Posted by Niall McGee on June 30, 2008

I got my start in television reporting at the Weather Network. One of the first reports I ever did was a feature on thunderstorms. Despite technological advances, meteorologists can't accurately predict them.

Why not? And when will they be able to do so? Canadian meteorologist Chris Scott summed up the inherent challenge of the job: predicting when and where a thunderstorm will hit, he says, is akin to putting a tray of popcorn in the oven and predicting when and where the corn will pop.

Good luck with that. Scott questioned whether meteorologists will ever be able to accurately predict thunderstorms.

Yet investors in corn futures are putting a lot of faith in meteorologists' predictions right now.

Today the U.S. Department of Agriculture predicted the corn harvest will likely be 9% lower than last year. Yet corn prices are falling today.

Why? Analyst Vic Lespinasse says the near-term weather forecast is favourable in the U.S. Midwest (where much of the corn crop is grown). No rain. No thunderstorms. And no flash flooding of the kind that caused corn futures to skyrocket earlier in the month.

Lespinasse also says if the weather holds up a lot of the "specs [speculative investors] could get roughed up."

If the weather holds up. Will it hold up?

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Posted by Niall McGee on June 27, 2008

T-minus 14 days until the Apple iPhone is launched in Canada. We learned today how much Canadians will pay to use the smartphone.

Rogers Wireless says plans range from $60/month to $115/month. Johanne Lemay, consultant with Lemay Yates and Associates, says Rogers' entry level plan, $60 for 150 minutes and 400MB of data is "attractive."

For its premium package, Rogers will charge $115/month for 800 minutes of talk time and 2 GB of data. Two gigs allows you to surf 16,000 web pages. That’s about 500 pages a day, enough for even the most voracious of readers. And probably enough, says Lemay, for users who also like to watch some streaming video on sites like YouTube.

Rogers is not offering an unlimited data plan. Not a huge surprise, as the company had been vocal about not being a fan of that model. But Lemay says the lack of unlimited data access will slow the adoption of the iPhone in Canada.

In the U.S., A&T has offered customers an unlimited data plan since the launch of the first generation of the iPhone last June. When the second generation of the iPhone goes on sale on July 11 AT&T will charge $30/month US for unlimited access.

Will the stark contrast between Canadian and U.S. iPhone plan pricing put off some Canadian consumers? Lemay says it will likely “dampen” their enthusiasm.

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Posted by Michael Kane on June 27, 2008

My weblog entry entitled Just Speculation – c’est juste? has sparked interesting debate among BNN viewers. Here are parts of two comments:

Clive wrote: "If you spell speculation 'manipulation' then I would agree with you. I think the hedge fund managers are now controlling the market place. How else could the price of a barrel of oil go up $4 one day and be down $4 the next?

This is certainly not related to the process of supply and demand, which at one time did control the market place. Hedge funds and others that have large sums to invest can drive the price of a stock higher, then short (naked), sell at market to drive prices down and then re-buy when the price drops $3 or $4."

Craig had this to say: "What most people forget is that when a 'speculator' enters into a trade taking a long position, there is another person on the other side of the trade who is speculating on the short side. 

Politicians and the media love to look for scapegoats to appease the masses for the pain that rising prices are causing. Speculators are not the problem. The problem is the devaluation of the U.S. dollar caused by the irresponsible acts of the Federal Reserve. 

Adherents of Keynesian economic theories believe that rising prices cause inflation. Inflation is simply an expansion of money, and when you have more units of money chasing the same number of goods (or in the case of oil or other commodities), prices rise."

The two responses above crystallize the dilemma we find ourselves in when our equilibrium is disrupted. Do we go with science or religion? We have the facts – we can follow the money, we can plot all the points on the graph – and we can try to extract value from what we interpret that to be.

Then, the other side of the picture is what we believe is really going on … what we draw from what we see all around us. Although it can be quite uncomfortable that there is no unified picture, we’re being forced to live with both interpretations.

I wish someone would explain to me why that which is good for The Corporation is not necessarily good for The Consumer. And vice-versa.

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Posted by Michael Kane on June 26, 2008

That was the line used to introduce an interview on dyslexia aired by the BBC World Service. Leave it to the Brits to work a large buffalo-like animal into a radio feature.

Anyway, they spoke with Diane Swonk, for years the chief economist with Bank One and now holding the same position at Mesirow Financial in Chicago. She talked about being dyslexic and how, after she overcame her confusion about the condition, she realized how to benefit from it.

Diane said that although she can’t dial a phone properly and "can’t tell my left hand from my right," it is easier for her to "think out of the box."

She says in the business world, the tendency is toward linear thinking – logic – and successful entrepreneurs are the ones who come along with a unique idea, usually from an unusual way of thinking.

She referred to the Butterfly Effect, the idea that a butterfly flapping its wings could move the air to swirl in a certain way that could, by the time the swirl reaches the other side of the planet, evolve into a tornado. Diane said while linear-thinkers may have difficulty grasping that concept, it is quite easy for someone who is dyslexic.

And in a nod to self-referential concepts, Diane Swonk, while not exactly the equivalent of a tornado, could be that butterfly.

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Posted by Niall McGee on June 25, 2008

MasterCard has agreed to pay American Express $1.8B US to settle an antitrust lawsuit. MasterCard says it will incur a $1B US charge in the current quarter. How does the market greet the news? MasterCard shares rallied. And shares in AmEx fell.

Raymond James analyst Wayne Johnson says investors are selling AmEx and buying MasterCard for two reasons. Firstly, despite AmEx getting a windfall payout from MasterCard, its fundamental business is deteriorating. AmEx also says customer defaults are likely to be worse than expected going forward.

But shouldn’t that be bad news for rival MasterCard? No, says Johnson, because MasterCard and AmEx have fundamentally different business models. MasterCard is a transaction processor. It gets paid per transaction. It doesn’t incur liability if the customer defaults.

Banks do. AmEx does incur liability. So even if MasterCard customers start defaulting en masse, it’s the banks that take the hit. Not MasterCard.
MasterCard shares, incidentally, have returned 80% over the past year. AmEx by contrast has lost 30% of its value.

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Posted by Michael Kane on June 23, 2008

The question most asked of me is, “How high can the price of oil go?”

Of course, we’re in uncharted waters there, and the problem with that is they're … uh … uncharted waters.

One thing the U.S. Congress is doing: investigating the role of speculators in the market. According to figures released by the Commodity Futures Trading Commission in January of 2000, 37% of the WTI oil futures contracts trading on the New York Mercantile Exchange were controlled by speculators. The rest were in the hands of hedgers, like airlines and refineries that needed to protect themselves against rising costs.

Here we sit, eight years later and in April, 71% of the futures contracts trading were controlled by speculators.

On June 20, 2008, with crude futures sitting above $135 per barrel, Representative Bart Stupak (D-Mich.) guessed that speculation was adding $65 to $70 to the price of a barrel.

Analysts at Sanford C. Bernstein said in a note that same day: "Every crisis needs a culprit. Active speculation is a catalyst for market movements, not an underlying cause."

The beat goes on.

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Posted by Jon Erlichman on June 23, 2008

I'm sad to say this is my final blog entry. 

Instead of getting all mushy, I'd like to simply say thanks.  Thanks to our loyal viewers.  It's been an absolute pleasure serving you.  You're a whip smart bunch and you demand nothing but the best.  We couldn't have come this far without you, and BNN will only get better because of you.

(P.S. Tune in to BNN 6 a.m.-8 a.m. ET weekday mornings and hopefully I'll see you again soon)

Jon

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Posted by Scott Peterson on June 20, 2008

If you’ve ever dreamed of owning a horse in Canada’s top thoroughbred race, then you’d be well served watching the Queen’s Plate this Sunday. There is a horse about to run called Shadowless.

He’s has the world of the racing abuzz. Shadowless is a relative unknown – like his owner Heather Takahashi – which only adds to the mystique of going all the way to the Queen’s Plate, a world full of established and predictable breeds and owners.
 
Takahashi is a Canadian investment banker who now resides in New York. Her first appreciation of horses came from watching Secretariat as a little girl.

"A lot of people bought cars or houses with their first bonus checks," she said, watching as her horse was led before the galley. "I bought a horse."

That horse was called Life in Fiction, but after an injury it never raced. Instead she spent $12,500 to have it bred with Stormy Atlantic. Through that mating came the son, Shadowless.

"I got the name Life in Fiction because I was in New York after 9/11," she said. "I thought people there right afterwards were walking around as if in a dream. The name Shadowless came from looking at Alex Colville paintings. There are no shadows on the animals."

That attention to detail is important when buying a horse. Takahashi says she studies pedigrees and surrounds herself with knowledgeable people who help with her decisions. Trainer David Bell, for example, has won 636 races over 23 years. Emma-Jayne Wilson – who is riding Shadowless – is the first female jockey to have won the Queen’s Plate.

"It’s a dream come true," Takahashi says of being in the big race for the first time. "It’s unbelievable. I have to keep pinching myself."

The Queen’s Plate was first run in 1860 after the Toronto Turf Club petitioned Queen Victoria to grant a plate for a race in Ontario. The Queen’s Plate is the first of three races for Canada’s Triple Crown. The second is Prince of Wales Stakes, in Fort Erie. And the third race is the Breeders Stakes – held back at Woodbine.

The purse Sunday is worth $1 million with $600,000 going to the first place winner. Shadowless's odds are 20-to-one.

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Posted by Niall McGee on June 20, 2008

A month is a long time in the life of an automaker.

On May 22 Ford announced it expected to break even in 2009. Today it announced it will be "difficult" to break even in 2009. Never mind the fact that way back in 2006, CEO Alan Mulally had vowed to return Ford to "profitability" by 2009.

Ford says it will cut production further in its struggling truck segment. The company is also delaying the launch of the new version of the F-150 pickup truck. The F-150 had been the best selling vehicle in the U.S. for the past 23 years. But last month it dropped from first to fifth. The top four spots? All Japanese sedans.

But summing up Ford’s challenges as a lack of appetite for its profitable pickup trucks is way too simplistic, says automotive consultant Dennis DesRosiers. He says the fundamental issue is Americans are buying fewer vehicles period. And that impacts not only Ford, but all automakers.

For years Americans "overbought" DesRosiers says. The ratio of cars to drivers in the U.S. is greater than one to one. So, more cars than drivers. 

When I was a kid I used to tell my dad that when I grew up I would own four cars: a BMW, a Mercedes, a black Trans-Am (just like the Knight Rider one) and a white Corvette (like the one Face on the A-Team drove).

My dad never understood my desire to own more than one car. "You can’t drive more than one at a time," he used to tell me. What I should have fired back was… "Tell that to Americans!"

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Posted by Niall McGee on June 19, 2008

Right before my report on Cott Corp today, Pat Bolland asks me: "Niall, do you say pop or soda?"  My answer? "Neither." In Ireland (much to the amusement and bemusement of Canadians) we say "fizzy drinks." I admit it's weird and clunky. But at least it's descriptive. A drink that fizzes. Are you with me?

Cott unveiled the details of its strategic review today. The company says it's "eliminating positions throughout the organization." But Cott wouldn’t say how many jobs would be axed.

The company says it's refocusing its business to concentrate on private-label fizzy drinks. The focus lately had been more on teas, vitamin waters and energy drinks. Not fizzy drinks.

So what does the Street think of all this? David Hartley, analyst with BMO Capital Markets told me the strategic review is a "step in the right direction." But Hartley says the company now needs to execute it and re-establish its credibility with the Street.

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Posted by Paul Bagnell on June 18, 2008

I spent yesterday in Ottawa, attending and then reporting on the hearing of the Supreme Court of Canada of the big BCE case.

The "big BCE case" is, of course, the appeal by BCE of a lower court ruling that said BCE’s debtholders are correct in claiming that they have been unfairly ignored in the $35-billion plan to sell BCE.

I took away two main impressions from the day's events. First, I was very impressed at how efficient and intellectually rigorous the process was.

Efficient because every lawyer at the hearing is subject to a strict time limit: a red light comes on when they have reached that limit and they run the risk of having their microphones turned off if they don't bring things to a close. And intellectually rigorous because of the razor-sharp questioning – and answering – from the best legal minds in the country.

It was exhilarating – and it was all over in just under 2½ hours.
 
Secondly, I found it hard not to believe the court may have been leaning toward BCE's side of the case as the judges headed back into their chambers. There was not much doubt that it was the lawyers for the debtholders who got the most vigorous, and at times skeptical, questioning from the judges.

The argument of the debtholders is that BCE’s board should have thought about the effect the deal's huge amount of debt would have on the value of BCE and Bell Canada debt securities already trading in the market. The value of those bonds and debentures has fallen as investors fret about how much debt will be on BCE's books if the takeover goes ahead.

As word reached investors that the bondholders’ lawyers were getting asked some tough questions (journalists in the press room – including me – were e-mailing their newsrooms throughout the hearing), shares of BCE began climbing.

So the market seems to be betting Canada's highest court will rule in favour of BCE and against the bondholders.

We should know soon if the market is right. 

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Posted by Andrew Bell on June 17, 2008

Landlocked distant Kyrgyzstan seems to be a realm of odd coincidences. On the very day that Reuters reports a legal setback for Centerra Gold Inc. (CG-T), the company says CEO Len Homeniuk has opted for "retirement" while CFO David Petroff is off to "pursue other interests."

No word from the company on the decision by a court in Bishkek, the Kyrgyz capital, to yank Centerra’s licence to develop the Kumtor gold deposit. Reuters says "the case was triggered by parliament speaker Kubanychbek Isabekov, who said the rights had been extended illegally."

The departure of Mr. Homeniuk – who said last month that he was "quite confident" Centerra would get all needed approvals – may be completely unrelated. But then Kyrgyzstan, apparently plagued by powerful organized crime that has resulted in the death of at least four members of parliament, is a land where strange happenstances have come up before. 

Not a single opposition member won a seat in elections last year that returned President Kurmanbek Bakiyev to power. The Supreme Court seemed to have relaxed a rule on gathering votes in each region that would have given rival politicians at least some seats. But lo and behold it turned out the court had made only a quibbling decision that revolved around which voters actually counted.

Centerra investors have seen the stock slide over 25% to below $5 today. TD analyst Greg Barnes says that prior to the court ruling his net asset value calculation for the stock was $9.88, of which Kumtor accounted for $6.36.

There may be a glimmer of hope. Reuters quoted the government as saying it would challenge the decision in court and vowing to defend Centerra's position.

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Posted by Mark Bunting on June 17, 2008

India has amazing economic potential. But will it fulfil that potential or squander it like a talented but uncommitted cricketer?  Goldman Sachs would like to see India avoid that latter scenario, as would investors who want to believe in the India growth story.

That’s why the research team at the investment bank is recommending 10 crucial steps to make sure the country reaches its maximum potential by 2050.

First, some numbers. Goldman estimates that the Indian economy could balloon 40 times in the next 40 years.  GDP could grow from the current $1.2 trillion US to over $40 trillion. If that were to happen that would vault India from its current status as the world’s 11th-largest economy to No. 2 behind China.

But much has to change. Currently, according to Goldman’s Global Economic Scores (GES), India ranks just 110th out of 181 countries.

Here are the 10 recommendations from Goldman for India:

1. Improve governance.
2. Raise educational achievement.
3. Increase the quality and quantity of universities.
4. Control inflation.
5. Introduce a credible fiscal policy.
6. Liberalize financial markets.
7. Increase trade with neighbours.
8. Increase agricultural productivity.
9. Improve infrastructure.
10. Improve environmental quality.

Let’s examine some of these ideas. There is a belief among many that India is a highly-educated country. But Goldman Sachs says that’s because people who do business in India or are exposed to Indian-educated people in other parts of the world are only meeting the best and the brightest.

The fact is that only 80% of six- to 14-year-olds in India are in school and the dropout rate is high. Just 61% of India’s population is literate. The government seems aware of the need for better education. That’s why its goal is to increase the number of universities from the current 350 to 1,500 by 2016.

Goldman suggests that India have a monetary policy that targets inflation to keep it within a 4% to 7% range.  The country’s deficit and debt need to be reduced. India’s deficit as a percentage of GDP is among the highest in the world at 6%. And debt as a percentage of GDP is above that of the U.S. at 76%.

India is much less open to trade than other emerging markets. Goldman recommends trade be ramped up with bordering countries with large populations such as China, Pakistan and Bangladesh.

Anyone who has done business in India will likely tell you two things: infrastructure (airports, roads, bridges, power) needs to be vastly improved and there is too much red tape. It takes an average of 16 days for goods to clear customs compared to about half that for the other BRIC countries Brazil, Russia and China.

So India has many hurdles to overcome before it can reach what Goldman Sachs calls "remarkably positive potential."

How does an investor get exposure to India's growth? There are several mutual funds that invest in Indian stocks. Excel Funds’ India Fund, for example, has an average annual return of 15.44% since inception in 1998. Top holdings include the conglomerate Reliance Industries and Bharti Airtel.

As you might know from watching my colleague Paul Bagnell’s ETF reports, there are several exchange-traded funds that focus on emerging markets, China and India combined or just India, such as Powershares India (PIN-N) or Wisdom Tree India Earnings Fund (EPI-N).

Investors can also access Indian companies through American Depository Receipts. Technology firm Infosys Technologies has one (INFY-Q).

Here’s hoping that India adopts some or all of Goldman’s 10 steps to growth because wasted potential is always unfortunate to witness.

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Posted by Andrew Bell on June 13, 2008

Fans of the Edmonton Oilers in the 1980s cherish memories of the Finnish Sandwich, combining legendary centre Wayne Gretzky and the Finnish duo Jari Kurri and Esa Tikkanen.

But Finnish cellphone colossus Nokia (NOK – N) currently looks the meat in a rather less pleasant snack. Nokia stock has slid 33% on the NYSE this year, trading around $26 US, on fears that the company faces growing competition in developing countries from Chinese upstarts, while Research in Motion (RIM - T) and Apple (AAPL – Q) menace its lucrative European franchise.

Oppenheimer analyst George Iwanyc cut his target on Nokia to $34 from $40 this morning, warning that "we expect RIM and Apple to impact Nokia's business in Europe and see growing competition at the low-end of the market from Chinese vendors."

Nokia needs time, he cautions, to build new services that will let it compete.

Gloomy guidance on mobile phone sales for Texas Instruments (TXN – N) could add up to a dud second quarter (results are due July 17) for Nokia after its first-quarter letdown. Margins dropped to 21% from 23% in Q1 as the selling prices of its phones fell.

Meanwhile, Apple looks more and more Hulk-like in smartphones (now priced for the mass market), where Nokia is battling to defend a 45% global market share.

Steve Jobs claims that a stunning 98% of iPhone owners use it to surf the web and 80% use at least 10 features. Buyers of other smartphones, he sneered this week, couldn't even find 10 applications on their hard-to-navigate devices.

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Posted by Niall McGee on June 11, 2008

My wife is with child. So as her body (ahem) evolves, she’s had to buy some new clothes. A few weeks ago, she scored some deals on a few items in the Gap. Specifically in the Gap Maternity section of the store.

She also had a look at the Baby Gap section, but didn’t find anything. The selection was a bit thin she said.

Baby Gap used to have its own standalone store in the Eaton Centre in Toronto. Ditto for Gap Kids. No more. Now everything is consolidated in one store. But that original Gap store in the Eaton Centre hasn’t actually grown any bigger. So the company is carrying a little less of everything, but saving big-time on rent.

It turns out this is exactly what CEO Glenn Murphy wants to do across thousands of stores in North America. He says by consolidating all the stores (Baby Gap, Gap Body, Gap Kids etc.) under one roof the Gap can save $225,000 a year per store on rent and generate more profit.

The thing about the Gap, though, is profit isn't a huge issue right now. During Q1 its profit grew 40%. The huge issue is sales, or lack thereof. Last month the company's same-store sales fell 14% in the U.S. The stock has been a dog too, down 15% in 2008.

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Posted by David Baskin on June 10, 2008

Pity the poor central bankers, caught between the devil of inflation and the deep blue sea of recession. 

The Bank of Canada startled the market and most economists today by not cutting rates in spite of very weak growth in the first quarter.  The normal response would be to stimulate the economy by reducing rates, but in the face of accelerating inflation the bank chose to play it safe.  No one wants a repeat of 1981 when interest rates soared into the 20s as central banks engineered a deep recession to beat down double-digit inflation.

Ben Bernanke has the same problem in the U.S.  Yesterday he sounded a lot like Alan Greenspan as he spoke of "discouraging the de-anchoring of inflationary expectations."  In English, that means he wants everyone to continue to believe that fighting inflation is a priority for the Fed, in spite of evidence to the contrary. 

While core inflation is in the 2% range, the cost increases experienced by consumers are much higher.  As has been pointed out, eliminating energy and food from the numbers doesn’t impress those of us who have to drive and eat.  Some economists think that inflation for the average consumer is as high as 8%.

In the meantime, politicians on both sides of the border continue to work at cross-purposes to the central bankers.  Whether it's throwing bushels of money at car companies in Canada or mailing out billions in tax rebate cheques in the U.S., there is no particular evidence of fiscal restraint.  And now comes Barack Obama demanding an additional $50 billion in new spending. 

No wonder the bankers are worried.

Comments may be sent to davidbaskin@baskinfinancial.com.

(David Baskin is president of Baskin Financial Services Inc. in Toronto)

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Posted by Michael Kane on June 9, 2008

The unprecedented spike in world oil prices on Friday, June 6, was a major attention-getter, not only among energy-watchers but motorists, too! Anyone who didn't care about the price of oil before very likely cares quite a bit now. And it may force us to take a more global view.

While sniffing around for factors that might affect oil prices, I found that daily shipments of Brent North Sea crude, part of the price benchmark for almost two-thirds of the world's oil, will rise 8.6% in July.

According to the loading schedule, tankers are set to load 175,097 barrels a day of Brent crude next month, up from 161,300 barrels a day scheduled for June. A total of 5.43 million barrels will be shipped in July, compared with 4.84 million barrels in June.

Brent is one of the four North Sea oil varieties used to establish the price of crude from the Middle East, Africa and Russia. The other grades are known as the "Forties" blend, which is operated by BP Plc; StatoilHydro's "Oseberg" blend and ConocoPhillips's "Ekofisk."

The futures prices we quote on BNN are usually for West Texas Intermediate Light Sweet crude, which trades on the NYMEX in New York. The reason we use WTI is that it is the most actively-traded or "liquid" market, you might say, giving us, perhaps, the most accurate barometer of the oil market.

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Posted by Paul Bagnell on June 6, 2008

Don’t look now, but income trusts are back.

In the fall of 2006, of course, the Harper government ignited a firestorm of investor controversy – and a huge plunge in income trust unit values – with its decision to do away with the tax advantages that made trusts so popular.

It was the Halloween Day massacre, and caused many investors to bail out of the sector. With the tax advantage on the way out, those investors reckoned, it was time to find another home for those investment dollars.

Those investors must be slapping their foreheads today. As I write this, the S&P/TSX Income Trust Index is up 32 percent since Jan. 21. To put that into sharper focus, the index is now 26 percent higher than it was in early November of 2006, when the stampede out of trusts brought several days of brutal losses. And it’s just five percent below the record high closing value it reached on April 21 of 2006.

"Wait a minute," skeptics will say. “This is really about soaring oil and gas prices, isn’t it?”

Well, yes it is. The income trusts that occupy the most space in the index are now almost all energy trusts. Of the top 10 names, seven are energy trusts and those seven hold down a 37-percent weighting in the index. The value of energy trusts has soared along with rising crude and natural gas prices.

Recall, though, that back in the fall of 2006, many market watchers predicted energy trusts would be converting en masse back to traditional corporate structures. Or that investment dollars would flow out of the trusts and into corporations. It hasn’t happened.

One expert said recently the future looks bright for the energy trusts. Kyle Preston, an analyst at Canaccord Adams, said new oil and gas extraction technology is allowing the trusts to better exploit their mature oil fields. The trusts, he said, have both the money and the discipline to make the most of these technological advances.

"The energy trusts have been dealt several blows over the past couple of years, but they are definitely not out for the count," Preston told clients on June 3 in a 103-page report on the sector.

"But," skeptics will say, "how was an ordinary investor to have predicted back in late 2006 that energy trusts would pick the income trust sector up by its bootstraps and haul it within sight of an all-time high less than two years later?"

That’s easy. An ordinary investor didn’t have to make that call. There is an exchange traded fund, or ETF, that tracks the S&P/TSX Income Trust Sector. It’s called the iShares CDN Income Trust Sector Fund, and trades under the symbol XTR. 

By owning units of the ETF, an investor would have ridden the energy trust rally without even thinking about it.

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Posted by Andrew Bell on June 5, 2008

Essential Energy Services Trust (ESN.UN – T) units have dropped about 25% today after the oil services trust said it will sell off a chunk of its business and cut its distributions by 70 percent, to 1.5 cents per month.
 
Rival Mullen Group Income Fund (MTL.UN – T) is buying Essential's Western Canadian fluid-hauling and oil-field transport business for $135 million.

Garnet Amundson, president and chief executive officer, says he's redefining "the strategic focus of Essential to a pure-play downhole services company." 

But the trust notes that the sale of the transport division, which produced about $34 million or 38% of Essential's revenue in Q1, reduces "the operating cash flow available to support the monthly distribution."
 
One U.S. fund manager says income-orientated investors have been blindsided. Peter Schiff, president of Darien, Conn.-based Euro Pacific Capital Inc., told Reuters, "I don't understand how the board of directors of the company can unanimously approve the sale of a key asset responsible for a significant portion of the revenue and have no means of replacing a dividend that the shareholders were relying on …. Do they not even consider at all the interests of the people who own the company?"
    
Still, National Bank analyst Brian Purdy says some kind of cut was coming anyway. "Most energy service trusts will have to reinvent themselves …. With taxation coming for the trusts in 2011 this is a reality and, in any case, the energy service sector is not well suited to paying out a high percentage of cash flow.

"The day of lower distributions was coming sooner or later …. At current levels, management thinks they can maintain this payout even if they converted to a corporate structure."

He reckons that Mullen offered a fair price for the trucking assets, a market where Essential would have had difficulty being a major player.

"While near-term there is disappointment (more about the distribution cut, I would guess), I think Essential will be a better business in 2011 this way than if they just kept paying out most of their cash flow."

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Posted by David Baskin on June 5, 2008

Albert Einstein defined insanity as doing the same thing over and over and expecting different results.  By this definition both the federal and Ontario governments are insane when it comes to the auto industry.  They keep throwing hundreds of millions of dollars at it to produce jobs, and they keep getting the same results:  layoffs and plant closures. 

Now it appears that we will have Jim Flaherty and Dalton McGuinty arm wrestling to see who can be more generous to GM.

The average wage for all employed persons in Ontario is $22.03 per hour, according to StatsCan.  Auto workers make a whole lot more than that, certainly double in many cases.  The notion that the rest of the workforce should pay higher taxes to protect the jobs of those who make twice as much as they do is bizarre.  The idea that politicians can win votes by doing that is even stranger. 

Governments everywhere have an irresistible urge to tinker with the markets.  I say, leave the markets alone, and let them do their jobs. 

If the highly paid managers of Ford and GM are too dumb to realize that they should be designing and building smaller, more fuel-efficient cars, it is not the job of our taxpayers to bail them out.  If they go bankrupt, well, that’s capitalism.  Some other smarter company will build the cars that people want to buy. 

If Buzz Hargrove by brilliant negotiation has priced his CAW workers out of the market, well, maybe the workers would be better off with a different union, or even none at all.  Maybe I missed it, but I don’t believe that the non-union plants run by Toyota and Honda in Ontario have laid anyone off in years.

Comments may be sent to davidbaskin@baskinfinancial.com.

(David Baskin is president of Baskin Financial Services Inc. in Toronto)

 

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Posted by Niall McGee on June 3, 2008

The Information Age is empowering and yet infuriating.

Industry Canada is making the results of each round of the ongoing wireless spectrum auction public. It's empowering because, in theory, you can figure who’s bidding, how much they’ve bid and what licence is being bid on.

It's infuriating because Industry Canada's spectrum auction website is a minefield. On its main page you can click on, among other things, bidding results, bidder results, bidder information, licence results, withdrawal summary and round summary.

You can also download data files (I don’t recommend you do this) and read about activity rules. It just goes on and on and on and on. Your head will be spinning after five minutes. After about 20 minutes of frustration I gave up.

I called Industry Canada and explained my situation. The media relations person took my name and assured me a tech person would call me back. Sure enough, someone did call back.

It took another 25 minutes or so but he took me through the ins and outs. In great detail. I absorbed maybe 30% of what he told me. Ultimately he was able to answer my questions, although regarding my most basic query (how much each carrier had bid so far), he put me on hold for about three minutes to "verify" with the engineering department.

After the ordeal, I felt that I had aged a bit and knew how to access about 10% of the information that was actually available on the site. It felt like the first time I used Microsoft Word in the early '90s, when all I knew how to do was save a file and change the font.

Why, more than a decade into the Information Age, do software companies continue to write such user-unfriendly programs?

We remain in the Dark Ages.

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Posted by David Baskin on June 2, 2008

The United States consumes about 400 million gallons per day of gasoline, mostly for personal use in cars. This is equal to about 12% of all the oil produced in the world, and is also about equal to the amount of oil that the U.S. imports. 

Under the circumstances, personal driving habits and consumer opinions become very important, and a recent poll conducted by the Royal Bank has some interesting observations.  Many Americans (82%) say they will consider buying a hybrid for their next car and 40% say they will think about moving closer to their work.  These are long term maybes that will likely never come to pass.

What about the obvious solution – form a carpool?  Over 85% of Americans who drive to work drive alone.  If they all drove in carpools of four, gasoline consumption would likely fall by at least 30% and oil prices would drop like a stone. 

Forming a carpool is much easier than selling a house and moving closer to work, or selling a car and buying a new one.  Yet only 11% of those polled said they would "consider" a carpool. Clearly the pain of high gasoline prices is less than the contemplated pain of sharing a car with someone else. 

I will take the gas price crisis seriously when those who say they are affected start to act like it is serious.  For the moment, I am reminded of Saint Augustine’s plea to God:  "Lord, give me chastity; but not yet."

Comments may be sent to davidbaskin@baskinfinancial.com.

(David Baskin is president of Baskin Financial Services Inc. in Toronto)

 

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Posted by Niall McGee on June 2, 2008

Forget star stock analysts. I look to The Simpsons for insight instead. Famously, one of Bart’s schoolmates recently taunted a Washington Post correspondent saying, "Your medium is dying." Oh Snap!
 
Every day a stack of newspapers arrives at BNN. But many in our newsroom never look at them. I know because I live near the stack.

But why should I or any of my colleagues bother with newspapers? The "news" in newspapers isn’t actually news anymore. It was news maybe eight hours before that, before the paper was printed and before it was actually delivered.

By the time a reader picks up the physical paper, the "news" quotient has pretty much evaporated. A newspaper is now merely a paper.
 
And as for the rest of the articles, insight and features etc? The vast majority of this content is available for free on the web. I actually prefer to read newspapers on the web. My hands don’t get covered in newsprint and I don’t have to mess around with pages. Just point, click and look. Scroll a bit if you’re feeling up to it. How easy is that?

With devices like the iPhone you can read papers in gorgeous high definition on the go, as well. How cool and superior must you feel standing next to someone on the subway, him reading his unwieldy broadsheet and annoying other passengers with his clunky page turning. And you perusing whatever newspaper on earth you feel like on an iPhone. When Rogers starts selling the iPhone I’ll be tempted to buy one just for this reason alone.
 
But therein lies two major issues for newspapers. Much of their content is now available for free online and classified advertising – their chief revenue source – now has some major competition in online sites like Craigslist. Why pay to wait 24 hours for your classified ad to appear in the local paper, when you can throw an ad with a photo up on Craigslist in seconds for free?

Media analyst Tuna Amobi of Standard and Poor’s says the outlook for the newspaper industry is "bleak." This comes years into the already miserable tailspin the industry finds itself in.

Many U.S. newspaper chains have been sold in the past five years, including Dow Jones' storied Wall Street Journal [a deal which left me and a number of my friends in the media sector gob smacked that the controlling Bancroft family sold WSJ to Rupert Murdoch's News Corp., best known for its brash Fox News channel] And market watchers say that the other venerable names that remain, most notably the New York Times,  are also vulnerable to being taken out.

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Posted by Michael Kane on June 2, 2008

One word used frequently by business reporters is "bellwether" … as in "Company X is seen by investors as a bellwether of the economy, because its several divisions are variously affected by separate elements of that economy." (Perhaps a better word, in this case, would be "barometer.")

The origin of the word "bellwether" actually centres on a ram. Shepherds would choose a ram or "wether" to lead the herd of sheep. Slinging a bell around his neck would distinguish him from the rest of the animals and improve the chance that the herd would follow him. As part of getting the job, he had to be neutered.

The subtle subtext when used by reporters is that the company being referred to as a "bellwether" is actually a leader of the business herd. And anything BUT neutered.

My advice is to beware: it would be easy to forget that the ram with the bell around its neck was simply going where the shepherd urged it to go.

And, of course, in recent years some of the most highly-regarded "shepherds" of our corporate world have become disoriented and lost their herds to vultures.

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