Wind Mobile – A gentle breeze that came and went

Wind Mobile is up for sale. And Fongo has put in an offer of $1 for its purchase. 

Once all the fun and games are over and done with what we have left is a very clear reality that doing business in Canada is not just hard, it is downright unprofitable. 

Pretty much since the get go Wind Mobile has been crying foul play about the attitude of the regulators as well as the market heavy weights, also known as the Big 3. Their mission was to provide Canadian consumers an alternative to paying exorbitant charges and getting stuck in the noxious contracts that continue to be the way the major players operate in Canada.Whether the whiny attitude from Wind’s head offices was naivete on the company’s part or a ploy that failed miserably, the end result is simply that the company is effectively leaving its small, albeit loyal subscriber base, completely unaware of what is in store regarding tariff increases or additional fees. 

Interestingly, despite all the confusion, there is not a peep out of the CRTC regarding the whole situation. Sure, the regulators see no problem in letting the markets carry out the bidding process as business as usual, but in reality can this situation be correctly classified as business as usual? 

Take a look at the latest bang and bust start of Target, the US retailer that had created so many ripples its in pre-launch phase and yet one month in and the early estimated figures do not look as promising as anyone had hoped. Yes it is still early days for Target but its clear that the company has a long way to go before they can a make a mark in the saturated Canadian retail space. 

Of course the length of time spent in the country cannot be the reason for the recently announced departure for Suzuki Motors. After sticking it out for more than 3 decades, the company has decided to exit the Great North. Once again, analysts and investors only see this as a minor incident as the company never gained a solid foothold in the domestic market. True enough if you want to provide a comforting summary to a failed story, but to a well informed person, the question is not how or when, but rather why? 

Canwest can always go east

Love it or hate it, Canwest is not going anywhere anytime soon. Unable to make its interest payments on time, the media giant filed for bankruptcy earlier this month, but given its key connections, is unlikely to enter a Nortel style liquidation.

Its links with the Liberal party, as well as the powerful Likud party from Israel essentially guarantee the company’s continued presence in Canada. Yes, it still owes $4 billion in debt, but that problem can be easily solved with the help of a few phone calls, and a little savvy financial innovation. Just ask General Motors for a few tips.

What might be more tricky however, is the ongoing tussle with Goldman Sachs, and the potential lawsuit lurking in the background. The seeds were actually sowed 2 years ago, when Canwest bought Alliance Atlantis, the name behind popular specialty channels like HGTV, The Food Network and Showcase. The deal was funded in part by Goldman,  with the understanding that Canwest will purchase the stake back from the investment bank in 2011. Now, with creditors lining up to hatch out a deal, Goldman is in a rush to finish its own deal, and is threatening legal action if Canwest does not follow through. In addition, Goldman is threatening to sell the  specialty channels by itself if there is a delay.

The trouble is that the specialty channels are the only attractive assets in this garage sale. Global TV, the only other division that may actually make some money is much too important to be sold off. That leaves National Post, and the rest of the newspaper division, but the newspaper business is declining in value by the second, so its prospects also look weak.

Interestingly though, it looks like even with the Asper family facing some tough times ahead, the situation is nothing that can’t be discussed between old “friends”.

Loonie Tunes

The Canadian dollar is at 97 cents to the US dollar, oil prices are up, and gold is at record high. I don’t know what Marc Carney is thinking now, but to me it looks as if Bank of Canada’s worst nightmare is about to come true.

The Governor has been screaming “Danger Danger” since summer; warning that the much anticipated economic recovery may stop before it even gets started. But before we start to cry foul play again, it’s important to reconsider Canada’s attached-to-the-hip style dependence with the United States.

For a country whose top exports includes commodities and resources, Canada seems to be in constant fix. Every time the US dollar takes a step back, the loonie rockets to the top. This lack of diversification, or as most people call it, obsession with the States has prevented Canada from being a global leader in major commodities markets.

Some may point towards the recent foreign direct investment into Canadian firms such as Royal Nickel Corp, and even the metal mining giant Teck Resources Ltd. But in comparison to other countries such as Nigeria, the Chinese overall investment rates in Canada remains low.

Now with the rising dollar, there will be a negative impact on exports as well as investment. On the positive side though, higher oil prices may provide a cushion for Canada’s free fall.

Suncor: Letting out some gas

Suncor’s senior executive Mr. John Rogers announced the company’s plans to sell off its natural gas assets in a press conference today. In the old days the news may have caused some concern, since the natural gas business represents a significant portion of the newly merged company.

But not anymore. With the company’s stock rising almost immediately, it is safe to assume that the oil business is about to make a roaring comeback.

When crude prices nosedived during the recession, the oil industry, that is known to have its fair share of problems, took a backseat in the media; as the big bad boys of banking were placed in the spotlight.  But even then, Obama’s energy bill kept things interesting. At the time, it was considered a landmark iniative, a step in the right direction, clairvoyant.

Now, as news from California continues to get dimmer, rising energy costs to save the environment, may not seem like such a great idea after all. If you can see who benefits most from this scenario, you would understant that nothing else could make Canadian energy companies more excited.  

So why on earth would Suncor waste its resources in natural gas?

How mighty is Magna

After Magna successfully closed the Opel deal with GM last week, many in Canada were quick to celebrate Mr. Stronach’s transition from becoming a car parts manufacturer to a car manufacturer. But now that the party is over, its back to business for the Stronach team, and early indicators show Magna better fasten its seat belts for the bumpy ride ahead.

For one thing, Opel is not in good shape. The company has posted nearly $4billion in losses in the last three years. Costs are high, unions are strong, and capacity is underutilized. Marketing is at a point, where it could be anyone’s baby, and brand equity stinks of GM.  Surely, its going to take sheer hard work to steer this company out of the red. 

But even if Magna does manage to turn the company around, the politics behind this deal are almost guaranteed to loosen up some nuts and bolts.  It’s no secret that the company, along with its co-bidder Sberbank, were favoured for the deal by the German government. After all, nothing can guarantee a win in an election, but ruthless job cuts will  guarantee a loss.

Ironically enough, the company announced today that it would lay off close to 11,000 employees in the coming months. Moreover, the German public are acutely aware that this deal is costing them nearly $2.5 billion in taxpayers money, and billions more in loan guarantees. And while we have yet to see any cracks in the Canadian-Russian alliances, Mr.  Putin’s Russia has a long way to go before any deal east of Belarus can be considered long term.

Personal vs public debt

 

Today a Toronto-based economist said that the national Canadian debt is set to grow by $160 billion by 2016. According to his calculations, this would put the total debt at $620 billion at that time. Not surprisingly, many in the financial circles are worried, as growing debt equals rising taxes. 

At least, that’s the common-sense macroeconomic textbook logic. But recently, as we have seen especially in the United States, adding to the national debt just isn’t as big of a deal as the academic community makes it out to be.  The sequence of events is actually rather simple. Spend. Borrow. Spend. Pay interest. Borrow. Spend and on and on.

Meanwhile, the commonly cited evil of generational debt keeps on getting passed down from generation to generation. In contrast, the terms of individual or personal debt, along with its payment schedule are drastically different. The very thought of one not being able to pay back his loan is enough to lose sleep for most people.

The question therefore becomes, is the national debt just a scare tactic to rile the masses into a revolution, or worse yet, a summer election? Or is this really an issue that needs to be addressed. Should we be asking to pay 7% GST, or just leave it for our grandchildren (or their grandchildren) to work it out.  Chances are, that they probably deserve to be subjected to some sort of government mind control and dictatorship anyways.

Gold and the tough love

Experts in the financial world often get flustered when the Mr. Average Joe investor dares to inquire about gold as a solid investment option. After all, Mr. Joe argues, if people bought and traded in gold for 1900 our of the 2000 years of our existence, surely there must be something there. But all too often, this innocent attempt to venture beyond the abysmal universe of mutual funds, is harshly struck down, and order is vehemently restored to the systems of management fees and MERs.

However, a look at the current gold prices might suggest otherwise. With prices nearing the $1000 per ounce mark for the second time this year, it has certainly piqued the interest of many observers and analysts. With no definitive conclusion about the bottoming of the global recession, and the sustained erratic stock market performance that continues to baffle experts, investors are once again looking at gold as a bankable alternative.

For those who follow the spikes and squats of the precious metal, it is a signal of troubling times ahead. Certainly, in Canada the political landscape is shaky once again, as talks of election blow together with the fall winds. And just yesterday the OECD declared that Canada is likely to trail behind the rest of the G7 countries as they climb out of the recession.

With the scene set for an exciting (and certainly long )winter, it may be a good time to have a talk with your financial advisor about gold, but certainly do so at your own risk.

Trends in commodities: Home style

First CEO of Athabaska Potash Inc is dismissed, then Teck Resources reduces its production forecast for 2009 by 15%. As expected, stock prices for both Canadian darlings followed investor sentiment. 

The lesson: That whereas so many of us are preoccupied with looking south for any news that makes or breaks the Canadian economy, we should not forget that there is no point in looking to the customer, if you don’t have anything to sell.

Meanwhile oil and natural gas companies also have their plates full. Any company that has done well in the past 2 to 3 years has already been, or is currently being bought out by foreign giants. Case in point, Sinopec’s acquisition of Addax Petroleum.

If Canada wants to come out of this recession soon, it must take care of its “family silver” (and copper, oil and minerals). There’s hardly any other reason to inhabit this tundra of a continent otherwise.

Optimism is optional

The Fed recently released a statement saying that the recession is slowly easing and inflation would remain subdued for some time. As a result, there will be no change in interest rates for an “extended period of time”. Surely, markets have responded with a collective nod as they continue to stay positive after a weak of swinging to negative territory.

All things considering, the statement certainly seems to be in line with the rosy economic picture that we are presented with, every now and then. So why is it that so many insiders are still screaming sell and run?

Is it the $787 billion stimulus package that haunts them? Or is it the record number of unemployment claims? No, that can’t be it, now that the Obama administration has effectively dealt with Chrysler and GM. Perhaps it’s the slashing prices in a consumer driven economy, and the dirt cheap prices for North American company buy outs.

Whatever the reason, the Federal Reserve certainly did the right thing to hold rates as is. Meanwhile, in a faraway place called Yekaterinburg (Russia),  leaders of Brazil, Russia, China and India finalize their transition to SDR denominated capital.

Manulife: In(side) the business of risk

The “boomers” as they are known now, built their empires on intuition. From warriors to investors, their  killer instinct is what has made Warren Buffet and George Soros the wealthiest men in the world.

But the same intuition has contributed to many a mighty fall as well. Most recently, Manulife has a lot to share when it comes to talking about acting on intuition.

Now, a month or so after his departure from Manulife, former CEO Dominic D’Alessandro is being blamed for all the trouble Manulife is in. Yesterday, its stock plunged more than 12% amid a new probe by the OSC that it failed to disclose its risks for the segregate fund products to investors.

Perhaps. But the reason behind the lack of disclosure, or for that matter all of Manulife’s current problems, was simply Mr. D’Alessandro’s confidence in himself.  He never believed that markets could fall, at least not in the next one year, which is all the time he had left before he would achieve the glorious end to his illustrious career.

The lack of precautionary measures, the lack of contingency plans, the high headedness permeated throughout the organization. By his own admission, Mr. D’Alessandro failed to hedge against downside risk, even though examples of AIG and other big insurers had been appearing in headlines for quite some time.  It is no secret that the former CEO had to make some phone calls, and pull some arms to get a $3 billion loan that essentially gave the company a new life.

Now with a new CEO, it is apparent that Manulife is trying to hold off on the charisma, and inject prudence into the company’s arteries. As it faces a potentially ugly litigation, there is little wiggle room left to take further uncalculated risks, based solely on the hunches of its executives.