Where's the loonie going?

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One day it's up, the other day it's down... Is there someone in control of this country currency? I understand that since the credit crunch a lot of changes all around the world with the currency, but I unfortunately can’t say I’m proud of mine.

I think that we should be proud that the dollar has strengthened around 17 percent this year. For my part, it really helped me since I've been travelling and I have more money, but the Bank of Canada doesn't think the same.

The bank literally cut the enthusiasm of everyone that was thinking that strong Canadian growth would bring higher interest rates. They warned the population saying that the dollar’s rapid rise has sapped Canada’s growth outlook and reaffirmed an intention to kept its key interest rate at a quarter of a percentage point through next June, which make the loonie plunged again last Tuesday. It seems that only speculations can decide whether our dollar will rise or go down.

Now where should it go? Any further? Probably not since the Bank of Canada have the power to act on our interest rate as they want which influences the profit speculator get from holding Canadian dollar assets. We all know that if an investor confidence is low, Canada will get lower inflows of money whether when its high, Canada tends to get higher inflows of money because our economy benefits when global growth is strong (probably because the price of our oil is higher as well as our industrial metals).

So right now, Canada’s dollar is high because the oil has risen which makes commodity prices rising as well. Negative or positive? I think this will be quite positive for Canadians like me since our money will worth more worldwide but when I think about it, I agree that this might have bad consequences for exporters and finally at the end, our economy which will make our dollar probably fall again... Then, what the country should do?

According to the finance minister Jim Flaherty, the main obstacle to a robust recovery of our economy remains the weakness of U.S. demand which will more than fully offset recent signs of economic growth.

I read different article this week about the Canadian dollar since I realised that almost everyday I had had a different rate when I was shopping in England on my credit card.

I really liked the article by the Canadian press. First of all, the heading was quite attractive Soaring loonie, low growth won't change plans for no taxes hikes: Flaherty. I thought it shows how finance minister was in accordance with the Bank of Canada. I can say that the article was quite objective saying the facts and both the goods and bad sides of the rise of the dollar. Moreover, I liked that the author highlighted the fact that Canada was not like Australia and because our main trading partner is US, we have to be careful since their economy is going through a very difficult time.

As for Bloomberg article, it was straight to the point as always. It was stating the main points of what was going on with our loonie. I liked it since it was regarding the effect on the business side more than the Bank of Canada interest rates. Finally, as always, Bloomberg showed numbers which make the articles more specific.

Finally, the Globe and Mail helped me understand what we should look at for the monetary policy report and also understanding what was going on with our currency. The headline was clear Bank of Canada: five things to watch for and the article clearly explain to the reader what was the Canadian dollar projection, how much exports were expected to decline, how come the bank expected 3 per cent growth next year, etc. This article was clearly made for anybody (like me) who didn't know that much about finance and wanted to learn more. I thought it was the easiest to read and the more efficient.

After all, I don't know if the Canadian dollar will ever stabilised since we are quite dependent of the US, but I hope that the government will help us instead of putting barrier. Maybe we should switch our major trading partners to another country?

Sources:

Bloomberg:

1) http://www.bloomberg.com/apps/news?pid=20601082&sid=aFzW.jzWI74Q#

2) http://www.bloomberg.com/apps/news?pid=20601082&sid=a4KFj5CJczBM

Globe and Mail:

1) http://www.theglobeandmail.com/report-on-business/crash-and-recovery/new-front-in-war-on-strong-canadian-dollar/article1331354/

2) http://www.theglobeandmail.com/report-on-business/bank-of-canada-five-things-to-watch-for/article1333607/

Canadian Press: http://www.google.com/hostednews/canadianpress/article/ALeqM5guLHj7dqpUCMEhHME0xGHuSrIhuA

Wall Street Journal: http://online.wsj.com/article/BT-CO-20091022-700960.html?mod=rss_Currencies

Price war over books between Wal-mart and Amazon: it seems that big retailers don’t care about the industry.

I was not surprise this week when I read that Wal-Mart was doing a new assault to gain more market share by reducing its prices at a lower price than their actual cost and well below competitors.

Since its beginning, Wal-Mart attack ferociously new markets with price cutting to always offer the lowest price in the market. The company remains committed to providing customers with the lowest prices available without thinking about how they will affect the smaller retailers and independent sellers to dominate all markets.

Their strategy had forced many small and specialize retailers to either lower their prices or simply close since their customers were going to Wal-Mart.

Last Thursday, Wal-Mart launched a brash price war against Amazon.com. The company announced 10 anticipated new best-seller books for just 10 dollars to enter the digital marketplace and to compete with Amazon.com, the world’s largest online retailer. This tactic forced Amazon to match their price since they also seek to offer the best online prices for their customers.

Now, the books are on sale at 8.99 dollars at Wal-Mart and 9 dollars at Amazon which is definitely below the hardcover normal price of 22-35 dollars. Both companies are offering more than 70% of rebate when the normal big retailer’s prices are 30% to 50% off the market price.

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I definitely think that this war could damage the book industry because writing a book takes time and there is no authors, publishers or booksellers that will be able to write or publish new works at a price as low as 9 dollars. Maybe Wal-Mart and Amazon can do it because they have a certain power, but their war will be more detrimental to the industry and I think that at the end they will lose if there are no more writers.

I read different articles that covered this price war between these two big discount retailers. I particularly enjoyed the New York Times because it related the story in favor of the book industry. The author introduced is article with a good headline Price War over books worries industry and relate the entire story with some bias because the author introduced some quote from Wal-Mart showing that they were attacking the market versus quotes from an owner of an independent company saying that you have a choke point where millions of writers are trying to reach millions of readers but if it all has to go through a narrow funnel where there are only four or five buyers deciding what’s going to get published, the business is in trouble . (New York Times)

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As for the Financial Times, I didn’t really appreciate their article because in comparison with the other articles that I have read, they were basically summarizing what the other articles were stating. The only positive comment I could say is that they used an analyst comment saying that the online price war underlined the long-term threat new technology posed, but I think the author should have say more.

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Bloomberg’s author focused more on the benefits and stock market of Wal-Mart versus Amazon which was quite interesting as well. It demonstrates more research in the subject than just relating the facts. Moreover, the author was quite objective and went even further in the information by giving the reader the strategies of both companies. Finally, the author also state that he contacted Amazon.com’s press office and didn’t received any immediate response which shows that the PR people from Amazon probably decided to wait to see what was going on before related information to the press. I really liked this sentence because without stating anything, Bloomberg demonstrate that Amazon doesn’t really know what to do.

Overall, I think that with all the different articles I read, I’ve been able to follow the price war and discover all the information from different point of views. The majority of the articles related more or less the same story but I was happy that some authors gave quotes from the industry showing that it was in danger even though I would have gave more facts about how the small retailers, writers and publishers could be affected in the long term.

SOURCES:

Financial Times: http://www.ft.com/cms/s/0664a9f10-bab4-11de-9dd7-00144feab49a.html
New York Times: http://www.nytimes.com/2009/10/17/books/17price.html?hpw= &page wanted=print
Bloomberg: http://www.bloomberg.com/apps/news?pid=20601110&sid=aNudtIRVsXWM
Wall Street Journal: http://online.wsj.com/article/SB125565024634288895.html
Reuters: http://www.reuters.com/article/newsOne/idUSTRE59F5GX20091017

No concern for environment, GM sells hummer to china industrial business

I was literally chocked this week when I read about this new acquisition. It is written everywhere that if we don't take care of our environment, we will kill our planet. I think that GM forgot about the new trend saving the environment.

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In my opinion, they should have stopped producing it instead of selling it to the most populous nation with 1,333,460,000 citizens. I can't even imagine what will happen; they will possibly produce a cheap mass-market version of the Hummer for the local market so everybody will be able to afford one.

Moreover, for the Chinese buyers, the deal represents the first acquisition of a distressed asset from the American car industry and a calculated bet that it can revive a tainted brand (Times online). Thus, I guess that Chinese will be proud of this brand and might buy more of those polluting cars even if according to James Taylor, GM’s executive, the brand has been unfairly tagged as a symbol of the American gas guzzler.

It was said Friday, October 9th 2009, that General Motors Co. had signed a definitive deal to sell its Hummer sport-utility vehicle business to China’s Tengzhong Heavy Industrial Machinery Co. Tengzhong will buy the company through an investment unit in which it holds an 80% stake. The remaining 20% will be hold by Mining tycoon Suolang Duoji, a private entrepreneur. Even though the purchase price was not disclosed, GM said it estimated the value of Hummer at US$500 million, but it was said that the brand will be purchased for about US$150 million, which is less than a third of its value.

With the rising gasoline prices and growing environmental awareness, the hummer demand was at its lowest this year with only 8 193 hummers sold compared to 71 524 in 2006. I think this should be a sign, nobody wants those anymore, don’t try to convince Chinese to become adept of it to feel a little more American.

Many different papers around the world related the story about this new acquisition. Some papers were more objective when others tried to reveal the story objectively with some bias. Overall, I can say that every paper said more or less the same facts; some were more detailed when others only gave a summary of what was going on.

My favourite article is from Reuters, where the author related the story with strong words such as iconic but tarnished Hummer brand and obscure Chinese machinery maker to show that he wasn’t really in agreement with this deal. The author could have gave more details about the transaction though, because he didn’t inform the reader with all the important details about the company and the implication of the deal.

Wall Street Journal uses a different approach to reveal the news. It informs the reader with an objective view and very detailed information. They first inform us of the transaction fees and explain that the China’s central government could still balk at the acquisition because of Hummer’s reputation. It also shows all the benefits that this deal will bring to China, which makes me feel a little more comprehensive even though I don't really agree. The author also used an optimistic approach and informed the reader that under the new Chinese owners, Hummer would try to come up with more fuel-efficient models, including gasoline-electric hybrid models. Finally, the article gives us some hope that this deal might not come to an end since China has been pushing its consumers toward purchasing smaller cars to save energy.

On Saturday, The Washington Times published an article starting with a strong headline China buys all-American Hummer for $150 million, which was almost saying that China was steeling something from US. The author used quotes to show how it was weird and how important this brand was for American. I think it was obvious that this article was written by a real patriotic American. I liked it, but I felt this article was trying to convince its reader that Hummer has value in this market, which is untruth for me.

I enjoyed reading news from UK, China and US about this acquisition because all these different countries had a different approach. UK was relating the facts and showed both positive and negative sides of this acquisition. The article from Xinhuanet was really optimistic about it, even if both government didn’t yet agreed, the article gave only one quote from Taylor’s saying that when Chinese government will see Hummer’s new business plan it will be very supportive. Finally, the articles from the US I read seemed happy to save their brand but at the same time, it gave the reader a feeling that they were loosing their identity.


Sources:

Reuters: http://www.reuters.com/article/ousivMolt/idUSTRE59916D20091010

Financial Times : http://www.ft.com/cms/s/0/d0674ee6-b534-11de-8b17-00144feab49a.html

Times Online: http://business.timesonline.co.uk/tol/business/industry_sectors/engineering/ article6868799.eceturn operations.

Financial Post: http://www.financialpost.com/story.html?id=2087095

Xinhuanet: http://news.xinhuanet.com/english/2009-10/10/content_12203429.htm#

The Washington Times: http://www.washingtontimes.com/news/2009/oct/10/chinese-firm-closes-hummer-deal/

Wall Street Journal: http://online.wsj.com/article/SB1000142405274870374660%204574462111444795076.html?mod=googlenews_wsj