A light at the end of the tunnel?
Debt defaults, mouse jigglers, gold rushes, legal cocaine - and who really controls Canada.
Hi there!
The big news this week is…it looks like the era of rate rises has finally come to an end.
Now…the rates could rise on Wednesday - and then we’d look like we’re jumping the gun a bit - but where the economy is ‘shifting’ right now suggests that, broadly speaking, things are calming down and getting a little easier. That ‘shift’ has shown itself in the data - specifically in the data that shows that, sure, jobs were up (150,000 added in January! 5000 more to be added in February!) - but that all those new wages just weren’t aligned to the reality of inflation.
This is both good and bad. The good is that with wages peaking at an increase of 5.6%, employees actually lost purchasing power over the past two years. The bad is that with wages peaking at an increase of 5.6%, employees actually lost purchasing power over the past two years. So sometimes the good is the same as the bad.
This wage stagnation has stopped growth and it’s dropped the top line inflation. At the top of the chain, it means the Bank of Canada has little incentive to slow growth more to speed up inflationary reduction if things are likely headed south anyway.
None of this is good news for workers and none of this is immediately helping your grocery bill. But as time ticks by over the coming weeks, that debt payment will begin to sting less, that inevitable mortgage renewal deadline will be a little less worrisome.
This isn’t the end of the battle over inflation. It’s going to be something we’re going to be dealing with for a while yet. Just as we’re probably going to be arguing long term over the continued profiteering of a limited pool of food retailers.
Nevertheless, there is light at the end of the tunnel - so we should probably celebrate that. Even if we’re not sure where the tunnel is going to eventually take us.
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Top story this week☝️
Banks brace for defaults
As the Bank of Canada slows the economy with rate rises, inflation has fallen - but what has risen in response is insolvencies. Business insolvencies currently are up 55.4% year on year, and while pandemic debt can claim a significant amount of that percentage, the longer term outlook sees an inflated prime rate continue which inevitably impacts solvency. Businesses and consumers who took on debt at lower percentages are seeing throttled incomes not keeping pace with inflation - meaning less money on hand - and the banks are well aware. Canada’s six big banks all reported a dip in profits this quarter as they began building war chests to deal with the impending credit defaults. It’s not all bad news however - BMO, despite increasing their credit protections due to “a deteriorating economic outlook” did note continuing growth in the broader business ecosystem. Link
News 🗞️
Modern approaches to work still a battle ground
Productivity is still the battle cry for many managers resisting the future of work, despite productivity being (a) near impossible to quantify for most roles and (b) the almost religious concept of ‘attendance = productive’ being now provably junk. The rise of the 4 day work week, which is probably the most studied concept in modern economics has shown to be hugely beneficial for all concerned - and yes, more efficient. It’s also in demand. Despite all this science, many employees are still facing trust issues from employers who are increasingly using tracking technology (AKA ‘bossware’) to bridge the accountability gap, rather than…you know…invest time in trust processes and culture. Employees however have always found ‘hacks’ to get around intrusive management, but the increasing rise of ‘mouse jigglers’ shows that, for many, any accountability gap is more of a daily chasm to navigate. Link
The new Nova Scotian gold rush
It wasn’t that long ago in Nova Scotia’s provincial history that the gold rush ended. While the Yukon might be the star of more recent media interest in gold (thanks National Geographic Channel), the maritime province alone yielded over a million ounces of gold during their 150 year ‘golden’ period. Since then the metals being prospected may have changed with the modern markets, but the rush never really went away thanks to Nova Scotia’s unusual ‘geological endowment’. Manganese, Tin, Uranium - they’ve all had their ‘rush moments’ in the province - and now a new land grab is underway as prospectors begin searching for Lithium. The Nova Scotia government sold 27,000 prospecting claims last year, partially thanks to the increasing global demand for Lithium-based batteries to power the growing Electric Vehicle industry. Link
And finally…
A beginners guide to AI terminology. Link
Health Canada hasn’t made buying cocaine legal, but it is big business. Link
The last Crypto giant standing is...in trouble. Link
While Nova Scotia agonizes over Art money, Toronto invests. Link
The Data Room 🤖
The Data Room provides some insight into Small Business data, and each month(ish) you’ll get a deeper dive in your inbox. Here’s this weeks quick insight:
Who really controls Canada?
Influencing elections has placed China in the current spotlight, but when it comes to who really influences the Canadian economy - who really pulls the strings - it’s probably not who you think it is.
Last week we talked about the recent government ban on TikTok, and it was announced yesterday that Justin Trudeau has ordered probes into Chinese election tampering. Yet, since the beginning of the year, Canada has already been quietly introducing a ban on foreign homebuyers – which is yet another symptom of how overseas influence in Canadian culture, politics, and economics has become something of an everyday affair. Indeed, of late, many political policies seem to be shifting towards a more protected and insulated ‘Canada for Canadians’ approach.
Culture and politics are inherently murky, but economic data can be a little more approachable - so, politics aside, how much foreign investment activity and influence has Canada actually been seeing?
The most recent numbers show that foreign controlled asset values total around 15% of total Canadian assets. Translated into dollars that amounts to around $2.2 Trillion out of Canada’s total $12.6 Trillion (as of 2020) asset value. That 15% of ownership has actually been trending downwards since 2015 - when foreign assets covered 17% of the total - and the vast majority of those foreign controlled dollars came from a single country…but it’s not China.
The US is currently the top dog, responsible for exactly 50% all foreign asset ownership in Canada - meaning they hold $1.1 Trillion worth of Canadian assets. Comparably, all of Europe holds 32%, while Asian countries only hold 15% of the $2.2 Trillion total. In fact, Chinese asset ownership is exactly on par with the Swiss - each making up a mere 3.7%.
Since assets aren’t the only game in town, let’s take a look at foreign controlled enterprises. In 2020 there were 10,900 foreign owned businesses operating in Canada, making up 0.6% of all Canadian enterprises. Now - that sounds like a tiny number until you look at how it’s weighted – 99% of all Canadian businesses are SMBs (1 to 499 employees) and only ~0.2% of Canadian businesses are large (500+ employees), therefore, foreign controlled large businesses accounted for 37% of all large enterprises in Canada.
GDP contribution rate in Canada is heavily dependent on the few large businesses we have, which means that usually around 45% of our total GDP contribution is supplied by a handful of large enterprises in Canada.
What does this mean? Well, even though foreign control amounts for only a small percentage of Canadian businesses - they in fact account for a large proportion of economic activity in the business sector.
The Balance Sheet 💬
The Balance Sheet provides Small Business opinion, voices and futures, and each month(ish) you’ll get a deeper dive in your inbox.
If you run a Small Business in Canada, the chances are your books (and therefore your taxes - and possibly payroll) touch one of three ‘cloud platforms’ - Xero, Quickbooks or Wave. So it makes sense to think about how these platforms operate, and how they intend to support Small Business owners (like yourself) moving forward.
This Thursday we’ll be sitting down for a chat with Faye Pang, the leader of Xero Canada, to talk about the challenges of making change happen, data responsibility, building trust - and how technology can rewire things for Small Business owners.
Keep an eye on your inbox!
Market at-a-glance 📈
BOC Indicators (Link):
BOC Prime Rate: 6.70%
BOC Unemployment Rate: 5.0%
BOC CPI Inflation Rate: 6.3%
BOC $USD Exchange Rate (Link):
Low: 1.3609 CAD [0.7348 USD]
Average: 1.3612 CAD [0.7346 USD]
High: 1.3615 CAD [0.7345 USD]
Best GIC Rates (Link):
1-year GIC: 5.30%
3-year GIC: 4.85%
5-year GIC: 5.00%
Best 5Y Mortgage Rates (Link):
Variable: 5.45%
Fixed: 4.64%
Prime Rates (Link):
TD Bank: 6.70%
BMO: 6.70%
RBC: 6.70%
Scotiabank: 6.70%
CIBC: 6.70%
National Bank: 6.70%
CRA Canadian Pension Plan Rate: 5.95%
CRA Employment Insurance Rate: 1.63%
CRA Minimum Wage per Province: Link