Friday, 19 December 2014

Rule of Schlock

You may think that the most depressing news out of the entertainment world this week is Sony's capitulation over the release of The Interview, but trust me, this is worse!

With new ideas ever harder to find, I suppose it's no surprise that someone has hit on the notion of a Broadway production of School of Rock. The movie was an enjoyable though lightweight Hollywood feel-good fantasy, made watchable mainly by the reliably off-kilter presence of Jack Black in the leading role.

The movie's soundtrack was mostly unoriginal, featuring killer tunes by the likes of The Doors and Led Zeppelin.  So guess who the producers of the stage version have chosen to write new material for the stage version.  Yes, it's a man whose very name is synonymous with rock'n'roll -- Andrew Lloyd Webber!  Truth to tell, it's hard to think of any living composer with less rock sensibility than old Andrew, but his name in lights outside the theater will certainly pull in the punters, at least those who did not run screaming into the streets from Starlight Express or Cats.

And of course the story itself has to be adapted for the stage, and who better to do that than...Julian Fellowes! Yes, the plummy British toff whose tin-eared dialogue and preposterous plots have mysteriously attracted a global following for the execrable Downton Abbey.  Who better than a man who can't write believable dialogue for people of his own race and class to put words into the mouths of a misfit American teacher and a group of feisty teens?

Two creaky members of the British House of Lords writing a rock musical for Broadway -- by all that's logical it should have about as much chance of success as Springtime for Hitler.  It's scheduled to open next November at the vast Winter Garden, where it will replace the equally implausible stage version of Rocky.

I think I may start a rumour that their Lordships are inserting Kim Jong-Un into the storyline.  

Thursday, 18 December 2014

Cuba libre? Not if the GOP can help it

It's infuriating, but not in the least surprising, to find that large swathes of the Republican Party are pledging to do whatever it takes to derail President Obama's plans for a gradual rapprochement with Cuba.  Infuriating, because the political and economic embargo that has been in place for five decades has been wholly ineffective in changing Cuban policies, while keeping the Cuban people mired in poverty. Unsurprising, because it's been clear for a long time that nothing Obama does, no matter how sensible or popular, will meet anything but shrieking opposition from the GOP.

The Castros were America's creation.  Under the Fulgencio Batista regime in the 1950s, the island was a corrupt den of vice and depravity, effectively governed by American organized crime. Once Fidel Castro's revolutionaries ousted Batista at the start of 1959, the US spurned the opportunity to establish any relationship with the new regime, instead adopting a policy of unrelenting hostility that effectively drove Castro into the arms of the Soviet Union.

After the farce of the Bay of Pigs invasion and the terrifying brinkmanship of the missile crisis, relations settled into the stalemate that has largely persisted to this day.  Deprived of the opportunity to trade with its giant neighbor, Cuba gradually regressed from one of the wealthiest countries in the hemisphere to one of the poorest. The slide into poverty accelerated after the demise of the Soviet Union, which led to a drastic reduction in the aid that Moscow had been providing to the island.

There's no denying that Fidel Castro made plenty of efforts to annoy his northern neighbor.  Cuba undoubtedly attempted to undermine any number of governments around the region over the years. (It should also be acknowledged that Cuba put many wealthier countries to shame with its willingness to help out in international crises, the current ebola crisis in Africa being the latest).  What's crystal clear, however, is that the US embargo has done absolutely nothing to change Havana's behavior. This article from Slate argues that it's one of the least effective foreign policy initiatives in US history.  It's hard to disagree, which makes it hard to take seriously allegations from many Republicans (and one or two Democrats) that all Obama will achieve is to reduce US leverage over Cuba's future actions.  There is no leverage to reduce.

All evidence is that the embargo is unpopular with US voters, even if politicians like Marco Rubio and Ted Cruz (who was, let's not forget, born in Calgary, Alberta) still hew to it.  Congress may make things difficult for Obama, but he's used to that by now, and it seems likely that we are indeed witnessing a historic moment.

A final aside on the Canadian angle here.  It looks as though the key catalyst for the rapprochement was the Pope, but the actual talks between the two countries were held in Canada.  This inevitably led some elements of the Canadian media to claim a role for Canada in the deal, but to give credit to Stephen Harper -- something I only do with great reluctance -- he was quick to disavow any role as an intermediary in the talks.  That aside, the main impact on Canadians that the press is now focusing on is that, once the existing travel embargo on US citizens is lifted, Cuba will quickly become a much more expensive winter sun vacation.  And probably, as it starts to fill up with Starbucks and Mickey D's, a much less appealing one.

Monday, 15 December 2014

Canada's debt bomb -- still ticking

Statistics Canada reported today that Canadians' net worth and household debt both increased in the third quarter of the year. Good news/bad news story, then?

Not really.  The rise in net worth is an all-boats-rise-with-the-tide kind of event.  The main (if not only) contributors to the improvement in the asset side of household balance sheets are the continuing gains in home prices and the weakness in the exchange rate, which has the effect of boosting the C$ value of Canadians' foreign assets.  Higher savings?  Not so much.

Meanwhile, on the debt front, Canadians continue to prove that if you shovel cheap money at people, as the Bank of Canada has been doing for the last half-decade, they'll take it.  The household debt/disposable income ratio is now just a touch shy of 163%, a number scarily close to what was observed in the US just before the financial crisis.

Just about everyone, from the Bank of Canada to the lowliest blogger, is hoping that the rise in interest rates, when it eventually comes, will be gradual enough to ensure that house prices have a "soft landing".  Maybe they will, but consider the balance sheet impact of even that benign scenario.

The dollar figure for household wealth, at $232,000, may sound impressive, but consider that the average house price in Canada is about $414,000 -- and is much higher than that in cities like Vancouver and Toronto.  Many households have virtually no assets other than the house itself, and they're carrying a good chunk of mortgage debt. That debt won't decline if higher rates cause house prices to slip -- it will just become harder to carry. But the fall in prices will tear a big hole in homeowners' equity, and hence in that oh-so-comforting net worth number.

Local TV advertising here can be a pretty distasteful mix, replete with ambulance-chasing lawyers and cheap appliance dealers.  There are also lots of ads that speak to the desperate state of household finances: jewellers offering to buy your gold and silver, and people urging you to borrow against the equity in your home ("put your home to work", as one company puts it), or, if you're an indebted senior, extolling the virtues of a reverse mortgage.  The Bank of Canada may be trying to get people to act more cautiously, but there are few signs that anybody's paying heed.

Wednesday, 10 December 2014

Bank of Canada hopes for the best

The Bank of Canada today released its semi-annual Financial System Report.  To the surprise of precisely no-one, the Bank identifies the overvalued housing market and sky-high personal indebtedness as key risks for the financial system, and by extension for the entire Canadian economy, going forward.  Nevertheless, it continues to forecast a soft landing for the housing market.

Releasing the Report, Bank Governor Stephen Poloz was much more explicit than he has been in the past about the duration and extent of the overvaluation. He indicated that the Bank's models suggest that the market has been overvalued since 2007, by an average of about 10 percent. The models show that the current level of overvaluation may be as high as 30 percent. This is a rather more sobering conclusion than the one reached less than a month ago by the Government's own housing agency, CMHC -- see this earlier blog post.    

If the market really is overvalued by as much as 30 percent, how realistic is it for the Bank to continue to predict a soft landing?  As the Report notes, the number of Canadian households classified as "extremely indebted" (defined as debt equal to 250% or more of annual income -- wow!) has doubled since the turn of the century, and now accounts for 12 percent of all households.  It also notes that young people are carrying much larger debts than previous generations did.

Given these factors, the Bank's cautious optimism is based on two factors: the limited likelihood of any rapid increase in borrowing costs, and the expectation that global economic recovery will spur growth in the Canadian economy, and thereby in household incomes.  The precipitous decline in oil prices should help on both counts. The Bank is set to lower its inflation outlook to reflect the sharp fall in retail fuel prices, which will allow it to delay any move toward restoring interest rates to more historically normal levels. As for the growth outlook, the fall in the exchange rate for the Canadian dollar will help boost export growth, while lower fuel bills will put money into the hands of consumers, potentially supporting higher growth in retail spending.

One caveat here, though.  Lower oil prices will be beneficial for the Canadian economy overall, but threaten to have a negative impact in the oil producing provinces, notably Alberta.  (Today's price for Alberta crude of around $50/bbl* is reportedly right at breakeven level for many producers).  Most of the analysis of housing market overvaluation has tended to focus on Toronto and Vancouver, but the Calgary market is in a similar position, and may become the most vulnerable if low oil prices persist.

Maybe it will all work out fine in the end, as the Bank hopes.  However, it's hard to avoid the sense that the Bank is at the mercy of events, rather than in control of the situation.  As Gov. Poloz admitted today, the Bank has known for more than half a decade that the housing market is overvalued, and he and his predecessor Mark Carney have been warning for almost as long that household debt is too high. And yet there's no evidence that the Bank has any strategy to remedy the situation, short of hoping for the deus ex machina of low oil prices to skate the economy onside. Still less does it have any room for maneuver in the not inconceivable event that things fail to pan out in the benign way that it's counting on.  Fingers crossed, Gov. Poloz!


* Yes, this is well below the WTI benchmark, which is around $61/bbl at the time of writing. Alberta crude has been trading far below WTI for a long time, reflecting the lack of pipeline capacity to get the product to refineries or shipping terminals.    

Sunday, 7 December 2014

Turning your back

Many years ago, when my son was young, I bought a video camera.  It was a heavy thing, using shrunken VHS tapes, but I toted it around on family outings to record our exploits for posterity.

One day, when my son was in his teens, we went to some sort of military display where people were offered a chance to try a simulated parachute jump -- basically what we'd now call a zipline ride from a moderately high tower. My son stepped up for the thrill and I stood back and aimed the camera.  It was only once he was back on the ground that I realized that I hadn't actually seen him do the jump. I'd just seen a tiny image of it through the viewfinder. If memory serves, I never used that camera again.

What brings this to mind is the selfie craze, which is now starting to attract caustic comment from people like Timothy Egan at the New York Times. The latest aid to digital narcissism is the so-called "selfie stick", a gizmo that allows you to avoid the fisheye look that you get if you can only hold the camera at arm's length. I understand these are particularly popular with Koreans, so given the number of buses that bring tourists from that country to visit the Falls and the wineries, I'm sure it won't be long before I'm poked in the eye with one of these devices.

Selfies, particularly when taken in front of attractions like Niagara Falls (or St Peter's or Tower Bridge or whatever) actually strike me as being even more ridiculous than my long-ago video camera.  At least, when I shot that film of my son, I was actually facing the parachute wire, and could have watched if I'd just had the brains to lift my head from the camera.  But when you're taking a selfie, you literally have your back to whatever it is you supposedly came to see.  The camera sees it: you can't.

Your friends know what you like, so when you post your selfie on Facebook or Instagram, they don't learn anything new about how you look.  And they probably don't learn anything about the Falls or the Grand Canyon or wherever you happen to be, because you're standing in front of it and blocking out the view.

It's pathetic.  Or at least, that's what grumpy old coots like Timothy Egan and I think.

Thursday, 4 December 2014

Forecasting is difficult, especially about the future

What would you say is the big wild card in the global economic outlook for 2015?  I'd say it's almost certainly the price of oil, which has declined precipitously in recent weeks and may still have further to go.  Given the importance of oil to both businesses and consumers, the net impact on the global economy must surely be positive, but there will be some big winners and losers, and prospects for a wide range of companies and industries look very different from what seemed likely just a few months ago.

Have pity, then, on The Economist, which just published its glossy "The World in 2015" forecast issue.  An undertaking of this size inevitably involves long lead times, and unfortunately for The Economist, everything changed while the magazine was at the printers'.  There are throwaway references to oil scattered throughout, but the only article specifically on the industry consists of a few short paragraphs....at the bottom of page 144!  They'd surely do things quite differently if they had it to do all over again.

One country where the rapidly-changing oil price outlook poses a particular challenge for policymakers is Canada.  On Wednesday, Bank of Canada Governor Stephen Poloz announced that the Bank would keep its benchmark rate at 1% for the time being, even as he acknowledged signs that the recovery in the economy is "broadening".  He identified the uncertainty over oil prices, together with (no surprise here) high household debt levels as key risk factors in the outlook.

The problem, from Poloz's point of view, is that the impact of falling energy prices differs widely in different parts of the country.  It's obviously negative for the oil-producing provinces, notably Alberta, Saskatchewan and Newfoundland/Labrador.  As relatively high-cost producers (from tar sands in Alberta: from the seabed in Newfoundland), Canada's oil producers will become vulnerable sooner than most.  But it's obviously very positive for energy-consuming provinces, which include the three most populous, Ontario, Quebec and BC.  Consumers in those provinces will feel more prosperous; energy input costs for what remains of the manufacturing sector are set to fall sharply; and the fall in the exchange rate of the Canadian dollar is already making non-oil exports more competitive in the US market.

For Canada as a whole, as for the world economy, the net impact of lower oil prices, if they persist, will be positive, but that won't make the Bank of Canada's job any easier in 2015.  Whenever economic prospects for the various regions of the country start to diverge sharply, as they seem set to do, there are anguished calls for the Bank to adopt some kind of "regional monetary policy".  Nobody is ever able to define quite what that might entail, but those cries will surely be heard ever more loudly in the months ahead.  Gov Poloz is a lot less chippy in dealing with critics than his predecessor, Mark Carney, ever was, but his equanimity may soon be sorely tested.

Tuesday, 2 December 2014

Cyber Monday blues

I haven't had a rant about the abysmal quality of most business reporting in the media for quite a while, but a piece in today's Toronto Star about how Cyber Monday panned out in the US is just too confusing to let pass. You can only find it in the print edition, so you'll have to trust me when I tell you I'm quoting it verbatim. The oddest thing about it is that it's not written by one of the Star's own multi-tasking reporters, but by someone at Bloomberg, who ought to know better.

OK, ready?  The headline is "Web based purchases stall despite discounts".  

That's not good then, is it?  Sales were unchanged from last year?  Well, no. Here's the first sentence from the body of the text:

"Internet holiday shopping in the US rose 8.7% on Cyber Monday...."

So when you said "stalled" you actually mean they rose? Or do you?  Let's finish the sentence....

"slowing from the same time frame last year as consumers spread their online purchases over more days".

Ah.  So when you say they rose, you actually mean they fell?  Or do you?  Let's move on to the second sentence:

"While sales Monday -- typically the busiest day for web shopping -- had increased as of 3 pm in New York, the growth wasn't as fast as last year, when sales had jumped 18.7% in the same period, according to IBM Corp". 

So when you say "stalled" or "slowed" you don't actually mean that sales were the same as last year's, let alone lower.  You just mean they didn't rise as fast as they did last year. In fact, you maybe don't even mean that: the reference to spreading purchases "over more days" almost certainly means that online shopping over the whole manic weekend was very healthy indeed.  We won't actually know until the Commerce Department comes out with proper data for the whole US for the whole month -- not just up to 3 pm in New York on one particular day! -- so it's to be hoped and expected that the Fed won't be taking too much notice of this particular report.

Let's skip by the rest of the article (I'm sparing you an odd little reference to a $4000 Chanel handbag) and look at the final paragraph, one that strongly suggests that the writer doesn't spend much time thinking about statistics:

"Holiday shopping is key for retailers -- with sales in November and December accounting for about 19 percent of annual revenue according to the US National Retail Federation -- and more of that is shifting online".

It's well-known that the final two months of the year are crucial for retailers, but does that percentage seem right to you?  I mean, November and December account for 16.67 percent of the year by daycount, so if sales really are concentrated in those months, they should surely account for more than 19% of annual revenues, right? But there's no sign that our intrepid reporter questioned that. Guess that's why you need bloggers.