Posted by Linda Nazareth on July 31, 2009

Well, you have to figure that for a gazillion dollars you get something back.

No, no, the U.S. government didn’t really spend a gazillion to get the economy moving, but frankly they have poured in so much that most of us are losing track. It wasn't clear how much actually hit in the second quarter, but based on today’s GDP report, it was enough to make a nice difference.

The U.S. economy contracted 1 percent in the second quarter of 2009, which doesn’t sound like good news until you contrast it to a 6.4-percent drop in the first quarter, and a 5.4 percent dip in the last quarter of 2008. In fact, the second quarter of 2008 was the last time that the U.S. economy expanded at all. 

For those who like to keep track of these things, that officially makes this the longest U.S. recession since the 1930s.

But it is kind of ending.

The U.S. economy is not exactly roaring back, nevertheless that whole use-fiscal-policy thing is more or less working. We are still seeing giant declines in residential investment and exports, but they are moderating compared to where they were in the first quarter. And business investment, although still down, looks dangerously close to turning positive, which is to say that companies may start spending money again. We got a hint of that from this week’s U.S. durable goods reports too.

So, it's probably time to pick a letter.

Economists and analysts have spent a lot of time lately debating over whether this U.S. recession is V-shaped (down, then up), U-shaped (down for ages, then slowly up), W-shaped (down, then up, then down, then up) or L-shaped (dowwwwwwn, for as long as the eye can see).

We have to scrap the V-theory, obviously. And the L will probably not happen given that just the production ramp ups and the fiscal kick will send the U.S. economy up again, possibly even this quarter.

So will it be a W? That’s a possibility, and maybe a good one. The Cash-for-Clunkers program aside (another U.S. government brainchild), the American consumer is not really going anywhere. Given that the economy is likely to shed jobs for another few quarters, saving-not-spending is going to stay the new black.  So sure, you could see activity pulled down again.

I’m going to get all cheerful though, and call this as a U, or maybe a distorted U.  America was down for a long time and it is coming back slowly, and maybe not to the old levels either.

The U.S. probably has years of higher taxes ahead to pay for all the stimulus, as will Canada and dozens of other countries.  Spending your way out of things has its downside, to be sure.  In the short term though, I think we can say that the government bailouts pretty much did what they were supposed to do, which was stop the bleeding.

So just for today, let’s hear it for government spending.

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Posted by Andrew Bell on July 22, 2009

Research Capital analyst Rob Cavallo says Shoppers Drug Mart (SC – TSX) looks cheap.

In a note today, he calculates that the retailer - whose Q2 profit of $0.63/share was in line with consensus -  is “currently trading at 16.5x our forward earnings estimate compared to its historical multiple of 18x-23.5x.”

Overall same-store sales at Shoppers were up 5.7%, ahead of Cavallo’s 4% estimate.  “We expect Shoppers to have once again gained market share in the high margin prestige cosmetics category,” he says.

The analyst calls Shoppers a Buy, with a target $56.

The stock, which has dropped 8% in the past year, is currently up 85 cents to trade just above $48.

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Posted by Howard Green on July 22, 2009

I have no doubt Paul McCartney still likes to be paid when he plays, but I suspect he just likes to perform.  

I was lucky enough to see and hear him on a magical night in Halifax recently.  As the moon rose over the historic Citadel, he charmed some 50,000 people, from teenagers to seniors.  

The cheapest tickets were $100.  That’s if you were content to stand.  If you wanted to sit, it cost $300.  Just because this is for BNN, let’s say 75 percent of the attendees paid $100.  That’s $3.75 million from those who were happy to stand.  At  $300 per seat, the other 25 percent would have generated the same amount. These are just back of the envelope estimates, but for the sake of argument, we’re talking a $7.5-million gate, give or take. 
 
If the entrepreneur, Sir Paul, were to take 25 percent of that, he was looking at almost $2 million for the gig.  Maybe he got more.  He’s a Beatle, after all, with all that entails.  But remember, there’s the stage, the sound, the video show, the fireworks, the private jet, the roadies, the promotion, the other musicians, the security, yada yada.

What was so striking about the performance, though, was the generosity of it.  Here was a 67-year old man, with nothing left to prove and no apparent need for cash.  The British press frequently refers to McCartney as a billionaire, in spite of his messy divorce from Heather Mills.  Unless he took a bath in the stock market in the past year like so many others, he’s sitting pretty.  But there he was, belting it out, autographing a teenage girl’s arm, playing 35 songs, hit after hit, even calling up the local bagpipe ensemble, the 78th Highlanders, to accompany him on Mull of Kintyre.  This, by the way, had the woman next to us in tears.  
 
He may have been well paid for the night, but it looked like McCartney was rocking because he loves it.  What a gift that he made 50,000 people love it right along with him.

 

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Posted by Andrew Bell on July 20, 2009

Cormark analyst MacMurray Whale says green energy producer Canadian Hydro Developers Inc. (KHD – TSX), target of an unsolicited bid from TransAlta Corp. (TA – TSX), could fetch more than $5 a share, topping the $4.55 that the Alberta power giant is offering.

Canadian Hydro shares have jumped above the bid price, climbing 34 percent to close at $4.90 Monday.

The bid for Canadian Hydro is "the clearest evidence to date that carbon-free (and carbon-light) power assets have an intrinsic value not currently being recognized by the market," Whale said in an emailed comment today. "Regulations in the U.S. (Waxman-Markey) will likely get matched in Canada leading to a continent-wide carbon market. These KHD assets will have value in such a market."

TransAlta "has a lot of coal assets in their portfolio which generate pollution," says Blackmont analyst Michael Goldberg. "The clean energy assets from KHD would offset this if Canada passes legislation forcing companies to pay for pollution."

However, Mr. Goldberg notes that TransAlta execs say potential carbon credits aren’t the main reason for the purchase, "rather KHD is an accretive acquisition and they believe it will provide a healthy return to TA shareholders"

Bloomberg News reported last year that TransAlta is Canada’s biggest carbon dioxide emitter.

Cormark’s Whale says "other bids and a higher bid are likely."

The analyst says suitors for KHD could include Edmonton power utility Epcor or Capital Power Corp. (CPX - TSX), the power generation business that Epcor spun off as a public company. Other bidders, Whale says, may include Suncor Energy Inc. (SU – TSX), ATCO Ltd. (ACO.Y – TSX) and TransCanada Corp. (TRA – TSX).   Nexen Inc. (NXY – TSX) "even has a partial ownership of one of KHD's wind farm" he says, adding that international producers Electricity of France, Suez and Florida Power and Light may come sniffing around.

However, Blackmont’s Goldberg is wary.

"We believe that if the shares continue to trade above the offer price as they did at today's open, investors should take profits."

And Versant analyst Massimo Fiore says KHD investors should get out now "especially given the risk that a new, materially higher offer may not emerge. As well, we highlight the risk the deal may not close at all or, since the deal is hostile, may drag out."

Fiore warns that "TransAlta’s bid of $4.55 per share implies a 70-percent premium (on an EV/ 2009 EBITDA basis) over other renewable power companies… KHD shareholders should lock in profits by selling."

 

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Posted by Niall McGee on July 17, 2009

Magna International Inc. is considered by many to be the front runner to win the bidding war for GM’s Opel unit. The Aurora, Ontario-based auto parts giant is part of a consortium bidding for Opel that includes Russian lender Sberbank.

The German government favours Magna’s bid. For starters, it’s offering more cash: €700 million versus €275 million from RHJ International.

While Beijing Automotive’s €660 million bid isn’t far behind Magna’s, analyst David Silver of Wall Street Strategies tells BNN the Chinese bidder has little chance of succeeding. He says GM is unlikely to sell a piece of itself to the Chinese because the transaction would entail a lot more than a transfer of assets. According to Silver, GM would effectively be giving the Chinese access to its intellectual smarts and technology. And that could ultimately hurt GM in its efforts to expand in China.

So Magna is in the front seat in terms of bidders. If Magna does win, would existing shareholders be helped or hurt? Norman Levine, managing director with Portfolio Management Corp., thinks the impact on Magna shares would most likely be negative. For starters, the European car market is in bad shape and Opel is losing big bucks. And unlike North America, governments in Europe fight tooth and nail to keep plants open, overcapacity be damned. None of this is good news for Magna. Magna boss Frank Stronach is first and foremost an empire builder, Levine says. And what’s good for an empire builder is not necessarily good for shareholders.

Expect to hear more on a potential GM-Opel deal next week, as there are reports that GM is very close to making a decision on a buyer.

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Posted by Scott Peterson on July 15, 2009

He’s being called the Montreal Madoff – and a lot worse by his clients. Earl Jones, the investment adviser many trusted for years to deal with their life savings and retirement planning, has vanished.

Who is Earl Jones? He’d known many of his clients for decades. Some affectionately called him Uncle Earl. He was on the board of the Lakeshore Hospital Foundation and a member of the prestigious Royal Montreal Golf Club. Jones, who’s believed to be 67, left an estate-planning job at Montreal Trust to set up his own business in the late 1970s.

The Quebec securities watchdog, the Autorité des marchés financiers, has accused Jones of bilking clients of as much as $50 million in a suspected Ponzi scheme. When regulators froze his personal and corporate accounts and took a look at the books, they found very little money remaining.

Now the AMF wants to talk to Jones. So do Montreal police, although no formal charges have been laid.

Earl Jones could be anywhere. One report spotted him on a flight to London. Another speculated he was in the Cayman Islands, where he owns property. A family member told BNN that the cleaning lady had seen Jones packing, as if for a long trip. But his family swears they don’t know where he is, and he has not been in touch.

Bertram Earl Jones is said to have preferred older widows for clients. Many of them trusted Jones with their entire life savings. They would hand over their money and he in turn would pay the bills, and promise solid investment returns. But after months of late cheques, then bounced cheques, and now - no cheques, Jones is trusted no longer. One of his alleged victims says she feels like she’s been raped, adding that Jones will be torn limb to limb if he ever returns to Montreal.

We called Earl Jones Consultant and Administration Corp. the other day and played for viewers the message that Jones himself may have recorded. It sounded very ominous.

"If you are calling regarding your account with us, we are not in the position to remit your funds. You will hear from us after 30 days. In the meantime, phone calls and mail will not be answered. This message was registered on July 10, 2009."

For clients of Earl Jones, it might be the last time they hear the voice of someone they respected and thought they knew.

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Posted by Andrew Bell on July 15, 2009

A teenage intern at Morgan Stanley in London has been exciting financial types with his supposed insights into how teens use media -- Twitter’s a dud, they won’t pay for music and so on.

This does raise the question: Who cares what one pimply young feller thinks?

"Are the European media team at Morgan Stanley so utterly clueless about kids that they rely on the 'wisdom' of a 15-year-old to understand the media habits of teenagers?” wonders the Telegraph’s Andrew Keen.

In Toronto, BMO analyst Brian Piccioni is also disgusted.

"It’s Mickey Mouse research of the lowest possible kind," he told BNN on The Close yesterday. Click HERE to watch his rant.

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Posted by Michael Kane on July 15, 2009

When we heard that Bernard Madoff had arrived in Butner, North Carolina to begin serving his 150-year sentence, BNN’s Paul Bagnell turned to me and said: "Can you imagine walking through the gates of a place that you know you’ll never walk out of..."

The Butner prison complex, northeast of Raleigh-Durham, actually has two medium-security jails, a low-security lock-up and a satellite work camp. It houses 4,874 felons. It is a fairly new addition to the federal prison system and is said to be "one of the better ones."

That assessment comes from Lawrence McMichael, a lawyer who told Bloomberg News he visits his clients there every month. Two of his clients are Adelphia Communications founder John Rigas and his son Tim. They live in the low-security facility. They were made guests of the government for using Adelphia as their own personal cashbox at the expense of shareholders.

Also doing a dime in the joint (10 years) is former Rite Aid Vice-Chairman Franklin C. Brown. I had forgotten about him. At 81 years of age he, too, may never get to walk out of the medium-security wing. He was convicted of making false statements to the Securities and Exchange Commission, obstruction of justice and tampering with a witness.

Al Parish is at Butner. He is a former economist at Charleston Southern University who pleaded guilty to running a Ponzi scheme that defrauded investors of $66 million US.

I recall the quote from Mr. Madoff the morning his $65-billion scam was uncovered. In admitting he could no longer keep enough money coming in the front door to pay off existing clients, he said: "There’s nothing."

But, there is one thing left at the end of this story: the number 61727-054 on Bernard Madoff’s prison uniform.

 

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Posted by Aaron Sobeski on July 7, 2009

The Chicago Cubs and Wrigley Field are about to be sold for the bargain basement price of around $900 million US. There are two suitors.  The Ricketts family, which founded the Omaha, Neb.-based brokerage that became TD Ameritrade, and a private equity group lead by Marc Utay. When Tribune Co. hit troubled times, filing for Chapter 11 bankruptcy protection late last year, the Cubs/Wrigley package was supposed to fetch over $1 billion.

The fate of the Cubs almost instantly eclipsed the business problems facing Tribune Co., one of the largest media companies in America owning such landmark newspapers as the LA Times and The Chicago Tribune. While the business model facing the newspaper industry seemed to be failing, having to sell the famed baseball club was the most intriguing part of the bankruptcy filing.  The rumours began to swirl, as sports fans tried to figure out who would buy the Cubs -- the loveable losers of major league baseball.

This year I went to Wrigley Field for the first time. A few fellow journalists have started a tradition of taking a baseball trip every year. Last year we went to see the Yankees play their final season at Yankee Stadium. This year it was Chicago. The highlight was Wrigley. We flew in on a friend's private plane - he's the only non-journalist. To quote Ferris Bueller, which features Wrigley Field and the glorious city of Chicago as a backdrop, "if you have the means I highly recommend it, it's so choice."

The stadium is simply a beautiful baseball park. Built in 1914, it was part of the holy trinity of throw-back ballparks -- Wrigley in Chicago, Fenway in Boston and Yankee Stadium in New York. Of course, that list is now down to two, with the new Yankee Stadium being completed this year.

With only 41,000 seats Wrigley is a much more intimate experience. While that might not seem small, it feels small. Wrigley feels like stepping back in time. A time when the game of baseball was less of a business and more of a game. There's no flashy JumboTron. There is a big green board, with a guy who pokes his head out to change the numbers. The outfield is also solid brick. Not exactly player friendly, but it is covered with luxurious ivy, probably an important safety feature in the early 1900s. The food can only be described as heart-stopping fantastic. Bottom line, it's like no other place on earth.

In this world of supply and demand, Wrigley Field is in a league of its own. Like a work of art, the supply is one. And in 2009, when it seems like almost everything is commoditized, Wrigley Field cannot be recreated. Now, it's all about bigger stadiums, flashing lights, massive screens, booming dance music and private boxes. They just don't build them like this anymore.

The team. Well, it couldn't be any easier to run the Chicago Cubs. The team has not won a World Series since 1908. An aspiring entrepreneur was selling t-shirts outside the stadium which read "Any Team Can Have A Bad Century." So true. The die-hard fans love their team despite the lack of success. The losses only add to the loveable loser mentality. We bought our tickets the first day they went on sale, waiting eight hours in the "online waiting" room for a chance to purchase our seats.

The Cubs lost that day 7-1 to the Cincinnati Reds, and while cheering for the hometown team, I wasn't bothered because I was part of the Cubs tradition. Win or lose, we were all having a great time within what Cubs legend Ernie Banks called "the friendly confines" of Wrigley Field.

Aaron Sobeski is a producer at BNN.

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Posted by Andrew Bell on July 7, 2009

Analysts at PI Financial say their six "top picks" for Q2 outperformed the market – posting an average gain of 26% versus 19% for the TSX composite – and they’ve tweaked the list for Q3.

Here’s a rundown of the new top selections:

Liquor Stores Income Fund (LIQ.UN-T) returns as the consumer products pick, the only one to make the top picks list again. The Alberta-based booze seller produced a modest gain of 4% in the latest quarter.

"We believe as a liquor retailer, LIQ.UN is less cyclical and lower risk than most retailers," analyst Sheila Broughton says. "Liquor Stores has an effective growth strategy based on acquisitions and organic growth to enter new markets and to build market density in existing markets." 

The units traded at $12.50 today for a yield of almost 13%.

Technology analyst Pardeep Sangha has two selections, Descartes Systems Group Inc (DSG-T) and PNI Digital Media Inc. (PN-V).

He says Descartes, a global provider of software for logistics and supply chains has more than 4,200 customers in more than 60 countries.

"Over the past four years, Descartes’ revenue has increased an average of 11% per year and the company has been profitable throughout each of the past 17 quarters. With over 85% recurring revenues, Descartes has a high visibility of revenues and earnings."

PNI, formerly called PhotoChannel Networks Inc., provides retailers such as Wal-Mart and Costco with online and in-store digital photofinishing. The analyst says PNI has developed online business printing services with Wal-Mart Canada, which allow customers to professionally print envelopes, business cards, letterheads and marketing material. "We believe the market for online business printing represents a large untapped opportunity."

Mining analyst John Kiernan lists Fortuna Silver Mines Inc. (FVI-V), a junior silver producer with projects in Peru and Mexico, as his favourite. 

"We are expecting the company to report a record quarter (Q2 2009) in terms of production and revenue, and publish updated resources on both of their projects (San Jose & Caylloma), which will provide the market with some clarity as to what to expect in terms of life-of-mine production."

Energy analyst Geoff Ready selects natural-gas weighted producer Fairborne Energy Ltd. (FEL-T), which has properties in Alberta, Saskatchewan, and Manitoba. He says the company offers an "inventory of strong exploration and development prospects, management’s successful track record… and a supplemental revenue stream generated from (byproduct) sulphur sales."

Finally, special situations analyst Jason Zandberg favours Pure Technologies Ltd. (PUR-T), which sells technology used for inspection of buildings, bridges and wastewater/water pipelines.

"Pure is well positioned to benefit from the expansion of water infrastructure spending and environmental contamination concerns," Zandberg says.

Dropped from the list (not necessarily because PI has gone cold on them but simply because other stocks offer a better pop near-term) are:

 *Allon Therapeutics Inc. (NPC-T), a player in "neuroprotective" drugs that was up 23% in the quarter

*Light oil producer Arcan Resources Ltd. (ARN-V), up 39%

*Copper producer Capstone Mining (CS-T), up 54%

*Farm and equipment dealer Cervus Limited Partnership (CVL.UN-T), up 15%

*And data centre provider Peer1 Network Enterprises Inc. (PIX-T), up 24%.

 

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Posted by Andrew Bell on July 3, 2009

It’s sort-of mildly shocking, in a slow-news-day sort of way, to hear that one in about 66 Canadians is behind on his or her credit payments. But what really caught our eye was the news that more than half a million Canadians are offside.

Credit rater Equifax proclaims in a news release today that "the average delinquency rate for all of Canada as of May 31, 2009 was 1.52 percent. This means that over a half a million Canadians are now more than 90 days behind on their credit payments."

But just what is this 1.52 percent delinquency rate based on? Is it 1.52 percent of all 33 million Canadians, 1.52 percent of those eligible for credit or 1.52 percent of those who actually have credit?

Equifax’s Nadim Abdo, who’s due to appear on SqueezePlay ce soir, kindly explained that the delinquency rate is actually based on all Canadians eligible for credit, or about 28 million Canucks. So 1.5 percent of that number works out to around 420,000, which Abdo conceded is a "bit closer" to the real number in trouble with debt.

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