MARKET ACITIVITY/TRADING NOTES FOR DAY ENDING THURSDAY APRIL 23, 1998 (2)
MARKET WATCH, Con't
Slower Growth - Conference Board Sees 2.9% GDP Expansion This Year
The Financial Post
The Conference Board of Canada cut its 1998 growth forecast for the economy yesterday and warned that bloated business inventories point to risks of a larger slowdown.
Gross domestic product will expand 2.9% this year, the board predicted in its spring Canadian Outlook report - that's down from its call for a 3.2% expansion, made just last month.
Jim Frank, the board's chief economist, downplayed any impact from the Asian crisis, arguing that low interest rates and a strong U.S. economy ensure the expansion in Canada will remain "robust."
Low interest rates and "solid income gains" from strong jobs growth are expected to keep the cycle intact in 1999, with another year of 2.9% growth. Last month, the board was calling for 2.8% growth in 1999.
However, a sharp buildup in manufacturing inventories will be a drag on growth this year and could signal more trouble ahead, Frank said.
"Historically, a large-scale inventory buildup generally triggers a serious slowdown or recession as inventory levels are corrected."
The economy will add 338,000 jobs this year, even with the anticipated slowdown in employment growth while the excess inventory is absorbed.
GDP growth of 2.9% would be a large drop from last year's 3.8%, but still well above the 2.2% the economy averaged between 1986 and 1995. The economy grew 1.2% in 1996.
At least for now, the board said, the inventory buildup is best treated as "a minor problem" because surveys show manufacturers are not concerned about it.
Randall Powley, senior economist at Scotia Capital Markets, is also unconcerned about the buildup and, in a recent report, said the trade balance may benefit.
Although $20 billion was added to business inventories in the second half of 1997, "this only becomes a problem if demand starts to tail off in a significant way and there's no sign of that at the present."
The overhang should restrain import growth, which would have the positive effect of bolstering Canada's shrinking trade surplus, Powley says.
In addition, the Conference Board identified an unexpected rise in interest rates as a second risk to its outlook.
Higher rates in the U.S. could force Canada to follow suit. Or Canada may have to raise rates independently, "either because of a currency collapse under the weight of a poor trade balance or because of a sharper reaction to the coming Quebec election."
The C$ continued to flounder below the US70› level yesterday, losing US0.18› to close at US69.63›.
It hit a record low of US68.10› in January, prompting the Bank of Canada's most recent rise in the benchmark overnight lending rate, to 5% from 4.5%.
The Conference Board forecasts the C$ will rise slowly, reaching US72.30› by late 1999.
Canadians Buy Foreign Stock In February
Canadian Press
Canadians bought a significant $1.3 billion of foreign stock in February, Statistics Canada said Thursday.
It was the fourth straight month of major stock purchases and brought total investment over the period to $4.2 billion.
Foreign investors, on the other hand, sold off Canadian debt instruments and bought $800 million worth of Canadian stocks.
"Foreigners sold $1.6 billion of mostly Canadian federal treasury bills in February, after purchasing a similar amount of mainly corporate paper in January," the agency said.
The new investment by foreigners in Canadian stocks "coincided with the 5.9 per cent rise in Canadian stock prices as measured by the TSE 300 index."
But foreign investment in Canadian bonds was flat, the agency said. "New Canadian bond issues of $5.1 billion were more than offset by retirements ($3.0 billion) and foreign selling in the secondary market ($2.5 billion).
Delays In Reporting Insider Trading Are Not Tolerable
The Financial Post
A recent call from an outraged reader and investor led me to research an issue that should be made a priority by securities regulators.
The Ontario Securities Bulletin publishes insider trading reports. And yet every issue includes one example after another of late insider filings.
The law states insiders must disclose to the public their purchases and sales 10 days after the end of month in which the trades were made.
Such disclosure is a cornerstone of securities markets and yet the regulator's own Bulletin reveals some people appear to be flouting its rules.
I interviewed three apparent late filers, or their spokespersons. Two were late but the third was simply making a correction to a proper filing the year before and yet the securities publication failed to point this out.
The first example involves the Jan. 30, 1998, issue of the Bulletin when Thomson Corp.'s Patrick Phillips announced 11 trades in early 1997. The last two were in December and those trades complied with the rules. But the others ranged from Jan. 2, 1997, to Sept. 25, 1997, and were late.
Phillips is a talented and personable chap who is vice-president of Woodbridge Co., the holding company of Thomson. His filings showed he sold 57,500 Thomson shares with a ballpark value of $1.9 million.
When called, he was quite forthcoming.
"You're absolutely right and I was late, but I consider the filings a housekeeping issue," he said. "They are also a hassle because you have to prepare documents and file with each of the 10 provincial securities commissions."
He has a valid point. Why should insiders have to file with every province?
But he agreed he should have filed on time.
By the way, I happen to regard such tardiness as a minor offence, not an egregious mistake. We're not talking about insider trading violations but simply late-filing administrative violations.
Even so, it's embarrassing that the public watchdog actually does nothing about the dozens of late filers that are published in each edition of its Bulletin.
At the least, reprimands are in order. And if that occurred, the tardiness that appears to be constant in Canada among public company insiders would end pretty quickly.
Another example I was told about involves Lorne Braithwaite, chief executive of Cambridge Shopping Centres Ltd. In an OSC Bulletin dated Feb. 28, 1997, he disclosed a dozen transactions during 1996 involving the gradual sale of all his $3.45-million worth of debentures issued by Cambridge.
"We monitor the trading of our insiders and stock option exercises," said a Cambridge spokesman over the phone. Braithwaite was abroad on business and not available for comment.
"We know right away about options trading but when it comes to executives who are in the market [i.e., trading in the company's stock or debentures] we rely on them to tell us and then we do the paperwork and file with the proper authorities," the spokesman added.
"This is the only one that has ever been late and he's usually good about these things but I don't know what happened."
Lastly, I was told about the "late" filings of Steven Hudson with Newcourt Credit Group Inc. The Feb. 14, 1997 Bulletin states he sold 117,530 common shares for $20.50, 13 months earlier, on Jan. 1, 1996.
"This was a restated filing because we filed the year before on Jan. 14, 1996, right after the trade but I made a mistake and juxtaposed the figure to 171,530. So we had to refile," explained Newcourt's spokesman.
So Newcourt's Hudson is not guilty of late filing, but you wouldn't know it by reading the Bulletin. There is no footnote explaining this is simply a correction.
The point of all this is the securities regulators should insure their rules are followed to the letter and should also disclose the full information about corrections and so on in their Bulletin.
Full and timely disclosure is fundamental to the proper functioning of the stock market and helps "outsiders" make better business decisions.
So a review of all this is in order. I think the regulations should require "real time" or immediate disclosure on the day the trades are made by insiders. There is no reason for delayed filing, inadequate explanations of filings or for the excessive paperwork that currently exists.
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