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Trudeau at Calgary Stampede stresses the need to balance economy and environment

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Prime Minister Justin Trudeau attends a pancake breakfast in Calgary on Saturday during the Stampede.

Prime Minister Justin Trudeau has told Liberal supporters their party is best positioned to get major projects like the Trans Mountain pipeline expansion built because it’s able to take “difficult compromise positions” between expanding the economy and protecting the environment.

Mr. Trudeau made the remarks at a donor reception Saturday during his annual Calgary Stampede visit, which included fewer public events than in the past.

“Compromise is actually harder and more courageous than sitting on one end of an issue, crossing your arms and saying ‘I’m standing on my principles and I’m not moving,’ because that doesn’t actually require you to listen to another point of view,” he said at a cafe on the 21st floor of a downtown office tower.

A small group of yellow-vest-clad demonstrators held anti-Trudeau signs with crude slogans on the plaza below.

“I can guarantee you all the signs people are waving downstairs on the sidewalk, none of them say ‘Make a smart compromise. Be reasonable,’” Mr. Trudeau said.

Anger has been simmering in Alberta over the government’s handling of the pipeline file and carbon tax, as well as recently passed legislation overhauling environmental reviews and banning oil tankers from B.C.’s north coast.

The expansion to the federally owned Trans Mountain pipeline would enable more Alberta crude to flow to the B.C. Lower Mainland, and on to export markets across the Pacific. The federal cabinet approved the project for a second time last month and said it would invest proceeds in green initiatives.

Trans Mountain got its initial green light in 2016, but the Federal Court of Appeal said more work needed to be done on Indigenous consultation and wildlife impact studies.

Ottawa bought the existing pipeline last year after its previous owner, Kinder Morgan, said it would walk away if political roadblocks in British Columbia weren’t cleared. Mr. Trudeau said in Edmonton on Friday that shovels would be in the ground “later this construction season.”

“The people who are angry about the carbon price do not spend any time saying, ‘Thank you for the TMX, by the way.’ And the people who are angry about TMX don’t spend any time saying, ‘Well, thank you for putting a price on pollution and protecting our oceans,’” he said.

“But those are the voices on the fringes … Canadians know that the way we succeed is by pulling together and being thoughtful about the path forward.”

Prime Minister Justin Trudeau says the only way to get projects like the Trans Mountain pipeline expansion built is by finding compromise between growing the economy and protecting the environment. The Canadian Press

At an earlier community Stampede breakfast, Isabelle Reynolds angrily confronted Mr. Trudeau over the arrest of Mi’kmaq grandmothers protesting the Alton Gas project north of Halifax this spring. The company’s plans to store gas in caverns have stoked environmental concerns.

“The federal government, the provincial government continue to ignore the treaty on that land,” said Ms. Reynolds, who goes to university in Nova Scotia.

Mr. Trudeau told Ms. Reynolds he’d been listening to concerns over Alton Gas. Ms. Reynolds said she didn’t believe him.

Ms. Reynolds said she didn’t know the Prime Minister would be at the breakfast.

“I had an opportunity to approach him and I decided to,” she said. “It’s funny – last year he was here and I was excited. This year, not so much.”

Mr. Trudeau spent this year’s Stampede visit in the Calgary Centre riding, the only seat in the city held by a Liberal. On Friday he mingled at a downtown diner over the lunch hour with MP Kent Hehr before heading into private meetings.

Past years’ visits have included multiple breakfasts combined with stops at the Stampede midway and rodeo.

Mr. Trudeau shrugged off suggestions the Liberals are in trouble in Alberta ahead of October’s federal election.

“We are going to not just bring back our MPs, but bring back more MPs to Ottawa,” Mr. Trudeau said.

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Economy

Poland sees bigger state role in economy

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By Alan Charlish and Alicja Ptak

WARSAW (Reuters) – Poland’s prime minister set out plans on Tuesday to strengthen the state’s role in the economy and deepen an overhaul of the justice system that has put Warsaw on a collision course with its European Union partners.

Mateusz Morawiecki said the ruling Law and Justice (PiS) party would continue increasing welfare spending and the share of Polish capital in domestic companies, underlining its break with the free-market reforms of liberal governments before it.

“Neoliberals have fueled a sense of confusion in our value system. Many people were led to believe that the state is a ball and chain,” he said in a policy speech to parliament after an Oct. 13 election that gave PiS four more years in power. “Extremes are not good. We are building a normal state.”

Morawiecki spoke repeatedly of a return to “normality”, referring both to PiS’s economic policies and its conservative vision of the traditional family which has won over voters but has been criticized by opponents for encouraging homophobia.

He promised new welfare programs to help families with at least three children and the elderly.

In separate comments, PiS leader Jaroslaw Kaczynski said: “Our society… must be based on the Polish family, the family in its traditional sense. A family which takes the form of a relationship between a man and a woman.”

Opposition lawmakers criticized PiS’s vision of normality.

“The desire for normality means the rule of law and economic prudence, and you break those principles day after day,” said Grzegorz Schetyna, leader of the largest opposition party, Civic Platform.

Morawiecki’s government won a vote of confidence in a late-evening session on Tuesday, with 237 deputies out of 454 lending him their support.

CONCERNS OVER RULE OF LAW

Since returning to power in 2015, PiS has introduced changes to how courts are run and altered some of the rules governing the Constitutional Tribunal and the Supreme Court.

The European Commission, the EU executive, responded by launching legal action over reforms which it says threaten the rule of law and the independence of the judiciary.

The European Court of Justice ruled on Tuesday that it was up to Poland’s Supreme Court to decide on the independence of the Disciplinary Chamber and the National Judiciary Council, offering some criteria on adherence to EU law.

Morawiecki gave no details of the next steps PiS plans to take in its reforms of the judiciary. The party says further reforms are intended to make the court system more efficient but opponents say the reforms made so far have politicized it.

PiS has said it will keep a balanced budget in 2020, benefiting from one-off revenues and fast economic growth, although some economists say such plans are too ambitious at a time when the European economy is slowing down.

(Reporting by Agnieszka Barteczko, Alan Charlish, Joanna Plucinska, Anna Koper, Pawel Florkiewicz and Alicja Ptak; Editing by Timothy Heritage)

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Economy

Cyclical Stocks That Will Lead as Economy Rebounds

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Cyclical stocks are beating the market, and should continue to outperform in 2020 as the U.S. economy rebounds, Goldman Sachs forecasts. Since late August, the S&P 500 is up by 9%, cyclical stocks have advanced by 12%, but defensive stocks have lagged with an 8% gain, per Goldman’s current US Weekly Kickstart report.

“The relative performance of Cyclicals vs. Defensives suggests the equity market is anticipating an acceleration in US economic growth during the coming months,” Goldman says. “Investors who want to capture further cyclical upside can improve risk-reward by narrowing their focus to select cyclical stocks,” they add.

Among the 24 stocks that passed Goldman’s Cyclically-Attractive Risk-Reward screen are these 10, which are expected to post a sharp acceleration in their EPS growth in 2020 compared to the previous year. Goldman for example, forecasts that CommScope Holdings Co. Inc. (COMM) will post 2020 earnings growth that’s 17 percentage points (pp) higher than this year. Other companies include Lincoln National Corp. (LNC), 79 pp higher, Harley-Davidson Inc. (HOG), 38 pp, Urban Outfitters Inc. (URBN), 30 pp, Kohl’s Corp. (KSS), 11 pp, 3M Co. (MMM), 17 pp, MetLife Inc. (MET), 12 pp, Lear Corp. (LEA), 42 pp, Prosperity Bancshares Inc. (PB), 35 pp, and Evercore Inc. (EVR), 18 pp.

Key Takeaways

  • Goldman Sachs forecasts accelerating U.S. GDP growth in 2020.
  • They identified cheap cyclical stocks with significant upside potential.
  • These stocks are highly sensitive to economic data surprises.

Significance For Investors

Goldman screened the Russell 1000 Index for stocks with high historical share price sensitivity to economic data surprises, but whose current valuations, as measured by forward P/E ratios, are significantly below both their own 5-year averages and the average for the index. Goldman excluded energy stocks, based on their forecast of flat oil prices, and semiconductor stocks, given that shipments have recovered to trend. Among the stocks listed above, Urban Outfitters and Prosperity Bancshares are the most economically-sensitive.

The median stock in the basket has a forward P/E of 11 times projected earnings over the next 12 months, versus a 5-year average of 14 times, and a current figure of 19 times for the median Russell 1000 stock. While the median stock in the basket has a projected EPS growth rate in 2020 of 7%, versus 8% for the median Russell 1000 stock, its growth rate is forecast to improve by 9 percentage points from 2019 to 2020, versus an improvement of only 3 percentage points for the median stock in the index.

Goldman sees signs that the U.S. economy is rebounding, which should give cyclical stocks additional upside. They cite recent positives in non-farm payroll growth, home sales, retail sales, the ISM Manufacturing Index, and the ISM Non-Manufacturing Index. They forecast U.S real GDP to grow by 2.1% in 2020, versus the consensus projection of 1.8%.

Motorcycle manufacturer Harley-Davidson appears to have huge upside, according to Goldman’s analysis. It has a forward P/E of 11 times, slightly below its 5-year average of 12 times. The consensus calls for 21% EPS growth in 2020, up 38 percentage points from 2019. While Q3 2019 revenue was down by 5% year-over-year (YOY) and shipments dropped by 6%, Harley beat estimates and the stock surged, Barron’s reported. About 40% of total bikes sold were overseas, with sales in Asia up by nearly 9%.

Insurance company MetLife has a forward P/E of 8 times, slightly below its 5-year average. The consensus calls for 9% EPS growth in 2020, up 12 percentage points from 2019. Revenue and EPS in Q3 2019 were up 15% and 161%, respectively. Revenues from premiums rose by 5.3%, and total revenues beat the consensus estimate by 14%, per The Wall Street Journal. However, more than half the beat was due to a gain on derivatives contracts used to hedge against lower interest rates.

Looking Ahead

To be sure, many of these companies have posted poor results in the past few years. And Goldman’s bullish view depends on an imminent economic rebound seen by few other strategists on Wall Street. If Goldman is wrong and the economy stalls or goes south, these stocks will follow close behind.

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Economy

Lebanon economy skids, jobs in firing line

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By Ellen Francis

BEIRUT (Reuters) – Karim Daya was one of the last of his friends and family still in Lebanon. Now that his job is gone, he’s packing his bags.

“That’s it. It’s just getting worse and worse, and where are we headed? Nobody knows,” said Daya, 27, a graphic design graduate. “I’ll be very sad. But there’s no future for me here.”

His feelings reflect the frustration of many young Lebanese caught in the worst economic crisis since the 1975-90 civil war.

The coffee shop chain Daya worked at had struggled even before huge protests, driven by anger at corruption and cronyism, toppled the government last month. The latest turmoil dealt the fatal blow.

He plans to go to Bulgaria, where his sisters live, to look for work – a decision he had tried to put off. But with 37% of Lebanon’s youth already unemployed, the prospects are bleak.

Across Lebanon, banks are closed and business is grinding to a halt.

Beirut’s streets are lined with empty restaurants and shuttered shops. More and more companies have either gone bust or suspended work, firing workers en masse to try to survive.

Employees at 15 companies told Reuters they had been laid off or taken a pay cut in the past month, along with dozens of colleagues.

“NO CASH”

“This economic choking reached a point where it erupted,” said Pierre Boutros, an engineer who runs a contracting company and a furniture factory. “It’s a miracle that we’ve made it this far.”

He had to cut salaries and lay off dozens of workers in recent weeks. He will likely let more people go. The firm is down to 70 staff, from a peak of 425 people before 2016.

“Credit facilities stopped, there’s no cash…Traders who used to give you time now only deliver if you pay upfront. People don’t have the money to buy. At the end of the day, money is not coming in. We shrank.”

If the crisis drags on, Boutros may freeze work “for a month or two or three until it is solved,” he said. “Then dust ourselves off and get to work again.”

The losses for companies come after years of low growth, government paralysis, regional conflict, and capital inflows from abroad drying up.

Banks, which closed for half of October, have blocked most dollar withdrawals and transfers abroad to avoid capital flight. They shut again this week after a staff strike over safety fears as people demand access to their money.

The hard currency squeeze in turn has stymied trade, pushed people to stash cash at home, and pressured the Lebanese pound’s 22-year-old peg to the dollar.

Business owners say they must make most transactions in cash on the black market, where the pound has weakened to about 20% below the pegged rate. Suppliers now demand payments in dollars or in local currency based on an unofficial rate that changes by the trader and the day.

“STUCK HERE”

“We can’t take it anymore. I can’t spend on my children,” said Ali, a sales worker and father of two whose salary was cut in half. “There will be much more chaos if things keep going this way.”

Some families have stocked up on supplies like canned food, rice, and flour. Several people said their bank told them they must repay loans in U.S. dollars.

With a tiny industrial sector and few natural resources, the economy relies on imports and cash injections from Lebanese abroad, which have fallen in recent years, pressuring central bank foreign currency reserves.

Lebanon creates six times fewer jobs than its labor market needs and exports more graduates than any country in the Arab world, a 2019 government study said.

Amale’s three children all work abroad. A 60-year-old nurse, she lost her job at a hospital that laid off 40 people. “They might close down entire floors,” she said. “I cried a bit.”

Majd Chidiac, 23, a copywriter, was also laid off. “The people who haven’t left yet will leave. And those who can’t afford to leave, they’ll get stuck here and get poorer. It’s the sad reality.”

(Additional reporting by Alaa Kanaan and Dala Osseiran; Writing by Ellen Francis,; Editing by William Maclean, Tom Perry, Philippa Fletcher, canadanewsmedia staff)

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