Tag Archives: Canadian dollar

Sears, Amazon and Why We Can’t Do Our Own Investing

Ever wonder why retailers aren’t doing so well? Here’s a huge reason for it: Traditional retailers such as Sears, The Bay, Macy’s and the likes take 9 to 13 months to get a new clothing line from concept to production and into their stores to sell. Zella is a company with an extensive line of clothing. They can get an idea to production and into stores inside of two weeks! Two weeks versus a year. Wonder no longer why traditional retailers are fading quickly.

On the upside, Thursday Amazon announced they’d be selling Kenworth appliances online. Yes, Sears does have stuff people want – but now it’ll be online and in the U.S. only for the time being.

That announcement also shows why you and I really can’t do our own investing very well: When Amazon announced they’d be selling Kenworth, the stocks of other appliance retailers and manufacturers dropped by $12.5 billion collectively. From Best Buy to Whirlpool, Lowe’s, Home Depot, and the likes their stocks took a big hit. Now you and I may have figured out in a few days that, instead of Kenworth being gone, they’re now going to be a major player with Amazon behind them, but the Bay and Wall Street computers made the sell moves within a minute…

Speaking of investments, I’m going to make a bold prediction if you remember that I’m not an economist: The Bank of Canada can’t and won’t raise rates again until the U.S. does. The rate increase two weeks ago was based on thinking the U.S. would do one, too and they didn’t. The dollar is now way too high for our exporters and getting the dollar down is the main objective of the Bank of Canada. So they can’t do another increase, even if they wanted to, until the U.S. starts to raise them again.

Bad for savers, good for borrowers to get another reprieve…

Greece, Goldman Sachs & the Canadian Dollar – They’re All Connected

The three big financial stories of the last week are all inter-connected, and do affect us all, directly or indirectly:

Last week, the U.S. Security and Exchange Commission charged the investment giant Goldman Sachs, with civil fraud. They are alleging, and it’s only that, until proven in court, that they defrauded investors out of over a billion dollars in selling mortgage backed securities. In the U.S., those are the mortgage packages sold all over the world, and probably in your mutual funds or pension plan, too. Yet, at the same time as they were selling and promoting these, Goldman Sachs was also betting that they would default sooner or later. At yesterday’s hearings in the Senate, there were a bunch of internal e-mails released where their big cheeses actually described these mortgage packages (so call collateralized debt obligations) as crap. Nice they were selling them to investors all over the world, while that’s what they thought of them. Stay tuned, there’s lots more to unfold here.

Yesterday also brought the official word that rating agencies have downgraded the debt that the Government of Greece owes to junk status. In other words, they’ve decided it’s the highest risk debt there is. It’s another lesson for you, me, and governments everywhere, especially in some European countries, that borrowing only works for so long. Greece has a lot of social programs, a very bloated civil service, and debt as far as they eye can see. What the government doesn’t want to do is to increase taxes, increase sales taxes, or to start making drastic cuts to government spending. It looks like now they will be forced to. Until they do, the rich cousin of Europe, Germany, has no intention of lending any more money to Greece. Their thinking is that the drastic cuts have to come first, and Greece has to first show that they can live on what they make. Gee, kind of like we have to – or should! Until then, more refinancing and more loans becomes like giving a drunk another drink.

Ironically, it was Goldmans Sachs who worked with the Greek government a few years back to convert some of their debt into complex financial instruments that nobody could really understand. It did make their finances look a lot better than they actually were. That is what it took to get Greece admitted to the European Union at the time. Ah, shuffling debt around, like we don’t often do that, transferring money from credit cards to lines of credit, and so on. But the chickens always come home to roost.

Finally, as a result of the debt rating for Greece, our Canadian dollar dropped over a cent. It did, but what really happened is that the U.S. dollar rose a lot. Investors were fleeing the Euro and getting their money out of the volatile environment over there, and going to a safe haven for their money – which is the U.S. So it was way more of a U.S. dollar increase than a Canadian dollar drop. The good news is that the U.S. needs investments. Now, we’re talking trillions here, not “you and me” amounts of money. And more money into the U.S. economy allows them to keep interest rates low for some time yet, and that’ll help the economy to speed up, and gives time for the housing market to heal.

Yes, we’re all in this together. What happens in Greece affects us. Because we’re all in one economy together, and money, debt financing, and investments don’t have any borders. Whether we like it or not, some far away problem becomes our problem literally overnight.