Loonie needs to be ‘low for longer’ as Canada faces more competition from Mexico

The loonie could make or break the Canadian economy in the next decade.

A new report from Russell Investments Canada says that the Canadian dollar will be more important to economic growth than even the direction of commodity prices, including oil.

“Our view is that the Canadian dollar needs to remain low for longer in order to regain competitiveness against the U.S.,” said Shailesh Kshatriya, director, Canadian strategies at Russell Investments Canada. “And more importantly, relative to an increasing imposing manufacturing capacity in Mexico, the loonie needs to be more attractively priced for multinational firms.”

The report echoes some of the Bank of Canada’s economic commentary of the past year, which has raised concerns about the loonie, stressing the importance of growing exports in Canada. Recent manufacturing data, however, shows that even with the loonie hovering slightly above 80 cents against the U.S. dollar for much of this year, exports and manufacturing haven’t benefited much.


Kshatriya says that while on the surface, the commodity boom of the 2000’s was good for some local economies such as Alberta, it came at the cost of lost competitiveness. The loonie’s accompanying strength in those years boosted labour costs, particularly in manufacturing, by as much as 30 per cent in the country.

While that view is not new, the emphasis placed on Canada’s ability to remain competitive against Mexico highlights how the latter country has been benefitting much more from U.S. economic growth. Mexico’s manufacturing sector has been booming in the past two years, particularly its high-end manufacturing, which creates highly-skilled and well paid jobs.

Kshatriya said that Canada’s loonie now needs to remain weaker than the U.S. dollar for “an extended period” of time to make up for the damage of the past decade and keep Canada economically competitive.

He expects that the central bank’s focus on the loonie and even talking it down will continue, even if the U.S. Federal Reserve moves to raise interest rates this year (as economists widely expect).

“We believe the Bank of Canada will be diligent with interest rate moves going forward,” said Kshatriya.

Microsoft Drops Another Windows 10 Build

windows 10 Today, Microsoft released another Windows 10 build for PC, numbered 10159. The company indicated that it is similar to yesterday’s release, with one change aside from normal bug fixes. According to Neowin’s Brad Sams, the operating system iteration contains a new desktop background. Read More

KKK plans South Carolina rally as Confederate flag debate continues

CHARLESTON, S.C. (Reuters) – The Ku Klux Klan plans to hold a pro-Confederate flag rally at South Carolina’s capitol, where a statue of a former state governor who championed white supremacy was vandalized on Tuesday amid scrutiny of symbols associated with slavery.

U.S. approval of AT&T-DirecTV deal expected as soon as next week: sources

WASHINGTON (Reuters) – AT&T Inc’s proposed $48.5 billion acquisition of DirecTV is expected to get U.S. regulatory approval as soon as next week, according to people familiar with the matter, a decision that will combine the country’s No. 2 wireless carrier with the largest satellite-TV provider.

How Young Philanthropists Are Embracing and Changing Warren Buffett’s Model of Giving

Warren Buffett is admired for many reasons, but his commitment to giving most of his fortune away when he dies is high on that list.

Buffett’s approach to philanthropy is as old school as his investment style: make your money, then give it away.

He shared that philosophy earlier this month at the Forbes 400 Philanthropy Summit in New York. The event, in its 4th year, brings together very wealthy people (many of them billionaires who have signed up through Buffett’s “Giving Pledge”) to hear how their peers around the world are approaching the challenge of effectively giving money away, so that they have a meaningful impact on the problems and issues they care about. This year the Summit’s focus was global health. Last year it was education.

I’ve had the privilege of attending the Summit for the last couple of years. Not because I am a billionaire. (I need to borrow a few zeroes.) But because the company I work for, the Royal Bank of Canada, has sponsored this exchange of philanthropic ideas and strategies as one way to play out its own commitment to making a positive difference in the world.

I’ve been impressed by the energy, drive, ambition, knowledge, expertise and innovation these capitalists are directing at their charitable pursuits. It’s inspiring to see private resources being directed at some of the most intractable problems in the world – like eradicating polio and malaria, as the Bill and Melinda Gates Foundation is seeking to do — at a time when governmental resources, once the go-to place for solving social problems, are shrinking.

Buffett’s approach, which he outlined at the Forbes event, is carefully thought through and elegant in its simplicity. He’s giving his money to five charities. He’s delegating to those five charities all decisions about to whom and how to give the money away. But he’s also directed that the money be spent over the 10 years after his death, so that it maximizes its impact over the relatively short term. And he’s directed that it be invested in Berkshire Hathaway stock until it is spent. (No investment consultants or investment committees necessary.)

Asked at the Forbes Summit how he feels about “new school” social impact investing – that is, about investing in enterprises whose mission is to generate both a financial return and a social return — his response was: “I don’t believe you can solve for two variables at the same time.”

But from what I heard at the Forbes Summit (and according to findings in the recently-released 2015 World Wealth Report sponsored by RBC Wealth Management and Capgemini), younger philanthropists appear to be interested in doing precisely that: solving, through their investment activities, for two variables at the same time.

Who is right?

I asked my daughter, a Yale and Cambridge-educated math wiz turned sculpture major turned Chartered Financial Analyst turned convertible bond trader. Her answer: the question itself needs to be reformulated. Once you do that, “it is in fact possible to solve for two variables, not with a single answer, but with a set of x, y pairs.”

Translation: “In the context of social impact investing, it is possible to find a set of investments that both earn a financial return (x) and align with one’s values (y).'”

My take-away from this year’s Forbes Philanthropy Summit is that philanthropy is in the process of being re-formulated by a new generation of capitalists, many of whom earned their fortunes disrupting traditional business models.

They’re now doing the same thing to the business of giving money away.

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Careless SBA Lending Tells Same Old Story

One of my favorite quotes comes from Spanish philosopher George Santayana who said: “Those who cannot remember the past are condemned to repeat it.” Believe it or not, we can draw a connection between this 110-year-old quotation and small business lending today.

The U.S. Small Business Administration is allowing history to repeat itself, as it tacitly enables small business lenders to offer government guaranteed 7(a) loans in ever-larger amounts with yet smaller collateral contributions from borrowers. Somewhere Alan Greenspan is muttering “irrational exuberance.”

The 7(a) loan program is the darling of small business lending as it offers the best deal for banks which participate in the program. During good times, small business lenders often gorge themselves on 7(a) loans – so much so that the program gets maxed out. And then the banking community cries wolf to Congress. This has happened many times during the program’s history, and we are on the verge of seeing it again in 2015. Some estimates show that the program could hit the $18.75 billion cap imposed by Congress before Sept. 30, the end of the fiscal year.

Times are good, so why is this a bad thing? Well, as always, the devil is in the details.

Earlier this month, small business finance authority, Bob Coleman wrote about the excesses that lie in one dark corner of small business lending: 100% financing by some SBA 7(a) lenders.

I often wonder how some lenders get away with this. U.S. taxpayers are unwisely put at risk with such reckless commercial lending – the equivalent of handing a 16-year-old your keys and a six-pack.

Now I have certainly heard the justifications over the years about giving these loans only to doctors, veterinarians and dentists (the kind of borrowers every bank covets) on the ill-advised premise that these folks are always the lowest credit risks. Sadly, that myth needs challenging

You don’t have to be a banking-school trained lender to understand the common sense rule of “having skin in the game.” Get a real equity contribution from a small businessperson on their loan, and you can sleep better at night knowing your default risk has been mitigated some. Give them a pass because they spent more time in some ivory tower than you did, and don’t be surprised if they walk away from your loan when the going gets tough.

We’ve seen this movie before, and it doesn’t end well. Teenagers should never run into the cemetery at night while being chased by a serial killer. Should the agency dig into this a little deeper, they’d note that same proverbial cemetery is littered with the dead carcasses of former 7(a) lenders who once marketed 100% financing with abandon. My hunch is that many of their liquidations originated from these very same adolescent lenders.

With all-time high secondary market premiums on SBA 7(a) loans and some lenders providing 100% financing, it is no wonder the 7(a) program is about to run out of money and require additional allocations from Congress. Loans from the 7(a) program certainly have their place — for business acquisitions, partner buyouts, working capital loans, and so forth — just not for fixed assets like commercial property and heavy equipment.

As rates move up (and they have nowhere else to go but up from here), 7(a) prepays will accelerate as borrowers refinance-out of 7(a) loans and fewer and fewer small business borrowers will be duped into floating rate loans on real estate as the media screams about rising rates. Floating rate 7(a) loans on commercial real estate are the way bankers maximum their secondary market premiums, assuming they can sell these inferior terms to unsophisticated small business owners.

The 7(a) premium bubble burst is coming, and then there will be a regression to the mean of historic premiums, as there always is. We’re all for the secondary market providing added liquidity, but it needs to be sensible and based on tried-and-true lending standards, among other things. The current secondary market for SBA 7(a) loans feels euphoric and outlandish. It too will end.

Meanwhile, the SBA’s 504 program, which almost always offers a better deal on commercial real estate and equipment, has lending authority to spare. Congress continues to debate whether or not to re-enact a refinancing provision which could be a savior for many small businesses as they hurl toward the so-called Wall of Maturities. SBA 504 volume is down as bankers would rather hustle their prospects into 7(a) loans to take advantage of significant premiums from a percolating secondary market.

Fixed assets should be financed by fixed interest rates. That’s Business 101. Of course, so does having a little skin in the game when you borrow money. Maybe wiser heads will soon prevail around this whole matter. These programs are too important for America’s entrepreneurs to screw them up for near-term greed. It’s time for some in the industry to grow up, become more responsible and not repeat the mistakes which plagued us in the past.

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What India Taught Burger King About Vegetarian Fast Food

India is a puzzle for America’s fast food chains. Nearly 1.3 billion people live in the country, almost as many as live in China. Yet the market for U.S. chain restaurants in India, though growing rapidly, is still dwarfed by the market in China. Part of that disparity stems from the vast gap between the two Asian giants’ wealth. The World Bank estimates India’s per capita GDP at about $1,500 — less than a quarter that of China.

But fast food spending in China isn’t four times as high as in India — it’s an entire order of magnitude higher. Just a few billion dollars’ worth of fast food is sold in India every year, while annual sales reach nearly $100 billion in China.

Experts could probably cite dozens of factors as partial explanations for India’s lack of enthusiasm about fast food, but one key part of the picture is Indian dietary customs. Nearly a quarter of all Indians — 300 million people, about the population of the U.S. — are vegetarian. And many others eat no beef, because of the reverence for cows in the Hindu religion.

American fast food chains, almost without exception, rely on products that contain meat, especially beef, for the bulk of their sales. McDonald’s locations in the U.S., for example, sell no vegan entrees. And the biggest foreign fast food chain in China is KFC, which is only vegetarian-friendly if you pretend that chicken is a vegetable. By contrast, the biggest in India is Domino’s, one of the few chains with plenty of meatless offerings.

Some other American fast food chains have attempted to overcome this obstacle by adding an unprecedented number of vegetarian dishes to the menus of their Indian outposts. Wendy’s — originator of the phrase “Where’s the beef?” — sells no beef at Indian locations, and instead relies on a potato patty for many of its burgers. Taco Bell, which aims to open 2,000 restaurants in India by 2020, has launched a number of vegetarian-friendly dishes exclusive to the subcontinent.

Burger King, for its part, developed six new vegetarian sandwiches for India before entering the country in November 2014, including a Paneer King Melt and a Spicy Bean Royale. And now the Economic Times reports that the Miami-based chain has found such tremendous success with its vegetarian menu that its management is considering bringing elements of that menu to Burger Kings around the world.

Burger King is already one of the more vegetarian-friendly fast food companies around; it has long been one of the few mega-chains to sell veggie burgers. But other fast food chains are slowly starting to follow BK’s lead as the market for meatless foods grows. So it would make sense that Burger King would want to keep improving its vegetarian options. And vegetarians have long known that Indian restaurants offer some of the best meatless dishes around — can you say saag paneer? — so taking inspiration from the country could end up being an inspired, and profitable, choice for Burger King.

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Beats 1 Radio Accepting Song Requests from Listeners [iOS Blog]

One of the upcoming segments on Beats 1 radio is called “Requests,” and it appears this broadcast will feature songs that have been requested from Beats 1 listeners around the world. According to a tweet from the Beats 1 Twitter account, users can request a song by calling in to the station.

The Apple Music Tumblr site has a page that’s dedicated to requests, listing phone numbers around the world for listeners to call to request a song. In the United States, the number for making a request is 1-310-299-8756, or 1-877-720-6293 for toll free.


There are also phone numbers listed for Canada, the U.K., France, Japan, Germany, Brazil, Mexico, Dominican Republic, Australia, Italy, Ireland, and New Zealand.

“Requests” will play at 5:00 p.m. Pacific Time, and the segment will be hosted by Travis Mills, who is located in Los Angeles. Mills’ show will come on following Ebro Darden, who goes live at 3 p.m. Pacific Time. It is not clear if the requests that Beats 1 is asking for will be limited to the “Requests” segment or if they’ll also be played at other times on Beats 1 radio.

Beats 1 radio debuted today at 9:00 a.m. Pacific Time in hundreds of countries around the world. It provides 24/7 live music and will also include news segments, interviews, and more. Beats 1 radio is part of Apple Music, which also includes a new on-demand streaming service (free for three months) and Apple Music Connect, Apple’s new artist-focused social networking feature.