 Monday, December 04, 2023 | | | Welcome to Mind Your Business ! Consider this your weekly guide to understanding what’s happening in the worlds of economics, business and finance. By Peter Armstrong | | |  | Bank of Canada governor Tiff Macklem. (Adrian Wyld/Canadian Press) | | | The Bank of Canada will meet this week to set its key overnight lending rate. It is all but assured that the central bank will leave borrowing costs unchanged.
But last week, interest rate swaps started to move.
Swaps are a way traders can bet money on where they think rates are going to be in a few days, a few months or a few quarters.
And those traders now have a sense that rate cuts are coming. Probably not this week or in January. But there's now a high expectation that borrowing costs will come down in March or April.
Now, we don't know how the economy will unfold and we don't know what the Bank of Canada's governing council is thinking.
But we do know what governing council has said about what it's looking for. We have two years of speeches, press conferences and reports from the bank to guide us.
The bank hasn't exactly been coy about what it wants. It's been clear the economy was running too hot, the job market was too tight. Inflation was too high.
Now, though, things have changed.
And so has the message.
"This tightening of monetary policy is working, and interest rates may now be restrictive enough to get us back to price stability. But if high inflation persists, we are prepared to raise our policy rate further," Macklem said in a speech in Saint John last month.
And the data backs him up. | | |  | | | GDP numbers last week show the sorry state of economic growth in Canada.
That chart shows per capita growth. But however you cut it, the emerging picture is an ugly one.
"The big picture is that the Canadian economy is struggling to grow, yet managing to just keep its head above recession waters," wrote BMO's chief economist Douglas Porter.
But that ugliness may be just what variable rate mortgage holders and policy makers like the Bank of Canada have been waiting for.
It means the economy is certainly no longer running too hot, so you can scratch that from the central bank's rationale.
Figures last week showed Canada continued to add jobs, but that job growth isn't enough to keep up with population growth. The unemployment rate ticked up to 5.8 per cent.
So all that "tightness" the bank was worried about has evaporated.
And inflation has fallen all the way to 3.1 per cent.
The bank's own forecast shows CPI should fall to 2.5 per cent by next summer and return to the two per cent target in 2025. | | |  | | | The question on my mind (and I'm assuming yours) is how we get there. Does the bank start cutting sooner or later?
All but one felt the bank should leave rates unchanged this week. But one (Stephen Williamson, a professor of economics at Western University) recommended dropping the overnight rate from five per cent to 4.75 per cent.
Most suggest getting rates down starting in June of next year. That's the growing consensus among other economists as well.
"With the first cut on tap as early as June, we see the overnight rate in Canada tumbling 150 [basis points] by the end of the year," wrote CIBC's chief economist Avery Shenfeld.
So, what we should be watching for this week isn't so much a change in policy as a change in language and messaging.
Canadians have been clobbered by the double whammy of rising prices and increased interest rates.
Stretched households are desperate for a sense of what comes next. And they just may get that on Wednesday.
What do you think will happen?
As always, send me a note.
My email is: peterarmstrong@cbc.ca | | |  | | The Bank of Canada will unveil its latest interest rate policy on Wednesday. The central bank's key overnight lending rate is currently at five per cent, but governor Tiff Macklem has said he believes rates don't need to rise further. | | | | | | Macklem will make a speech to the Canadian Club in Toronto on Thursday, the day after the latest interest rate announcement. | | | | | | On Friday we will get the latest survey of consumer sentiment in the United States. The University of Michigan Consumer Sentiment Index is expected to show confidence in a so-called soft landing. | | | | | Three things to read, watch and listen to this week | | |  | The Fall of the House of Usher is a limited series airing on Netflix. (Netflix) | | | 1. Best business scenes in movies or TV | | | The Fall of the House of Usher is not a business show. At least, not in the way I was expecting.
Someone recommended it to me as a sort of horror version of Succession. I get where they came up with that and if you squint just right, you can see the connection.
Usher is a tale of supernatural trouble and strife, and the horror story is superimposed over an extremely rich family that runs a super-sized business venture.
But! There is a scene in the third episode that should be entered into the hall of fame of business speeches in film.
That list is long. The scene in the movie Margin Call, where Jeremy Irons tells Kevin Spacey that every financial crisis is just a replay of the same old story, is my favourite:
"It's just money; it's made up. Pieces of paper with pictures on it so we don't have to kill each other just to get something to eat. It's not wrong. And it's certainly no different today than it's ever been," he says in what I still think is the best movie about the 2008 financial crisis.
In Usher, Canadian actor Bruce Greenwood is speaking to a cop investigating the deaths of several members of the Usher family.
Greenwood, playing Roderick Usher, makes a crack about what you do when life gives you lemons.
The cop says, "You make lemonade?"
Usher snorts.
"No. First you roll out a multimedia campaign to convince people lemons are incredibly scarce, which only works if you stockpile lemons, control the supply. Then, a media blitz. Lemons are the only way to say I love you. They're the must-have accessory for engagements or anniversary. Roses are out, lemons are in," he says darkly.
Usher goes on a rant about how you can charge more for organic lemons, even more for conflict-free lemons.
"You pack the [U.S.] Capitol with lemon lobbyists, you get a Kardashian to suck a lemon wedge in a leaked sex tape. Timothee Chalamet wears lemon shoes at Cannes. Get a hashtag campaign. Something isn’t 'cool' or 'tight' or 'awesome' — nom it’s 'lemon,'" he says, rolling now.
Then, he says, you patent a particular strain of lemon, spread those lemons across America and sue the pants off any farmer unlucky enough to find the new genetic sequence of lemons on their farm.
"Then you sit back, rake in the millions, and then when you’re done and you've sold your empire for a few billion dollars, then and only then you make some f--king lemonade."
I nearly fainted at the end of that speech.
It almost perfectly encapsulates what some people call late-stage capitalism.
What's your favourite money or business speech caught on film?
Send them here. If I get enough, I will post a list in a few weeks.
Watch the trailer for The Fall of the House of Usher here.
Check out the scene from Margin Call here | | | 2. Doom Inc. | | | There is a lot of buzz around artificial intelligence these days.
I was hosting the CBC Radio program As it Happens last week and we did a stunning interview with the reporter who broke the story that Sports Illustrated was running stories created by AI using fake, AI-generated bylines and photos of made-up reporters.
It's just one, mostly harmless example of the kinds of issues we are running into with more and more AI available.
But there are deeper, darker concerns. Concerns that maybe AI will be ultimately terrible for humanity itself.
The Logic has a fantastic piece that digs into where those concerns are coming from.
"All these headlines about AI risk are related to a co-ordinated and well-funded global effort to convince lawmakers and the public that AI poses an existential threat to humanity," writes The Logic's Claire Brownell.
In The Logic's typically thorough fashion, Brownell shows up with piles of data and serious research tying together a lot of threads that run through the AI sector.
"For example, the Future of Life Institute and the Center for AI Safety have a common significant donor, the U.S. granting organization Open Philanthropy. Open Philanthropy has also donated US$30 million to OpenAI, and its former CEO, Holden Karnofsky, was once a board member at the startup," writes Brownell.
The piece doesn't discount the existential concerns so much as try to figure out who is saying what, which groups are funding which campaigns and how they all fit together.
Anyone who has followed these stories over the past months should do themselves a favour and read this.
One note on accessing the article, if you fill in your email address when prompted, you can read the piece without subscribing.
Read The Logic's Doom Inc. here. | | | 3. AI safe words | | | One last note on AI. The threat of scams on AI is pretty wild.
If you still need an example of what artificial intelligence can do to spoof you or someone you know, check out this video from Preet Banerjee.
He has some great stuff on his YouTube channel and I always learn something from his videos.
But this one is a doozy.
The video cuts back and forth between three versions of him as he talks about what AI can do and how it works to imitate you — your image, your voice, your style and manner of speaking.
He then reveals that one of those videos is a fake and asks you to guess which one.
Watch it and I promise you will be surprised by the answer.
It leads to a broader point. Banerjee says we need a "safe word" to deal with AI scams.
Banerjee writes about what's called a grandparent scam. It's a sort of catch-all for a group of cons in which scammers call someone and pretend to be a grandchild in trouble and in need of money.
That scam has existed for ages. But now, scammers can use AI to mimic someone's voice.
Banerjee talks about how spies use code words to make sure the person they are talking to is legit.
"But for the purposes of detecting a scammer trying to pull one over on you, you could pick something like you see in the movies," he says. "Your only goal is trying to figure out if you can hang up on them."
To that end, he offers three tips to protect yourself:
1. Create awareness with your family and friends so they know these scams are happening.
2. Create a challenge and pass-phrase for those friends and family.
3. Practise that safe word or phrase on Zoom or audio calls.
(Banerjee says he and his wife tried it but that he forgot the phrase.)
The number of scams out there is huge and it's growing. So take some action to protect yourself.
Check out Banerjee's video on the grandparent scam here.
Check out his video on how AI can mimic your likeness here. | | | How the economy looks beyond Bay Street | | | Spotify breakdown | | | You probably noticed it's officially Spotify Wrapped season.
Last week, Spotify sent users a breakdown of how much they listened over past year, which artists they listened to the most and how many times they streamed specific songs.
I played 1,564 songs in 2023. I spent a staggering 24,598 minutes on the app and I listened to Zach Bryan, The Weeknd and the Grateful Dead more than I probably should have.
Alas, the good folks at Chartr offered their own Spotify breakdown.
They have this great chart showing where your subscription money actually goes. | | |  | Here's how Chartr put it:
"For every $10.99 [US] premium subscription in Q3, the company generated another $1.69 from its ad-supported users. From that total, the company shells out nearly 74% (or $9.34 in our example) on costs related to delivering content to listeners… However, the share of the figure that ends up in the actual pockets of artists, rather than managers, record labels, or publishers, is much less clear."
The whole piece is great and a good reminder that every now and then, you should just go buy the CD of a band you like.
As always, drop me a line at peterarmstrong@cbc.ca. | | | Share this newsletter | | or subscribe if this was
forwarded to you. | | | Share this newsletter | | or subscribe if this was
forwarded to you. | | | |
