Posted by Michael Hainsworth on February 25, 2009

Week two of the CRTC's hearings into regulating New Media is being eclipsed by the goings-on in Stockholm, Sweden. It's there that the Google of the piracy world is on trial – a pivotal case that continues to play in favour of the defendants.

The Pirate Bay is the world's largest BitTorrent site. If you're not familiar with the term "torrent" – it's the Kleenex of peer to peer file sharing systems, a technology that, unlike Napster, has no single "head" to cut off to kill the beast. Yet prosecutors continue to attack this beast as though it has just one brain.

(Sidebar – it was the music industry's ham-fisted approach to the Napster threat that led to the creation of BitTorrent and other peer to peer technologies).

The proceedings reveal just how woefully unprepared the mainstream legal community is in fighting Internet-based crime. Investigators are using screenshots of movies and music downloaded from the site as evidence that the five-year-old group is responsible for the actions of its 22 million users.

It's akin to charging Google for illegal content in its search results. Just as Google isn't responsible for what it finds on the Internet, The Pirate Bay may not be responsible for what its users contribute because TPB isn't actually hosting the illegal content – just links to where to get it.

But prosecutors didn't go after the group for conspiracy to commit a crime, they went after them for the crime itself. And the botched investigation and prosecution may make it difficult to protect intellectual property in courts around the world. The defence is running circles around the prosecution.

So the prosecution has now altered the charges in a bid to win a conviction.

Here's how The Pirate Bay works: users upload a 12K torrent file of a 700MB movie to the site. The file points to a "tracker" which keeps a list of who's downloading and uploading what at a given time.

When someone else searches TPB for that movie, their BitTorrent software contacts the tracker and starts receiving bits of the file from everyone else who is also downloading the file. Once the group as a whole has 100% of the file, the original uploader can disconnect, and the pirated movie is self sustaining – so long as everyone's "bits" add up to 100%. Forever.

The Pirate Bay offers a search engine, stores the 12K torrent files, and provides a tracker. The prosecution originally claimed all three were necessary for piracy to take place. Not so: TPB can host 12K torrent files for trackers it has no control over – and that's most of the torrents in its database.

Now the prosecution has removed language that reads "All components are necessary for the users of the service to share files between them."

Bingo. Now TPB founders Fredrik Neij, Gottfrid Svartholm Warg, Peter Sunde and Carl Lundström have a greater chance of facing two years in prison and fines as great as $180,000 US.

But what the prosecution has yet to prove is that TPB is actually hosting those 12K torrent files. When cross-examined, investigators admitted they did nothing more than take pictures of the downloading taking place – instead of tracking where the 1s and 0s are coming from, and where they're going.

"Deep packet inspection" technology from Canadian company Sandvine (SVC-T), Cisco Systems (CSCO-Q) and Alcatel-Lucent (ALU-N) would lower the pirate flag currently flying over Stockholm. DPI technology is primarily used to slow file sharing, speed up video streaming, and keep spam at bay. But the technology can track where data goes.

But it seems Swedish prosecutors didn't bother to Google the term.

As Canada prepares to build new rules and regulations regarding our use of the Internet, we'd be well served to keep an eye on the Swedes.

More reading:  Wired.com
                            Dpacket.org
                            PC World

 

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Posted by Andrew Bell on February 24, 2009

Our thanks go out to B.C.-based real estate tracker Brian Ripley for joining us on Monday, Day One of our week-long real estate special on The Close.

Ripley’s latest take on prices: "If the current January 2009 prices levels do not hold for the next 3-5 months, then prepare for prices to drop to early 2005 levels. In Toronto that could happen by March of 2009 and for Vancouver it could happen by March of 2010 as the Winter Olympics pack up their tents and leave town."

Here’s a link to the interview with Ripley. It begins with a report I did that pointed out some alarming similarities between the Canadian and U.S. housing markets.

Those interested in Ripley's commentary can go to his website.

Click here for the New Real Estate Reality landing page, featuring a full list of housing-themed interviews.

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Posted by Michael Kane on February 20, 2009

A colleague in the BNN newsroom recently questioned the skills of some people involved in the rescue of the world's economies. It sparked a lively debate that left me unfulfilled.

Then, I accidentally watched Clint Eastwood’s The Eiger Sanction. The premise is that Clint is being forced to climb Eiger Mountain in Switzerland to kill some bad guy. The jeopardy is that going up the sheer rock of the North Face could kill Clint.

How do people do things like "extreme" mountain-climbing? The answer is: with a great deal of skill.

What I learned from the breathtaking depiction of the climbing is that these athletes must be able to improvise. They have to ad-lib and be able to read situations that are challenging and ever-changing. Any mistake risks death.

My realization was that we are in an analogous situation: we are attempting a climb to victory while trying to avoid economic pitfalls. We plainly see the monumental challenge in front of us without knowing where we'll be putting our feet in the next minute.

We must trust that the people who are steering the economic ship are able to be agile and make decisions confidently in a rapidly changing situation.

Ask anyone who has taken on a new task without knowing if they were capable of success, but believing that when thrown into a situation they would be able to develop a viable strategy. It is a feeling of strength.

Strength is a good thing.

 

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Posted by Michael Hainsworth on February 19, 2009

If the latest news from Toronto police is any indication, the market bottom may be near – but not here yet.

Detectives managed to recover 149 of the 150 bars of silver stolen over Christmas by five thieves with a penchant for the poor man's metal. The total value? Two million dollars. Total weight? Five tonnes.

Detective Constable Jamie McDonald admits he doesn't know if the economy played a role in the heist, but admits someone's not going to steal this kind of product unless they need it. And the folks who own the loot don't want others getting any big ideas so I can't tell you where the bars are from.

But while some of the silver was allegedly scattered across the Greater Toronto area by the five crooks, a large number of the 70-pound bars were found in a single spot -- and DC McDonald tells me it took forever to lug them back to headquarters.

How were the thieves busted? They may have prematurely predicted the bottom for the silver market: the detective says they tried to move the goods while they were still hot.

What about the still-missing 150th bar? McDonald says that's a good question: it's probably on a desk somewhere being used as a paperweight. He says no one would believe it's real -- and admits he wouldn't have, either.

As for the detective? His wedding ring is gold -- and after helping lug 10 tonnes of silver, he says he's seen enough of the metal for a while.

 

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Posted by Andrew Bell on February 10, 2009

 

As promised, here are the ETFs Larry Berman recommended for Bert Quance, the subject of our Feb. 2 ETF Makeover on Berman’s Call.  All are TSX-listed.

 

Bert's Core Equity Holdings:

XIN        Ishares EAFE 100% Hedged To C$
XSP        Ishares S&P 500 100% Hedged To C$
XSU       Ishares Russell 2000 100% Hedged To C$
CBQ       Claymore BRIC 100% Hedged To C$

 

Bert’s Core Bond Holdings: 

XCB       Ishares Cdn Corporate Bonds
XSB        Ishares Cdn Short Term Bonds
XRB        Ishares Cdn Real Return Bonds

 

Bert's Alpha Sector Holdings: (water adds some growth, others for added yield)

CWW     Claymore S&P Global Water
XFN        Ishares Cdn S&PTSX Financials
XTR        Ishares Cdn S&PTSX Income Trust

 

Watch the recap here

Watch the Feb. 2 ETF Makeover here

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Posted by Howard Green on February 9, 2009

A bit of ironic colour about Bombardier and its CEO, Pierre Beaudoin.  We had him at the office for an interview the other day when the company announced its business jet segment would feel a 10-percent pinch in the coming fiscal year.   The interview was recorded late in the afternoon with little time to spare.   Beaudoin was on a tight schedule because he had to catch a flight back to Montreal.  

Even in an era when executive jets are being frowned upon, one would still expect the boss of a company that makes business jets to be flying on one.   But no.   Beaudoin was flying out of the island airport in Toronto, and he was flying commercial, on Porter. 

Of course, it turns out Porter is a customer.  The commuter airline uses Bombardier’s Q400 turboprop.  While business jet demand has weakened, the company said it expects its commercial turboprop business to grow by 10-percent this coming fiscal year.  

Beaudoin likely had another option.   Bombardier has a daily in-house shuttle between Montreal and Toronto.   Employees at the company’s operation at Downsview Airport can get back to headquarters in Montreal lickety split, and vice versa, on daily flights.

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Posted by Kim Parlee on February 5, 2009

As first reported on BNN late Thursday, Nortel Networks, North America's troubled telephone titan … needs more time. 

The company, which was granted 30-day creditor protection until Feb. 13, will be asking for 3 more months to give it more time to deal with its complex restructuring and $11-billion debt load. The company is expected to make the request to the Ontario Superior Court Thursday evening. 

BNN sources say that while a 3-month extension is unusually long, it is not unheard of. And the extra time may allow "cooler heads to prevail."

*Note: On February 10, the Ontario Superior Court granted Nortel creditor protection until May 1.

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Posted by Michael Kane on February 5, 2009

One of the scariest aspects of the global economic slowdown is the speed with which the changes came. When gasoline prices began to rise sharply in the spring of 2008, General Motors was forced to move with uncharacteristic speed in announcing factory closures, layoffs and the retirement of certain vehicle brands.

In the short span of time between September and November, the Canadian government was forced to reverse its opinion that there would be a federal budget surplus.

It would seem clear to me that having accurate information is paramount in such a rapidly changing environment.

I asked federal Finance Minister Jim Flaherty about the data he used when formulating the 2009 Budget. He said it was about two weeks old by the time the budget was brought down in the House of Commons. I then asked federal Trade Minister Stockwell Day about the data he uses when monitoring the flow of Canadian goods into the United States. He said that while the numbers are getting more accurate and timely, the government often must wait for companies to file end-of-month figures.

Many industries have had real-time inventory monitoring for years, and the technology is getting better all the time. Why can’t the government tap into this flow of data?

Wal-Mart’s inventory control centre knows every time a can of peas goes out the front door at any of its stores. General Motors has the technology to keep constant track of how many cars are sitting on which dealership lots by the end of any given day. That monitoring is absolutely necessary for the efficient flow of business.

I think it’s bizarre that governments are not tapping into the world’s vast databases to keep running scores on trade flows and other economic factors.

Isn’t it about time?

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Posted by Michael Hainsworth on February 4, 2009

Note: An error in paragraph 3 has been corrected.

In this era of getting "paid to wait" out the recession, Market Call guests have frequently encouraged us to buy dividend-paying companies. But the timing of a stock purchase – or sale – plays a critical role in determining whether or not you're going to get that monthly or quarterly cheque.

There are two important dates to keep in mind, the "ex-dividend" date and the date of the payout (usually two to three days after the ex-dividend date).

Andrew Guy at Sentry Select reminds us that to qualify for the dividend, you must own the shares until the ex-dividend date. Guy warns that if you sell before that date, you don't qualify for the latest payout.

Gino called from Toronto to ask where he could find on the Internet a free site that offers a calendar that lists the companies approaching their ex-dividend dates. While you can always go to an individual company's investor relations web page, it can be helpful to get more specific information about a broad range of companies.

Market Call viewers are the best viewers in the world – all I needed to do was ask anyone with any information to fire off a website address, and at last check, about a bajillion of you did. Here are a few links courtesy of those who first offered them:

Percy was fast with his fingers and the first to direct us to www.dividendinvestors.ca  (note, that's plural, the singular is a dead site).

Thanks to Ron in Brockville for pointing out www.canada.com/montrealgazette/stocks/dividends.html as a source for such a list.

And Neal advised us that dividends from U.S. companies can be tracked via www.dividend.com, too.

Of course, our sister website GlobeInvestor.com can give you what you need, too, at www.globeinvestor.com/servlet/Page/document/v5/data/dividends complete with a per-day breakdown. The site is so packed with investor related information, I hope the boss understands that this wasn't the first thing out of my mouth! <grin>

For investors who already have dividend-paying stocks and would like to keep on top of the payout dates, Jay wrote in to point out that TD Waterhouse's online brokerage service offers emailed alerts.

Hudson suggests you can track your portfolio and your ex-dividend dates via Yahoo’s finance page, as well.

And if you're still stuck, always check the website of the company, generally found under "investor relations." If you still can't find what you want, pick up the phone and ask for the company's investor relations department – it's their job to get you the information you need.

Thanks to everyone who wrote in,
Michael

 

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Posted by Michael Hainsworth on February 4, 2009

Daryl from Manotick, Ont., writes:

Do you have a "feel" for or does BNN track the percentage of e-mails that get answered on Market Call? I have called in the past but have never gotten through.

 

Hi Daryl,

The volume of email depends on the guest and the day. At last count, our Market Call mailbox showed 21,560 messages from the past year -- and, believe it or not, we read every single one of them.

Only a fraction of the questions get answered on-air, but volume isn't the only deciding factor: the guest's knowledge of the subject is the primary criterion. We also get many questions about the same stock, so there are many duplicates.

During the commercial breaks we run through the questions with the guest to see if he or she is following a particular company or sector. All questions air at the producer's discretion. Calls always take priority, but we often get a chance to put unanswered emails into The Market Call Minute in the final segment before the Top Picks at approximately 1:20 p.m. ET.

Emailing the day before or the day of the show betters your chances of getting your email on-air. Messages days or weeks in advance may get buried in the volume of email.

It's helpful, but not necessary, to put the stock name in the subject line of your message. It allows us to quickly scan messages during guest answers for possible follow-up questions, and I always credit the viewer when that happens.

All the best, and thanks for watching Market Call!

Michael

Market Call airs live weekdays at 12:30 p.m. ET , 9:30 a.m. PT, on Business News Network. You can email the show at marketcall@bnn.ca, call toll-free at 1-877-667-6288, or in Toronto dial direct at (416) 957-8199.

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Posted by Viewer response on February 4, 2009

Michael Kane's piece on income trusts -- Trust youself? -- received some strong responses from readers. Here are three that are representative:

Harper used an ICBM to kill the trusts when only a hammer was sufficient. All he had to do was halt the formation of business trusts thereby grandfathering the existing ones. He allowed the continuance of REITs but not the energy trusts, which form a key segment of the energy sector just like REIT's do in the real estate sector. His decision was flawed at the time he made it and remains flawed today.
 
The facts are:
1. The owners of trusts in non-registered accounts pay tax on the distributions they receive except for the return of capital component.
2. In many cases, including BCE, corporations, although they are eligible to pay tax, pay little if any because of their ability to effectively use their write-off capacity.
3. The energy trusts are an integral component of Canada's energy business. They provide an option for keeping lower producing assets active rather than having them abandoned. Penalizing the energy trusts in effect means penalizing the economy through the loss of jobs directly and the loss of business in the hospitality sector in the small communities in the West.
4. No credible proof has been produced by the Dept. of Finance that trusts represented a loss of tax revenue for Canada. In fact there are several reports that show tax revenue from trusts is greater than the tax would be if these trusts were corporations! An example would be BCE.
5. Given the above, rescinding the trust tax would increase tax revenues, create jobs and be stimulative to the Canadian economy.
 
So you can easily see where we would be much better off today if Harper had not imposed the trust tax.
 
R. Staple

I'm astounded (but not entirely surprised) at your comments re income trusts. You show a complete lack of knowledge on the subject. You continue to foster the false notion that trusts enjoyed some tax advantage.

"WAKE UP AND SMELL THE COFFEE, MICHAEL" There was no tax leakage. A couple of years ago Flaherty mused that he didn't know where all the tax money was coming from!! Let me tell you, I paid in excess of 30K taxes in '05, '06 and '07. This fiscal year I will probably get a refund.

The mental midget ripped 200K out of my retirement portfolio and thinks this will have no impact on the Canadian economy.

Yes, I'm properly diversified and, yes, I understand the risks of investing. What I fail to understand is a change in regulations that results in no net benefit for anyone, not the Income trusts, not other companies, not the Canadian taxpayer. Absolutely no one is better off as a result of this ridiculous policy.

If there was a concern that large companies would convert to the trust structure why not just put a moratorium on new conversions until the problem was properly studied. Never mind the fact that our illustrious PM clearly stated that he would not TOUCH income trusts.

This has been the most unfair legislation that has ever been passed in the history of the financial world. I know I'm not alone. Thousands of people just like me have lost billions out of their portfolio, have had their lifestyle severely impaired.

We need an advocate to champion our cause. HOW ABOUT IT? Speak up for the powerless, maligned investors. 

W. Kozan

Many companies flourished and created thousands of tax paying jobs as a result of the income trust structure. Look around at the many successful businesses built up under the trust model. The cash flow passed on to investors was largely taxed at higher rates than corporations pay.

Many of these trusts have now gone into the ownership of pension funds. Perhaps the government needed to do something to clarify the "rules." Perhaps "ordinary" small Canadian investors shouldn't be entitled to own companies without being subject to double taxation.

But I doubt very much that putting a stop to income trusts has done anything to keep the federal budget from going into a deeper deficit. Harper and his toy bulldog finance minister can take that blame themselves. But don't fret for them. Their golden parachute pensions will be safe and will guarantee they'll never have to risk a penny on the "markets."

J. Stuart

 

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Posted by Frances Horodelski on February 4, 2009

"But the prizes for philandering don't go to the Democrats alone. The ever skillful drug industry is in the process of convincing the nation’s elders – leaders of both parties in the Senate – that giving the pharmaceutical industry a tax break to bring home profits on foreign operations is jobs creation. That's right; a special subsidy for outsourcing is jobs creation." - Peter Morici, professor at the University of Maryland School of Business and former chief economist at the United States International Trade Commission; from his commentary "Sophistry Reigns Supreme: The Slippery Slope of Stimulus"

Professor Peter Morici, a regular guest on BNN, mentions the U.S.  pharmaceutical companies' desire to bring home foreign profits with a tax break. He dismisses that job creation would result, but it's worth noting that in the Jobs Creation Act of 2004 – legislation designed to bring tax relief to corporations – this was a significant component. 

At that time, there were billions of "stranded" income of U.S. companies that had revenues and profits outside of the U.S. Under existing law, any of this cash would be taxed again when it was brought home to the U.S.  

It's a problem for many U.S. corporations: they need access to cash domestically but can’t access it without suffering a significant tax hit. When the tax was reduced under the 2004 Act to 5.25%, some $360 billion was repatriated.

There were provisions associated with the repatriation requiring that the moneys had to be spent domestically on various job creating projects.  Many economists at the time said it would have zero impact on the economy as these moneys were already “accounted” for in American corporate profits, but a few quarters later, economists were citing the Act for the accelerating economy. Hmmmmmm.

Allen Sinai, chief global economist at Decision Economics, said in a recent Wall Street Journal article that there's an estimated $545 billion of profits stranded outside the U.S.

He noted that a survey of several hundred of the companies that participated in the repatriation of cash last time around found they used on average 25% for U.S. capital investment, 23% for hiring and training, 14% for R&D and 13% for debt reduction. 

Sinai argues that this is a potential $545-billion private stimulus plan. And the government would receive taxes that it would otherwise not receive.

I don’t disagree with Professor Morici that many things are broken and that President Obama and his team have to focus on fixing them – but while doing that, there are also other things that can be done.

Repatriating foreign profits might be one such thing.

 

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Posted by Andrew Bell on February 3, 2009

Everybody likes to see nasty pilferers caught and sent to sit on the naughty chair so Absolute Software Corp. (ABT - T), which tracks filched laptops, is fighting the good fight. But virtue hasn't been rewarded lately. 

The stock's down nearly 3% at just over $3.28 today, bringing the 12-month decline to 70%, after management slashed cash flow guidance for the current fiscal year to about $17 million from $27 million or more previously. The shares are still up from a low of $2.55 in early December.

As the computer business flounders, the company has cut its expectations for new sales contracts but also decided to hold off from cost cuts and to keep spending on international expansion and partnerships with Intel Corp. and Dell Inc.

"While maintaining expense levels at a similar pace could prove to be a wise investment, it also adds risk to the story in the current economic environment," frets Versant analyst Tom Liston in a report today, lowering his recommendation to "neutral" from "buy" and his one-year target price to $4.25 from $6.50.

He's not encouraged to see a "sharp break" in Absolute’s trailing 12-month cash flow. "This quarter was the first quarter in 16 quarters that management was unable to deliver a cash flow that was sequentially up."

BMO analyst Thanos Moschopoulos, who calls Absolute a buy, is also disappointed. He'd expected that "expansion of Absolute's distribution channels (Best Buy being an example) would have mitigated more of the macro weakness." The analyst has put his $6.50 target on the stock under review.

 

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Posted by Michael Kane on February 3, 2009

I recently asked viewers to send in blog topic ideas and one citizen of Business News Nation said he wanted to know my opinion on income trusts.

That got me thinking about the so-called Halloween Surprise – Oct. 31, 2006 – when federal Finance Minister Jim Flaherty revealed a stunning reversal of government policy by announcing income trusts would be taxed just like ordinary corporations.

Until that point, investors had been pouring money into trusts, which were expected to receive special tax treatment and distribute most of their earnings to unitholders.

But what frightened the government was the prospect of some huge Canadian corporations – huge tax-paying corporations – converting to trust status to avoid paying those taxes. It was the intent of BCE Incorporated to convert into an income trust, an event that would have been a disaster for the government. BCE pays enormous corporate taxes and Ottawa did not want to lose that revenue stream.

OK, that's the history.

Here's what I wonder: suppose the government had not reversed its policy. Suppose it had yielded to the cries of investors who felt they'd been duped.  Suppose the government had decided to be fair and stick to a policy that would have seen the loss of billions in tax revenues.

Then the global banking community freezes and shatters.

We all hear the gnashing of teeth over Ottawa's plans to run a deficit, a necessary situation for us now. But imagine the jackpot we'd be in if Canada's largest tax-paying companies had been allowed to avoid most of those taxes.

The hole would be much deeper… the muskeg much stickier.

A lot of people lost a lot of money when the income trust sector sold off following Oct. 31, 2006, and the way it happened is regrettable.

But, without the Halloween Surprise back then, we could very well be living a nightmare now.

 

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Posted by Mark Bunting on February 2, 2009

Wireless video is coming soon. Honestly, it is.

Remember about 10 years ago when European telecoms were spending billions in government auctions for the right to build third generation (3G) wireless networks? During the tech and telecom bubble, the promise of data and video flying around wirelessly at high speed seemed so imminent, modern and exciting.

But, then, a funny thing happened on the way to the future.

The bubble burst, new networks were delayed, telecoms took massive writedowns and the devices made by the manufacturers were only advanced enough to play video in herky-jerky mode. Along with those obstacles was the fact that consumers were showing about as much appetite for video on their mobiles as Rod Blagojevich does for reality.

Fast forward to today and wireless video that's clear and fast is finally available and Canada’s QuickPlay Media is a leader in making it happen. I recently visited the company’s renovated warehouse offices in downtown Toronto for a BNN feature story.

QuickPlay's clients include Bell, Telus, Rogers, Research In Motion, AT&T and others.  The company's role in the wireless video process is that it collects about 25,000 video clips per week from 170 broadcast sources from BNN to YouTube.

QuickPlay's software platform formats the video for its clients and pushes it out to mobile devices. For example, Bell turned to QuickPlay to manage and distribute the content for the company's deal with the National Hockey League. So, thanks to QuickPlay technology, Bell customers can watch NHL games or highlights on their mobile devices.

QuickPlay Media was founded in 2004 by Wayne Purboo and so far has received $32 million in venture capital backing. Purboo says his company has almost 100 percent market share in Canada and is in the top three in the U.S. with RealNetworks as one of its main rivals.

But, while the technology has now caught up, consumers haven't. Only about 1% of Canadian wireless subscribers actually access video on their devices. The figure is about 3% in the U.S. although tech-savvy subscribers with advanced devices such as the iPhone or BlackBerry Storm are much more active users of video.

One hindrance to wider adoption of video is price. Canadian wireless providers have managed to convince about 250,000 subscribers to take some kind of video package but there are millions more who have yet to take the plunge.

However, Purboo is confident that some time down the road more than half of wireless users in Canada will find video on their mobile devices indispensable.

QuickPlay Media is growing revenue at 70 percent annually. In fact, Purboo says December was the company's best ever with the lowest cash burn rate in its history. But, he admits growth will slow this year because of the economy. That's also why Purboo is not considering going public anytime soon. 

QuickPlay Media was a quick draw first mover in developing wireless video so the company seems well-positioned to capitalize when the long-promised world of high-speed video on mobiles finally takes off.

Click here to watch Mark Bunting's report.  

 

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Posted by Frances Horodelski on February 2, 2009

"Is it different this time?"  This is always the question that should be answered when we look at major developments in the global economy or capital markets.

This time around, the question refers to the wave of protectionism that is now coming out of Washington.  That is, will protectionist sentiment be allowed to do to the American economy what it did to that country's economy during the 1930s?

The current version of the stimulus bill that's making its way through Congress includes a Buy American clause that has provoked much discussion, not only from America's global trading partners, including Canada, but also from major U.S. corporations such as General Electric and Caterpillar, who depend upon access to global markets for their success.  Remember, close to 50 percent of the revenues from S&P 500 companies come from outside the United States.  A protectionist stance could jeopardize those revenues.

The House version of President Obama's stimulus bill has passed with this controversial phrase included, referring specifically to steel and iron ore.  That is, funds allocated to projects under this bill will be required to source steel and iron ore from American companies – as long as that doesn't add more than 25 percent to the cost and as long as such material can be found in the U.S.  Specialty grades, for example, could be purchased from outside America. The Senate bill being debated includes extensions of the Buy American clause to encompass all manufactured goods.

What does this really mean?  First, will the Senate bill end up being passed with this controversial clause in it?  Many think that once the actual law is formulated, these clauses would not be specifically included.  (I have a bet with my co-anchor Marty Cej that, indeed, that will be the case.  One of our guests on Friday, Brian Acker, thought the same.)  

Remember, not one single Republican in the House voted for the stimulus package.   There is much discussion that Mr. Obama wants to have a 'bi-partisan' bill eventually materialize, which will require concessions to moderate Republicans in the Senate.  Many senators, including Republican ones, are against protectionist sentiments.

Second, does it matter at all?  While the rhetoric is loud and Mr. Obama's leanings are to protect American labour, it should be noted that there are already Buy American requirements on the U.S. law books that restrict the spending on foreign made goods.  More importantly, the legalities surrounding further protectionist measures on trade are deep and complicated, including the fact that many of the major global trade agreements, including GATT, NAFTA and the WTO, have provisions that restrict any country's right to limit trade.

Furthermore, 20 percent of the steel used in the U.S. is imported.  Would the U.S. be able to make all the steel it needs to support the infrastructure spending included in the bill?   And what about other manufactured goods?   Would American goods alone be sufficient to satisfy all the requirements of an $800-billion US stimulus package?

Finally, Mr. Obama has said he would review the terms of the Buy American clause.  He should remember that many believe the Smoot-Hawley Tariff Act of 1930 and the original Buy American Act of 1933 aggravated the Great Depression.  I suspect Mr. Obama doesn't want to become Mr. Hoover this early in his administration. 

We will see this week if I win my bet.

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