The Economy Thread.

[Rookie50]

Privateer, why is it that people, yourself still somehow feel that Air Canada is tax payer funded. I doubt there are many on this forum who ever flew on it when it was a "Crown Company". Something it hasn't been since 1989.

I would put better than even odds within 10 years there will be another major AC bailout. Maybe 5 years.

[Rockie]

Privateer, why is it that people, yourself still somehow feel that Air Canada is tax payer funded. I doubt there are many on this forum who ever flew on it when it was a "Crown Company". Something it hasn't been since 1989.

I would put better than even odds within 10 years there will be another major AC bailout. Maybe 5 years.

Interesting. What facts and financial insight are you basing that prediction on?

[watermeth]

I think Rookie is basing his prediction based on load factors, ratio total assets /LT debt (+100% if I'm not wrong), Revenue on Equity and capital invested .
at last, EBITDA and net earnings after taxes.(less than 3%), so for every 100$ of revenue they keep 3$. to be more precise 2.20$ as of 2015.
2015 operations cost represent 89% of revenues. keep in mind they made a 25% economy on fuel charges from 2014. p.28
do not forget debt maturity with big chunks to be paid every year until 2019. however agencies improved AC's rating and consider the company stable and less at risk of defaulting.
for more info http://www.aircanada.com/en/about/inves ... _info.html
P.53/p57

I'm sure rookie will add some more to that, may be on the corporate bonds ?

[Rookie50]

Privateer, why is it that people, yourself still somehow feel that Air Canada is tax payer funded. I doubt there are many on this forum who ever flew on it when it was a "Crown Company". Something it hasn't been since 1989.

I would put better than even odds within 10 years there will be another major AC bailout. Maybe 5 years.

Interesting. What facts and financial insight are you basing that prediction on?

A lot of experience analysing companies, sectors, economies.

[Rockie]

With all due respect to your years of experience, what specifically is it about Air Canada's financials that convinces you they're going to go hat in hand to the government in 5-10 years?

[Rookie50]

With all due respect to your years of experience, what specifically is it about Air Canada's financials that convinces you they're going to go hat in hand to the government in 5-10 years?

Put simply, without writing an essay the size of a 787 manual;

A) A study of history,
B) Future economy;

Stock is already falling with near record low oil prices. Was 14, now 8 and change.

Lets see what happens.

[Rockie]

Considering it used to be a penny stock after CCAA it seems to be doing pretty good, but is stock price the only determining factor? 10 year labour contracts containing major concessions that guarantee labour peace. Existing defined benefit plans in a surplus position. Loads of cash on hand. New fleets with the best fuel economy out there. Record load numbers. Year over year improvements in financial statements with last year the best in the airline's history....ever. Last year the biggest profit...ever. All without one dime from the government, although the government was standing on the scale with both feet during the 2012 contract talks.

I dunno, trying hard to see something gloomy in there from a business standpoint that would warrant your prediction but I just can't. But then again I'm just a pilot.

[Rookie50]

Considering it used to be a penny stock after CCAA it seems to be doing pretty good, but is stock price the only determining factor? 10 year labour contracts containing major concessions that guarantee labour peace. Existing defined benefit plans in a surplus position. Loads of cash on hand. New fleets with the best fuel economy out there. Record load numbers. Year over year improvements in financial statements with last year the best in the airline's history....ever. Last year the biggest profit...ever. All without one dime from the government, although the government was standing on the scale with both feet during the 2012 contract talks.

I dunno, trying hard to see something gloomy in there from a business standpoint that would warrant your prediction but I just can't. But then again I'm just a pilot.

I wish them well. 98% of my AC experience is very good, BTW. A good airline.

Not rooting for any collapse or anything to gain. It's simply a tough industry and if you ask I'm deeply concerned with (the prime customer) Canadian's debt loads. It's a time bomb ready to blow up with many ramifications for the economy and therefore AC. So perhaps less about AC itself.

For EG. Assumptions are widespread interest rates and mortages will stay low forever. Not something I believe.

Anyway sorry for thread drift, it's complex as these things are.

[North Shore]

I'm deeply concerned with (the prime customer) Canadian's debt loads. It's a time bomb ready to blow up with many ramifications for the economy and therefore AC. So perhaps less about AC itself.

For EG. Assumptions are widespread interest rates and mortages will stay low forever. Not something I believe.

Anyway sorry for thread drift, it's complex as these things are.

That also puts the central bank in a bind, no? Difficult to raise interest rates if they need to be raised in the opinion of standard economic theory, due to the threat of mass financial difficulties of the heavily indebted; yet lower interest rates induce people to take on more debt...

What's that (apocryphal?) Chinese curse/proverb: 'May you live in interesting times'?

[Rookie50]

I'm deeply concerned with (the prime customer) Canadian's debt loads. It's a time bomb ready to blow up with many ramifications for the economy and therefore AC. So perhaps less about AC itself.

For EG. Assumptions are widespread interest rates and mortages will stay low forever. Not something I believe.

Anyway sorry for thread drift, it's complex as these things are.

That also puts the central bank in a bind, no? Difficult to raise interest rates if they need to be raised in the opinion of standard economic theory, due to the threat of mass financial difficulties of the heavily indebted; yet lower interest rates induce people to take on more debt...

What's that (apocryphal?) Chinese curse/proverb: 'May you live in interesting times'?

North Shore, you are absolutely correct. (For all central banks)

However.....

What most do not realize is mortgage and other interest rates are not set off (short) central bank rates. Those rates only influence, but not really control, the rates that really matter -- (long) rates tied to the (multi trillion) 10 year and longer worldwide government bond market.

The other factor is our rates are priced off US rates. We are the minnow in the pond.

Right now those bond market rates are abnormal, meaning lower than inflation rates. The assumption by many people (borrowing to buy million dollar homes) is this state of affairs continues. If inflation rises or the irrational pricing metric changes, it will affect a whole host of assets no matter what central banks do. It's too big.

Yes the future will be interesting. I'm wary of people I know, with most of their net worth in Canadian rental property in Ontario and BC. Very crowded trade, to use a saying from my world.

[Rookie50]

Give this one more post before allowing it to die.....

Oil is starting to rally.

Good for some, not so good for others.

Hopefully those wise airlines did some hedging down there at 30 bucks.

There is little doubt in my mind we will see oil over $100 again.

Alberta will live and breathe again.

Interesting times.

[sstaurus]

Does anyone think the government would do the same for Westjet if they needed help? They are putting maple leaves on the sides of their airplanes now... Or does history dictate there will only ever be one 'flag carrier'...

[xysn]

Does anyone think the government would do the same for Westjet if they needed help? They are putting maple leaves on the sides of their airplanes now... Or does history dictate there will only ever be one 'flag carrier'...

I don't see why not, the feds have backstopped AC, BBD, and GM; unless they are suddenly seized with a bout of non-interventionism it'd be hard to for them to say no. Plus they would have to answer to backstopping Quebec / Ontario companies but not Albertan ones. Only thing to consider might be that GM and AC employ more people than WJ.

[Tailwind W10]

Give this one more post before allowing it to die.....

Oil is starting to rally.

Good for some, not so good for others.

Hopefully those wise airlines did some hedging down there at 30 bucks.

There is little doubt in my mind we will see oil over $100 again.

Alberta will live and breathe again.

Interesting times.

Rookie, sorry to drag you on with this...

My take (as an Albertan working in the oil industry) is that Alberta has traditionally had only one international customer for our petroleum; the US. Over the last 15 years of so, they've discovered enough new reserves that they are now a net exporter of oil, rather than a net importer. That's caused OPEC to get their noses out of joint so they've opened the spigots creating the glut of supply causing our current slump. They're looking to make the newer northeastern shale oil and gas, as well as the Bakken oil more expensive to produce than they can sell it for, and successfully I might add.

If somehow the supply side actually comes under control, Alberta still has a large hurdle to jump. We won't sell nearly as much oil into the US as we used to, and we've got the provincial government to the west and municipal governments in Quebec blocking the sale of Alberta, Saskatchewan, and even BC's oil. and don't forget Mr. Garneau want's a tanker ban on the west coast. (but not on the east coast curiously) It sound's like those blocks might be lifted if we sweeten the pot with a cut of the action, I call it a shakedown. What irks me and many around here, is that all the money we've put into Confederation and transfer payments counts for nothing when we now need to find new customers.

And by the way, our former best (only) customer is now our biggest competitor. If and when oil prices rebound, Alberta, Saskatchewan and northeastern BC are still in for some tough sledding.

Do you have any insight into how the politics meddling in business may play out?

Gerry

[Rookie50]

Just saw this old thread. . 2 part answer.

a) politics is always a huge part of my analysis on this topic,
B) in a word, not good.

I'm deeply concerned for the economic future of canada with Trump presidency, plus higher interest rates appearing, and effects on housing.

[complexintentions]

Showing over 90% probability now of Fed raising rates (since election). If Canada holds their rate or even cuts, the loonie will get absolutely hammered. Solidly below .74 now. Canadian consumers better get ready to pay a lot more for virtually everything.

This thread is interesting because in April we were talking about an oil rally, which hasn't been sustained at all.

I agree, Canada is in deep trouble.

[North Shore]

Nonsense, ahhh, complexintentions, ahhh, our new Prime ahh Minister has ahhhh everything under control. Sunny ways for ahhh, all!

[Rookie50]

Showing over 90% probability now of Fed raising rates (since election). If Canada holds their rate or even cuts, the loonie will get absolutely hammered. Solidly below .74 now. Canadian consumers better get ready to pay a lot more for virtually everything.

This thread is interesting because in April we were talking about an oil rally, which hasn't been sustained at all.

I agree, Canada is in deep trouble.

Even if Canada cut, our mortgage rates have nothing to do with BOC actions, they are essentially priced off US Bond markets. Check out what they are doing. I can't see how we don't have at least a flattening of the housing markets. At least.

Oil may well rally If Trump repeals Iran deal, but I'm not counting on that necessarily.

Protectionism is a worry of mine, check out a chart of Linamar on the TSE. Auto parts.

Cut debt is always the answer.

[cncpc]

I'm deeply concerned with (the prime customer) Canadian's debt loads. It's a time bomb ready to blow up with many ramifications for the economy and therefore AC. So perhaps less about AC itself.

For EG. Assumptions are widespread interest rates and mortages will stay low forever. Not something I believe.

Anyway sorry for thread drift, it's complex as these things are.

That also puts the central bank in a bind, no? Difficult to raise interest rates if they need to be raised in the opinion of standard economic theory, due to the threat of mass financial difficulties of the heavily indebted; yet lower interest rates induce people to take on more debt...

What's that (apocryphal?) Chinese curse/proverb: 'May you live in interesting times'?

North Shore, you are absolutely correct. (For all central banks)

However.....

What most do not realize is mortgage and other interest rates are not set off (short) central bank rates. Those rates only influence, but not really control, the rates that really matter -- (long) rates tied to the (multi trillion) 10 year and longer worldwide government bond market.

The other factor is our rates are priced off US rates. We are the minnow in the pond.

Right now those bond market rates are abnormal, meaning lower than inflation rates. The assumption by many people (borrowing to buy million dollar homes) is this state of affairs continues. If inflation rises or the irrational pricing metric changes, it will affect a whole host of assets no matter what central banks do. It's too big.

Yes the future will be interesting. I'm wary of people I know, with most of their net worth in Canadian rental property in Ontario and BC. Very crowded trade, to use a saying from my world.

Very good job on your analysis, Rookie.

You're not the financial equivalent of a homeopath.

https://www.youtube.com/watch?v=DHVVKAKWXcg

[complexintentions]

Sorry if I wasn't clear Rookie50, I agree with you completely. Most people have no idea that the BOC isn't really the one that sets mortgage rates, it is as you say, the bond markets. I was only commenting that a divergence between Canada and US with regards to central rates is extremely unusual historically and would be (will be?) extremely hard on the CAD. Which is already suffering to begin with.

A low dollar, a newly protectionist trading partner, low commodity prices, and watch the RE bubble finally burst if mortgage rates rise. A house of cards.

Nonsense, ahhh, complexintentions, ahhh, our new Prime ahh Minister has ahhhh everything under control. Sunny ways for ahhh, all!

heheh yeah, right. A carbon tax should be just the thing to "fix" everything!

[timel]

Nonsense, ahhh, complexintentions, ahhh, our new Prime ahh Minister has ahhhh everything under control. Sunny ways for ahhh, all!

And big thanks to Harper. We had wonderful examples of what not do it in 2006 and "make sure we don't get there as well". 10 years later, ratio of Canadian house debts vs disposable income is as high as US in 2006.

[Rookie50]

Nonsense, ahhh, complexintentions, ahhh, our new Prime ahh Minister has ahhhh everything under control. Sunny ways for ahhh, all!

And big thanks to Harper. We had wonderful examples of what not do it in 2006 and "make sure we don't get there as well". 10 years later, ratio of Canadian house debts vs disposable income is as high as US in 2006.

What does Harper have to do with that?

Last I looked no one, including Harper, put a gun to anyone's head and told them to load up on personal debt.

It's called personal responsibility. A foreign concept in the nanny state.

If our debt bubble blows up the media will be pointing fingers for people everywhere but where they should. In the mirror.

Sorry if harsh to people, but the way it is. People have to grow up and just because your friendly bank gives you credit, doesn't mean one has to take it.

[Rookie50]

Sorry if I wasn't clear Rookie50, I agree with you completely. Most people have no idea that the BOC isn't really the one that sets mortgage rates, it is as you say, the bond markets. I was only commenting that a divergence between Canada and US with regards to central rates is extremely unusual historically and would be (will be?) extremely hard on the CAD. Which is already suffering to begin with.

A low dollar, a newly protectionist trading partner, low commodity prices, and watch the RE bubble finally burst if mortgage rates rise. A house of cards.

Nonsense, ahhh, complexintentions, ahhh, our new Prime ahh Minister has ahhhh everything under control. Sunny ways for ahhh, all!

heheh yeah, right. A carbon tax should be just the thing to "fix" everything!

Complex, gotcha. FYI long term 10 year bond rates historically provide a Real Yield (after inflation) of 2%.

That means US 10 years should be 4%, (2% real + 2% inflation) not the 2% they have been.

I'm curious to see what a doubling of bond yields will do to mortgages up here.

People also forget how tiny we really are, and the larger forces that impact everything here.

['97 Tercel]

Just saw RBC reports mortgage rates increasing.

[timel]

Nonsense, ahhh, complexintentions, ahhh, our new Prime ahh Minister has ahhhh everything under control. Sunny ways for ahhh, all!

And big thanks to Harper. We had wonderful examples of what not do it in 2006 and "make sure we don't get there as well". 10 years later, ratio of Canadian house debts vs disposable income is as high as US in 2006.

What does Harper have to do with that?

Last I looked no one, including Harper, put a gun to anyone's head and told them to load up on personal debt.

It's called personal responsibility. A foreign concept in the nanny state.

If our debt bubble blows up the media will be pointing fingers for people everywhere but where they should. In the mirror.

Sorry if harsh to people, but the way it is. People have to grow up and just because your friendly bank gives you credit, doesn't mean one has to take it.

Rockie50, I love the idea of the free market, who like nannies? No one. Especially when you are a grown-up. The problem is corporate greed and the corruption of our politics and here we are today.

Toronto housing is like a stock market and people are hoping to have a nice cushy retirement fund with their house. Some even buy to rent at insane prices that nobody can afford anymore.

Now, you know what, I want to agree very much with you, but if the system falls, who is going to pay?
One of the insurances is CMHC

CMHC is a crown corporation, I was told they have a 1% reserve for a 600 billion housing market debt. If the bubble burst, who is going to pay for banks CEO profits all of these years? The public. So sorry, I will disagree with you until the banks take all the risks.

PS: CMHC is waking up... http://www.cbc.ca/news/business/cmhc-mo ... -1.3484835