Winnipeg Free Press

Winnipeg Free Press (Newspaper) - July 31, 2013, Winnipeg, Manitoba C M Y K PAGE B6 BUSINESS EDITOR: SHANE MINKIN 204- 697- 7308 business@ freepress. mb. ca I MARKET DETAILS B7 I winnipegfreepress. com WEDNESDAY, JULY 31, 2013 B 6 O TTAWA - Once a growth leader among big industrialized nations, Canada's reign at or near the top may be coming to an end, says a new forecast from Capital Economics. The projection, issued Tuesday, calls for the economy to advance by 1.5 per cent, followed by an even softer 1.0 per cent in 2014, as the country's over- built housing market moves from soft to crash landing. That would likely put Canada behind the U. S., Japan and possibly Germany among the G7 countries in terms of growth in at least one of the years. Capital Economics analyst David Madani, who wrote the report, says given the underperformance, he expects the Bank of Canada will keep interest rates at current super- low levels until late 2015. The new outlook runs directly contrary to how the Bank of Canada - and many private sector bank economists - view the economy and housing unfolding. While the central bank sees growth accelerating in the July- September period this year and continuing into the next two years, Capital Economics predicts the opposite scenario, with the second half of this year squeezing out a mere one per cent growth rate. The slow pace extends through to 2014, then picks up to two per cent in 2015. Madani, who is the global forecasting firm's chief economist in Canada, says the main reason is the country's housing market is poised for a correction. Most forecasters have pencilled in a soft landing, although the Bank of Canada lists the possibility of a sharp housing fall as the No. 1 domestic risk to the economy. " I think people are really underestimating the risks to the housing market," said Madani. " Is no one worried about this?" Not only would a real estate correction - of up to 25 per cent in prices - weigh on residential construction and jobs, but it would also sap confidence and dampen consumer spending, he said. Other economic engines are not faring much better, Madani adds. While Capital Economics believes a stronger U. S. will boost Canada's export sector, almost every other sector will either detract from growth or offer at best tepid support. " We've got a housing sector that's overextended, the government sector is cutting back, you've got businesses not feeling confident right now, so where is this growth going to come from?" he asks. As such, Madani anticipates the unemployment rate to rise from an average 7.3 per cent this year to 8.0 per cent in 2014. The jobless rate will stabilize somewhat at 7.8 per cent in 2015. Bank of Montreal chief economist Doug Porter, whose own forecasts are darker than the central bank's but rosier than Madani, finds nothing unreasonable about the Capital Economics analysis. He does not share in the pessimism over housing and believes the U. S. recovery will help rescue Canada's economy from sinking as low. During a recent news conference, Bank of Canada governor Stephen Poloz also pointed to improving conditions south of the border for his relatively optimistic growth- path scenario. In particular, Poloz said, private sector demand in the U. S. had turned bullish, which should boost demand for Canadian exports of lumber, and machinery and equipment. The new forecast comes a day before Statistics Canada reports on the country's gross domestic product performance for May, which the consensus view predicts will show a relatively strong 0.3 per cent pick- up. That will have little bearing on the longer- term trend, however. The Bank of Canada, for instance, has signalled a one per cent second quarter overall, which includes May, due to the temporary shocks of the Quebec construction strike and the Alberta floods in the last month of the period. An expected drop in demand and prices for Canadian potash as a result of an predicted supply glut could further detract 0.1 percentage points from third quarter GDP, CIBC said Tuesday. Hiccups aside, Madani says what is ailing Canada is more fundamental. A large reason Canada outperformed the G7 in the years following the 2008- 09 recession is its housing market expanded, while in the U. S. and many other advanced nations, real estate values slid, and in some places, collapsed. But what housing gave the economy, it is now poised to take away. " We may disagree on how it will end up, but we can all agree the housing market is now over- extended," he said. " There's not much upside there." - The Canadian Press By Julian Beltrame Analyst predicts economic slowdown TORONTO - TD Bank Group says recent severe flooding in Alberta and the Toronto area will likely result in a loss for its insurance business, which would have been profitable without the weather- related expenses. TD Insurance faces an after- tax net loss of between $ 240 million to $ 290 million for the period, which includes the months of June and July, the bank announced Tuesday. TD joins other major Canadian insurers in disclosing some of the costs associated with widespread severe flooding in southern Alberta in late June and a flash flood that inundated parts of the Toronto area in early July. Excluding the weather- related and general insurance claims, TD Insurance would have had between $ 130 million and $ 180 million in net earnings during the quarter ending July 31. TD Insurance is a small part of the banking group's overall business, which includes TD Canada Trust and a major banking arm in the United States. On Tuesday, chief executive Ed Clark came to the defence of the bank's decision to remain in the auto insurance business. " There's a lot of things that are not absolutely essential, but are we a better bank because we have this? Yes. And do we believe that the business can be run profitably? It can," he said on a conference call with analysts. " We have to work our way through these things. But I think we're not going to exit this business. I think we're going to invest in this business, re- tune this business, tweak this business." TD's auto insurance business has proven to be " challenged," Clark said, particularly in Ontario where the provincial government wants to reduce auto insurance by 15 per cent, on average. " We'd like to see insurance premiums go down, too, but you have to then change the underlying cost structure," he said added. In a note to clients, CIBC analyst Rob Sedran said while most of TD's announcement was expected, the nonweather component was a " modest negative" for its shares. " Management has flagged a structural challenge to profitability and growth in a segment that is almost 10 per cent of the bank," he wrote. " While we expect all of the banks to report some impact from this summer's severe weather, TD has the largest exposure to the auto insurance market and so we see more limited impact, if any, to the rest of the group." Shares of TD Bank slid $ 1.64 or 1.86 per cent to $ 87.25 on the Toronto Stock Exchange. Last week, Co- operators General Insurance Company dropped to a secondquarter loss of $ 5.9 million, mostly on costs from the floods in Alberta. The company said it lost around $ 77 million before taxes as a result of the Alberta floods, even after collecting reinsurance. - The Canadian Press By David Friend TD Bank Group says flooding likely to create loss BACK in 1996, a Winnipeg computer company touted it had the world's best security system for the Internet and offered a $ 50,000 prize for anyone who could break into it. Oliver Friedrichs, a 21- year- old undergraduate student at the U of M, saw a little item in the Free Press about the challenge and it turned out to be a piece of cake. He cracked the code in less than a day. But the company - a long since defunct entity called World Star Holdings Ltd, - balked at paying out the prize. Friedrichs did it again the next day but the company had enough excuses to thwart the young whiz kid's efforts to claim the prize. No worries. Friedrich went on over the next 17 years to use his expertise and enjoyment at creating cybersecurity scenarios and fixes to start and sell three cybersecurity companies for a total of more than $ 120 million. He's now one of the leading experts in the field and a senior vice- president at another company that just sold for $ 2.7 billion. In 2011, the ex- Winnipegger was named one of the top 40 under 40 rising stars in the Silicon Valley - the place that probably has more smart people per capita than anywhere else in the world - by the San Jose Business Journal . Friedrichs has become one of the leading developers of cybersecurity solutions, a field that has grown over the years alongside the growth in Internet use and the global reliance on digital communication. And Friedrichs was hacking his way onto the Internet at the very beginning, almost from the first days of the digital highway's arrival in Manitoba. " Back in the early ' 90s the only Internet connectivity that was available in Manitoba was through the University of Manitoba and typically you had to be student to get on," said Friedrichs from his Silicon Valley office at Sourcefire Inc., which was acquired by Cisco for $ 2.7 billion in a deal announced last week. " But if you knew what you were doing you could get on, even if you weren't a student," he said. His efforts back then, before he was a student, set off some alarm bells resulting in what he recalls as a " very positive" meeting with the RCMP. " They wanted to know who I was and what I was doing... it was all very innocent and ultimately it led to a job offer," he said. The job was with the U of M and the local Internet extension called MB Net to help administer the servers and help protect the system from a security standpoint. Michael Gillespie, a computer techie in the early days and one of the organizers of a free Internet movement in Manitoba in the early ' 90s, worked with Friedrichs and remained friends with him over the years. " He was the brightest and hardest- working guy among the 100 or so people who were part of the Freenet," Gillespie said. Before he was able to graduate from the U of M, another techie from Calgary convinced him to quit school and move to Calgary to start a company called Secure Networks. That was sold to McAfee, the anti- virus company for $ 25 million in 1998. Both his parents have passed away and while the only child no longer has family in Winnipeg, he still has friends here. " I'm in Calgary a few times a year because Sourcefire has a development office there but I'm long overdue for a visit back to Winnipeg," he said. According to published reports, his companies have been responsible for some of the first early warning systems, the first tool to identify network security vulnerabilities and a number of patents. His products were some of the first to detect some of the nastier worms in the last decade that affected millions of computer networks around the world. Products he's developed are used by governments and militaries around the world. " It's an honour to do what we do - protecting important assets and critical infrastructure by building the products we build," he said. Luckily, guys like Friedrichs are up for the challenge because by the sounds of it, the need for protection from malicious software or malware is not going to end any time soon. " The malware problem was growing out of control," he said in reference to the development his last company undertook to launch defences from the cloud. " We were seeing 100,000- plus new variants of malware threats every day." And it's not like they're going to stop any time soon. Friedrich said for every barrier and solution that's built, the perpetrators keep coming up with their own innovations. Despite the constant barrage of attempted disruptions, Friedrich said the diversity of operating systems now in use by desktops, laptops and mobile devices means it's increasingly unlikely the Internet will be broken. " The topic comes up regularly as to whether the entire Internet can be taken down," he said. " The Internet is very resilient. You could attack certain services that would make the Internet very difficult to use. But for the entire Internet to go down, it's very difficult today." Phew. martin. cash@ freepress. mb. ca Ex- Winnipeg man gets rich saving Net By Martin Cash MONTREAL - Younger Canadians spend more on luxury travel and fashion than any other demographic, but selectively choose what they splurge on, says American Express Canada. Generation Y - which include those born after 1983 - had an 89 per cent increase in luxury travel spending and a 13 per cent increase in luxury fashion spending in 2012 compared with 2011, say data from the credit card company. They could be spending more money because they are just starting their careers, but they target their luxury spending, said Jennifer Hawkins, vice- president and general manger for merchant services with the company. " For example, they may choose to fly economy, but when they arrive at a holiday destination they really put money aside for things such as fine dining or a fantastic hotel experience," she said. The credit card company looked at members' spending on luxury fashion, travel and lodging, ranging from purchases of designer clothing to vehicles. According to the data, seniors - those over 60 - increased their spending on luxury travel by 52 per cent in 2012. While luxury travel is growing faster than luxury fashion and lodging, Hawkins said all age groups were selectively spending on luxury purchases that are " meaningful" to them. American Express Canada said luxury spending is expected to continue to grow in Canada, helped by the arrival of luxury U. S. retailers such as Saks. It expects online spending in general to double by 2015 to $ 12.5 billion. A recent online poll by the Bank of Montreal found Canadians were planning to save almost $ 10,000 this year, but 66 per cent said they were tucking the money away for vacations, luxury items and entertainment. - The Canadian Press By LuAnn LaSalle Young Canadians selective when they splurge, study finds JONATHAN HAYWARD / THE CANADIAN PRESS ARCHIVES Flooding in Calgary is cited as one of the reasons TD Bank Group is expecting to experience losses in its insurance business. Oliver Friedrichs RICHARD DREW / THE CANADIAN PRESS RICHARD DREW A survey by American Express found younger Canadians spend more on luxury travel and fashion. B_ 06_ Jul- 31- 13_ FP_ 01. indd B6 7/ 30/ 13 9: 45: 41 PM ;