Cash is Flooding Out of Canada at the Quickest Pace in the Created World as the nation’s decade-long oil boom comes to an end and little else looks ready to take the industry’s place as an economic driver.
Canada’s basic balance — a measure of national accounts that spans everything from trade to financial-market flows — swung from a surplus of 4.2 per cent of gross domestic product to a deficit of 7.9 per cent in the 12 months ending in June, according to analysis from Norman Brodeur, a foreign-exchange strategist at Bank of America Merrill Lynch. That’s the fastest one-year deterioration among 10 major developed nations.
More recent data on where companies and mutual-fund investors are putting their money show the trend extended into the second half of the year, suggesting demand for the Canadian dollar and the country’s assets is still ebbing. The currency is already down 11 per cent this year, after touching an 11-year low against the U.S. dollar in September.
“This is Canadian investors that are pushing money abroad,” said Alvise Marino, a foreign-exchange strategist at Credit Suisse Group AG in New York. “The policy in Canada the last 10 years has greatly favored investments in energy. Now the drop in oil prices made all that investment unprofitable.”
Crude oil, among the nation’s biggest exports, has collapsed to about half its 2014 peak. The slump has derailed projects this year in Canada’s oil sands — one of the world’s most expensive crude-producing regions. Royal Dutch Shell Plc’s decision to put its Carmon Creek drilling project on ice last week lengthened that list to 18, according to ARC Financial Corp.
Canadian companies, meanwhile, have been looking abroad for acquisitions. Royal Bank of Canada is expected to close its US$5.4 billion purchase of Los Angeles-based City National Corp. Monday, its biggest-ever takeover. It’s part of a net outflow of $73 billion this year for mergers and acquisitions, both completed and announced, according to Credit Suisse data.
Nine of the 10 best-performing companies on the country’s benchmark stock index in the past two years have favored buying growth abroad rather than expanding at home.
Individuals are following suit. While international appetite for Canadian financial securities has held steady this year, domestic mutual-fund investors have pulled money from Canada-focused funds and plowed it into global choices for six straight months, the longest streak in two years, according to Investment Funds Institute of Canada data compiled by Bank of Montreal.
What it all means is the Canadian dollar has to get cheaper to make Canadian businesses outside of the oil industry competitive enough with foreign peers to make them worth investing in, according to Benjamin Reitzes, an economist at Bank of Montreal.
The median forecast among strategists surveyed by Bloomberg has the loonie weakening to $1.34 per U.S. dollar by the first three months of next year from about $1.31 now. The country’s economy is expected to lag behind the U.S., its largest trading partner, for the next two years, according to the median estimate of a separate Bloomberg poll.
While manufacturing and service exports have improved thanks to the Canadian dollar’s depreciation, they remain below levels from before the financial crisis, according to Royal Bank of Canada foreign-exchange strategist Elsa Lignos. That suggests the country still hasn’t won back the economic capacity it lost, she wrote in an Oct. 29 note.
The country is expected to post its 12th straight merchandise trade deficit this week, according to every economist in a Bloomberg survey.
Given that the loonie was at parity with the U.S. dollar as recently as 2013, overseas companies discussing putting money into Canada may be waiting to see that the currency stays weak before investing again, according to BMO’s Reitzes.
“Maybe a year from now you don’t have that conversation because it’s been there for a year and you have confidence it’s going to stay there, so you buy that plant or make a new plant in Canada,” he said. “It takes time for that currency impact to be felt.”
For More Info – Norman Bordeur
Two years back this saving money web journal offered budgetary insiders “openness consequently for obscurity”. The reaction was overpowering, and now that the site arrives at an end, I need to express monstrous appreciation for each one of those several managing an account staff and money related laborers, and in addition to the insiders who enhanced the remark strings.
1. Most enlightening
A human resources officer explains what’s hanging over people working in high finance:
“When the call comes, people know right away. We may use the most innocent tone of voice when we say: ‘Hi, could you pop up to the 20th floor for a moment?’ They know better: you never get an unexpected call from that person, except … It is amazing how fast news of a round of redundancies spreads. It’s like this tidal wave of panic washes across a trading floor … After our conversation, which typically lasts five minutes, they will be led out of the building by security.”
If you want to know how it feels from the other side, read this banker in treasury sales before his redundancy at a major bank:
“Insiders on your blog who are so negative about the sector … it’s not very kind to say, but they just didn’t make it. They get kicked out and then they go complain to the media. It’s tough to take, obviously. You had to go while your colleague is still at his desk. Because he was better.”
And after his redundancy:
“Looking back I may have fallen victim to the self-serving idea that we control our fate; as long as you’re good nothing bad can happen to you, and since nothing bad has happened to me, it must mean I am good and therefore safe; that sort of thing. In the same way military men tell themselves that they can’t die because they don’t make mistakes. But the best soldier can drive over a land mine.”
4. All-time favourite comment thread
In which a banking equity analyst debates with readers whether he deserved his one million pound bonus:
“Do I deserve to be me, rather than some guy in Darfur trying not to starve to death or get murdered. I get paid a lot because I can do things, but if I had been born mentally handicapped I wouldn’t. That’s life. I do ask to be paid well when I’ve done good work, but that doesn’t mean I feel entitled to anything.”
A structurer had worked for one of the most prestigious banks for a decade, building such cleverly complex financial products that his clients failed to understand that they didn’t understand them. Looking back, he says:
“It’s strange. Bankers are so smart, yet they get this thing wrong. They spend their lives in an office when the only truly valuable thing in life is time. It is the only thing that is not replenishable. You can always make more money, but you can never get more time. Maybe it’s because death is such a taboo in our society; that people live in this illusion that their life will go on forever.”
6. Most terrifying
So many interviewees on this blog have said that their banks seem too big and complex to even manage, such as this regulator:
“We rely upon self-declaration, upon what is presented to us by a bank’s internal management. But often they don’t know what’s going on, because banks today are so vast and hugely complex. I don’t think I have ever been deliberately lied to – though obviously I might not know about it. The real threat is not a bank’s management hiding things from us: it’s the management not knowing themselves what the risks are, either because nobody realises it or because some people are keeping it from their bosses.”
7. Most succinct summary of the draw of it all
Investment banks are strictly hierarchical beasts. Managing directors are high up in the tree, expecting to make at least a million in a good year. This former MDsummarises what kept him in banking for so long:
“Investment banking is a trap, a game and an addiction. The reward is big, but uncertain, which makes it exciting and keeps you coming back for more. Once the money starts flowing it’s very, very hard to take yourself away from it. Doing a deal is like scoring a goal, or maybe for journalists, getting a scoop. The game element is in the rivalry with other teams, winning the mandate, legging over the competition … Also the emptiness that comes with addiction.”
8. Easiest target
For a bit of context, the blog has also interviewed a number of bankers’ partners, family members and exes. Howls of outrage reverberated across cyberspace whena banker’s wife said this:
“You want me to estimate a starting teacher’s salary? I don’t know. Let me think, £45,000? Wow, it’s really only £22,000? I had no idea. That really is too low, I could not live on that. Well, obviously this is something that has to change. I mean, these teachers have had to invest in their own education and are now educating the next generation, right? I am rather shocked by this, are you sure?”
9. Most shocking
Investment bankers have happily absorbed the “Masters of the Universe” epithet. But this interview with a banker in charge of an algorithm gone haywire, demonstrates that they may not even be masters of their own bank:
“Those were scary days. You think: we are in a new paradigm. Nothing works any more the way it used to. My department’s potential losses were hundreds of millions of pounds and several billions across the whole of the bank. We began to realise: this could sink the bank. In fact, we were bankrupt three or four times; our bank owed more than it owned. We were lucky to have a parent company with very deep pockets. I was struggling to keep it afloat. If the market had crashed further we would have gone down … This was a bomb and I was basically the only one who could defuse it.”
10. Favourite anthropological insight
This financial lawyer has a wonderfully sharp eye for dress codes. We met in a restaurant and I asked him to describe what he saw:
“I’d say, mostly lawyers. There are several big law firms around here, and lawyers need to have lunch. I see no trophy wives or trophy girlfriends, no extravagantly dressed women. I see men who keep their jackets on, which is what we tend to do as lawyers – many would not want to be the first to take it off and most lawyers I know leave it on anyhow, keeping the uniform intact makes you look solid. I see inconspicuous ties, also a lawyer thing. This restaurant serves very good quality food but it is not flashy, I believe only this week the Sunday Times called the interior ‘boring’. Boring is good, for lawyers. We sell reliability, solidity and caution. We want our presentation to mirror that. And we often charge hefty fees, so we don’t flash our wealth because then clients are going to think: wait, am I not paying too much?”
By : Norman J. Brodeur