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George Soros fears Europe unrest, nationalism and xenophobia

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German cutbacks threaten euro, Soros warns Germany's cutbacks are threatening Europe's currency union, George Soros says, and he does not rule out a "collapse of the euro." The legendary investor told Germany's Die Zeit that if Angela Merkel's government does not change its policy, quitting the currency union could help the rest of the continent. Ms. Merkel plans to slash €80-billion from spending over four years, a move that, along with austerity measures unveiled by other European governments, promises to be an issue at the G20 summit in Toronto this year. The United States is urging world leaders to be extremely cautious in their cutbacks, fearing they could stall global growth, at the same time as sovereign debt is becoming such an issue for the markets.

"Right now the Germans are dragging their neighbours into deflation, which threatens a long phase of stagnation. And that leads to nationalism, social unrest and xenophobia," Mr. Soros said. "Democracy itself could be at risk."

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Later, in a speech in Berlin, Mr. Soros said that Germany determines the financial and macroeconomic policies of the euro zone in general because it is the strongest and most creditworthy country, and "when all the member countries try to be like Germany they are bound to send the euro zone into a deflationary spiral." Read the story

Related: Greek anti-austerity strikes hit tourists

Why Canada is deemed a 'bastion' Economist David Rosenberg describes Canada as the True North strong and "free of the dramatic fiscal retrenchment and tax rate increases that are going to be plaguing much of the rest of the industrial world." In a report today, the chief economist of Gluskin Sheff + Associates cites seven reasons behind the fact that Canada "has basically been re-rated coming out of the credit crisis as a bastion of stability in an increasingly unstable world."

  • The federal government "actually deserves" its Triple-A credit rating.
  • No Canadian bank failed.
  • Canadian banks did not cut dividends, and as a group have a dividend yield just shy of 4 per cent, compared to less than 1 per cent in the U.S.
  • The Bank of Canada is raising interest rates given the stronger economy, while its U.S. counterpart is on hold, meaning a yield premium over U.S. alternatives for investors wanting to park funds in liquid short-term securities.
  • Top marginal tax rates are already higher in New York City than in Toronto.
  • Real estate in Toronto, Montreal and Vancouver is cheap on a global comparison.
  • It's not just about oil anymore, but also natural gas, where prices have hit bottom, and precious metals that account for 13 per cent of the TSX market capitalization.

"It was fascinating to see the Canadian dollar only correct down to 92 cents during this most recent round of global financial turbulence and flight-to-safety," Mr. Rosenberg said. "That is a far cry from the correction down to 78 cents following the Lehman aftershock."

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Fed strikes cautious tone The U.S. Federal Reserve held its benchmark Federal funds rate steady, as expected, today, and sounded a cautious note on Europe's debt crisis, though it believes the economic recovery will remain on track. The central bank did not name Europe but noted troubled financial conditions "largely reflecting developments abroad."

"The statement made clear that the Fed is in no hurry to raise rates," said Toronto-Dominion Bank deputy chief economist Beata Caranci. "... We don't anticipate the Fed will raise rates until the first quarter of 2011 and even when it does finally get the ball rolling, cautiousness and restraint will continue to be exerted with a fed funds rate ending the year at just 1.5 per cent." Read the story

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Shoppers 'down but not out' Retail sales in Canada fell 2 per cent in April from a month earlier, driven down largely by a pullback in car and parts sales and partly on lower pump prices. Excluding that, noted Toronto-Dominion Bank deputy chief economist Derek Burleton, sales fell a "more muted" 1 per cent from a strong showing in March. "April's data suggest that real consumer spending growth tapered is likely to moderate to some extent in [the second quarter]following an oversized gain of 4.4 per cent in [the first quarter]" he said. "Keep in mind that we're still early in the quarter and that retail sales only captures part of the consumer spending envelope (services are a bigger component). What's more, March's blockbuster gain generated a good hand-off for sales in the April-June period. In sum, we're still confident that real consumer spending activity is on track for another strong expansion of about 3.5 to 4 per cent in [the second quarter]as a whole."

BMO Nesbitt Burns deputy chief economist Douglas Porter had a slightly different take: "There have been recent rumblings that Canada's previously impressive domestic spending revival was losing steam, and the sharp drop in April retail sales is the loudest warning shot yet. While the setback appears to be a simple case of a reversal of the weather-related jump in the prior month, the fact is that the days of easy gains are over for spending." Read the story

U.S. new home sales plunge Sales of new homes in the United States fell in May to the lowest on records dating back to 1963, falling by a record 33 per cent to an annual rate of 300,000 and showing the impact of the expiry of a homebuyer tax credit. "It was a generally accepted fact that the housing market would pull back when the homebuyer tax credit reached its end," said BMO Nesbitt Burns senior economist Jennifer Lee. "Unfortunately, the pullback was more significant than many feared ... A housing market with the ability to stand on its own requires the improvement in the job market to continue and for mortgage rates to stay low." Read the story

U.S. plans new drilling moratorium The Obama administration isn't standing pat after a U.S. judge yesterday blocked its six-month moratorium on deepwater drilling. Interior Secretary Ken Salazar said late yesterday he will soon unveil a new ban in the wake of the ruling by U.S. District Judge Martin Feldman in New Orleans, who wrote in a 22-page judgment that the government did not adequately back up its decision.

Several companies that provide services to the offshore rigs in the Gulf of Mexico, site of the massive BP oil spill that sparked the moratorium, took legal action to overturn it. Late yesterday, responding to the ruling, Mr. Salazar, who also is scheduled to testify to a Senate subcommittee today, said he will issue a new order "that eliminates any doubt that a moratorium is needed, appropriate, and within our authorities." The government is also appealing the court decision.

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"We see clear evidence every day, as oil spills from BP's well, of the need for a pause on deepwater drilling," Mr. Salazar said in a statement. "That evidence mounts as BP continues to be unable to stop its blowout, notwithstanding the huge efforts and help from the federal scientific team and most major oil companies operating in the Gulf of Mexico. The evidence also continues to mount that industry needs to raise the bar on blowout prevention, containment, and response planning before deepwater drilling should continue."

The disaster worsened today as an underwater robot bumped part of a venting system, leading to BP removing the cap that had contained some of the oil.

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San Francisco passes cell phone law San Francisco, well known in the United States for leading initiatives, has passed new rules that would force retailers to disclose the measure of radiation from cell phones. Providing Mayor Gavin Newsom signs the rule adopted late yesterday by the city's Board of Supervisors, which he is expected to do, San Francisco will become the first city in the United States with such a law. Under the rule, retailers would disclose the specific absorption rate, which is known as SAR and calculates maximum radiation absorbed by a cell phone user. The Federal Communications Commission, according to The Associated Press, limits the measure to an average 1.6 watts per kilogram of body tissue. While a spokesman for an industry group told the news agency that the city is responding to "unfounded concern" over cell phones and health problems, a spokesman for the mayor said it was a modest move to inform consumers and "we're playing a role that we've often played, which is to be at the forefront of a debate."

No link between cell phones and brain tumours has been found. Read the story

RIM stock volatile Shares of Research In Motion Ltd. have been registering double the volatility of their competitors' stocks, Bloomberg News notes today, one day before the BlackBerry manufacturer reports first-quarter results. Bloomberg research shows that over the past eight quarters, RIM shares rose or fell on average by 14 per cent the day after its earnings reports. That, the news agency noted, is more than three times the average of 4.2 per cent from Apple Inc. and well above the 8.9 per cent for Motorola Inc. "There's no doubt it's highly volatile, there is a lot of hot money in RIM," BMO Harris Private Banking chief investment officer Paul Taylor told Bloomberg.

The pressure on RIM is always intense, and market expectations high, particularly given the popularity of Apple's iPhone and the growing buzz around the Android software from Google Inc. that runs on Motorola models. RIM is expected to report strong results tomorrow, but, analysts say, investors are primarily interested in RIM's promised BlackBerry 9800, which is said to take the wireless device to an entirely new level.

Related: RIM's new BlackBerry may overshadow quarterly results

Goldhar wins Henderson jersey Canadian shopping mall king Mitchell Goldhar has won what turned out to be some serious bidding for the hockey jersey Paul Henderson wore during the legendary 1972 Canada-USSR Summit Series. Mr. Goldhar, who owns real estate developer SmartCentres, said Mr. Goldhar is paying almost $1.3-million, including fees, for the jersey the hockey star sported when he scored the famous winning goal. Mr. Goldhar topped lesser bids from Canadian Tire Ltd., Jim Pattison and others. Read the story

From today's Report on Business C-Suite survey: Canadian business opens eyes to global markets

Bank tax push gains momentum

There is no 'peak oil.' But there is supply and demand

And, read Kevin Carmichael's G8/G20 Global View summit blog

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About the Author
Report on Business News Editor

Michael Babad is a Report on Business editor and co-author of three business books. He has been with Report on Business for several years, and has also been a reporter and editor at The Toronto Star, The Financial Post and United Press International. His articles have appeared in major newspapers around the world. More

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