 Monday, December 09, 2024 | | | 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 will announce his latest interest rate policy on Wednesday. (Sean Kilpatrick/The Canadian Press) | | | The Bank of Canada has been pretty clear.
It wants to bring interest rates down. The central bank's key lending rate is currently at 3.75 per cent. Inflation is hovering right around two per cent. GDP per capita has been negative for six straight quarters and the unemployment rate has been steadily ticking up.
At any point, the bank believes rates fall into one of three categories: restrictive (where borrowing costs are high enough to restrict spending and growth); stimulative (where they're low enough that people decide to borrow and spend, because it's cheap); and neutral (where they don't really push spending one way or the other).
Right now, rates are still restrictive.
And barring any economic data that scares the bank off, it wants to get closer to neutral.
"If the economy evolves broadly in line with our latest forecast, we expect to reduce the policy rate further," said governor Tiff Macklem at the last decision.
Since then, the key economic indicators have all come in right on target.
The latest inflation data shows price growth ticked up slightly, but stayed at the point the central bank is aiming for. | | |  | | | | | It's hard to see anything in that chart that would make you worried that inflation is going to take off again anytime soon.
That's good news. No, prices aren't coming down. They're high and will remain high. But they're not getting much worse, and that's progress.
It's also good news for the Bank of Canada, which was previously concerned that every action it takes would spark a new wave of price increases.
Now, for the downside. All those rate hikes since the beginning of 2022, of course, were designed to slow the economy.
And boy, oh boy, they worked.
The unemployment rate was at 4.8 per cent in the summer of 2022, when inflation started coming down.
Today, the unemployment rate is at 6.5 per cent.
GDP growth has flatlined. In the third quarter of this year (July, August and September) Real GDP grew at a mere 1 per cent. It came in at zero per cent in August and 0.1 per cent in September.
But the real story is per capita GDP growth which has now been negative in six straighr quarters. |  | | | So, combine six straight quarters of negative per capita GDP, and an unemployment rate flirting with seven per cent and you can understand why markets are all but unanimous that the Bank of Canada will cut by another 50 basis points this week.
That’s a measure of what markets think the bank will do. Not what they think it should do.
“The downside to such aggressive action is that the Canadian dollar is poised to weaken further —especially amid deep trade uncertainty — and housing is poised to reignite,” wrote BMO’s chief economist Douglas Porter.
Hovering over all this of course is what will happen to the Canadian dollar. If the Bank of Canada does go ahead with a 50 basis point cut, that will put yet more downward pressure on the loonie.
The Canadian dollar dipped back to 70 cents US after last week's jobs numbers pointed to a bigger cut.
What do you think will happen?
As always, send me a note.
My email is: peterarmstrong@cbc.ca | | |  | | The Bank of Canada will announce its latest interest rate policy on Wednesday. Economists expect the central bank will continue to cut rates, this time by 0.25 per cent. | | | | | | Watch for the latest household debt numbers this week. The National Balance Sheet Accounts will be released on Thursday. | | | | | | Inflation pressures have eased, but price pressures will never go away. We will get the U.S. Producer Price Index on Thursday. | | | | | Three things to read, watch and listen to this week | | |  | Canadian oil may be the thing that saves the rest of the economy from all those tariffs Trump has threatened. (Larry MacDougal/CP) | | | 1. Straight talk on tariffs and the oil industry | | | I write quite a bit about the oil and gas industry. These days, I've been writing a lot about trade and tariffs and exports.
So I read a lot of papers and listen to a lot of interviews and presentations.
Very few of those are nearly as good or as informative as a podcast episode of The Loonie Hour.
The hosts interview Heather Exner-Pirot, a senior fellow and director of energy, natural resources and environment at the Macdonald-Laurier Institute in Ottawa.
She spends the entire interview rhyming off stats and figures that will blow your mind.
They talk about investment, politics and history. But I've been quoting her points on the importance of Canadian oil exports to the U.S. all week (I tell you, I'm a ton of fun at parties).
"One-quarter of American refinery throughput is Canadian oil. And you cannot recalibrate that, otherwise they would have for cheap. And no one's building new refineries in 2024," she said.
Think about that. Twenty-five per cent of the oil that's used in U.S. refineries comes from Canada.
As the shale oil revolution took hold, the need for Canadian oil grew.
Shale is light, sweet crude. Those refineries are built to manage what the industry calls "medium, heavy" oil. So, the refiners mix in that heavy Canadian oil to make it work in existing refineries.
More to the point, Exner-Pirot says more than half of Canada imports go to refineries in Wisconsin, Ohio and Michigan.
That means "2.9 million of those 4.3 million barrels go to Midwest refineries. [There's] basically a pipe from Canada to their refinery. There's no other pipe hitting those refineries that they can bring in Iranian [oil], Venezuelan even, if they wanted to," said Exner-Pirot.
So the idea that president-elect Donald Trump will slap a 25 per cent tariff on oil imports just doesn't add up.
Indeed, Canadian oil just may be the thing that saves the rest of the economy from all those threatened tariffs.
That's one small bit of the vast conversation they have on this podcast episode.
It's well worth your time.
Check out this episode of The Loonie Hour here. | | | 2. The unbearable ubiquity of sports betting | | | Michael Lewis is like the poet laureate of business and economics. He wrote the books The Big Short, Liars' Poker and, of course, Moneyball.
His latest venture is a podcast called Against the Rules. It spent the first seasons exploring the importance of one figure in sports. The refs in one season, position players in another.
This season, he's focused on the fans.
And you simply can't talk about being a sports fan these days without talking about sports betting.
It's everywhere.
And as Lewis discovers, that's part of the plan.
Lewis has an amazing ability to use individual stories to tell a bigger story. He starts the season with the story of fans who are obsessed — fans who have superstitions. He speaks with experts who have analyzed these fans (and their own fandom quirks).
Lewis says a connection to a sport, a team or an athlete can become an immensely powerful force.
Then he asks the important question:
"But that powerful force that's inside of us — what happens if it can be exploited in new ways?" he asks.
"What happens if, like, technology changes or laws change, so that [fandom] can be monetized almost like a natural resource?" says Lewis, zeroing in on the heart of the issue.
"What if you can frack the fan?"
That's what the season is all about. How sports betting, bookies, casinos, governments and sports leagues have found new ways of fracking your fandom.
It's a fun, fascinating, wild ride into a corner of the sports, business and gambling worlds that I found riveting.
Check out the new season of Against the Rules here. | | | 3. Can we really be eternal? | | | As regular readers know, I think a lot about AI.
I think about its potential, the good (and bad) ways it is able to learn about us and predict our behaviour.
Anyone following these developments should take a moment this week and watch the latest video from Bloomberg's Emily Chang.
She's the host of the show Posthuman on Bloomberg Originals, and this episode digs into a project called Augmented Eternity.
In the video, an AI projection that looks just like Chang says, eerily enough, "Hi Emily. I'm you. I'm what's known as a Chronicle. If you choose to give others access to me, they're able to see the world through your lens."
The avatar gleans as much data about you as you will let it and puts together your information, but also your personality — how you speak, how you react in any given moment.
The project is being run by Hossein Rahnama, the CEO of a company called Flybits.
At this point, you may be saying, "Hold on. Are we talking about building a sort of digital assistant or a kind of post-death avatar?"
And you would be right to wonder such a thing.
"This can be a storytelling machine that a loved one can interact with — the avatar of that individual, post-their life," said Rahnama.
The whole thing is.... well, it's weird. But also fascinating. Chang has a special talent for finding these stories and bringing them to life (as it were).
Check out this episode of Posthuman here. | | | How the economy looks beyond Bay Street | | | Diverging expectations | | | This is one of the most interesting charts I've seen in a long time.
It comes via the University of Michigan's Consumer Confidence Survey. It tells us all kinds of important things about the state of the economy and the expectation for where things are headed
And the most recent survey shows a sharp divergence.
Democrats think inflation is about to surge. Republicans think it's going to move just as sharply in the opposite direction. | | |  | In the U.S. presidential election, voters expressed their frustration with stubbornly high prices and blamed the Biden administration for not getting it under control.
So this chart is also something of a cautionary tale.
As we know here in Canada, even when inflation rates begin to cool, it doesn't mean prices are going down. It just means they'll continue to rise at a more manageable level.
So, Republican policy-makers have a big chunk of support from people who think inflation is going to collapse (in spite of a promise to slap a 25 per cent tariff on all goods coming from Canada and Mexico).
If inflation holds steady or even rises a bit, how will voters respond? The midterms in 2026 aren't that far away. | | | That's it for this week. | | | Drop me a line anytime.
Send ideas, comments, feedback and notes to peterarmstrong@cbc.ca.
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