Posted by Niall McGee on September 30, 2008

The Irish shored up confidence in their banking sector in one fell swoop. Today, government announced it will guarantee bank deposits for the next 2 years. If you have money deposited in any of the big 6 banks in Ireland, that money is safe until September 2010.

So if any of the big 6 Irish banks go insolvent, the government will backstop losses. No limits.

Today the ISEQ index rallied 8 percent on the news, after plummeting 13 percent yesterday, its biggest 1-day drop in history. Among today's biggest winners were the banking stocks. Allied Irish Bank gained 16% after plunging 17% yesterday.

Now some influential Canadian investors say the Irish solution may be something American banks should consider emulating.

Stephen Jarislowsky of Jarislowsky Fraser told BNN producer Clint Ross that the U.S. should follow suit and also guarantee bank deposits. And that would go a long way toward bringing confidence back to the U.S. banking sector.

As to whether the Canadian government would ever consider offering unlimited guarantees on bank deposits in this country? Not likely, says money manager, Michael Sprung of Sprung & Co.

He says the situation would have to be drastic for that to happen i.e. a run on a Canadian bank. Sprung does see the limit, currently $100,000, being raised, though.

 

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Posted by Frances Horodelski on September 30, 2008

I've been in the investment business since 1979 (before some of my co-workers here were even born – maybe even Marty!).  I have been through some serious bear markets (although not the big one of the 1970s or, or even The Really Big One of the 1930s) – but some serious ones nonetheless.

I remember when everyone was making money on Grandma Lee's (a concept that couldn't lose in 1979).  The great gold markets of the late 1970s.   I remember when Dome Canada went public at $10 and never again traded at that price before it went bankrupt.   

I remember the National Energy Program – the bullet that killed the Canadian oil market for what seemed like decades.  There was the crash and then the follow-up in 1989.  There were bond market bears (those really hurt because that's where the so-called safe money was.)  I remember when BankAmerica had to sell its office building in California because it just wasn't going to make it. Geez, I even remember more recently when JP Morgan WAS GOING DOWN (that was 2002).

I was also there when there were many days on Bay Street when just opening the door of the building cost $300,000 – and by the end of the day, we hadn't made anywhere near that much.  Days when volume was just a trickle.   The best rumour of the day was who was going to make it through – not just individuals but whole firms.  There was even a time when people thought Bank of Nova Scotia wasn't going to make it – Scotia! 

The list is endless and as painful as today's list.

I have learned from some of the greatest minds on Bay Street and Wall Street (obviously didn't learn enough because I'm still working for a living).  I've seen fear in the eyes of big men who were managing bond desks and whole investment firms during the Long Term Capital Management crisis (and let me tell you, it was a crisis that seemed then as big as the one we're experiencing today – it wasn't, but perception is everything for a while in capital markets). 

Henry Paulson looked last night like those big men: shaky, tired, scared.

I've quoted statistics about biggest drops and biggest, longest and deepest bear markets.  I've looked at stocks when they were trading at single digit multiples, and inflation and interest rates were double digits. For heaven's sake, my husband's first mortgage was at 18%!

And through it all, the best advice I ever heard was "This too shall pass." 

And you know what – it did.  And so, too, shall this.  We may come out the other side a little wearier, a little poorer and changed for better or worse.  But we'll come out the other side.  

And the ones who prosper – the rich ones – are those who see opportunity in the ashes.  Those who see the VIX – the volatility index some call ''the fear index'' – almost 50 and see the advantage presented by panic and fear. They're the same people who step away and rethink or re-employ their strategy and figure out what's next. 

They stop looking at the process of making sausages in Washington (ugly, no matter where they're being made) and get about the business of looking for and investing in good companies at good prices. 

Maybe we'll get to interview some of them on BNN.   

 

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Posted by Michael Hainsworth on

The executives responsible for the biggest financial crisis since the Great Depression have been well compensated for their incompetence: the suits at the five biggest firms have pocketed more than $3 billion in the last five years — that's 3 times more than what JP Morgan spent to buy Bear Stearns.

The now-collapsed Merrill Lynch paid Stanley O'Neill the most. He raked in $172 million from 2003 to 2007. And after just a month on the job, John Thain pulled down $86 million. It's no surprise America's citizens and politicians are critical of the $700-billion payout.

U.S. Treasury Secretary Henry Paulson was initially opposed to capping salaries of the companies bailed out by the Bush plan. The former Goldman Sachs CEO himself received $11 million during his time at the top. He's since changed his mind on the subject -- now agreeing to limiting executive compensation.

But before we grab the pitchforks and light the torches, opponents of pay caps urge us to look at how the suits in the corner office distributed Wall Street's wealth. The top five firms made their near-186,000 employees a total of $66 billion last year. That works out to about $350,000 per worker.

Although I somehow doubt the receptionist cashed in on the "greed is good" mantra.

 

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Posted by Andrew Bell on September 26, 2008

If you've ever listened to RIM co-CEO Jim Balsillie, you'll know how he likes to meander – and pile on the jargon.

"We’ve got a lot of sector-specific trends that really are key drivers with all these new enablers we talked about," he informed analysts on the company's Q2 conference call yesterday. "The nuancing of bits of tweaks in the model in seasonality is a bit hard to predict but it's not really where our head is … it's very hard to nuance."

With the stock (RIMM-Q) down 26% to just under $72 US in Nasdaq trading today on a warning of sliding profit margins, at least one analyst seems to be wondering if talkative Jim could perhaps put a cork in it.

"Management spent an inordinate time replying to questions, often wandering off-topic" during the call, Deutsche analyst Brian Modoff grouses in a report on the company's earnings.

He cut the stock to Sell, with a $70 target, warning that RIM's growing dependence on hardware sales has begun "to take its toll … they have to keep running to keep up with changes in consumer tastes and risk missing numbers if their products do not hit."

RIM's gross profit margin in the latest quarter was almost 51% but the company sees that declining to 47% in the current three months and falling to the "mid 40%" range next year.

The pressure on margins "caught us/market by surprise," RBC analyst Mike Abramsky says in a report today.  He says it "represents a systemic margin downshift related to RIM's consumer push, reflecting a higher than expected mix of new products at lower margins."

Abramsky cut the stock to Hold and slashed his target to $90 from $165. "We prefer to remain on the sidelines until RIM's investments have progressed and visibility improves to margin recovery and growth."

Citi analyst Jim Suva cut the stock to a "Hold/High Risk" with a target of $90, citing the "shockingly negative" guidance on margins.

The company's push into the consumer market "will likely cap the valuation investors award RIM shares, as consumer-focused technology companies generally carry lower valuations due to the inherently lower margins and increased competition in the consumer sector," he cautioned.

Still, RIM has its legions of fans. J.P. Morgan's Paul Coster is disappointed to see the "permanent step-down in gross margins" but he's sticking with a Buy on the stock. "We believe this pullback is an excellent entry point into a tremendous growth stock."

He says "a massive new product cycle seems certain to win RIMM significant market share" and that "RIMM is at a major threshold, similar to the firm's transition from paging to cellular networks."

He sees the company becoming "a dominant participant in the smartphone market and therefore an aggressive entrant into the global Tier 1 handset market."

 

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Posted by Michael Hainsworth on September 26, 2008

If you want a straight answer, don't ask the question in email. Ask in person — or write a letter.

Two studies have revealed that people lie 50 percent more often when they use email compared to those who put pen to paper. The research by Lehigh University’s College of Business and Economics reveals that people feel justified in lying electronically, too.

It may have something to do with the fact you're not face-to-face. The non-verbal cues — or "tells" — that reveal we're lying aren't possible, digitally.

In the published work "Being Honest Online: The Finer Points of Lying in Online Ultimatum Bargaining," the researchers performed two studies.

In one, 48 full time MBA students were given $89 to divide between themselves and a fictional party who only knew vaguely how much cash was given. Using either email or paper, the students wrote down how much the other party would get.

Ninety-two percent of the time the students lied via email. The other party received just 29 bucks of the $89 available. And they insisted they were only given 56 bucks in the first place.

When using the ancient art of letter writing, 64 percent lied, too. But they were more generous. They passed on almost $34 from the kitty.

That second study revealed something about human nature, too. When the MBA students were told the other party could identify them, they were less likely to lie and more likely to be generous.

Email has been around since 1961, but it didn't receive wide adoption in the workplace until the early '90s. And apparently, we've been liars ever since.

 

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Posted by Niall McGee on September 25, 2008

Sinopec International of China is offering $2 billion in cash to buy Tanganyika Oil (TYK-T). Tanganyika is based in Calgary but operates a world away in Syria. According to Wikipedia, Tanganyika is derived from the Swahili words tanga meaning 'sail' and nyika meaning an 'uninhabited plain' or 'wilderness.'

Up until about a year ago, Tanganyika typically took in about $5 million per quarter in revenue but was losing money. In its most recent quarter, Tanganyika had $51 million in revenue and booked a tidy profit of 46 cents per share. That’s thanks to Tanganyika pumping out almost 17,000 barrels of oil equivalent per day in Syria. 

Energy analyst Glenn MacNeill says a rival bid for Tanganyika is unlikely to materialize. MacNeill says at the $31.50-per-share offer price, the company is fully valued. Also, he says it’s unlikely a rival would want to bid against Sinopec, which he says has massive resources at its disposal.

Tanganyika is currently trading about $2 below the offer price. The market seems to agree with MacNeill.

 

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Posted by Michael Kane on September 25, 2008

The credit crisis and resulting need for an estimated $700-billion gush of liquidity are relatively well understood by the financial community. But the majority of people are in shock, and frightened at what looks like an oncoming freight train.

I’ve been asked by people outside the business community - I refer to them as "civilians" - if the fact that U.S. President George W. Bush addressed the nation and used the word "recession" should be interpreted as a sign that the crisis is deepening.

My view is that when the credit market seized up in 2007, people like U.S. Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke began to think of scary scenarios that could develop, and also how to protect the economy. Those thoughts culminated in the so-called bailout plan that these two men presented to lawmakers on Sept. 22 and 23.

President Bush then addressed the nation on Sept. 24. That he did so means nothing beyond providing another step in moving the process along. By putting a stamp of approval on the plan constructed by his lieutenants, Bush became history, with the process picked up by the people who will replace him.

It was interesting to me that there was some debate as to whether presidential candidates John McCain and Barack Obama should immediately hold a debate about the bailout. Clearly, they both had to figure out where they stood.

But whereas the business community has been thinking about this all along, "civilians" may have gotten their first real taste of reality when Bush acknowledged the crisis. An immediate partisan political public debate, the kind we are accustomed to seeing in an election campaign, would be quite dangerous. By its nature, the debate would be divisive.

The best thing is for the two candidates to get together and agree on how best to save the economy … then figure out the more minor characteristics of the situation that can serve as debating points aimed at distinguishing them in the mind of the voters.

It's all just a process.

But it's remarkable that the dispassionate nature of the process is in such sharp contrast to the terrifying nature of the events that put that process in motion.

 

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Posted by Michael Hainsworth on September 24, 2008

The credit card as we know it today turns 50 this year.

And in an ironic nod to the current credit crisis, we tell you that Bank of America gets the credit for introducing the first piece of plastic that eventually became known as Visa. But back in 1958 it was known as the BankAmericard.

And at the time, the concept of a credit card was distinctly North American. It wasn't until about a decade ago that adoption rates in Europe matched those here at home.

But the thing is, the credit card idea goes back more than 50 years. More than 120 years, actually. Author Edward Bellamy is credited with describing the concept of a credit card in his novel Looking Backward in 1887, and prior to 1958 there were credit cards — but you could only use them at the merchant that issued them.

One of the first merchant credit cards was created to cash in on  the skyrocketing demand for cars. As sales of Ford's Model T hit the 1-million mark, credit cards were issued to pay for gasoline.

"Putting it on plastic" is a phrase coined well after the 1940s. Prior to then credit cards were sheet metal. The "charga plate" would replicate the customer's name by pressing it against an ink ribbon. And in many cases the customer didn't even keep the card in their wallet — they'd keep it at the store.

Today the credit card is evolving. Microchips keep track of more information than the first computers used by NASA to launch rockets. And radio frequency ID tagging promises the convenience of simply waving the card in front of the cashier to pay for your merchandise.

MasterCard is leading that charge. And it's one of the most successful financial IPOs today — up more than 400 percent.

 

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Posted by Michael Hainsworth on September 24, 2008

Google's entrance into the cellphone market is expected to put pressure on Apple and its iPhone. But the company that really should be quaking in its boots is Microsoft.

Google isn't getting into the cellphone business the way Nokia is: it's not making handsets. It's made the cellphone equivalent to the Windows operating system — although the comparison may not be fair to Google's reputation.

But that's what it is: a cellphone operating system. The soft underbelly to the hardware you'll stick in your pocket, purse or briefcase.

Microsoft's Windows Mobile operating system is not friendly. It's designed for a cellular device but not a cellular-sized screen. Google Android is.

While companies like HTC offer Windows Mobile-based devices, they're selling them by hiding the Windows operating system underneath what's called a shell — and it's a fragile shell at that.

Google Android has the benefit of being written for today's mobile phone from the ground up — not the phone you first bought after Y2K made your previous model a doorstop.

If Google is actually going up against Apple, it's in a different way. Remember: these aren't phones, they're handheld computers. And like your desktop computer, you can add software to an iPhone — or a Google Android-based phone, too.

And that's where the competition between these two players comes in. Apple offers software for the iPhone through the "App Store," with applications ranging in price from free to $1,000. And Apple decides what gets posted to its online store.

Google is offering an online store, too. But unlike Apple, there's no gatekeeper deciding who gets let in and who doesn't. And Google's cellphone operating system is called "open source" — meaning anybody can program for it, learn the inside secrets and make changes, all for free.

And that's Apple's Achilles heel. While Apple's device is insanely popular by comparison, Google is counting on millions of programmers worldwide to adopt its technology — without costing Google a dime.

 

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Posted by Mark Bunting on September 24, 2008

One investor has stashed $1 billion US worth of gold bullion in a New York vault. Another says the U.S. dollar has "crossed the Rubicon" and that gold stocks could see "enormous returns."

Long-time gold bugs have already seen their yellow metal pass $1,000 an ounce. That was back in March. But, is gold now setting itself up for the really big breakout, the one that has Goldcorp’s CEO Kevin McArthur predicting that it will hit $1,500 an ounce?

It is if you believe the theory that the proposed US. government bailout will be highly inflationary, weaken the U.S. dollar and send gold on its way to another rampaging run.

John Hathaway of Tocqueville Asset Management, who manages $800 million in gold and mining stocks, says the U.S. dollar has "passed the point of no return." He thinks investors have lost confidence in paper currency of any kind. Hathaway says the dollar will eventually break the $1.60 level against the euro, which will force the European Central Bank to debase its currency for fear that a super strong euro would result in chaos for European economies.

Hathaway also favours gold because investors' confidence in financial markets has been "irreparably shaken," adding that the mythology that the Treasury and Federal Reserve know what they're doing has evaporated. Hathaway says, "They’re panicking and making it up as they go along."

Favourite gold stocks for Hathaway include Goldcorp (G-T) and Newmont Mining (NEM-N).

All of that brings us to Jean Marie Eveillard, who oversees a mere $22 billion in assets in his First Eagle Global Fund.  He keeps up to 8% of those assets in gold bullion and gold mining stocks, including that aforementioned $1 billion in bullion stored in a vault near his office in mid-town Manhattan. He calls it insurance against "extreme outcomes."

The 68-year-old Frenchman, whose fund has returned 13% annually the last five years, says with the U.S. printing more money the dollar will be shaky and inflation will rise. Those are perfect ingredients for another leg in a multi-year bull run for gold.

If Eveillard, Hathaway and others turn out to be right, gold stocks and exchange-traded funds that track bullion or gold indexes could truly be entering their golden years.

 

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Posted by Scott Peterson on September 24, 2008

In New York City Tuesday, Google founders Sergey Brin and Larry Page introduced the next generation of the smartphone with something they're calling the G1.  The device uses software Google developed called Android, which allows users to search the web, and use Google applications such as Google maps and Gmail.

The G1 employs touch screen technology — like Apple’s 3G iPhone — but it also allows users to double touch the screen, providing the ability to cut and paste. And it features a slide-out keyboard and thumb device like the one on the RIM BlackBerry.

The Android software is to the smartphone world what Microsoft's Windows is to the computer world. It's an application that users can modify to fit their own needs and wants.

There is another feature that Google and its advertisers are excited about, and that's the ability to track users physically and potentially bombard them with advertisements. Imagine passing a Starbucks and hearing about a half-off sale on double lattes.

While this might be good news for tech geeks and advertisers, many analysts are asking a simple question: will it sell?

Some on Wall Street predict it will sell fewer than 500,000 units after its Oct. 22 release in the fourth quarter. Compare that to more than one million iPhones sold in the first three days of its launch back in July. Never mind smartphone giant Research In Motion, which already accounts for over half of all smartphone sales.

Google shares were up on the announcement after a 36% decline this year. Meanwhile, Apple shares were mostly flat despite being down 33% this year.

T-Mobile –the fourth-largest mobile carrier in the U.S. after AT&T, Verizon Wireless and Sprint – is the G1's service provider. The phone is made by Taiwan-based HTC Corp. The expected price tag is $179 US for the device with a two-year contract.

Google stands to benefit from an increase in revenue from the phone, with some analysts saying the company could double its sales next year if the device takes flight.

While Rogers is expected to be the carrier here in Canada, they are not yet saying when, or at what price, the G1 will be available in Canada.

 

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Posted by Viewer comment on September 23, 2008

Re: Andrew Bell's Limited benefits from Grits' trust tax plan: analysts

Bell quotes BMO analyst Gordon Tait as saying, "the problem could also be solved by simply extending the dividend tax credit into retirement accounts. I think that's a better solution."

Tait is absolutely correct!  But I'll vote Liberal as the party that leaves more money in my pocket to pay the bills, no matter how they accomplish this.
 
I lead a very modest lifestyle.  My sole source of income is my CPP (no OAS until Nov. 2010) and trust distributions from my RRSP account.  If I lose 31.5% (to be reduced with lower corp taxes) I would  be unable to support myself.  Much like the info ad were the lady opens a can and the roof peels off her house or all the lights go off.
 
M .L.  Roberts

 

I applaud the Liberal platform on income trusts.  I do so for very practical reasons.  Reasons that all commentators on this issue should think about.
 
Let me articulate my problem with the Tory betrayal: I have no gold-plated employer pension plan.  I've had to save and invest for retirement by myself.
 
I need current income to pay the bills: groceries, heating bill, etc.  Bonds, GICs or dividend paying corporations paying 2-4% per annum would put me in poverty.
 
And it's not just me either.  There are millions of baby boomers approaching retirement age.  Seventy percent of them have no employer pension plan either.  They will be in the same boat. 

The fact is we need high income paying equities to meet the needs of this large group of Canadians.  At 65 they won't have the stomach to chase the capital gains dream in regular equities.
 
We need a practical solution other than poverty.

A. Irwin

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Posted by Michael Hainsworth on September 23, 2008

There's news recently about a market correction of a different kind: a published report in Britain says the island is bracing for a stock market-fuelled baby boom.

Since the U.S.-led credit crisis cut into corporate bonuses and disposable income, The Sun says you can chart a new index: the "bonk rate."

Apparently drug stores are reporting a big jump in pregnancy tests and Viagra sales, and clothing stores are reporting a boon at the cash register from maternity wear. The upmarket chain Mamas and Papas told the paper they've seen a 46-percent increase in sales for mothers-to-be.

And a healthcare buyer for "chemist" Superdrug says there's been a sharp increase in sales of sexual health related products.

Mother and Baby magazine rhetorically asks, "What's cheaper and more fun than making babies?" Editor Miranda Levy then goes on to admit, "the trouble is, when they come out they're expensive."

Here at home, Shoppers Drug Mart didn't get back to me about the possibility of a big spike in little blue pills and baby bottles, but a spokesperson did tell me that whenever there's an economic downturn, they see an upswing in … lipstick. Why lipstick? Tammy Smitham tells me it's all about instant gratification -- it's the small things that make us feel good.

Incidentally Shoppers Drug Mart stock is down 1 percent this year. The TSX is down 9 times more than that.

 

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Posted by Kim Parlee on September 23, 2008

An interesting conversation with a Bay Street analyst today on how income trusts may have saved the Canadian banks from too much toxic U.S. credit exposure.

Over the past few years, Wall Street ramped up its exotic mortgage instruments to extract juicy yields for hungry investors.  On this side of the border, Canadian dealers were caught up in the income trust craze.  

The analyst’s thesis?  Canadian dealers were too busy with income trusts deals to have time to get too deeply involved in the U.S. mortgage mess.

Small comfort to trust investors when the hammer was dropped on trusts on Oct. 31, 2006.

But a reality check on those who think Canadian banks and dealers are better risk managers.  They were just busy with something else.

 

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Posted by Niall McGee on September 22, 2008

Forget Tim bits. How about some AIG bits with your double double? The Globe and Mail reports Manulife Financial may bid for AIG, or at least bits of AIG. AIG bits.

The tastiest bits may be the Far Eastern assets, according to Robert Floyd, president of R.A. Floyd Capital Management. He says now is a tremendous opportunity for MFC to buy some of these assets.

Floyd says MFC has the balance sheet to do it, thanks to its credit default swap-free run through the credit crunch minefield.

While MFC may get a deal, it won’t get a steal. Floyd says MFC is likely to be bidding against European and other players for AIG’s best assets.

 

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Posted by Andrew Bell on September 22, 2008

The Liberals have resurrected their plan to ease the tax hit on income trusts - but even if they’re elected, the impact of the measure will be muted for a couple of reasons.

"A Liberal government will repeal the punitive 31.5% tax on income trusts and replace it with a 10% tax that is refundable for Canadian residents," the Grits’ new election platform proclaims.

They don’t point out that scheduled cuts in corporate taxes and the boost to the dividend tax credit means that double-taxation of dividends will largely be eliminated by 2012 for taxable accounts. In other words, observers say, profits will be flowing into the hands of shareholders without resorting to corporate origami.

Trust investors don’t care if "they receive a dividend or a cash distribution as long as the tax treatment is the same," BMO analyst Gordon Tait says.

The Liberals also haven't made it clear whether they will allow the formation of new trusts. John McCallum, Liberal finance critic, may provide answers when he appears on SqueezePlay tonight at 5:30pm ET.

(McCallum told Amanda and Kevin that the Liberals "would have a period of consultation" on whether to allow new trusts or a resuscitation of the energy trust business. Click here to watch the interview.)

Of course, tax-free investors such as pension funds, RRSPs (and the new Tax-Free Savings Accounts) do stand to benefit because they can’t use the dividend tax credit.

RBC said in a report last year that the Liberal plan "would effectively reinstate the full benefits of income trust economics to Canadian tax-deferred investors."

But BMO’s Tait says "the problem could also be solved by simply extending the dividend tax credit into retirement accounts. I think that's a better solution."

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Posted by Viewer comment on September 22, 2008

Re: Paul Bagnell's Why did the U.S. rescue AIG?

Throwing all this money at the problem seems to me to be simply inflating away the problem, or have I got it wrong somehow?  A number of foreign governments have stockpiles of American dollars (China for example, or sovereign wealth funds) – will they dump dollars for euros as their currency reserve or will they use the dollars in the American market to buy American companies at any cost?  China might like to purchase GM for example. 

G. Fenning

Paul Bagnell had a good analysis of the AIG bailout, but I think he missed something in his third point.  He said that none of the Wall Street players cared to buy AIG, making a government bailout the only way out.

But an article in the New York Times, "Throwing a Lifeline to a Troubled Giant" (Sept. 17, 2008), says that some private equity firms were interested in buying AIG.  However, "By Sunday, K.K.R. [Kohlberg Kravis Roberts] and the Texas Pacific Group made it clear they would not come to the rescue, worried that A.I.G. might be taken over by the government, wiping out their investments." 

Isn't it ironic that the government's bailout mode discouraged private investors from saving AIG?  The taxpayers are on the hook for $85 billion because of it. 

These bailouts are making me queasy.  They promote moral hazard and may end badly.  The US dollar could deteriorate, bringing stagflation and a host of other ills we can't foresee.  We should encourage as many market solutions as possible.  It's the only way to rescue taxpayers from the bailout black hole. 

G. Parr

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Posted by Andrew Bell on September 18, 2008

Is there … could there be … a case for buying back into mining stocks? Copper prices have rallied today as the U.S. dollar weakens, sweetening the attraction of metals as an inflation hedge.
 
"The U.S. government has no problem printing up more dollars and eroding its value," Patrick Chidley, an analyst at Barnard Jacobs Mellet told Bloomberg.

Copper futures for December delivery have been trading more than 1.7 cents higher to reach $3.06 US a pound in New York. Copper is still down from a record $4.2605 a pound in May.

Some investors also hope the $180 billion pumped into the financial system by central banks will help revive global growth. 

We're debating copper stocks on the Stars & Dogs section of The Close today. I’m the bull and Kim is the bear.

Copper equities have tanked this year, with many smaller names losing at least half of their value on the TSX. In a Sept. 12 report, Blackmont Capital analyst George Topping argued that the shares have dropped too far.

"While copper prices may have more room to fall in the short term," he said, "the equities appear to have already incorporated a move to much lower copper prices. We believe many of the equities are pricing in copper at $1.30/lb to $2/lb."

He says Chinese buyers have in the recent past "put a floor of $2.50/lb to $2.75/lb" on the metal by buying more when it slides to that level.

His recommendation: buy larger miners such as HudBay (HBM-T) and Freeport McMoran (FCX-N) during the fourth quarter.

He also likes the look of soon-to-be producers such as Mercator (ML-T) and Equinox (EQN-T) "as in their current weakened state, we believe these two companies are potential takeover candidates."

Earlier-stage Chariot Resources (CHD-T) also looks particularly vulnerable, the Blackmont analyst says.

Raymond James analyst Tom Meyer tracks smaller copper stocks that are leveraged to the price because of relatively high operating costs –  in other words, he says, they're most likely to pop if the metal recovers and drop sharply if the price slides.

In a Sept. 11 report, he produced this list (from most-leveraged to least-leveraged):

Aura Minerals (ORA-T)
Amerigo Resources (ARG-T)
Frontera Copper (FCC-T)
Taseko Mines (TKO-T)
Quadra Mining (QUA-T)
First Quantum (FM-T)
Anvil Mining (AVM-T)
Equinox Minerals (EQN-T)
Inmet Mining (IMN-T)
Centenario Copper (CCT-T)
International Royalty (IRC-T)
Coro Mining (COP-T)

 

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Posted by Andrew Bell on September 18, 2008

Shares in Bombardier Inc. (BBD.B – T) and Boeing Co. (BA – N) slid more than 10% in the past week as investors fret about the impact of the financial meltdown on the global economy. And Versant Partners analyst Cameron Doerksen warns today that the banking bust may carry a couple of threats for Bombardier in particular.

Tottering insurer American International Group (AIG – N) owns ILFC, one of the biggest aircraft lessors in the world.  ILFC has shown "significant interest" in acquiring Bombardier's planned CSeries aircraft, Doerksen says.

"While ILFC itself is profitable, the concern is that deteriorating credit at AIG will make it more difficult for ILFC to acquire aircraft to lease out."

However, he also says a buyer for ILFC could be found relatively quickly.

Another worry is Russia, whose financial sector is in freefall, which means those lovable oligarchs will find it harder to afford private jets.

"We continue to believe that Bombardier's backlog will support strong business jet deliveries through next year, but the company has had particularly good success in selling jets into the Russian market so we will be monitoring the situation closely," the Versant analyst says.

But what about the aviation boom in emerging markets? Doerksen says that according to India's Ministry of Civil Aviation, the number of domestic airline passengers fell more than 5% in August, following drops of 12% in July and nearly 15% in June.

Meanwhile, he says Air China has seen year-to-date (to August) passenger numbers "fall almost 4%, including a 2.8% drop in domestic passengers." China Southern's passenger levels declined 16% in August. 

As of Sept. 4, Doerksen rated Bombardier as a "Buy" with a one-year target of $9.75. The stock has dropped 15% in the past week to trade around $6.22 today (the S&P/TSX composite is down 4%). Boeing has lost 12% to trade around $55.27 US.

We’ve asked Doerksen if he's likely to change his outlook on Bomber and he says, "No changes to the target or rating at this time."

 

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Posted by Viewer comment on September 18, 2008

Re: Paul Bagnell's Why did the U.S. rescue AIG?

There are so many valid points already noted that it is hard to decide exactly where it is I should begin to agree.

First of all, Wall Street players and conglomerates have for decades complained that Uncle Sam was meddling in their affairs. They were, in essence, left to their own devices and subprime mortgages, gas gouging at the pumps, corporate bankruptcies, and federal "bailouts" are the result.

Now corporate America, and AIG in particular, is knocking on Uncle Sam’s door not as a confident and strong presence in the financial world, but more like the orphan Oliver Twist — hat in hand — saying "please sir I’d like some more."

Let’s be honest and realistic. "Bailout" is a word being thrown around and is misleading to the public. AIG will not survive as is. The government has loaned them enough money to allow them breathing room in order to hold nothing less than a corporate garage sale. They'll sell their assets in hopes of avoiding the financial tidal wave that would have resulted had they filed under Chapter 11. In short, the Titanic has struck the iceberg and we're bailing out water one teaspoon at a time.

In fact, if AIG can’t sell those subsidiaries — let's face it the market is down — or they are unable to pay their debts — let's face it, garage sale items go for bargain basement prices — they may still have to declare bankruptcy.

Corporate management, CEOs, presidents, etc. should all be held financially accountable. In my opinion, their decisions to greenlight unsecured loans to people who, under established banking practices, would not have qualified for that loan is inexcusable. Furthermore, to allow these bad financial investments to be sold on Wall Street and the TSX as sound investment options is beyond comprehension.

Even the untrained eye could see that lending money to people that did not have the financial means to pay it back is nothing less than fiscal stupidity; therefore, investment houses and brokers alike should have investigated these questionable practices directly before investing other people's money. The subprime mortgage market was nothing more than a pyramid scheme awaiting the faintest wind of change to send it crashing down.

Hopefully, this will be a lesson to Canadian corporations as well. The financial market is much like the food chain. If you wipe out the little fish financially, by cutting thousands of jobs or exporting them overseas, then the little fish cannot pay their bills and bank debts. Defaults on bank debts means no cash income for banks. No cash for banks means no loans for Wall Street or the TSX.  Eventually, the big fish will suffer too.

In essence, AIG will will have started this calendar year as the proverbial lion and will go out like a meek lamb gasping for breath. Shareholders will lose billions, the American taxpayers will lose billions, corporate workers will lose their jobs, despite the fact that many have been there longer than the CEOs, and corporate management who will walk away with severance packages in the tens of millions of dollars.

CEOs, chairmen and the like have been granted a licence to steal for far too long! Government oversight and an overhaul of the financial system is not only warranted, it is now owed to the American taxpayers — who have 85 billion reasons as to why they deserve an explanation.

L. Duff

 

Re: Amanda Lang's Breaking the buck: When rock-solid isn't

Unfortunately investors must get their fingers burned every once in a while.  Sad tales about investors losing money provide an education to both investors and investment advisors.  The more current hurt we undergo, the smarter we all will become and so the longer it will be before it happens again.
 
For myself, my dividend stream has not been affected and I have some cash to "buy low."  Not everyone is depressed about the current situation.
 
What makes me laugh are the investors and investment advisors who are bragging about how they got out of the market before its fall.  You would also have to know how many times they got out of the market when they should have stayed in.

B. Moses

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Posted by Mark Bunting on September 18, 2008

Seriously? Sirius XM Radio is a penny stock? The only satellite radio provider in the U.S. is trading below a dollar?

How did this happen? The recently completed merger of Sirius and XM was supposed to create a stronger company. Subscribers would be combined, costs would be cut and investors would flock to the stock.

Aside from getting caught in the massive market downdraft, the main concern surrounding the company is $300 million US in debt that needs to be refinanced by February.

CEO Mel Karmazin says he wants to do that at reasonable terms but, given the high cost of credit these days, he's resigned to paying a higher interest rate than he would like.

Another issue is that Sirius XM is heavily reliant on the U.S. auto industry. About 80 percent of its revenue comes from its contracts with automakers. However, with that industry in the doldrums for the foreseeable future, Sirius XM's revenue stream is being hampered.

In an effort to revive growth, the company has plans to offer a 50-channel package at $6.99 US a month. That's half the channels and half the price of its main offering. Lapsed customers will be offered incentives to sign up again. And, maybe most importantly, as of Oct. 6, XM subscribers will be able to access Sirius content on a limited basis, and vice versa.

That means Sirius’s top draw, Howard Stern, will be available to listeners with XM receivers and Oprah Winfrey will be heard by Sirius subscribers. The company is also planning to launch receivers that get the full slate of boh Sirius and XM content.

Sirius XM has never turned a profit, having paid a fortune to acquire content such as the $500-million, five-year contract to land Stern back in 2004. On the plus side, Stern’s presence has helped to substantially ramp up subscriber growth.
 
The King of all Media has taken a hit on his shares, though. Two years ago, they were worth $220 million. Now, they’re valued at under $30 million. But, don’t feel too sorry for Stern because his annual salary allows him to haul in more than David Letterman's $31 million per year.

The bottom line is that Sirius shares (SIRI-Q) look cheap. Karmazin is talking about eventually taking the company private so a premium should be built into the stock that likely doesn’t exist now. 

It might take a while for the shares to turn around. But, when you can get a satellite radio monopoly for less than a dollar, that could be a serious bargain.

 

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Posted by Amanda Lang on September 17, 2008

That sound you hear is the collective groan of thousands of money managers, experiencing the hangover of a lifetime.

That headache and dry mouth is just their due, of course, after an unbroken string of parties that enriched Wall Street insiders – and a whole bunch of investors – courtesy of easy money.

But even those who place the blame for the current asset-price collapse squarely at the feet of Alan Greenspan and his famous willingness to spike the punch bowl with lower rates might be shocked by what they see today.

Reserve Primary is one of the oldest money market funds on the planet – and it’s on the brink of collapse.

Why?

It seems this supposedly rock-solid-safe investment wasn’t so safe. In fact, Reserve Primary had exposure to Lehman bonds, and it seems once its investors found that little tidbit out, they made a run on the bank – yanking tens of billions out of their accounts at Reserve Primary in a matter of two days, and forcing it to freeze redemptions.

The wrinkle there is that folks choose money market funds precisely because they are liquid – freezing them ain't part of the deal.

Will Reserve Primary collapse? Maybe. These situations tend to be terribly self-fulfilling.

Other money market funds have been quick to say they're safe; but it points to another big problem plaguing Wall Street, notably a tolerance for risk that got way too far out of line with reality.

You say "risk-realignment" and I say "mini-depression."

 

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Posted by Paul Bagnell on September 17, 2008

After the Fed’s unprecedented move to support AIG Group with a $85-billion US loan facility, the question being asked around the world is: Why AIG and not Lehman Brothers?

It's a fair question.

If you’re keeping track of the meltdown in the U.S. financial sector – and who isn't – you’ll know that the Fed has:

- brokered a takeover/bailout of Bear Stearns on March 17;
- taken over mortgage-funding agencies Fannie May and Freddie Mac on Sept. 7;
- refused any support to Lehman Brothers and watched it file for creditor protection on Sept. 15;
- made it known that it was against federal support for AIG Group late last week; and
- reversed its position late yesterday (Sept. 16), and extended the loan facility and agreed to take an 80% stake in AIG.

Does this pattern of action by the Fed make any sense, or is it running from crisis to crisis and making things up as it goes along?

I'm in the camp that believes that throwing AIG a lifeline was the right thing to do and that, some day, the Fed will be seen to have acted correctly – or as correctly as it could have acted – in this crisis.

Why?

First, the huge role that AIG's credit default swaps holds in the world's financial system. These are essentially insurance policies that other financial institutions have taken out against the risk of default in their fixed-income portfolios. If the swaps become worthless – as they would have if AIG were unable to post the needed collateral – institutions around the world would have taken a look at their holdings of risky assets (think sub-prime mortgage bonds) and calculated how much they were worth without default protection. That would have triggered a huge wave of additional writedowns, losses and desperate moves to raise additional capital – the last thing markets need.

Second, debt issued by AIG is held in many money market funds. Money market funds have typically been regarded as one of the safest forms of investment. (So, for that matter, have bonds issued by giant insurance companies). If AIG defaulted on its debt, some money market funds would take a major hit. That would hurt ordinary retail investors as much as any one else. (Stay tuned on this front, by the way – some money market funds have indeed experienced stress in recent days).

Third, there was no interest from other players on Wall Street to step in and buy a piece of AIG – or all of it – as a way of resolving the crisis and serving their own interests at the same time. That's the way the Bear Stearns crisis was resolved – with JP Morgan Chase buying Bear at a steep discount, and the Fed agreeing to backstop some of Bear's riskier assets.

To these reasons, you can add the fact that when Bear Stearns hit the wall back in March, no one knew the financial crisis would worsen so quickly and so severely. The Fed has simply been forced to react as events unfolded with sickening speed.

It will be the task of U.S. lawmakers to pass new laws and regulations that make the kind of recklessness that has brought AIG and others to their knees a thing of the past. Until then, it's the Fed's job to do its best to keep financial markets functioning amid the deepest crisis since the Depression. So far, it's doing an admirable job.

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Posted by Scott Peterson on September 12, 2008

If you’re planning on filling up your car for the weekend, don’t be surprised if you're paying up to 13 cents a litre more today than you did yesterday. Some gas stations in Toronto are selling as high as $1.366, with the Canadian average price sitting at $1.333.

It’s no secret the wrath of Hurricane Ike is causing refiners to jack the price of gas in anticipation of oil becoming more expensive. A lot of U.S. refiners had already shut down because of Hurricane Gustav. As a result U.S. gas inventories were down by several million barrels, according to the U.S. Energy Department.

Now comes Ike, which could hit the Texas coast early Saturday with 200 km/h winds and a wall of seven metres of water.

The Texas coast is home to about one-quarter of America's refining capacity, and the Gulf is home to about the same percentage of U.S. production. By the numbers, this could take out 1.26 million barrels a day of oil, and 6.9 billion cubic feet of natural gas.

But if Canada is one of the world's biggest exporters of oil and gas, why are we paying more? Well, because Canadian gasoline also comes from the Gulf. In May of this year we imported about 100,000 barrels of gasoline equivalents every day, according to the International Energy Agency. That's way up from this January when we only imported less then 50,000.

While the price of oil didn't jump on Friday’s trading, the price of gasoline futures for October did: up 3½ percent to a high of $2.85 early in the day before settling down.

That prompted even the prime minister to concede that big oil companies are gouging consumers.

Harper said he is "prepared to take steps" to address the issue, but gave no details.

"We do have some announcements in this area that we'll be making as the campaign progresses," he told reporters.

While stopping gouging might prove as easy as stopping speculators from running the price of crude up, there is proof the refiners are not nearly as profitable as the companies bringing the stuff out of the ground.

Valero, for example, a pure refining company, says it's having trouble making money, while its shares are down nearly 50% from last year.

 

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Posted by Michael Hainsworth on September 12, 2008

It's a very special day for the world's computer geeks and technology nerds.

It was 50 years ago today that the microchip was invented by a man named Jack Kilby at a Texas Instruments laboratory in California, sparking a revolution in the way the world operates.

A decade earlier, rival Bell Labs had already made vacuum tubes obsolete with the invention of the transistor, but just 10 years later engineers had a new problem: packing all those transistors onto a circuit board.

Kilby is credited with throwing out the whole idea and starting fresh, recognizing silicon was the solution. Forty-two years later he won the Nobel Prize for the invention of the integrated circuit.

One of the first large-scale uses for the integrated circuit was in the Apollo space program. And NASA was one of the few organizations that could afford them: in 1960 dollars, the first microchips cost upwards of $1,000. But by 1963 that price fell to $25.

Today Intel is the dominant player in the microchip world. The name itself is a contraction of "integrated electronics" — but it wasn't always that way. Intel at first focused on memory for hulking IBM computers. And it didn't compile all those various microchips onto a single microprocessor until 1971.

Today Intel is a $125-billion company. Texas Instruments? $28 billion  — proving yet again that in the computer industry, first mover advantage isn't always an advantage.

 

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Posted by Niall McGee on September 12, 2008

Monday morning promises to be an interesting day.

Ike is currently a major hurricane and potentially a Gulf of Mexico oil rig wrecker of a storm. Or maybe Ike will fizzle and drizzle. 

But even if Ike strikes, maybe that won’t even be our top story at BNN. Standard & Poor’s Equity Research believes a Lehman deal will be consummated this weekend. S&P says a deal must be cut to head off a crisis of confidence. According to The Wall Street Journal's Deal Journal blog, the current market cap of Lehman, about $2.9B US, is less than what analysts say 55% of Neuberger Berman (its investment management division) is worth.

Yet according to a slew of analysts, buyers are few and far between unless the Fed steps in and takes on billions in Lehman’s toxic debt.

Two big stories. Two uncertain outcomes.

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Posted by Michael Kane on September 12, 2008

I must correct something said on BNN's Lunch Money program today.

In discussing Freddie Mac and Fannie Mae, I said their shares had fallen under one cent in value.

I incorrectly read their charts. In fact, a second source I used showed conflicting data.

They had, indeed, fallen below a dollar in value, which triggered a delay in opening under NYSE rules.

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Posted by Michael Hainsworth on September 12, 2008

General Motors is widely accused of killing its electric car, the EV1. The auto industry planted seeds of distrust in the late 1990s: an electric car won't go far — or fast.

But today, GM's Chevy division has found religion in alternative ways to power the power-train and will introduce the Volt in 2010.

But there's already a high-powered luxury car fuelled by a wall outlet and Tesla Motors now says it's worked out some of the kinks in this roadster.

Tesla Motors of Silicon Valley has upgraded the power train on this vehicle. This electric car can go from zero to 60 mph in 4.0 seconds. It can travel 400 kilometres on a single charge. And it costs just a half a cent per kilometre.

In a very Palo Alto way, it's calling the upgrade "version 1.5." They've dumped the two-speed transmission for a one-speed that weighs 17 pounds and creates less drag on the motor. So it will go faster and for longer. For the gearheads, the torque has been upgraded from 211 foot-pounds to 280.

And here's a lesson Detroit could learn. The 27 roadsters currently in the driveways of California's well-heeled will be retrofitted at no charge starting next month. The work can be done over a three martini lunch — provided you don't invite the mechanic to lunch. In this vehicle, the parts are snap-in like a computer.

And while this vehicle is out of reach for most of us (at about $100,000 US), Tesla plans to spend the next two years learning from the roadster — and releasing an inexpensive sedan model at the same time GM electric cars hit the showrooms.

 

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Posted by Andrew Bell on September 11, 2008

Lower oil prices may be good for Magna International Inc.'s gas-swilling customers (North American profit fell by half in Q2 as the Big 3 sputtered) but Deutsche Bank sees more pain ahead for Frank Stronach's auto parts empire.

Deutsche Bank analyst Rod Lache said auto demand in Western Europe will slump 6% in both 2008 and 2009 – and "the impact of declining European demand is likely to be compounded by a weakening euro."

He slashed his price targets on parts makers today, reducing Magna to $46 US from $54.  Magna, which the analyst calls a "hold," has drooped 31% to just over $55 on the NYSE this year.

And it sounds like Frank's Russian billionaire partner, Oleg Deripaska, isn't having much luck in the stock market, either. The Financial Times says collapsing Russian share prices seem to have been "forced down as leading Russian businessmen and funds had to liquidate positions due to margin calls as they were unable to raise cash elsewhere."

Deripaska, the FT says, pledged shares in Norilsk Nickel for a $4.5-billion loan to acquire a 25-percent stake in the mega miner this April, leaving his UC Rusal aluminum producer with $14 billion in borrowings. Norilsk shares have slid almost 60% since the start of April. 

Observers say the 40-year-old Deripaska wants to merge Rusal and Norilsk to create a global mining leviathan.

He's famously close to Russia's leaders, an association that may ultimately turn into stained, unattractive baggage for him as he tries to expand his reach worldwide. 

The New York Times warned last week that after Russia's incursion into South Ossetia, there is "the notion gaining currency in some financial circles that their close ties to Prime Minister Vladimir Putin and his handpicked president, Dmitri Medvedev, may elevate the risk of doing business" with Russian oligarchs.

"Raising capital from Western banks, already difficult with the tightened credit markets, will become harder, and securing visas may become more difficult," the Times said.

Barrick Gold's Peter Munk is another of Deripaska's Canadian pals.  Last fall, Munk was working on plans to build a luxury (what else?) marina in the former Yugoslav republic of Montenegro and Deripaska was one of the investors.  Munk sits on the advisory board of Deripaska's Rusal.

"The fact that he is close to Putin is neither a plus or a minus," the grizzled gold tycoon told the Times last week. "I judge him by his behaviour, and my trust in him is complete."

 

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Posted by Andrew Bell on September 10, 2008

Investors in Canadian organic food producer SunOpta Inc. (STKL – Q, SOY-T) have been munching on sour berries lately and now it seems they're having trouble with corn, too.

Octagon analyst Bob Gibson cut his target on the stock today to $8.50 US from $11.50, citing a threat to the U.S. ethanol industry's lucrative subsidies.

U.S. Agriculture Secretary Ed Schafer warned ethanol producers on Monday that cuts are needed.

"The ethanol industry has incorporated the fact there are subsidies into their operational, financial models," he told Reuters.  "The business model has to operate without the subsidies because eventually they are going to go away."

SunOpta's "bioprocess" group is working on technology to convert material such as wheat straw into so-called cellulosic ethanol.

Octagon’s Gibson warns in his note that without subsidies, "the ethanol industry is not economic." He reckons SunOpta’s ethanol business may now not be worth the valuation put on it by unidentified private equity players who invested in the operation more than a year ago, thus prompting his target cut.

SunOpta, based in Brampton, Ont., has seen its stock slide more than 50% to just under $6 this year after a SNAFU in its frozen berry operation.

In January, investors heard that the berry products in its warehouse weren't worth as much as the company paid for them. In late June, the company said chief executive officer Steve Bromley and chief financial officer John Dietrich will quit by the end of the year.

The company has since launched a strategic review and taken a writedown of $11 million for overvalued berry inventory and a $3-million provision for a legal dispute in the bioprocess business.

SunOpta forecasts 2008 revenue of more than $1 billion.

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Posted by Michael Kane on September 10, 2008

Labour productivity in Canada during the period of April to June 2008 declined 0.2%, and while that doesn't sound like much, it establishes the longest streak of declining Canadian productivity in 18 years.

Labour productivity is a measure of how much you get out of the economy in return for what you put in. The "inputs" include the amount workers are paid, and how much is invested in machinery and other stuff that makes the business run. What you get from the process is measured in products made and sold, sales revenues, and product held in inventories.

So, in Canada, we’re paying more and getting less. To grow the economy, we need to get more for our money.

Federal Finance Minister Jim Flaherty's suggestion for those hurt by the higher dollar is to use the increased purchasing power in that dollar to invest in new, more sophisticated, more efficient equipment. Some in the manufacturing sector, such as auto parts maker Linamar Corporation, have been able to do that. You might say they've been forced to do that.

One airline analyst told me that while rising fuel prices were first seen as a negative for plane builders like Bombardier, those rising prices are actually seen as forcing airlines to buy new, more fuel-efficient planes that Bombardier is now building. Bombardier is adapting.

If the input cost, such as fuel, is not going to go down, a way must be found to get more out of it. In that way, the advancement of technology feeds into an increase in productivity.

Canada should be good at advancing technology.

Stay tuned.

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Reader comments

When I learn that there is a change in labour productivity I try to form a meaningful picture of what is happening.  An increase in productivity can mean that there is plenty of work for the company and workers are busy through their whole work day.  It could mean that there is more capital investment in tools which enable workers to produce more with the same actual effort.  It could mean that management is supervising more effectively to police work effort or that the compensation plan incentivizes production.
 
Declining productivity could mean that work is less plentiful and workers are short of work to do but are being kept on in hopes of economic rebound. (Holding an employee though a downturn might be cheaper than paying a severance package only to recruit and train new workers when the economy returns).  Or it could mean that workers are able to slack off because there is so much work around that no one fears losing their job.  Or would it be that wages are going up and therefore productivity per dollar (rather than per worker hour) is lower?  Too much time on the internet?  Or is the economy shifting to types of economic activity where there is traditionally a lower productivity rate?
 
If we are to do something about low productivity we need to know why.  Does anyone actually research what is really going on? - Allan Thompson

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Posted by Michael Hainsworth on September 9, 2008

For the first time in decades, one of the world's best-kept secrets left its secure confines. We're not talking Area 51 here, though if you worked at the Kentucky headquarters of KFC, you might think so.

The original 68-year-old recipe, handwritten by Colonel Harland Sanders outlining the portions of his 11 herbs and spices, is being moved.

Tight security surrounded the chain's original recipe. And like launch codes for a nuclear missile, only two company executives are given the security access code at any given time. And just who those two executives are is also a secret.

The yellowed piece of paper was guarded by off-duty police officers and a private security firm during its commute in an armoured car to an undisclosed location. They even handcuffed the briefcase to a former New York City flatfoot.
 
Why the move? Its permanent location at Kentucky Fried Chicken headquarters in Kentucky is undergoing a security upgrade.

The current system is something straight out of the sitcom Get Smart.

For more than two decades the recipe was stored in a filing cabinet protected by two combination locks. To get to the cabinet, you must first open a vault. Then you unlock three locks on a door that stands between you and one of the biggest corporate secrets outside the formula for Coke.

Vials containing the 11 herbs and spices are also stored in that cabinet. One executive says the smell when you open the vault is "overwhelming."

Colonel Sanders came up with the recipe in 1940. It wasn't until the early 1950s that his small southeastern Kentucky restaurant started serving it to customers. Today, KFC operates almost 15,000 restaurants worldwide.

As for that yellowed sheet of paper? Sanders wrote the detailed recipe in pencil. No word on if his handwriting is "chicken scratch."

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Readers comments

I would have thought that the security might have been better if they had not had a TV crew there filming it all.  What a publicity stunt!  - Stephen in Waterloo

I was under the impression that the chicken crossed the street to get away from Colonel Sanders. Ha! Ha! When I was a trader on the TSE trading floor in the 60's, a new listing, Scotts Restaurants was posted, and making an appearance was the Colonel himself, just like his picture on the side of the chicken boxes, nice white suit, gold cane, a short little fellow, but very gracious, chatted with the traders, made a great impression, Scotts Restaurant also opened a cafeteria in the TSE and when some of the traders had to buy or sell Scotts stock, when approaching the post, they would call out "gobble, gobble." - Rick Foster, Whitby

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Posted by Michael Hainsworth on September 9, 2008

There's plenty of green in debit cards these days -- and plenty of innovation. But innovations like "tap and go" transactions and online payment are beyond the reach of the association that runs Canada's network for debit card and ATM transactions, known as Interac.

And the non-profit group wants to change that by changing its status. It wants the right to make a profit and the right to decide how to spend the kinds of cash rivals Mastercard and Visa are making elsewhere around the world.

Interac is in negotiations with the Competition Bureau as we speak.

Demand for a publicly traded Interac could be high -- Mastercard's two-year run has it up more than 439 percent, triggering an initial public offering from rival Visa. Admittedly, the timing was bad on that one. Visa shares are up a mere 22 percent since going public.

But going public might be a tough sell to the Competition Bureau. The two have a checkered past. In the 1990s, Ottawa went after the nine-member card cartel with allegations of "abuse of power."

Twelve years ago Interac signed a deal that required it to have not-for-profit status, with fees that only cover the cost of doing business. The arrangement was hammered out so quickly there wasn't an end-date attached to the agreement.

Interac claims that hastily designed deal has kneecapped its ability to innovate. No waving your debit card in the air to pay for groceries and gas.

Interac is living on borrowed time. Visa already offers branded debit cards to the banks that carry its logo. So far, none have accepted -- but as The Globe and Mail's Tara Perkins writes, that could soon change. (Click here to read the story)

For now the question consumers need to ask is this: is punching in a PIN code that much less convenient than waving your debit card in the cashier's face?

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Posted by Andrew Bell on September 4, 2008

Profit rose 9% at plucky little Canadian Western Bank (CWB – T) in its third quarter but the stock has slipped 75 cents or so today to trade around $22.30, bringing the decline this year to a nasty 28%. Earnings of 41 cents a share missed consensus by 2 cents.

Larry Pollock, president and CEO, says the bank is "still on track to post another impressive year of high quality earnings and double-digit loan growth."

But the problem is that he's something of a one-trick pony, with a heavy reliance on business lending and a paltry stream of fees from consumers or capital markets. That was fine while Western Canadian clients were booming but forestry woes and weaker housing are now taking a toll.

Canadian Western's profit rises or falls largely on "net interest margin," the difference between its cost of deposits and the interest earnings from loans. The bank said it faced "increased deposit costs related to ongoing disruptions in financial markets." Meanwhile, declines in the prime rate also hurt because the "loan portfolio reprices more quickly than its deposit liabilities."

Merrill analyst Sumit Malhotra says in a report today that revenue growth of 8% fell to the single digit range for the first time since 2004. Meanwhile, Western Canada is still a very expensive place to do business. Staff costs jumped 16% but total employment was up just 6%.

Canadian Western warned that the "achievement of 2008 total revenue and profitability growth targets" is now "doubtful."

"Given that net interest margin accounts for around 75 per cent of the total top-line at the bank, our view that CWB would not be able to reach their 17% year-over-year revenue growth objective is now shared by management," Malhotra says.

He has an Underperform rating on the stock and a target of $26, about $3.70 up from today's price. 

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Posted by Mark Bunting on September 4, 2008

Which letter in the acronym BRIC is the most attractive as an investment opportunity?

UBS strategists choose the B, as in the Brazil equity market, over Russia’s. (The other BRIC countries, India and China, aren't examined in this UBS report.)

From a valuation standpoint, Russia actually looks far more attractive than Brazil following the large downturn in energy and materials stocks. But, that’s misleading, according to UBS.

Commodity stocks make up about 50 percent of both countries' equity markets, however, Russia’s energy weighting is significantly higher.

The result is that the price-to-earnings and price-to-book ratios are lower in Russia than Brazil making the market seem more inviting. But, UBS compares those valuations after equal-weighting all the sectors. After that's done, Russia actually looks expensive.

UBS admits that Russia has had stronger economic growth than Brazil the last several years and that its trade and fiscal positions are superior.

But, Brazil gets the nod when it comes to earnings growth, economic policies and corporate governance, so there's a higher risk premium attached to Russian stocks. And that’s not even taking into account the geopolitical risks Russia presents to investors.

UBS prefers Brazilian energy giant Petrobras to Lukoil, Gazprom or Rosneft. Petrobras has fallen about 30 percent from its peak, about the same as Russia's oil sector. The American Depository Receipt (PBR.A-N) is trading at a reasonable-looking 11 times this year’s earnings.

UBS says that when global emerging market energy stocks start to recover, Petrobras should benefit more than the Russian companies. That’s partly because Russian energy companies' operating earnings are inflated by about 20 percent due to a three-month lag on customs duties in Russia, which results in temporary underpayment of taxes.

One way to access Brazilian stocks is through the exchange-traded fund EWZ-N. It tracks the MSCI Brazil index. Bear in mind that Petrobras and the miner Vale (RIO-N) make up 40 percent of the weighting.

So, UBS says take the B over the R in BRIC.

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