Thursday, December 5, 2013

The clogged sewers of finance and industry

I read a remarkable observation today. Well it's not really a remarkable observation, it's an obvious one, one which I've been forecasting since 2011, but what's remarkable about it is that I read it in a mainstream paper.

Is Bank of Canada trying to weaken Canadian dollar in a ‘stealth easing’?

YES!!! For fuck's sake. That's what it's all about; the exchange rate! That's what it has always been about. It's why we are in a much bigger pickle than it would appear. You want to know why the government is patching the housing market with "regulation" while the central bank keeps interest rates at record lows despite the obvious signs of a bubble? This is why. Raising the interest rates will pop the housing bubble, not because the rates themselves will cause rampant defaults but because the loss of our exports to the U.S. will ensure those loans can not be serviced. The resulting loss of work is what will trigger the defaults on our unaffordable houses.

Alberta hitting limits to growth

So, remember this? The event we were waiting for to finally raise interest rates? Check this out:

Cost of refinery backed by province soars to $8.5 billion
Originally pegged at $5.7 billion in November 2012, the project's cost was revised late Wednesday to $8.5 billion by its partners, North West Upgrading Inc. and Canadian Natural Resources.

"While the scope of the facility has not changed, due to a combination of cost inflation and the inability to fully capture certain cost-savings initiatives, the cost estimate has been revised to $8.5 billion," the partners said in a release.

The startup date will be pushed back to September 2017 from mid-2016. The Alberta government said it would support the Redwater project with a $300-million loan payable over 10 years at prime plus six-percent interest.

"The project remains a good deal for taxpayers," Alberta Energy Minister Ken Hughes said in a statement. Hughes was out of the province Wednesday, but his press secretary, Mike Feenstra, said the loans will be shared 50-50 between CNRL and Alberta Petroleum Marketing Agency, with each side contributing $300 million.
Underestimating the rapid rising of costs is only going to become worse. You can bet your ass their projections do not account for monetary stimulus or the positive feedback loops being created as the cost of base materials and energy of society rises. For example.

Mining sector faces rising costs, uncertain demand
Canada’s mining industry faces significant challenges in the near term, including higher prices, uncertain demand and depressed commodity prices, according to an annual report card on the industry by Deloitte.

But the report cautions that demand for commodities will rebound in the longer term and companies should be investing now in anticipation.

The industry is in an awkward transition period, facing growing resource nationalism, demands for greater corporate responsibility and a looming labour shortage, at a time when companies are struggling with volatile commodity prices, said Jurgen Beier, a national mining practice leader at Deloitte.
Embrace innovation

But that will force mining companies to be nimble and innovative, he said.

"There are a number of proven technologies and things that are out there today that radically change the way ore is extracted and change the way mining occurs,” Beier said.

"We think this is the opportunity to embrace that innovation, to get to that point of sustainability."

The Canadian mining sector is seeing a lot of cost-cutting and rationalization in the face of slowing demand from China. Barrick Gold has s
uspended work on its massive Pascua-Lama mine in South America as the gold miner moved to cut costs.

Just today,
Potash Corp. announced more than 1,000 layoffs in the face of falling potash prices and Rio Tinto said it would pull back on capital investment in its iron ore and copper projects.
I just have to point out that I called China's stagnation back in 2011 too. I don't know what sort of "indicators" Canadian business and the government uses to forecast economic events, but they frankly suck at it. Which brings us to "foresight":

Oilsands company wants $56 million in government compensation
Leases were cancelled to give Fort Mac room to grow
CALGARY - A junior energy exploration company has submitted a $56 million bill to the provincial government for compensation for cancelled oilsands leases near Fort McMurray.

And Binh Vu, CEO of Alberta Oilsands, did not rule out seeking further recourse above and beyond the dollar value of what his company has already put into its halted project.

“When a project’s cancelled, you look at all different avenues,” Vu said in an interview Monday. “If it’s a private deal, and your joint venture partner cancels for some reason, you’d look to them for some sort of recourse ... That’s something we may look at with the government, but it’s not something we’ve looked at in detail.”

The Calgary-based junior is one of 10 companies affected by the Alberta government’s July decision to cancel all oilsands leases on 22,000 hectares of land in the Fort McMurray region. The land will instead be purchased on an as-needed basis by the Municipality of Wood Buffalo, which is desperate for more housing and infrastructure to meet the needs of its growing population.

The government has agreed to compensate the oilsands leaseholders under the terms of the Mineral Rights Compensation Regulation. Alberta Oilsands — which was already in the regulatory approval stage with its Clearwater project — says $56 million is the total it has arrived at based on that legislation. The figure represents the money spent by the company so far on licensing fees, bonus bids, and development to this point.
“We had to go through receipts and invoices from 2007, which was when we acquired the leases,” Vu said. “It’s frustrating. Shareholders coming into this company were expecting the development of an oilsands project ... Getting a project to the stage where you’re about to dig into the ground, and then it gets cancelled — well, basically, we’ve wasted the last five or six years.”
Brilliant right? The amazing inability to have simple foresight seems to be a recurring problem with the Alberta government which the taxpayer of course covers. But wait, we've yet to arrive at my all time favorite indicator of Alberta's limits to growth and stupidity regarding foresight, in this case in terms of not spending on infrastructure when it's needed to 'balance the budget':

'Peak toilet' problem puts brakes on northwest development
The sewer capacity crisis that has frozen development in northwest Calgary is so dire that the city had to take extra measures to allow 183 homes already under construction to finish.

The long-promised northwest recreation centre can also go ahead as planned. The Tuscany fire station and a planned middle school in Royal Oak, too.

But that's basically it for new growth in an area encompassing a dozen entire communities, new suburban growth areas and parts of other northwest communities.

In a city where growth strains are often discussed, the "peak toilet" crisis means the system can't handle more flushes until a second sewer trunk is built through Bowness in 2017.

"Obviously it's a mistake and we have to rectify it as quickly as possible," said Coun. Ward Sutherland. Ward 1, which he represents, is almost entirely covered under this freeze.
I wouldn't count on a real "surplus" anytime soon coming out of Alberta.

A couple of other provinces are doing some neat tricks

Deficit drops, although oil revenues dip as well - Newfoundland
The Newfoundland and Labrador government said Monday that its financial position is improving, although reductions in spending are coinciding with a notable decline in oil revenue.Finance Minister Tom Marshall told reporters that the government now expects to finish the fiscal year at the end of March with a deficit of $450.6 million, down from $563.8 million, which was projected in the March budget.
Marshall said government spending for the year has been reduced by $270.1 million, thanks to delays in infrastructure work and in programs. 
Auditor General troubled by debt growth - New Brunswick
Finance Minister Blaine Higgs delivered his second quarter financial update on Thursday afternoon. He now projects the net debt will grow by $587.2 million for the year ended March 31, 2014. That is $7.2 million less than the original debt growth prediction of $594.4 million.

"This continue increase in net debt represents a very disturbing trend," said MacPherson. "An even higher demand will exist on future revenue to pay past expenses."

The report notes in 2013, the province had to put out $660.3 million to pay the interest costs on the debt, which represents 8.5 per cent of its annual revenue.

The report also shows New Brunswick has the second highest net debt per captia in the country. In essence, it would require every New Brunswicker to pay $14,623 to pay off the net debt, which is less than $100 shy of the net debt per capita in Nova Scotia.
 

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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

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