Category Archives: economics

New delinquent U.S. car loans at 8-year peak: NY Fed survey

Bloomberg reports

More Americans fell behind on their car loan payments in the fourth quarter, bringing auto delinquencies to their highest since the height of the financial crisis, Federal Reserve Bank of New York data released on Thursday showed.

Car loans delinquent by 30 days or more grew to $23.27 billion, the most since $23.46 billion in the third quarter of 2008. They were up from $22.98 billion in the prior quarter.

Seriously delinquent auto loans whose payments were 90 days or more past due jumped to $8.24 billion in the fourth quarter, the highest since the third quarter of 2016, according to the survey.

This make no sense to me as both the U.S. economy and unemployment is doing better and interest rates at still at historically low levels.  Any ideas why?

How NAFTA Works

From Bloomberg

Global trade involves a complex web of cross-border journeys, seamless and often invisible to American consumers. As President Donald Trump seeks to rewrite Nafta and other trade accords in an effort to bring jobs back to America, he would do well to follow the meandering path of a single lowly capacitor, a pinkie tip-sized component that stores electrical energy.

Its journey illustrates how U.S. manufacturers rely on numerous border crossings and thousands of miles of travel to produce goods at the low cost and high quality that customers demand. Nafta, in particular, allows goods to travel back and forth to Mexico with minimal delay and at no cost.

Of course while the graphic is cool and the article makes sense to most of us, Trump hates it.  He wants EVERYTHING to be made in the United States and doesn’t realize that it was automation and globalization that changed manufacturing forever, not NAFTA.

I don’t understand Trump voters.  On one hand, they hate NAFTA and blame it for everything but then line up for deals at Walmart to buy goods that almost all made in China.  Why?  Because it is cheaper.  It’s that behaviour that is killing manufacturing in the United States, not NAFTA.

$350 million spent and nothing to show for it

From the National Post

More than $350 million of taxpayer dollars in the past two decades — over a quarter billion dollars in the past decade alone — has been spent to clean up the abandoned Faro mine site, a moonscape of waste rock and mustard yellow ponds in the mountains of south-central Yukon.

But, according to the Treasury Board of Canada’s annual reports posted online, nothing has been remediated: Zero. Zip. Nadda.

“Actual cubic metres remediated: zero; actual hectares remediated: zero; actual tonnes remediated: zero.”

Alex MacPherson wrote about something similar in Saskatchewan

“The federal government has a huge obligation in my opinion to ensure that these mines are cleaned up, because it came under their jurisdiction, came under their watch, they operated (the Crown corporation) Eldorado Nuclear (and) they were supplying the U.S. with this valuable uranium,” said Buckley Belanger, NDP MLA for Athabasca.

Located near Uranium City on the northern shore of Lake Athabasca, about 800 kilometres north of Saskatoon, the Gunnar mine was abandoned in 1963 with virtually no cleanup work. In 2006, the federal and provincial governments signed a memorandum of agreement to evenly split the cost of the cleanup, which involves “remediating” 4.4 million tonnes of radioactive mine tailings, the flooded mine pit and other debris left on the site.

The project was originally expected to cost $24.6 million and take 17 years to complete, according to Natural Resources Canada documents. However, the cost has since ballooned to more than $250 million, about $60 million of which has been spent on site preparation — including tearing down asbestos-laced buildings — and studies. Remediation of the tailings deposits began this year but it remains unclear how the bill will be split.

Inside Jetro, the Store Every New York Restaurant Owner Needs — and Truly Loathes

From Grubstreet

Fights. Errant forklifts. Bird shit. Why do people put up with this place? As McKee, who first went to this location when he was 19, puts it, you can get out reasonably well if you arrive with a plan. The fact that Jetro’s cheap is one reason some operators swarm it, but that’s not enough for everyone. Instead, the store’s main draw is that it has everything a restaurant could possibly need — so it’s an excellent last resort, or a place for regular restocking. It’s the rare one-stop destination in a city where stores are squeezed for space. When a chef realizes she’s dangerously low on cucumbers or that a supplier messed up and the restaurant will run out of napkins during service, Jetro is there — even if the experience is the complete opposite of gently rummaging for veggies at the Greenmarket.

“Any romantic visions of the glamour of owning a restaurant fly right out the window as soon as you pull into that parking lot,” Young says. He and chef Stephen Tanner would go somewhat frequently when they opened the Commodore, which was back in 2010, and Young sounds like a man who still hasn’t fully gotten over the experience. “We’d have to stop for a couple beers on the way back just to recover.”

It kind of reminds me of going to the Great Canadian Wholesale Club on 8th Street where the last time I went in there, I had to help the cashier from passing out while she was ringing me through and a customer was yelling at her for taking so long.

Some quick thoughts on the lunacy of retail and Black Friday in Canada

I had one last Christmas gift to purchase.  As long time readers of the blog know, I do all of our Christmas shopping in the family.  When Wendy’s depression was much worse, it used to stress her out and ruin the holidays.  We make a budget, make a list and stick to it.  Today was our last big gift of the season.

Last night we got an email from the retailer who said that their Black Friday week sales were starting Wednesday.  What I wanted wasn’t on sale but it showed that they had low stock on it so Wendy and I decided to go over today.  Big signs for doorcrashers, promotional campaign online, extended store hours.  Everything.  The store was empty.

Why?  We all have to work.  Same with Black Friday.  Americans often have the four day weekend so they spend Thanksgiving Thursday with family watching football and eating.  Then they go to the malls on Friday and start Christmas shopping.  In Canada, our Thanksgiving is in early October.  It’s also a Monday.  So those sales and door crashers really don’t make any sense, even if they start on Wednesday of that week.

Then they do it all over again on Boxing Day.  Boxing Day sales make sense because people are shopping for themselves and it finishes Q4 off right but extending it now into the first week of January does not.

Don’t get me wrong, I understand Black Friday sales start people in the Christmas mood but ridiculous deals and early morning starts when people have to work?  That doesn’t work or make sense in Canada and you are losing money for really no reason.

Overheard in Swift Current

I was down in Swift Current this weekend.  It’s a gorgeous city that has benefitted from the oil boom tremendously.  You see it everywhere from box seats in the Credit Union iPlex to new buildings throughout town.  Better wheat and grain prices haven’t hurt either.

Every conversation I was a part of… while checking into the hotel to breakfast at the Humpty’s to the conversations around me at the curling contained one word; layoffs and how scared people were as they hit closer and close to home.

Oil is the economy in Swift Current.  Oil and farming.  With the family farm nearly extinct (something you really notice driving down Highway 4), there  are less and less opportunities to make money.  That was the boom of the oil fields.  People who had no choice to go to Alberta for work could stay at home and get jobs.  Now neither option is on the table and people are scared.

I have heard some people say, “why can’t they go back and farm”.  40 years ago that was an option.  Family farms were smaller which meant smaller and less expensive machinery, land values were smaller and you could make a living on a section or a section and a half of land.  I’ve had friends who have tried to start up farming.  It was almost impossible to do, even with family help.  Equipment costs are one hurdle but with corporate farms able to pay well above market rate for farmland, the small farmer doesn’t stand a chance.

So what’s the plan for the provincial government?  Not a lot actually.  Neither the Saskatchewan Party (let’s be honest, they’ve run out of ideas) and the NDP (who are ignoring rural Saskatchewan in this election) don’t have any.  The Saskatchewan Party is paving highways and is going to replenish the rainy day fund (which they have depleted running deficit after deficit when times were good) when oil hits $75 a barrel. 

Are they delusional?

Note to the rest of us, $75 a barrel oil is delusional.  It may not return for years.

Which gets to my point.  The Sask Party is more or less telling us that this is a momentary blip and things will be okay on the other side.  It’s good politics but horrible governance because they don’t know if things get better ever again.   It reminds me of when Grant Devine used to say and believe that things will be okay as soon as the rain returns and the prices rebound.  It never did in his time in power and people were hurt.

There isn’t an easy solution.  Saskatchewan doesn’t have a large manufacturing  base but part of me wonders that small targeted investing and mentoring in larger Saskatchewan towns and smaller cities as a way to help people start and grow small businesses is needed.  We have the same kind of things in the city with Ideas Inc and whatever it is that SREDA is doing (basically the same thing as Ideas Inc is doing but I am too lazy to Google it.  Oh wait, it’s called Square One and it the same kind of thing as Ideas Inc but without office space.) 

Make it competitive.  Go after only the  best ideas.  Keep politicians out of it.  Use the model of Y! Combinator.

Twice a year we invest a small amount of money ($120k) in a large number of startups (most recently 107).

The startups move to Silicon Valley for 3 months, during which we work intensively with them to get the company into the best possible shape and refine their pitch to investors. Each cycle culminates in Demo Day, when the startups present their companies to a carefully selected, invite-only audience.

Maybe that is the wrong model, maybe it is the right one.  All I know is there needs to be a long game of building entrepreneurial capacity and hope in Saskatchewan that isn’t based solely on the price of Brent crude.   The Saskatchewan Party kind of flails at the topic when they suggest it to be easier for more home made food to be sold in gas stations.  Outside of the entire discussion of food safe practices and the rather demeaning nature of this policy, they are right in that it needs to be easier for home based businesses to make money and hopefully hire employees.

The easy option will be to try  to do this with government spending on mega projects or pie in the sky schemes to attract manufacturers to Saskatchewan.  Anyone recall that airplane manufacturer that was going to make airplanes in Saskatoon?  That turned out well didn’t it?  I can go on and on about the NDP schemes as well.  Megaprojects aren’t saving rural Saskatchewan.

The only thing going on in rural Saskatchewan is resource extraction of some sort and unless we want to keep living a boom and bust cycle, finding ways for rural Saskatchewan to be about more than oil, farming, and government jobs, something has to change and right now, it isn’t even a political discussion.

De Beers shuts Snap Lake diamond mine, 434 jobs eliminated

It’s not just oil and potash which have low commodity prices.

The De Beers Group is shutting down its Snap Lake diamond mine in the Northwest Territories due to a softening market for the gemstone, resulting in the loss of more than 400 jobs.

Kim Truter, CEO of De Beers Canada, said the company will evaluate market conditions over the next year to determine if the underground mine is financially viable.

"The men and women at Snap Lake have put enormous effort into this challenging ore body over many years, but even the gains made this year are not enough to overcome the market conditions and put us in a profitable position," Truter said in a news release Friday.

De Beers said some employees will be required in the coming months to prepare the mine for a lengthy suspension.

Truter said 434 employees have been notified that they aren’t required for the closure and maintenance work.

N.W.T. Premier Bob McLeod said the announcement by De Beers will have a significant impact on the region’s economy.

"Our priority is the individuals and their families who are directly affected by this decision and the impacts that this decision will have on N.W.T. business owners and our communities," he said.

McLeod said about 300 people who work at the mine about 220 kilometres northeast of Yellowknife live in the territory. The others fly in from other parts of Canada.

He said De Beers Canada has spent $1.5 billion with N.W.T. companies over the years, including $865 million with aboriginal firms and joint ventures.

"These are not amounts that are easily replaced," he said.

McLeod said he hoped the closure of the mine is temporary and noted that De Beers is involved in another mine called the Gacho Kue project that is almost complete.

Maybe Germany needs to be kicked out of the Eurozone

From Foreign Policy

Last year, Germany racked up a record trade surplus of 217 billion euros ($246 billion), second only to China in global export dominance. To some, this made Germany a bright spot in an otherwise anemic eurozone economy — a “growth driver,” as the German finance minister, Wolfgang Schäuble, puts it. In fact, Germany’s chronic trade surpluses lie at the heart of Europe’s problems; far from boosting the global economy, they are dragging it down. The best way to end this perverse situation is for Germany to leave the eurozone.

Germans usually respond to such charges with a kind of hurt confusion. We run trade surpluses, they patiently explain, because we are simply much more competitive than most of our trading partners. Can you blame us, they ask, if the world prefers to buy superior German goods (and has nothing we want in return)? So goes the argument: The rest of the world just needs to up its game, get its house in order, and become a bit more like Germany. In the meantime, don’t hate us ‘cuz we’re beautiful….

Contrary to popular mythology, however, there’s absolutely no reason why being “competitive” should mean running a trade surplus. As far back as 1817, the economist David Ricardo pointed out that the optimal basis for trade is comparative, not absolute, advantage. In other words, even if a country is better at everything, it should export what it is best at and import what it is less better at. Having an across-the-board advantage does not imply that it makes good economic sense to produce everything yourself, much less to sell more than you want in return. Or, to put it a bit differently, there’s no inherent reason why earning more can’t mean spending more, on consuming both public and private goods, as well as investing in future productive capacity.

Trade surpluses take place when a country chooses to spend less than it produces — when it has excess savings, beyond its domestic need for credit. It lends that excess savings abroad, financing another country’s ability to spend more than it produces and, by running a trade deficit, purchase the lender’s excess production. It’s true that a highly productive country might have the wherewithal to conjure up excess savings, while a less productive country might be inclined to borrow rather than scrape up the savings it needs. But fundamentally, trade imbalances arise not from competitive advantage but from choices about how much to save and where that savings should be deployed — at home or abroad.

Does it ever make sense to run trade imbalances? Sure it does. In the 19th century, Britain’s Industrial Revolution enabled it to reap vast earnings from expanded output, some of which it invested in the United States. The money lent to a rapidly growing American economy generated higher returns than it would have back home, while creating a market for British-made goods. The potential productivity gains made it a win-win: It made sense for the Americans to borrow and for the British to lend. But the case also highlights something that’s easy to forget: Running a trade surplus means financing someone else’s trade deficit.

The eurozone crisis is often called a debt crisis. But, in fact, Europe as a whole did not have an external debt problem, but an internal one: German surpluses and mounting debt in Europe’s periphery were two sides of the same coin. Germans saved (a lot), and the single currency induced them — rather than save less or invest it at home — to lend it to their eurozone trading partners, which used the money to buy German goods. By 2007, Germany’s trade surplus had reached 195 billion euros, three-fifths of which came from inside the eurozone. Berlin might call this “thrift,” but it’s hard to argue that Germany’s excess savings, which its banks often struggled to put to use, were well invested. Instead, they gave Germans the illusion of prosperity, trading real work (reflected in GDP) for paper IOUs that might never be repaid.

The solution? 

So what should be done? The best solution — and the least likely to be adopted — is for Germany to leave the euro and let a reintroduced Deutsche mark appreciate.

It will never happen but it is a solution that makes sense.

Introducing the Worst Airline in America

A business professor examines how bad the worst (and most profitable) airline in America really is.

Criticism of his company’s predacious practices doesn’t faze Baldanza. “Predatory means selling at below your cost,” the Spirit CEO told a skeptical questioner in a Reddit AMA talk last July. This is not only a novel definition, it is one that Spirit doesn’t risk illustrating. In October of last year, analysts at Morgan Stanley declared the carrier the “Most Profitable Airline in the World.” It is also among the fastest growing. Spirit launched 24 new nonstop routes in 2014 and plans another 26 for this year.

Success breeds admirers. In December, Delta announced that it was introducing five categories of service, including its answer to Spirit’s Bare Fare: Basic Economy. In addition to its precarious grammar, Basic Economy does not allow passengers to pick their seats, change their itineraries, or fly standby. The move is merely the most recent evidence that Spirit has become a trendsetter—arguably, the trendsetter—in the American airlines industry. But what trend is it exactly? Baldanza has repeatedly affirmed that Spirit is refining the art of offering affordable airfare, an effort which he qualifies as nothing less than an essentially democratic endeavor. He has a point, insofar that we live in a world where social mobility and simple mobility increasingly go hand-in-hand. Yet other low-cost carriers have long provided models of budget air travel without engendering nearly the angst of Spirit. Two of them, Jet Blue and Southwest, were even ranked number one and number two, respectively, in the 2014 American Customer Satisfaction Index survey of U.S. airlines.

No, rather than being a trailblazer in economy pricing, Spirit’s real significance is that it has come to embody one of the two guiding principles of customer service that, in capitalism, have always been contending centers of moral gravity. The first principle, embodied by Braniff, is: The Customer is Always Right. This approach assumes that commercial success depends on building strong bonds of customer loyalty. The second principle is: Caveat Emptor, or more familiarly, Buyer Beware. It assumes that, when it comes to turning a profit, preying on the ignorance and necessity of customers is not simply acceptable for private enterprise, it’s standard operating procedure.

It is a commercial truism that nothing succeeds like success, but might makes right is its cultural corollary. In the airlines industry, the success of Spirit has helped to legitimize practices that treat passengers, in the words of one consumer watchdog, like “meat in a seat.” When a carrier assumes the moral status of its customers to be different from an ATM only in respect to daily limits, monetizing the mistakes of first-time flyers can be a lucrative business. And for those passengers who return to Spirit a second, or even a third time, to say nothing of 13, they do so with a fatal sense of capitalism’s capacity to justify cruel choices, as well as with a growing cynicism of dealing with a company that regards common decency as a convenience fee. 

The contempt is mutual. A significant flight delay prevented a customer named James and his wife from attending a concert in Atlanta, the sole purpose of their trip. James emailed several of Spirit’s top executives to air his complaint. Baldanza made the mistake of hitting reply all, which is how the exchange became public: “We owe him nothing as far as I’m concerned,” Baldanza wrote in response. “Let him tell the world how bad we are,” Baldanza offered. “He’s never flown before with us anyway and will be back when we save him a penny.”

Shamelessness has certain advantages. A more succinct expression of Spirit’s credo is truly hard to imagine.

I have flown great airlines and have flown horrible ones I kind of defend Spirit Air.  It exists to get you from a to b as cheaply as possible.  For some people at some points in their life, that matters a lot. You may not like it but in the end, you chose to fly the cheapest airline in North America.  You get what you pay for.

There is no such thing as a skyscraper curse

But just in case, Saskatoon leaves Parcel Y undeveloped

Until recently, however, there had been no formal analysis of the skyscraper curse. A new paper by Mr Barr, Bruce Mizrach and Kusum Mundra (all of Rutgers) investigates Mr Lawrence’s musings in detail. They look at the building of 14 world-record-breaking skyscrapers, from New York’s Pulitzer (which opened in 1890) to the Burj Khalifa, and compare them to American GDP growth (which they see as a decent proxy for the world economy).

If, as the skyscraper curse suggests, the decision to build the biggest towers happens near the peak of the business cycle, then you could use record-breaking projects to predict the future path of GDP. However, the range of months between the announcement of the towers and the business-cycle peak is large, varying from zero to 45 months. And only seven of the 14 opened during a downward phase of the business cycle (see chart). In other words, you cannot accurately forecast a recession or financial panic by looking at either the announcement or the completion of the world’s tallest building.

With such a small sample, it is tricky to draw firm conclusions. But the paper expands the sample to 311 by looking at the tallest building completed each year in four countries (America, Canada, China and Hong Kong). The authors then compare building height to GDP per person. They find that in all countries GDP per person and skyscraper height are “cointegrated”, a fancy way of saying that the two things track each other. In other words, developers tend to be profit-maximisers, responding rationally to rising incomes (and thus increased demand for office space) by making buildings bigger. While ego and hubris afflict the skyscraper market, the authors argue, its foundations appear sound.

Canada ‘potentially vulnerable’ because of household debt: report

From the Toronto Star

A renewed warning on Canadian household debt levels is coming from a research report written by an international management consulting firm.

The report, published by McKinsey & Company on Thursday, singled out Canada and six other countries with “potential vulnerabilities in household debt.”
In Canada’s case, household debt levels are higher than those that existed in the U.S. at the peak of the credit bubble, the report notes.

The data suggests a “potential risk, but not an imminent crisis,” the report said.

“There is no sign that there are a significant number of Canadian borrowers today having trouble repaying their debt. The risk comes when you look to the future,” said Susan Lund, partner at McKinsey Global Institute in Washington, D.C.

“If the economy were to slow and unemployment started to rise, when people lose jobs, that’s when a mortgage that you could afford with a job suddenly becomes unaffordable. The other potential risk is if and when interest rates start to rise, that could create a much larger burden on households repaying debt.”

So what does that mean for Calgary which already has an obscene amount of household mortgage debt?  I hate to say it but what does it mean for Saskatchewan which has a high debt to income level.  

 

Westgate Books

I’ve been having some fun at Westgate Books lately.  A couple of weeks ago I wandered into the store looking for Saskatoon: A History in Photographs by Jeff O’Brien, Ruth Miller and William P. Delainey.

They didn’t have it but the staff that was helping me went to look in the warehouse.  Instead of the book I was looking for, he came up with two books, Saskatoon, the First Half Century by Don Kerr and Saskatoon, Hub City of the West: an Illustrated History by Gail McConnell.

I looked at them and took them both.  I also put my name down on a list if Saskatoon: A History in Photographs came in.  A couple of days later I got a phone call that told me that my book was in and come to pick it up.  Last Friday I went back to get it and it was the wrong book.  It was Saskatoon: A Century in Pictures by William Duerkop, John Sarjeant and William Delainey.  In hindsight I kind of wondered if there was a bit of miscommunication when I ordered Saskatoon: A Century in Pictures but I looked at this book and I realized I wanted to read it as well.  I had a blast all week looking at it.  So has Mark.

Since I am talking about books, it looks like Gail McConnell was doing Kickstarter long before Kickstarter was a thing.  The last 20 or so pages of her book is dedicated to patrons who helped pay to publish her book.  Local Saskatoon businesses sponsored the project and she does a one page profile on each company.  Who knew a history book could be so cutting edge.

While I was getting that book, another staff at Westgate Books went looking for the book in case they missed it and found me another book on the history of electric transit in Saskatoon.  I didn’t have the money on me to get it so they put that away for me.  I’ll wander by this week and get it.  Now I am curious as to what other books I will find in my brief stop at the store.

I know being in the used book business is a hard business to be in but I haven’t had as much fun shopping as I have had in Westgate Books in a very long time.  I hope that still counts for something.