Continuing UK recession, Does Nexen open the door wide?

This is not good, but frankly, I think should not have been unexpected by anyone. Moreover, consider the attribution to holidays is even mentioned as a reason for the decline. There arguably is ‘something bordering on desperation’ in that. Q3 might be a different story, as the London Olympic Games then are likely to play a role in the possibility of better growth numbers. However, even if that proves to be the case, watch for poor UK Q4 numbers as all construction related to the Olympics will have largely ‘run its course’ by then. The continued UK economic contraction in Q2 has been described by one economist as ‘a disappointing outcome’, and by another as ‘a nasty surprise’. In turn, I find this surprising. Based on my reading and thinking, I would have been surprised if the UK economy had shown growth in Q2.

Context #1: The UK is an important world economy. Positive economic growth is fundamental to a country’s economic well-being. What goes on economically in the UK has an indirect effect on what goes on economically elsewhere. Context #2: When reading what ‘experts’ have to say – be they economists or ‘experts’ in other disciplines – consider that what they say should never be accepted simply because they are seen as, or hold themselves out to be, ‘experts’. Topical Reference: UK economy shrinks 0.7pc: economist reaction, from The Telegraph, July 25, 2012 – reading time 2 minutes, viewing time for accompanying video 2 minutes plus. North America >> Canada: Does Nexen open the door wide? Why read: Because Canada’s energy resources are a very important part of Canada’s landscape and its future. The question addressed is a crucial one. Commentary: An important question raised by the just announced Nexen deal is: if approved by the Canadian Federal Government will the Nexen deal lead to other transactions in the energy sector (and in other sectors) that will see Canadian ownership and control of other important companies end up in non-Canadian hands? Any discussion of this topic as it pertains to the Canadian energy sector really needs to center on Canada’s oil sands, given the probable long-term world importance of that resource. That said, the answer to that question has to be “that it might well open the foreign ownership door wider than it previously has been opened”. The follow-up question is then: is that a neutral, good or bad thing? The answer to that has to be another question: as seen from whose eyes? My initial observations are that seen:

• through Canadian eyes foreign ownership of Canadian located energy assets ought to be seen as somewhat negative, if for no reason other than that change brings uncertainty. At an extreme, Canada would become a country with less control over its own destiny – much like a current developing country looking to attract investment into its resources sector – and would have to rely on influencing its resident energy resources through such things as taxation and ‘ownership percentage’ legislation;
• through American eyes foreign ownership of Canadian located energy assets by ‘other than Americans’ ought to be seen as very negative, given:
• Canada’s geographic proximity;
• the potential future importance of the oil sands in particular; and,
• the important trade and societal relationships between Canada and the U.S.

A lot of the answer to this from America’s perspective presumably has to do with how confident America is that it can become energy self-sufficient going forward, and hence long-term will not be reliant on Canadian and other foreign energy sources;

• through other country eyes foreign ownership of Canadian located energy assets has to be simply a question of: which Canadian energy assets are strategic to us, can we buy them, and can we buy them now at what in the future likely will prove to be cheap prices?, where:
• Canadian assets are geographically located in a developed country;
• Canada has a stable and reasonably balanced parliamentary political system; and
• Canada has important and positive relationships with the United States – still the world’s most important economy.

On the world stage, Canada has to be ‘right up there’ as a good place to invest if you are a foreign country or company with a strategic interest in Canadian resources. In the end, if the Canadian government approves the Nexen deal that certainly may promote the likelihood of other deals happening sooner than they otherwise might have. Canada, like America, is part of an ever increasingly globalized world. That means:

• more such deals can be expected – whether Canada approves the Nexen deal or not – and very likely are already be on the drawing boards; and,
• current and prospective financial market performance may promote deals going forward, particularly if the financial markets suffer in the next months and years should the world economy deteriorate from here.

What better time to buy if you have a ‘big bank account’ than when prices are low and the target assets are strategic to you? Context: Economic globalization has changed our world in the past twenty years, and continues to change our world at a pace not focused on or thought about by everyone. Everyone needs to think about economic globalization and its ramifications. Topical Reference: Nexen deal could mark open season on Canada’s energy producers, from The Financial Post, Jameson Berkow, July 24, 2012 – reading time 4 minutes, thinking time longer. Snippets From Today’s Commentaries Snippet #1: How other country eyes see foreign ownership of Canadian located energy assets has to be simply a question of: which Canadian energy assets are strategic to us, can we buy them, and can we buy them now at what in the future likely will prove to be cheap prices? Snippet context: Foreign ownership of Canada’s resource assets is strategically important to both Canadians and non-Canadians. Snippet #2: Current and prospective financial market performance may promote deals going forward, particularly if the financial markets suffer in the next months and years should the world economy deteriorate from here. What better time to buy if you have a ‘big bank account’ than when prices are low and the target assets are strategic to you? Snippet context: While said with a Canadian focus on foreign ownership of Canada’s resource assets, this also speaks to possible escalated merger and acquisition activity across all sectors. Snippet #3: When reading what ‘experts’ have to say – be they economists or ‘experts’ in other disciplines – consider that what they say should never be accepted simply because they are seen as, or hold themselves out to be, ‘experts’. Snippet context: The standard against which to measure ‘subjective expertise is best found in observation of how a ‘expert’ opinions subsequently translate into reality, which observations may lead to surprises. Snippet #4: I am not ready to express personal strong concerns about France quite yet – and that may prove to be wrongheaded if contagion events overtake France in the near term – but France certainly is on my radar screen. I suggest it should be on yours. Snippet context: Bad economic news from France likely would have a negative impact on the world economy. Brief Commentaries prompted by world headlines Asia >> China: Foreign agriculture projects A few months ago I learned that Chinese interests had acquired a large dairy operation in New Zealand. Yesterday there was news that Chinese interests are now looking to invest in an approximate 50 square mile farming project in Australia. These are interesting developments – and worth knowing about – as China’s tentacles reach further and further in important strategic areas. Context: World and country specific food supplies will become ever more important given ongoing population growth, climate change, and environmental issues. Topical Reference: China firm eyes controversial 58-sq-mile Australia farm project, from Reuters, Maggie Lu YueYang, July 25, 2012 – reading time 3 minutes. Eurozone >> France: Begin thinking seriously about France If you are not already seriously thinking about France’s economy, you ought to start doing that. France is the 5^th largest economy in the world, and the second largest in both Europe and the Eurozone, with 2011 GDP U.S. of $2.8 trillion, or 4% of 2011 world GDP – source Wikipedia. Read the referenced article. Very early this year I alerted readers to economic concerns with Spain in a stronger way than most of those who write about such things were doing. I am not ready to express personal strong concerns about France quite yet – and that may prove to be wrongheaded if contagion events overtake France in the near term – but France certainly is on my radar screen. I suggest it should be on yours. Context: What goes on economically in France has an indirect effect on what goes on economically elsewhere. It is important to be aware of this, particularly if Eurozone economies decline further and contagion ‘grabs at France’. Topical Reference: France, bleeding to death, from Money Week, Bill Bonner, July 24, 2012 – reading time 3 minutes. Eurozone >> Greece: Why is this a surprise? European Union officials are now reported to have said:

• that it is unlikely Greece will be able to repay its current debts; and,
• further debt restructuring likely will be necessary.

The billion (or is it trillion) dollar questions:

• at what point will Eurozone members, the International Monetary Fund, and other interested parties say ‘enough is enough’;
• what will be the Greek and contagion fallouts be from that; and,
• if this is a surprise to anyone – to whit the financial markets – those who are surprised ought not to be.

Context: Greece is small, the Eurozone is large, but economic problems in Greece could be a pebble in a pond that spreads wide negative economic ripples. Topical Reference: Greece’s finances ‘hugely off track’, from The Financial Post, from Reuters, Luke Baker, July 24, 2012 – reading time 2 minutes. Brief Country Risk Commentaries prompted by world headlines North America >> Canada: From Assembly of First Nations Chief Shawn Atleo, recently elected head of Canada’s Assembly of First Nations, is reported as having said that Canada’s native people need to be included in:

• an important way in natural resource development on their lands; and,
• revenue sharing agreements.

There is nothing particularly new in this. The question has to be: is Mr. Atleo saying “in a greater way than they have been in the recent past?”. I assume so. A second important question for the resource companies and their non-native people’ stakeholders if the answer to the first question is ‘yes’, and that ‘yes’ comes to pass, is what impact going forward will that have on both:

• ‘company risk’; and,
• ‘company financial returns’?

Context: What is described is not suggested to be either good or bad, but simply a ‘country specific risk’ that needs to be considered. Topical Reference: Canada’s national chief says developments need native approval, from Mining Weekly, from Reuters, July 25, 2012 – reading time 2 minutes.