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Netflix's Fright Night You might want to fast forward through this if you're a shareholder of Netflix Inc. . For sure, you don't want to rewind and watch the horror show all over again.
As The Globe and Mail's Susan Krashinsky reported, Netflix shares were pummelled after the company disclosed this week that it lost more than 800,000 subscribers and projected a money-losing period early next year.
That's despite the fact that profit and revenue climbed sharply in the third quarter, and was the result of the company boosting prices and proposing a split between its DVD rental operations and video streaming. It later backed off that.
In their letter to shareholders, chief executive officer Reed Hastings and CFO David Wells noted the poor reviews, describing the past few months as "difficult" for their shareholders, employees and subscribers. But they also said the company has the opportunity to boast the best streaming video service in the world.
"While we dramatically improved our $7.99 unlimited streaming service by embracing new platforms, simplifying our user-interface, and more than doubling domestic spending on streaming content over 2010, we greatly upset many domestic Netflix members with our significant DVD-related pricing changes, and to a lesser degree, with the proposed-and-now-cancelled rebranding of our DVD service," they said.
"In doing so, we've hurt our hard-earned reputation, and stalled our domestic growth. But our long-term streaming opportunity is as compelling as ever and we are moving forward as quickly as we can to repair our reputation and return to growth."
- Netflix stock crushed as subscribers flee
- Netflix: Blame management or valuation?
- Netflix: From short, to long, to laughter
Greece's bliss, Italy's shame The embattled leaders of the euro zone cheered the markets this week with a broad plan to fight their two-year-old debt crisis. But it didn't take long after the accord was reached in a marathon session in Brussels for holes in the deal to become apparent.
Several questions remain about the plan by the 17-member monetary union to boost the power of their bailout fund, force banks to raise their capital levels, push holders of Greek bonds to take a 50 per cent hit, and bring down Greece's debt-to-GDP ratio to 120 per cent by 2020.
"Just don't ask a lot of questions ... because EU policy makers don't have a lot of answers at this stage," said senior fixed income and currency strategist Stewart Hall of RBC in Toronto.
Here's a rundown:
Reducing Greece's debt level from its current 160 per cent will be difficult, given that the country is deep in recession. "Greek revenue growth prospects to finance a debt-to-GDP load in about 10 years that is comparable to Italy's ratio today are scant," warned Derek Holt and Karen Cordes Woods of Scotia Capital.
Debt holders are looking at a hit of €100-billion ($142-billion U.S.), with the euro zone kicking in €30-billion, and virtually all of them have to agree to the voluntary haircut. "If some bond holders hold out we may need to see more than just the €30-billion sweetener of public euro zone money to get everyone on board," said senior currency strategist Elsa Lignos of RBC in London.
Much, too, depends on the ratings agencies. "If S&P sticks to its guidance from earlier this summer, then it will stamp Greek debt in default by virtue of this deal having altered the original indenture terms for the worse," said Mr. Holt and Ms. Woods.
"That would not only shut Greece out of capital markets for years, it could also motivate rating agencies to take a more aggressive stance toward other heavily indebted nations, given the European precedent that has now been set toward imposing losses on the holders of debts owed by profligate sovereigns," they said in a report.
As for the banks, they will have to ensure a top capital level of 9 per cent by June, 2012. They're supposed to try to raise the capital through private means, and only go to governments for help if that fails. And, as the European Banking Authority pointed out, banks can forget about dividends and bonuses if that's what it takes.
This, too, raises questions, as RBC's Mr. Hall pointed out late yesterday.
"In the absence of the ability to tap private capital and a likely reticence to accept government and EFSF capital that may come with conditions, bank recapitalization threatens to become an exercise in burning off of assets," he said.
"For the EU economy – an economy that funds itself through its banks - it points to the potential for a credit crunch, deflation and a contraction in money supply getting layered onto already onerous growth challenges associated with Spartan-like fiscal austerity."
There are also questions remaining over Italy, whose Prime Minister Silvio Berlusconi was forced to write a letter to his EU counterparts promising he'd act on reforms. The Europeans said they'd keep their eye on that, a humiliation for Mr. Berlusconi.
Indeed, attention shifted late in the week from Greece to Italy, which saw its bond yields spike at an auction Friday. Given its debt payments, it's a big issue for Italy, the monetary union's third-largest economy and most indebted member.
"Italy generates a government budget deficit as a result of its interest payments on debt that represents 120 per cent of GDP," said currency strategist Eric Theoret of Scotia Capital.
"Were it not for interest payments, Italy would run a (primary) budget surplus. The rising cost of debt is an ongoing concern for markets, who fear a buyer's strike on the part of investors in the €1.6-trillion Italian debt market. All three major credit rating agencies have a negative outlook for Italian debt, currently rated at A by S&P and A2 by Moody's."
- Belatedly, Europe finds a quick fix to its financial woes
- €1-trillion worth of reasons to hope for European stability
- How the Europe rescue package is supposed to work
- Italy at heart of crisis as borrowing costs climb
- Voluntary or forced? The important word games of debt default
- Greek debt haircut constitutes default: Fitch
- Boyd Erman's Streetwise: CDS market likes what it sees in Europe
- No easy fix for Greece's economic woes
- China likes debt deal, warns it's not EU's Good Samaritan
- Greece entry into euro zone a mistake at the time: Sarkozy
The smirk, the fight The drama in the euro zone this week was not without its odd moments.
First, Italians were incensed when, last weekend, Germany's Angela Merkel and France's Nicolas Sarkozy were asked by reporters about Mr. Berlusconi's promise to act on reforms. Depending on whom you listen to, they either smirked or they smiled. There's a difference.
The Germans say the two leaders were simply smiling because they were confused about who would answer. But for the Italians, it became the "Markozy smirk." In other words, it's fine for Italians to pick on their Prime Minister, but not for anyone else.
Mr. Berlusconi, in turn, said he wouldn't be preached to by others, and then told a broadcaster Ms. Merkel apologized to him. The Germans say the Chancellor did no such thing because there was nothing to be sorry about.
Yes, Italian politicians are a feisty lot. Later, in Parliament, as Mr. Berlusconi was trying to save his government from collapsing, a fist fight broke out, and they were literally at each other's throats.
The deputies from the governing coalition got into it with some from the opposition, at least two of them grabbing each other around their necks. According to Reuters, this may have been started by a comment on TV by the speaker of the opposition party about the wife of the leader of the Northern League party.
Political arena, anyone?
- 'Merkozy smirk' over Silvio Berlusconi sparks Italian ire
- Jokes from the European crisis: 27 cows and the EU
- Italian politicians in fist fight as EU heads into key summit
Will Flaherty miss budget target? A scaled-back economic outlook raises questions for Canada's Finance Minister Jim Flaherty, who hinted this week he could delay his 2014-15 target to balance the budget. I don't see that as any big deal, but some might.
As The Globe and Mail's Bill Curry reported, Mr. Flaherty met on Tuesday with private sector economists, and while he wouldn't be pinned down on the issue, there was the suggestion that the target could be pushed back when he delivers his fall economic update.
That would be because the economic projections behind the budget forecasts are now seriously out of date, and fairly lower at that.
In a report this week, economists at Toronto-Dominion Bank projected that Mr. Flaherty could in fact miss his target by two years. But like me, Derek Burleton and Sonya Gulati aren't exercised about that possibility.
"Unless new fiscal restraint measures are announced and in the absence of any new fiscal restraint measures, there is a risk that the federal government will return to budgetary balance in 2016-17, two years later than previously estimated," Mr. Burleton and Ms. Gulati said in a report Friday that bases their projection on economic forecasts that have dimmed of late.
"However, with small deficits forecast in the last two years of the revised timetable (0.1 per cent to 0.3 per cent of GDP), additional fiscal restraint, above what has already been announced, need not be pursued."
- Flaherty could miss target to balance budget by two years
- Flaherty hints at delay to balancing books
- See the latest numbers from the Department of Finance
- Ottawa posts $3.6-billion deficit in August
Outlook darkens The Bank of Canada paints a bleak picture for at least the next several months, a period marked by a weaker recovery, high gasoline prices and slow wage growth. Just about everything you couldn't want in one package.
The central bank held its benchmark rate steady at 1 per cent this week and issued a Monetary Policy Report that warned of the headwinds from Europe, which it predicts will suffer a "brief recession," and the United States.
It cut its forecast for economic growth to 2.1 per cent for this year and just 1.9 per cent for next in Canada's export-dependent economy. Growth will pick up in 2013, though, to 2.9 per cent, the Bank of Canada projected.
"The outlook for the Canadian economy has weakened since July, with the significantly less favourable external environment affecting Canada through financial, confidence and trade channels," Governor Mark Carney told reporters on Wednesday.
"Although Canadian growth rebounded in the third quarter with the unwinding of temporary factors, underlying economic momentum has slowed and is expected to remain modest through the middle of next year."
Looking at the entire package, economists believe the central bank won't touch interest rates this year or next, though, of course, events elsewhere could prompt Mr. Carney to take a different course of action.
"Overall, subdued economic prospects warrant continued stimulative levels of interest rates for an extended period of time, but not a rate cut," said economist Diana Petramala of Toronto-Dominion Bank.
"With the economy only expected to reach its full potential by late 2013 to early 2014, the Bank of Canada has over two years to get interest rates back to more normal levels," she said in a research note.
"Moreover, with the Federal Reserve on hold until at least mid-2013, we do not believe the Bank of Canada will be in any rush to raise interest rates. In our view, the Bank of Canada will remain on hold until March of 2013, before beginning a gradual tightening cycle. We expect an overnight rate of just 2 per cent by year-end of 2013."
In its report, the central bank also explained why prices at the pump are higher than the price of oil would suggest, and, worse, projected that that's going to be with us for a while. It also included a chart showing how growth in wages "remains modest."
- Carney sees more than year of soft growth
- Read the Bank of Canada report
- Why we're paying more at the pump relative to oil price
- Shawn McCarthy on why gas prices are still a pain
- Canada's economy goes on a slower path
- Flaherty hints at delay to balancing books
- Canada wins praise for the HST. The only problem is ...
The fights over Canada's oil Canada is waging a transatlantic fight over oil markets.
In the United States, it's a battle for the Keystone XL pipline by TransCanada Corp. . In Europe, it's a fight over what some see as dirty Canadian oil.
The issues are different, but both highlight the struggle in an industry so crucial to Canada's fortunes.
As The Globe and Mail's Shawn McCarthy and Nathan VanderKlippe reported this week, the $7-billion Keystone XL line, which would run from Canada to the Texas Gulf Coast carrying some 700,000 barrels a day of bitumen from the oil sands, faces fresh hurdles.
U.S. Senator Bernard Sanders and 12 congressional colleagues - call them the Keystone cops - called on President Barack Obama to put off any decision on the pipeline until conflict of interest allegations can be examined. TransCanada dismissed his complaints as old and incorrect.
And then there's Nebraska, whose Governor has called a special legislative session to look at possible new rules governing pipelines, which, depending on the outcome, could also push back Keystone.
The U.S. Environmental Protection Agency, which plans to release its comments soon, is studying issues such as refinery emissions and the possibility of pipeline leaks.
"This isn't a little tiny pipeline, this is a pipeline that cuts our country literally in half," EPA administrator Lisa Jackson said this week.
The decision is the State Department's to make.
In Europe, policy makers are poised to label oil sands fuel as polluting. Canada battled and delayed a 2008 directive - Canada wanted the oil sands kept out of it - but it has been tentatively approved.
According to Reuters, Canada has some EU members on its side, and Natural Resources Minister Joe Oliver has put up a fierce fight.
Still, Reuters reported, the EU's climate commissioner, Connie Hedegaard, said she's going ahead with discussions among EU members to put it into force.
"We have the knowledge and the fact that oil sands are more CO2-polluting than other kinds of fuel," she said at a conference in Brussels, according to Reuters.
"And therefore we say it should have a specific value. It's nothing targeted against this particular fuel. We are doing that with all our different biofuels. It's the same methodology that we are applying for different things in the same directive."
Canada says it's not based on science, but is a hot political issue.
On Friday, The Globe and Mail's Richard Blackwell reports, Mr. Oliver said that if the U.S. kills the Keystone project, Canada can always take its oil somewhere, like Asia.
- Keystone pipe faces new headwind
- Keystone pipeline could face new hurdle in Nebraska
- Canada will look to sell oil elsewhere if U.S. balks at Keystone XL: Oliver
- Battlefield Nebraska: A pipeline plan stirs emotions
- Clinton denies State Department biased in favour of Keystone pipeline
- Canada goes on offensive in pipeline PR war
- Pipeline capacity crunch looms, analyst says
- Europe proposes including oil sands in green fuel law
- Ottawa fights EU's dirty fuel label on oil sands
In the markets The euro crisis accord put a bounce into global stock markets this week, though many observers are urging caution as investors try to digest what details there are.
The S&P 500 climbed 3.8 per cent, and Toronto's S&P/TSX composite 4.8 per cent.
"As quickly as stocks melted down in August, they have stormed back this month," said Robert Kavcic of BMO Nesbitt Burns.
"The S&P 500 has rallied more than 13 per cent since the end of September, putting it on pace for the best month since October, 1974, while all major U.S. indices broke above their 200-day moving averages after the details of the European summit were announced. Sentiment had become so depressed since the spring that the prevailing mood was about as bad as it was in early 2009, at the tail end of the worst recession of the post-war era."
As for third-quarter earnings, Mr. Kavcic added, results pouring in "continue to point to modest growth ahead." So far, 75 per cent of S&P 500 companies that have reported have topped expectations.
Required reading this week The "Occupy Wall Street" movement is succeeding at marketing itself around the world, despite a deep distrust of marketers. Even weirder? It may actually show the way to the future of marketing, Simon Houpt reports.
His dividend-spewing days are over and Yellow Media's Marc Tellier is up against a hostile horde of creditors, analysts and investors, Susan Krashinsky writes.
As sales slow to a crawl and developers deeply discount properties they want to unload, many wonder whether a correction is upon the Chinese market. Carolynne Wheeler reports from Beijing.
Real estate information that was once almost impossible to get without the help of an agent is now available online, in yet another sign that the business of selling homes is rapidly changing, Steve Ladurantaye writes.
By dismantling the wheat board while defending supply management, Ottawa's incoherent and intellectually dishonest farm policy is on full display, columnist Barrie McKenna writes.
What to watch for next week The Federal Reserve meets next week amid an uncertain global backdrop and a jobs crisis, but a better performance by the U.S. economy in the third quarter. "After announcing unconventional easing moves at the last two meetings (low-for-longer pledge and Operation Twist), the Fed could take a breather, comforted by firmer economic data," said Sal Guatieri of BMO Nesbitt Burns. "Still, given our view that more stimulus will eventually be required to reduce the unemployment rate, and given recent comments from key officials ... that suggest a bias to do more, we can't rule out another move next week."
The European Central Bank also meets next week, on Thursday, and it's notable for two reasons. First, Mario Draghi makes his debut as the ECB chief after the retirement of Jean-Claude Trichet, and, second, the central bank has been under fire for raising interest rates in the midst of the euro crisis and flagging growth. It's not expected to change its benchmark rate from its current 1.5 per cent, but some feel Mr. Draghi could. "The feeling that he may wish to make a statement in support of growth pressures facing Europe is reflected in a minority of calls for a cut of 25 to 50 basis points," said Karen Cordes Woods and Derek Holt of Scotia Capital.
Statistics Canada releases its key October jobs report Friday, and this one's expected to be modest compared to September, when back-to-school employment pumped up the numbers. Economists believe between about 10,000 and 20,000 jobs were created last month, with the jobless rate still holding above 7 per cent. Peter Buchanan of CIBC World Markets: "Buoyant as September's count looked, the number was biased by a one-off lift from nearly 40,000 new educational hires, reflecting seasonal-adjustment problems. That won't be repeated this time around. After rising earlier in the recovery, the public sector headcount has stagnated in the last year. October should see more of the same as Ottawa proceeds with plans to cut staffing levels in a number of key departments."
There also earnings reports from several major companies next week.
Somethiing completely different 1. Italy's defence ministry is under fire from opposition politicians for buying 19 armoured sports cars. Here's how Defence Minister Ignazio La Russa dismissed the "witch hunt," according to The Telegraph: The money for the Maseratis came from the 2008-09 budget. Purchases like these may explain why there's trouble with the current budget.
2. Botox sales aren't suffering in Europe's new age of austerity, The Financial Times reports. The chief executive officer of Allergan, which manufactures it, told the newspaper he has been surprised by that. The entire euro zone needs a facelift, so why not?
3. Best line of the week, from @izakaminska: Is anyone working on a Merkozy outfit for Halloween?
4. H&M said it's bringing the look of Stieg Larsson's heroine Lisbeth Salander to its stores. Trish Summerville, the woman behind the costumes for the Hollywood version of The Girl With The Dragon Tatoo, has designed a 30-piece collection with "the dark urban feel that defines her character, with leather jackets and trousers, torn jeans and slouchy hoodies all in industrial shades of black, grey, worn white or dark red." A smart move by the Swedish retailer in advance of the movie.
5. The Canadian International Trade Tribunal is investigating the complaints of two companies that allege sinks made in China are being dumped in Canada. Did I include this just so I could say that trade relations appear to be going down the drain? Absolutely.