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Quand le vent souffle fort, même les dindes peuvent voler. Pour un temps. À preuve les titres boursiers gonflés à l’hélium par l’action coordonnée de petits investisseurs. L’appréciation aussi artificielle que spectaculaire d’une poignée d’actions soulève des questions importantes sur les causes profondes et sur les conséquences de ce phénomène, encore trop récent pour être pleinement compris. Résumons d’abord les faits essentiels, sans entrer dans les détails de la plomberie financière. Aux États-Unis, des milliers d’investisseurs novices, surtout de jeunes hommes, se sont coordonnés dans un forum du réseau social Reddit pour acheter une douzaine d’entreprises mal aimées, notamment GameStop, AMC et BlackBerry, pour en faire...
A couple of weeks back, Jack Mintz warned Financial Post readers that governments that think low interest rates will let them keep borrowing big are on a dangerous path. As he pointed out, the presumption that deficits are sustainable depends on the rate of growth of the economy exceeding the interest rate. Drilling down, if a government borrows to pay all its interest, its debt will grow at the interest rate. If the economy grows faster than that, the government’s debt-to-GDP ratio can fall even if it also borrows to pay for some of its program spending. But if the interest rate is greater than the rate of economic growth, the government must cover all its program spending with taxes, and then some. Otherwise, its debt grows...
Last week the Bank of Canada decided not to change its target for the “overnight rate” of interest at which lending takes place among large financial institutions. It was a non-move that had extra significance in light of recent speeches by members of the bank’s Governing Council. Statements by Gov. Tiff Macklem and Deputy Gov. Paul Beaudry before Christmas had led to speculation about the possibility of a “micro-cut,” a cut in the target overnight rate of less than 25 basis points, if weak economic conditions warranted such a move. With the bank now predicting negative economic growth this quarter, such a cut might have seemed justified. But it didn’t happen. To us, this time, that was the right call. Here’s why. First, monetary...
Along with much of the world, Canada’s economy has suffered from the COVID-19 pandemic and other events in 2020, notably the shock to global oil markets. How badly? An examination of the immediate data and longer trends indicates significant damage, with a lengthy recovery period ahead. Let’s start with labour markets, where there are signs of recovery but also growing evidence of damage. The unemployment rate exploded to nearly 14 per cent from 6 per cent during the shutdown from March to May. The rate has dropped steadily since as many displaced workers have been re-engaged, but the second pandemic wave and renewed shutdowns in many provinces have meant more job losses. Employment fell by 63,000 in December, and the...
The Bank of Canada did not surprise last week on its target for the overnight interest rate, which remains at 25 basis points and is expected to stay there until the economy fully recovers from the pandemic recession, sometime in 2023, according to the bank’s projections. The real intrigue in the bank’s regular announcements these days surrounds its purchases of Government of Canada debt, and what they mean for its relationship with the federal government. Wednesday’s announcement left these purchases unchanged at $4 billion per week. However, this announcement requires a deeper dive, coming as it does after the federal government’s fall economic statement laid down substantial deficits and no fiscal anchor on the horizon. Let’s...