Maple Leaf Memo
Inflation
“Since the April Monetary Policy Report (MPR), economic developments have been broadly in line with expectations. However, the balance of risks to the Bank’s April projection for inflation in Canada has shifted slightly to the upside.”
With that statement, the Bank of Canada (BoC) left its key rate unchanged at 3 percent, flummoxing economists who forecast a 25-basis-point cut. The consensus focused on recession worry rather than the impact of rising prices, but the BoC cited higher energy costs as offsetting the impact of weaker demand on inflation. That makes current monetary policy “appropriately accommodative to bring aggregate demand and supply into balance and to achieve the 2 percent inflation target.”
If current levels of energy prices persist, the consumer price index could rise above 3 percent later this year, the BoC said.
Despite lower US demand for Canadian goods and services, global growth has been stronger and commodity prices have been sharply higher than expected, it said. But “the risk remains that potential growth will be weaker than assumed.”
“[W]ith the decline in first-quarter GDP, the Canadian economy is judged to have moved into excess supply,” suggesting core inflation will remain below 2 percent through 2009, then inch up in 2010.
The BoC expects Canada’s economic growth to pick up this year and accelerate in 2009, owing in part to a firming of US demand.
The BoC’s stand-pat move is a signal of the emergence among the world’s central banks that inflation is a big worry. Evidence of a recession in the US continues to emerge (see below); but among the major economic players, it’s all about inflation now, less about growth. Tuesday’s decision aligns the BoC more fully with other leading central banks.
US Federal Reserve Chairman Ben Bernanke said Monday night that US inflation risks were increasing while the danger of an economic slump had abated, stoking expectations for higher interest rates. In remarks prepared for a speech at the Boston Fed’s annual conference, Bernanke played down the biggest jump in the unemployment rate in 22 years in May:
“Although activity during the current quarter is likely to be weak, the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.
“The latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations. The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation.”
European Central Bank President Jean-Claude Trichet yesterday repeated that policymakers in the 15-nation euro area may raise their benchmark rate a quarter point to 4.25 percent to combat the fastest inflation in 16 years.
Keep on Chooglin’
Well, it’s not exactly the “good time” John Fogerty and Creedence Clearwater Revival sang of, but things up north remain relatively stable. Employment numbers and wage growth continue to bring comfort, and a recent pickup in housing construction activity provided some upside surprise.
Following two months of small increases, employment in Canada was unchanged in May 2008. According to Statistics Canada, the unemployment rate remained at 6.1 percent. Over the past 12 months, employment has risen by 339,000, or 2 percent. Despite slower employment growth in recent months, the participation rate remained at its record high of 68 percent in May.
In May, the average hourly wage was 4.8 percent higher than a year earlier, and well above the most recent increase of 1.7 percent in consumer prices. Since September 2007, year-over-year increases in average hourly wages have exceeded 4 percent.
Canadian new home starts rose a greater-than-expected 3.5 percent in May from the previous month, led by a gain in single-family dwellings. The total of 221,300 units on an annualized basis compares with 213,900 units in April, according to Canada Mortgage and Housing Corp (CMHC).
Canada’s housing market remains “healthy” because of low unemployment and rising wages, and because banks in the country offered fewer of the subprime mortgages that roiled the economy in the US, CMHC said. Still, the housing agency said Canadian home starts will fall 6 percent this year because of higher mortgage interest costs.
Urban single-family home construction rose 7.3 percent to 76,700. The pace of multiple housing starts in cities rose 1.9 percent to 116,100 units in May, CMHC said.
More “Why Two Consecutive Quarter of Declining GDP” Is Lame
Our favorite financial blogger Barry Ritholtz points us to a post by Floyd Norris of The New York Times; “A Perfect Recession Indicator” makes no mention of the mainstream media’s favorite shorthand definition.
Ode to Dion
“Neither cowardly nor spineless, this man is most certainly a mule,” wherein Aaron Wherry of venerable Canadian weekly Maclean’s blogs about a day with the Liberal Party leader, replete with meaningless moral victories over third-team bickerers…and surrender on a consequential immigration amendment to the budget implementation bill, meaning Stephen Harper and his minority government endure. Again.
For more on these topics and other newsworthy items, visit our blog, At These Levels.
Speaking Engagements
“The coldest winter I ever spent was a summer in San Francisco,” a saying that’s almost a San Francisco cliche, turns out to be an invention of unknown origin, the coolest thing Mark Twain never said.
The natural setting is, however, among the most exciting in the US. Venture west for the San Francisco Money Show Aug. 7-10, 2008, and conduct your own field study.
Neil George, Elliott Gue and I will discuss infrastructure, partnerships, utilities, resources and energy, and tell you what to buy and what to sell in 2008.
Click here or call 800-970-4355 and refer to priority code 011362 to attend as our guest.
The Roundup
Oil & Gas
Baytex Energy Trust (NYSE: BTE, TSX: BTE.UN) boosted its monthly distribution by 25 percent to 25 cents Canadian per unit in the wake of its Burmis Energy acquisition and prospects for continued high oil and gas prices. The new payment will begin July 15. With the Burmis assets, Baytex now expects production of 40,500 to 41,000 barrels of oil equivalent output a day for the rest of the year.
Baytex also announced an increase in its corporate credit line to CAD485 million from CAD370 million. Baytex Energy Trust is a buy up to USD26.
Penn West Energy Trust (NYSE: PWE, TSX: PWT.UN) is in talks to secure carbon dioxide (CO2) from a government-funded carbon-capture project to boost output at oil fields in southeastern Saskatchewan. Penn West has several small oil pools producing about 15,000 barrels a day near SaskPower’s Boundary Dam coal-fired power plant, site of a CAD1.4 billion carbon-capture proposal. In February, Saskatchewan’s government moved ahead with plans to refit the power plant with CO2 equipment after the federal government committed CAD240 million.
EnCana Corp (NYSE: ECA, TSX: ECA) boosts output at its nearby Weyburn field with CO2 piped from a North Dakota coal gasification plant. Costs will likely be shared among Penn West, the provincial and federal governments and SaskPower, which is owned by the province. The power utility has said it could cost about CAD1 billion to refit the Boundary Dam plant and CAD400 million to build pipelines. Penn West Energy Trust is a buy up to USD34.
Business Trusts
CI Financial Income Fund (TSX: CIX.UN, OTC: CIXUF) reported net sales of CAD265 million in May 2008, assets under management of CAD69.6 billion and total fee-earning assets of CAD105.1 billion as of May 31, 2008. During the month, retail assets under management grew by CAD1.7 billion, or 2.6 percent, to CAD66.8 billion. This represents a gain of CAD2.6 billion, or 4.1 percent for the year to date.
CI subsidiaries CI Investments and United Financial Corp had combined gross retail sales of CAD988 million and net sales of CAD265 million, consisting of CAD219 million in long-term funds and CAD46 million in money market funds. Maintaining momentum established during Canada’s registered retirement savings plan (akin to a US IRA) season, CI Financial Income Fund is a buy up to USD25.
Mullen Group Income Fund (TSX: MTL.UN, OTC: MNTZF) is buying Essential Energy Services Trust’s (TSX: ESN.UN, OTC: EEYUF) fluid-hauling and oilfield transport business units for CAD135 million.
The fluid-hauling businesses operate as Cascade Services in northern Alberta and northeastern British Columbia and as Jacar Energy Services in southern Alberta. The oilfield transport businesses operate as Circle D Transport & Rentals in southern Alberta, as Prime Oilfield Hauling in the Grande Prairie, Alberta, region, as Polege Oilfield Hauling in northern Alberta and northeastern British Columbia and as Leachman Oilfield Trucking in central/southern Alberta and Saskatchewan.
Essential COO Ken Wagner will move to Mullen as president of the Cascade Services and Jacar Energy Services business units. The transaction, expected to close by July, will add more than 1,000 pieces of equipment to Mullen’s assets.
The deal could mean about CAD115 million in annual revenue, and Mullen forecast “operating margins consistent with other comparable business units.” Mullen Group Income Fund is a buy up to USD22. Hold Essential Energy Services Trust.
Real Estate Trusts
RioCan REIT (TSX: REI.UN, OTC: RIOCF) is entering a second 50-50 joint venture with Kimco Realty Corp (NYSE: KIM), RioKim II, to buy a 10-property portfolio located in central and eastern Canada. The portfolio includes approximately 1.1 million square feet of new format and strip retail centers.
The aggregate purchase price of the portfolio is approximately CAD156 million. RioCan will source, lease and manage any property in the joint venture and will be paid market fees for so doing.
The weighted average lease term of the portfolio is 9.3 years, and approximately 90 percent of the portfolio comprises national and regional tenants. The average age of the portfolio is 11.4 years, with a weighted average occupancy of 97.6 percent. The total debt assumed for the transaction is CAD82.6 million, with a weighted average term of 8.25 years and a weighted average interest rate of 6.25 percent. RioCan REIT is a buy up to USD25.
“Since the April Monetary Policy Report (MPR), economic developments have been broadly in line with expectations. However, the balance of risks to the Bank’s April projection for inflation in Canada has shifted slightly to the upside.”
With that statement, the Bank of Canada (BoC) left its key rate unchanged at 3 percent, flummoxing economists who forecast a 25-basis-point cut. The consensus focused on recession worry rather than the impact of rising prices, but the BoC cited higher energy costs as offsetting the impact of weaker demand on inflation. That makes current monetary policy “appropriately accommodative to bring aggregate demand and supply into balance and to achieve the 2 percent inflation target.”
If current levels of energy prices persist, the consumer price index could rise above 3 percent later this year, the BoC said.
Despite lower US demand for Canadian goods and services, global growth has been stronger and commodity prices have been sharply higher than expected, it said. But “the risk remains that potential growth will be weaker than assumed.”
“[W]ith the decline in first-quarter GDP, the Canadian economy is judged to have moved into excess supply,” suggesting core inflation will remain below 2 percent through 2009, then inch up in 2010.
The BoC expects Canada’s economic growth to pick up this year and accelerate in 2009, owing in part to a firming of US demand.
The BoC’s stand-pat move is a signal of the emergence among the world’s central banks that inflation is a big worry. Evidence of a recession in the US continues to emerge (see below); but among the major economic players, it’s all about inflation now, less about growth. Tuesday’s decision aligns the BoC more fully with other leading central banks.
US Federal Reserve Chairman Ben Bernanke said Monday night that US inflation risks were increasing while the danger of an economic slump had abated, stoking expectations for higher interest rates. In remarks prepared for a speech at the Boston Fed’s annual conference, Bernanke played down the biggest jump in the unemployment rate in 22 years in May:
“Although activity during the current quarter is likely to be weak, the risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.
“The latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations. The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations, as an unanchoring of those expectations would be destabilizing for growth as well as for inflation.”
European Central Bank President Jean-Claude Trichet yesterday repeated that policymakers in the 15-nation euro area may raise their benchmark rate a quarter point to 4.25 percent to combat the fastest inflation in 16 years.
Keep on Chooglin’
Well, it’s not exactly the “good time” John Fogerty and Creedence Clearwater Revival sang of, but things up north remain relatively stable. Employment numbers and wage growth continue to bring comfort, and a recent pickup in housing construction activity provided some upside surprise.
Following two months of small increases, employment in Canada was unchanged in May 2008. According to Statistics Canada, the unemployment rate remained at 6.1 percent. Over the past 12 months, employment has risen by 339,000, or 2 percent. Despite slower employment growth in recent months, the participation rate remained at its record high of 68 percent in May.
In May, the average hourly wage was 4.8 percent higher than a year earlier, and well above the most recent increase of 1.7 percent in consumer prices. Since September 2007, year-over-year increases in average hourly wages have exceeded 4 percent.
Canadian new home starts rose a greater-than-expected 3.5 percent in May from the previous month, led by a gain in single-family dwellings. The total of 221,300 units on an annualized basis compares with 213,900 units in April, according to Canada Mortgage and Housing Corp (CMHC).
Canada’s housing market remains “healthy” because of low unemployment and rising wages, and because banks in the country offered fewer of the subprime mortgages that roiled the economy in the US, CMHC said. Still, the housing agency said Canadian home starts will fall 6 percent this year because of higher mortgage interest costs.
Urban single-family home construction rose 7.3 percent to 76,700. The pace of multiple housing starts in cities rose 1.9 percent to 116,100 units in May, CMHC said.
More “Why Two Consecutive Quarter of Declining GDP” Is Lame
Our favorite financial blogger Barry Ritholtz points us to a post by Floyd Norris of The New York Times; “A Perfect Recession Indicator” makes no mention of the mainstream media’s favorite shorthand definition.
Ode to Dion
“Neither cowardly nor spineless, this man is most certainly a mule,” wherein Aaron Wherry of venerable Canadian weekly Maclean’s blogs about a day with the Liberal Party leader, replete with meaningless moral victories over third-team bickerers…and surrender on a consequential immigration amendment to the budget implementation bill, meaning Stephen Harper and his minority government endure. Again.
For more on these topics and other newsworthy items, visit our blog, At These Levels.
Speaking Engagements
“The coldest winter I ever spent was a summer in San Francisco,” a saying that’s almost a San Francisco cliche, turns out to be an invention of unknown origin, the coolest thing Mark Twain never said.
The natural setting is, however, among the most exciting in the US. Venture west for the San Francisco Money Show Aug. 7-10, 2008, and conduct your own field study.
Neil George, Elliott Gue and I will discuss infrastructure, partnerships, utilities, resources and energy, and tell you what to buy and what to sell in 2008.
Click here or call 800-970-4355 and refer to priority code 011362 to attend as our guest.
The Roundup
Oil & Gas
Baytex Energy Trust (NYSE: BTE, TSX: BTE.UN) boosted its monthly distribution by 25 percent to 25 cents Canadian per unit in the wake of its Burmis Energy acquisition and prospects for continued high oil and gas prices. The new payment will begin July 15. With the Burmis assets, Baytex now expects production of 40,500 to 41,000 barrels of oil equivalent output a day for the rest of the year.
Baytex also announced an increase in its corporate credit line to CAD485 million from CAD370 million. Baytex Energy Trust is a buy up to USD26.
Penn West Energy Trust (NYSE: PWE, TSX: PWT.UN) is in talks to secure carbon dioxide (CO2) from a government-funded carbon-capture project to boost output at oil fields in southeastern Saskatchewan. Penn West has several small oil pools producing about 15,000 barrels a day near SaskPower’s Boundary Dam coal-fired power plant, site of a CAD1.4 billion carbon-capture proposal. In February, Saskatchewan’s government moved ahead with plans to refit the power plant with CO2 equipment after the federal government committed CAD240 million.
EnCana Corp (NYSE: ECA, TSX: ECA) boosts output at its nearby Weyburn field with CO2 piped from a North Dakota coal gasification plant. Costs will likely be shared among Penn West, the provincial and federal governments and SaskPower, which is owned by the province. The power utility has said it could cost about CAD1 billion to refit the Boundary Dam plant and CAD400 million to build pipelines. Penn West Energy Trust is a buy up to USD34.
Business Trusts
CI Financial Income Fund (TSX: CIX.UN, OTC: CIXUF) reported net sales of CAD265 million in May 2008, assets under management of CAD69.6 billion and total fee-earning assets of CAD105.1 billion as of May 31, 2008. During the month, retail assets under management grew by CAD1.7 billion, or 2.6 percent, to CAD66.8 billion. This represents a gain of CAD2.6 billion, or 4.1 percent for the year to date.
CI subsidiaries CI Investments and United Financial Corp had combined gross retail sales of CAD988 million and net sales of CAD265 million, consisting of CAD219 million in long-term funds and CAD46 million in money market funds. Maintaining momentum established during Canada’s registered retirement savings plan (akin to a US IRA) season, CI Financial Income Fund is a buy up to USD25.
Mullen Group Income Fund (TSX: MTL.UN, OTC: MNTZF) is buying Essential Energy Services Trust’s (TSX: ESN.UN, OTC: EEYUF) fluid-hauling and oilfield transport business units for CAD135 million.
The fluid-hauling businesses operate as Cascade Services in northern Alberta and northeastern British Columbia and as Jacar Energy Services in southern Alberta. The oilfield transport businesses operate as Circle D Transport & Rentals in southern Alberta, as Prime Oilfield Hauling in the Grande Prairie, Alberta, region, as Polege Oilfield Hauling in northern Alberta and northeastern British Columbia and as Leachman Oilfield Trucking in central/southern Alberta and Saskatchewan.
Essential COO Ken Wagner will move to Mullen as president of the Cascade Services and Jacar Energy Services business units. The transaction, expected to close by July, will add more than 1,000 pieces of equipment to Mullen’s assets.
The deal could mean about CAD115 million in annual revenue, and Mullen forecast “operating margins consistent with other comparable business units.” Mullen Group Income Fund is a buy up to USD22. Hold Essential Energy Services Trust.
Real Estate Trusts
RioCan REIT (TSX: REI.UN, OTC: RIOCF) is entering a second 50-50 joint venture with Kimco Realty Corp (NYSE: KIM), RioKim II, to buy a 10-property portfolio located in central and eastern Canada. The portfolio includes approximately 1.1 million square feet of new format and strip retail centers.
The aggregate purchase price of the portfolio is approximately CAD156 million. RioCan will source, lease and manage any property in the joint venture and will be paid market fees for so doing.
The weighted average lease term of the portfolio is 9.3 years, and approximately 90 percent of the portfolio comprises national and regional tenants. The average age of the portfolio is 11.4 years, with a weighted average occupancy of 97.6 percent. The total debt assumed for the transaction is CAD82.6 million, with a weighted average term of 8.25 years and a weighted average interest rate of 6.25 percent. RioCan REIT is a buy up to USD25.
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