So much for that decoupling theory where Canada would not be affected as much as its American neighbors during this economic downturn. Canada posted a 0.2% negative growth GDP statistic for the month of February. Today, the US announced a small positive gain in GDP for their first quarter. Looks like the old adage that when the US economy sneezes, Canada catches a cold is true this time around.

All is not lost. This data reflects the state of the economy a couple of months ago, and the Bank of Canada has made a couple of big cuts since then. We’ll be keeping a close eye on Canada’s GDP to see if the trend continues, or if February was just a blip.

Breaking News Via Reuters:

-RTRS-U.S. FED CUTS BENCHMARK FED FUNDS RATE 1/4 POINT TO 2 PCT, DISCOUNT RATE 1/4 TO 2.25 PCT
-RTRS-FED SAYS UNCERTAINTY ABOUT INFLATION OUTLOOK REMAINS HIGH
-RTRS-FED SAYS READINGS ON CORE INFLATION SOMEWHAT IMPROVED, BUT ENERGY, COMMODITY PRICES UP
-RTRS-FED SAYS SOME INDICATORS OF INFLATION EXPECTATIONS HAVE RISEN RECENTLY
-RTRS-FED SAYS EXPECTS INFLATION TO MODERATE IN COMING QUARTERS
-RTRS-FED SAYS ENERGY, COMMODITY PRICES TO LEVEL OUT, PRESSURES ON RESOURCE UTILIZATION TO EASE
-RTRS-FED SAYS SUBSTANTIAL EASING OF POLICY, LIQUIDITY MEASURES SHOULD HELP PROMOTE GROWTH, MITIGATE RISKS
-RTRS-FED SAYS RECENT ECONOMIC ACTIVITY REMAINS WEAK, HOUSEHOLD, BUSINESS SPENDING SOFTENED FURTHER
-RTRS-FED SAYS FINANCIAL MARKETS REMAIN UNDER STRESS, TIGHT CREDIT, HOUSING DOWNTURN TO WEIGH ON GROWTH

US Gross Domestic Product grew at an annualized rate of 0.6 percent, beating the median forecast of 0.2 percent for the first quarter.

 The news will do little to sway any decisions at today’s Federal Reserve policy meeting, where it is widely expected that a 25 basis point rate cut will arrive at the 2:15pm announcement.

There is much talk about what qualifies as a recession and whether you can technically have one if growth remains positive. All that is irrelevant. A recession is something that is felt. It is an atmosphere of uncertainty and worry. It is also very personable. You can feel in recession while your neighbor is in boom. Who cares if the GDP is positive/negative or if housing is up or down. All that matters is whether or not you’re stressed about your economic future when you’re laying in bed at night.

“Consumer confidence fell to a five-year low this month as Americans confronted the grimmest jobs outlook since late 2004, while data also showed a record drop in home prices in February.

Contributing to their slumping confidence in April, consumers expected that inflation would accelerate to a pace last seen in the early 1980s. The news cemented the prevailing view that the Federal Reserve, which is to open a two-day policy meeting later on Tuesday, would signal an end to its aggressive campaign of lowering interest rates.” (Via Reuters)

The fact that consumer confidence is at a 5 year low is not that alarming as it has been roughly six years since the last US downturn.

What is very interesting is that consumers are already thinking about high inflation similar to that of the 1980s. There hasn’t been any hard economic evidence that inflation is going to get out of control, although there are some warning signs that it *could* eventually happen in this cycle.

One thing is for certain, if consumers perceive inflation and are not confident, the stimulus cheques mailed out to millions of Americans will end up in bank accounts instead of the economy. Hindsight is beginning to make that decision look very irrelevant indeed.

US President Bush is currently holding a news conference addressing the US economy at the White House.

One of his main points was to call out Congress for blocking his proposals to address the (economic) problems.

He called on Congress to pass sensible and effective bills in order to keep the economy moving forward through focusing on energy, food prices, mortgage payment and student loans.

Bravo, Mr. Bush. In essence you have just stated that “I tried, you wouldn’t listen! So now it’s your problem Congress, deal with it!”. Energy, inflation, the housing mess & student loans are no longer the problem of the President. So what exactly will you be doing, Mr. Bush, for the next 8 months?

Rogers announced along with their quarterly earnings that they will be bringing the iPhone to Canada later this year after more than a year of speculation. Yippie? No.

The reason Rogers is so late to the iPhone game is that they run a monopoly on GSM (the cell technology the iPhone uses) and were able to play the waiting game until Apple would come to terms on an agreement. Apple has been very aggressive in its demands with other service providers and used the popularity of the device as leverage to get a cut o subscription revenues. I expect a similar deal was reached with Rogers, and the timing of this deal is rather curious.

There are rumors that a new version of the iPhone is going to be released in June. Don’t be surprised that as US consumers line up to get iPhone 2, Canadians are offered the old one as a substitute. Just be happy you have an iPhone, Rogers will say. 

Then there’s the monthly fees.

AT&T offers plans with unlimited data usage starting at $59.99. Rogers is nowhere near as competitive and it wouldn’t be unexpected if they don’t package the iPhone with a reasonable plan. They have no competition and no incentive to offer one.

So even though many Apple fans in Canada are jumping up and down with joy, don’t be surprised to be given a big ol’ smack to the head, courtesy of Rogers, when the details are announced.

Looks like my wish is coming true. The weekend passed without a deal to merge Microsoft and Yahoo.

Even though it is still possible for Microsoft to initiate a hostile takeover bid, the issue seems have simmered down over the weekend and does not look very likely.

 

“In the worst start to a year for more than a decade, most money managers had retail outflows, and even stalwarts such as American Funds and Vanguard suffered a drop in assets, of 6.6 per cent and 4.3 per cent respectively.” Via (Financial Times).

Translation from business speak into English:

“People are taking money out of mutual funds”

This shouldn’t surprise too many people. The Dow Industrial Average went from over 13,000 to 12,300 during the first three months of 2008. Couple the market turmoil with the new year when people traditional re-evaluate their portfolio, and you have your explanation.

There is a nugget of good information towards the end of this article.

“….long-term assets do not include money market funds, which have seen big inflows”

Translation: “People are simply switching from equity funds to money market funds” (money market funds are simply short term highly liquid and secure parking spots for cash that yield a bit of interest)

Why is this good news?

Because it shows the problem in the 1st quarter was just market confidence. People aren’t dipping into their investments to pay for bills. If we saw a drop in equity assets and money market, that would be an alarm bell.

After reading a heated discussion in a personal finance forum earlier this week, I thought it would be a great idea to write my thoughts on one of the most intensely debated and discussed issues in finance. This is a question that I ask MBA grads during 1st round interviews. You’d be surprised how often very smart people can sound very stupid when asked if markets are efficient, and what to do about it.

There are two basic schools of thought in regards to investing in the stock market. In one corner we have the active investor. She believes that markets are inherently inefficient. An inefficient market is one where prices do not accurately reflect the value of an asset at that point in time. Therefore, some stocks will be “cheap” and others “expensive”. The goal of the active investor is to purchase the “cheap” stocks and then sell when they match/exceed their true value.

On the flip side we have the passive investor. He believes that the market is efficient and all prices accurately portray the true value of an asset. There are no “cheap” stocks. Everything is priced to perfection for that point in time. Depending on how far the investor is on the passive scale, they either base purchases purely on future expectations, or opt for the ultimate in passive investing: indexing.

Which is the better approach? Read more

I didn’t see this one coming. Roast Beef purveyor Arby’s parent company is buying Wendy’s for $2.34 billion, and a mountain of curly fries.

Here’s where things get weird and wonderful.

- Wendy’s International has a market capitalization of about $2.2 billion USD (market cap is simply the value of the company based on share price multiplied by # of shares outstanding)

- Arby’s parent company Triarc Cos. has a market cap of $597 million USD.

So Arby’s is buying Wendy’s even though it is worth about one quarter LESS. Those wacky Investment Bankers sure know how to do the strange and seemingly impossible.  

I don’t really eat this kind of fast food and I have no idea if these two brands will make a successful marriage. All I know is that I’m getting hot and can use a Frosty.  Maybe I can offer 25% of the listed price, or 3 curly fries instead of cash…..