 per cent. The reason isn't mutual fear, it's hassles at the border.  

Tightened U.S. border security, including the new U.S. requirement of a passport for returning to America as of June 1, has been a factor. But so too has been a soaring loonie, which overshot parity with the greenback before slumping a bit, and now threatens to do so again. Then there's the recession and the phenomenon of "stay-cations" - U.S. travelers taking to heart the decades-old marketing slogan "Discover America First."

For all that, in April the two million American visitors to Canada amounted to almost five times the visitors to Canada from all other nations combined. Our tourism sector still relies overwhelmingly on U.S. travelers.

So we have a job to do. We have to work harder with Washington on border security that's tight but more efficient. Which means, for a start, a new bridge to replace the bottleneck at Detroit-Windsor. And we have to do better at marketing Canada as both the safest foreign destination for U.S. vacationers, one that's cheaper than Europe, and is more exotic than Americans imagine. 

Exotic? Canada? 

Well, if your kids are fascinated with dinosaurs, the place to be isn't Euro Disney but Drumheller, Alta. If it's the only remaining walled city on the continent that holds your interest, it's Quebec City you want, not the Alamo. If canoeing through the heart of a metropolis catches your fancy, scratch Venice's Grand Canal and Florence's Arno off your list, since those crammed waterways require boaters to hold a license. You want the Bow River where it winds through downtown Calgary, perhaps when the town is celebrating the world's biggest and oldest continuing rodeo. Riding the rails through dense forest to the spectacular Agawa Canyon, and whale-watching from lookouts on the Cabot Trail are among the memorably delightful travel experiences we have in abundance, but whose story has been published by Ottawa under the Official Secrets Act, for all that the rest of the world knows of them.    

The big threat to America is domestic, not foreign, terrorism: the future Columbines and Oklahoma City bombings. The 9/11 murderers came neither from Canada, where the U.S. has nearly doubled the number of Border Protection guards since 2000, nor Mexico, where the U.S. has been building a costly wall along the Rio Grande. It's unfortunate Americans have reacted - have overeacted - to al-Qaeda pretty much as that crew of ideological thugs would have hoped, degrading Americans' civil rights (to privacy, among other things) and their mobility. Unfortunate too that America's best friends on the continent have suffered collateral damage.

Good riddance.

Day 575

The dismantling of Nortel begins.

No more $34-billion (U.S.) takeover sprees at the top of the market. No more accounting scandals. No more imported U.S. turnaround CEO artists who fail. Or, in the case of the current Mike Z, renege months after pledging to fix the company in bankruptcy and decide instead to yard-sale the firm. No more Nortel layoffs, after setting some kind of record in shedding more employees faster than any firm in Canadian history. And no more "retention" bonuses for Nortel execs while rank and file do without severance. Because there will be no Nortel - ha ha ha.

In other words, no more dashed hopes and broken promises. 

Speaking of the latter, all the talk you'll hear in coming weeks about the preservation of Canadian R&D by the new owners of Nortel's bits and pieces, you can store those in the nearest Dumpster, along with your $124,50 Nortel share certificates, circa May 2000. 

Nortel was Canada's R&D powerhouse for about half a century until just three years after John Roth took charge of it 1997. Now its R&D, in the hands of foreigners, will be ancillary to the R&D strategies of Nokia, Siemens and other offshore buyers of Nortel's assets. The largest Canadian-owned private-sector R&D player is now RIM, which will be quite a while in matching the R&D outlays of Nortel in its heyday.

A uniquely Canadian story. Would France allow the demise of Alcatel Lucent? Germany of Siemens? The U.S. of Boeing? (Well, we know the answer to the last one, post-GM and Chrysler bailouts.)

All in all, a crummy ending for a once-great company. And not great news for Canada, whose taxpayers underwrote Nortel's bid for a place on the world telecom stage in the 1960s and 1970s. And whose government didn't step in and buy it or find a Canadian buyer for it earlier this decade. (One of those crackerjack Canadian public pension-fund managers that instead dropped scores of billions of dollars in the stock market crash, for instance).

Under the circumstances, best to get the long-rotting corpse into the ground. We can finally stop wondering if Nortel will ever amount to anything again.

Socialized heathcare: Yanks say, Bring it on!

Makes you wonder about the gutless wonders in Obama's own party on the Hill who, in taking up healthcare reform starting last week, already show signs of caving to the medical lobbies and, oy vey, the discredited GOP when 72 per cent of Americans say they support a Medicare-like government-run health insurance scheme.

"The national telephone survey, which was conducted from June 12 to 16, found that 72 percent of those questioned supported a government-administered insurance plan — something like Medicare for those under 65 — that would compete for customers with private insurers. Twenty percent said they were opposed."

Hey, I'm all for the U.S. status quo. For maintaining the competitive advantage the rest of the industrialized world enjoys over the U.S. in having adopted universal single-payer healthcare generations ago. It just always weirds me out when people act against their own interest.

We report, you pull your hair out

* Soros says worst of global recesssion is "behind us."

* World Bank sees most economies heading for deeper slump.

Read it here first

* Reuters commentary: RIM's biggest rival may be itself.

* Xtrata talks $68-billion (U.S.) share-swap merger with Anglo American.

Parting shot

Jimmy Kimmel: "President Obama" is "getting a lot of criticism from PETA, you know, the Psychotics for the Ethical Treatment of Animals. They're taking issue with the fact that he killed a fly. For real. ... PETA said he should have captured the fly and taken it outside, which would have been a great message to send to North Korea."

Hey, that was cheap.

Day 572

And we do mean that in every sense of the word.

Harper bought off Iggy with the age-old dodge of an "expert panel" to examine EI. So Iggy agreed not to bring down Harper's government.

Never mind that the three opposition parties commanding a majority of Commons seats have agreed on a new uniform work requirement of 360 hours to qualify for EI benefits, a useful replacement for the current hodgepodge of 420 to 700 hours, depending on a region's rate of joblessness. As we noted before, our American friends resolved their unemployment insurance issue and hiked the federal minimum wage early this year. Which puts the lie to Harper's claim that this matter needs further drawn-out cautious study before helping hundreds of thousands of jobless Canadians.

Here's veteran Post political columnist Don Martin on Iggy the Unready, proficient in multitasking in the realm of climbdowns:

Michael Ignatieff had little tangible reason to crow beyond saving himself from his own reckless ambition by resetting the election to a time when he’ll be better prepared to win. He stepped back from every single one of his four pre-conditions for supporting the government -- battle lines on employment insurance, deficit elimination, stimulus spending and the isotope crisis he’d drawn only 48 hours earlier.

Not sure what's more pukesome here, Iggy being rolled so easily, or Harper's impulse, when he should be celebrating yet another stay of execution, to reveal again the mean-spiritedness that defines him:  

"I don't think the constant election threat or, quite frankly, the inability of some of the parties in the House of Commons to accept the result of the last election," Harper said . . . "I don't think that reflects well upon them."

It's Harper, of course, governing as though his party has a majority, who has yet to "accept the result of the last election." To accept that Opposition members are each paid $150,000 of my money to provide constructive criticism, as they've done on EI, without being labeled as refugees from a kindergarten.

Honestly, has there ever been a PM or an aspiring one of such fragile temperament, Dief aside? Who quit the Commons when his then-leader Presto wouldn't agree with every single brainwave of his thirtysomething strategy chief? (In order to take a job at the flaky National Citizens Coalition?) Who almost quit the Tory leadership in a summer-long sulk after his first failed attempt to usher Paul Martin into political retirement?

A G-7 nation with pantywaists running the two largest parties. It is to weep.

Forgotten but not gone: Mike Z's Ottawa star turn.

Day 572

Not Mike Z's finest hour as he tries to justify to a Commons committee $30 million in retention bonuses for top execs at bankrupt Nortel, while laid-off grunts are denied severance. This while the Canadian company that holds the record for shedding more jobs and shareholder value than any in history proceeds to shed much of what little remains.

Warning: Remove sharp objects from viewing area before watching this video of Zafirovski's testimony yesterday.

Goes without saying that any company with four failed CEOs in 12 years is, uh, hopeless.

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.

Still waiting for some real 'green shoots'.

Day 572

We interrupt the stock-market euphoria, dating from March and waning a bit of late, and the daily sightings by certain politicians of "green shoots" of economic recovery, for this reality check from our favourite central banker:

“Some now refer to green shoots as if the global recovery is a foregone conclusion or even as if sustainable growth had already begun,” Mark Carney, governor of the Bank of Canada, said Thursday in a speech in Regina. “Would that it were so easy. Saskatchewanians know that it is a long, anxious time between the appearance of seedlings and the harvest.”

Recall that it was Carney locating some of the bigger shoots late last year. But that was premised on a few things coming to pass which, sadly, haven't. The Yanks did not well and truly "reform" Wall Street with mass firings of reckless CEOs, but instead have left incompetent BSDs in place and merely applied Band-Aids to giant lenders whose loan-loss woes are in too many case just beginning. The deficit-averse Europeans have not followed Obama's example and hit the accelerator on stimulus. And Obama's modest Wall Street reforms unveiled Wednesday are less than promising of sustained probity.

So Carney, monitoring signals of the above, turned bearish months ago. And it's sobering that he's turned cautionary, trying to for several months now to dampen uncalled-for exuberance

Carney made a telling point in Regina yesterday that's too often overlooked - namely that the North American government stimulus packages are backloaded, with most of the stimulation skedded to occur next year. Which helps explain why consumer and corporate spending remains lacklustre. (A bigger factor is continued fear of job loss, of course, but it's all of a piece.)

We try to be upbeat. But there's no arguing with Carney that stimulus won't reach "full force" until next year. And that in the meantime, there's no evidence of "self-sustaining demand" to be found, meaning a surge in consumer or business demand that isn't government-supported.

So, when will the battered economy limp out of the IC unit? Carney says he has no plans to raise his Bank's key lending rate from 0.25 per cent until at least mid-2010. Oh. Thanks for giving it to us straight, Mark. Only when your mood shifts will we have a second boo at that prospectus for Red Rocket Resources Ltd. our broker keeps shoving at us.  

About those underwhelming Wall Street reforms...

Matt Davies, Tribune Media Services.

Today's must-read, on Obama's toothless regulatory reform.

* Steven Pearlstein, Washington Post: Regulatory reform that falls far short of it.

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.

'We now have more competitors than ever before.'

Day 572

And that's just in the burgeoning luxury segment. Tell it to Ed "I don't know anything about cars" Whitacre, Washington-appointed chairman of the "new GM."

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.

Why we're (still) betting on Ford.

Day 571

"I don't know anything about cars."

In a Bloomberg interview, Ed Whitacre Jr., 67, newly appointed chairman of GM, added that, "A business is a business, and I think I can learn about cars. I'm not that old, and I think the business principles are the same." 

By this reckoning, real estate developer Bob Campeau should have been a smashing success running Bloomingdale's, rather than driving it into bankruptcy. Forest-products veteran "Chainsaw Al" Dunlap should have guided Sunbeam Corp.'s revival rather than steering it into bankruptcy. And Bob Nardelli, fired CEO of Home Depot, redundant CEO of Chrysler after Fiat came to that bankrupt firm's attempted rescue, should not have failed at everything he's tried since losing out to Jeff Immelt in the three-way race to succeed Jack Welch at GE. 

It's a statistical fact that outsiders are less successful than insiders at corporate turnarounds. It took an insider, Anne Mulcahy, to finally turn around a Xerox that had been ailing for two decades.

In appointing Whitacre, the White House argues that outsider Alan Mulally has done a swell job at Ford, the only Detroit automaker not to seek a government bailout. Yes, but Mulally, recruited from the No. 2 spot at Boeing, is a managerial ace who streamlined a chaotic Boeing manufacturing system and guided development of Boeing's most important new products, including the company's new flagship "Dreamliner." Whitacre has spent his entire 43-year career at one company, monopoly telco AT&T Inc. (formerly SBC Communications - for Southwestern Bell - the smallest of the former Baby Bells). And the one rabbit in his hat was the expedient of growth by acquisition. Which, as we noted earlier, did little by way of creating shareholder value.

An empire builder who doesn't know a tailpipe from an alternator. Just the man for a GM on a weight-loss regimen with its own poor grasp of what motorists look for in a car. 

  

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.

The boys of summer need consistent rules in inter-league play.

Day 570

Cito Gaston was cheesed after last night's 8-3 Jays win over the Phillies in extra innings. Why? Because Jays closer Scott Downs injured his left foot after a grounder to short, then left the game - another victim, in Gaston's view, of inter-league play. The injury-ridden Jays cannot afford to add one of the AL's best closers to the DL.

"That's what happens," said a disgusted Gaston. "My [pitchers] don't take batting practice every day and they don't run, so things like this are going to happen."

True. The solution is for the AL to adopt NL rules if inter-league play is to continue. What inter-league play has wrought is a hybrid of America's national passtime, in which AL pitchers are not expected to hit worth a damn or run the bases, and their NL counterparts are.

Cito's beef shouldn't be with inter-league play, by which Rogers Centre patrons now get to see the Phillies, Braves, Cardinals and other storied NL clubs, albeit infrequently. And which better prepares World Series contenders in both leagues for battle against the pennant winner from the other league in October.

Cito's beef, and ours, should be with the inconsistency of the rules between the leagues, which disadvantages one of the two teams in every inter-league match. We can start by getting rid of the AL's designated hitter, an abomination among baseball purists since its adoption in 1973. 

 

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.