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Forget the gloom of the 1970s—UBS thinks the U.S. economy is headed back to a Clinton-like era of the bustling 1990s

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Economic leaders are looking to the past for some inspiration on how to deal with the present—the only issue is, no one seems to be able to agree which past era they should be studying.

Deutsche Bank believes the U.S. economy closely resembles the turbulent times of the 1970s, an outlook prompted by the war in Israel, oil shocks, and rampant inflation.

Meanwhile economists at the White House say the inflationary period after World War II acts as a better guide because pent-up demand from the pandemic will eventually fade away.

UBS disagrees with both, saying the 1990s more closely resembles the economic climate world leaders are currently attempting to navigate.

A note from the UBS Chief Investment Office, led by Jason Draho, questioned whether the 2020s would act as “another roaring ’20s” seen a century before.

During this period, technological advances led to a rapid increase in productivity, while major industries like automotive, film, and chemicals took off.

The data suggests today’s economy has officially entered a new regime, UBS outlined: “A regime is defined by its growth, inflation, and rate attributes. These are all at their highest levels since prior to the global financial crisis (GFC).”

The note says a roaring ’20s is possible in a bullish scenario, highlighting five factors are necessary to bring this to fruition.

These include inflation being “contained” below 3% (it has already worked its way down from a peak of 9.1% in June 2022 to 3.7% in Sept 2023); widespread investment across the economy; a more dynamic economy after the pandemic; fading policy headwinds; and last but not least, an increase in productivity.

The latter factors are those which UBS believes are the least likely to come to reality, and therefore the Swiss bank points to the 1990s as a better template for how the rest of this decade should be handled.

“The current hiking cycle is reminiscent of 1994,” wrote Draho and his team. “The economy then had a soft landing in 1995, which we expect in 2024.

“The rest of the ‘90s was characterized by faster growth, rising productivity, and disinflation.”

Writing on LinkedIn, Draho added, “Rather than call this scenario roaring ’20s, a better name is ’90s redux because of the parallels to that decade.”

An unusual economy

Despite their proposals, Draho’s team made it clear that the economy is currently in a state of flux that makes forecasting very difficult.

Many on Wall Street were bracing themselves for a hard landing at the start of the year, a downside that never came to fruition.

Instead, UBS points out, the U.S. saw growth in GDP—up 4.9% in Q3 2023—despite aggressive Fed rate hikes that saw the base rate pulled to the highest in 22 years.

Likewise uncertainty in the bond market saw certain Treasury yields at 16-year highs, before legendary investors like Bill Ackman were forced into U-turns amid increasingly uncharted waters.

“These outcomes are opposite of consensus forecasts at the start of the year,” wrote UBS.

“The bottom line: Something is afoot with the U.S. economy,” Draho added.

It all hinges on supply

Many of the thorns in the U.S. economy’s side have been brought about because of supply issues.

Oil is one: The 13 member nations of OPEC, which produce roughly 80% of all crude, are now producing less oil than at any time since August 2021.

Saudi Arabia and Russia also both decided this summer to cut their oil production by 1 million and 300,000 barrels per day, respectively, through the end of the year.

Critical minerals are another—this month China announced that it will require a special export license for battery-grade graphite, effectively restricting sales to international markets.

Critical minerals such as lithium, cobalt, and graphite are essential for the manufacturing of batteries for electric vehicles, and the Chinese government currently controls more than 90% of the world’s supply.

UBS said the supply issues were even wider: “Supply-chain problems plagued the economy during the pandemic. While those have eased, supply issues will keep dominating—from labor and housing shortages, to new investment and technologies being positive supply shocks.”

As well as supply issues, UBS outlined several other factors that could also prevent a “roaring” ’20s: “Several of them, including geopolitical conflicts, political dysfunction, and a debt crisis are essentially policy choices that could be avoidable but are hard to predict.

“Others risk factors are an energy crisis, climate disasters, and AI fizzling.”

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A timeline of events in the bread price-fixing scandal

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Almost seven years since news broke of an alleged conspiracy to fix the price of packaged bread across Canada, the saga isn’t over: the Competition Bureau continues to investigate the companies that may have been involved, and two class-action lawsuits continue to work their way through the courts.

Here’s a timeline of key events in the bread price-fixing case.

Oct. 31, 2017: The Competition Bureau says it’s investigating allegations of bread price-fixing and that it was granted search warrants in the case. Several grocers confirm they are co-operating in the probe.

Dec. 19, 2017: Loblaw and George Weston say they participated in an “industry-wide price-fixing arrangement” to raise the price of packaged bread. The companies say they have been co-operating in the Competition Bureau’s investigation since March 2015, when they self-reported to the bureau upon discovering anti-competitive behaviour, and are receiving immunity from prosecution. They announce they are offering $25 gift cards to customers amid the ongoing investigation into alleged bread price-fixing.

Jan. 31, 2018: In court documents, the Competition Bureau says at least $1.50 was added to the price of a loaf of bread between about 2001 and 2016.

Dec. 20, 2019: A class-action lawsuit in a Quebec court against multiple grocers and food companies is certified against a number of companies allegedly involved in bread price-fixing, including Loblaw, George Weston, Metro, Sobeys, Walmart Canada, Canada Bread and Giant Tiger (which have all denied involvement, except for Loblaw and George Weston, which later settled with the plaintiffs).

Dec. 31, 2021: A class-action lawsuit in an Ontario court covering all Canadian residents except those in Quebec who bought packaged bread from a company named in the suit is certified against roughly the same group of companies.

June 21, 2023: Bakery giant Canada Bread Co. is fined $50 million after pleading guilty to four counts of price-fixing under the Competition Act as part of the Competition Bureau’s ongoing investigation.

Oct. 25 2023: Canada Bread files a statement of defence in the Ontario class action denying participating in the alleged conspiracy and saying any anti-competitive behaviour it participated in was at the direction and to the benefit of its then-majority owner Maple Leaf Foods, which is not a defendant in the case (neither is its current owner Grupo Bimbo). Maple Leaf calls Canada Bread’s accusations “baseless.”

Dec. 20, 2023: Metro files new documents in the Ontario class action accusing Loblaw and its parent company George Weston of conspiring to implicate it in the alleged scheme, denying involvement. Sobeys has made a similar claim. The two companies deny the allegations.

July 25, 2024: Loblaw and George Weston say they agreed to pay a combined $500 million to settle both the Ontario and Quebec class-action lawsuits. Loblaw’s share of the settlement includes a $96-million credit for the gift cards it gave out years earlier.

Sept. 12, 2024: Canada Bread files new documents in Ontario court as part of the class action, claiming Maple Leaf used it as a “shield” to avoid liability in the alleged scheme. Maple Leaf was a majority shareholder of Canada Bread until 2014, and the company claims it’s liable for any price-fixing activity. Maple Leaf refutes the claims.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:L, TSX:MFI, TSX:MRU, TSX:EMP.A, TSX:WN)

The Canadian Press. All rights reserved.

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Economy

S&P/TSX composite up more than 250 points, U.S. stock markets also higher

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TORONTO – Canada’s main stock index was up more than 250 points in late-morning trading, led by strength in the base metal and technology sectors, while U.S. stock markets also charged higher.

The S&P/TSX composite index was up 254.62 points at 23,847.22.

In New York, the Dow Jones industrial average was up 432.77 points at 41,935.87. The S&P 500 index was up 96.38 points at 5,714.64, while the Nasdaq composite was up 486.12 points at 18,059.42.

The Canadian dollar traded for 73.68 cents US compared with 73.58 cents US on Thursday.

The November crude oil contract was up 89 cents at US$70.77 per barrel and the October natural gas contract was down a penny at US2.27 per mmBTU.

The December gold contract was up US$9.40 at US$2,608.00 an ounce and the December copper contract was up four cents at US$4.33 a pound.

This report by The Canadian Press was first published Sept. 19, 2024.

Companies in this story: (TSX:GSPTSE, TSX:CADUSD)

The Canadian Press. All rights reserved.

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Construction wraps on indoor supervised site for people who inhale drugs in Vancouver

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VANCOUVER – Supervised injection sites are saving the lives of drug users everyday, but the same support is not being offered to people who inhale illicit drugs, the head of the BC Centre for Excellence in HIV/AIDS says.

Dr. Julio Montaner said the construction of Vancouver’s first indoor supervised site for people who inhale drugs comes as the percentage of people who die from smoking drugs continues to climb.

The location in the Downtown Eastside at the Hope to Health Research and Innovation Centre was unveiled Wednesday after construction was complete, and Montaner said people could start using the specialized rooms in a matter of weeks after final approvals from the city and federal government.

“If we don’t create mechanisms for these individuals to be able to use safely and engage with the medical system, and generate points of entry into the medical system, we will never be able to solve the problem,” he said.

“Now, I’m not here to tell you that we will fix it tomorrow, but denying it or ignoring it, or throw it under the bus, or under the carpet is no way to fix it, so we need to take proactive action.”

Nearly two-thirds of overdose deaths in British Columbia in 2023 came after smoking illicit drugs, yet only 40 per cent of supervised consumption sites in the province offer a safe place to smoke, often outdoors, in a tent.

The centre has been running a supervised injection site for years which sees more than a thousand people monthly and last month resuscitated five people who were overdosing.

The new facilities offer indoor, individual, negative-pressure rooms that allow fresh air to circulate and can clear out smoke in 30 to 60 seconds while users are monitored by trained nurses.

Advocates calling for more supervised inhalation sites have previously said the rules for setting up sites are overly complicated at a time when the province is facing an overdose crisis.

More than 15,000 people have died of overdoses since the public health emergency was declared in B.C. in April 2016.

Kate Salters, a senior researcher at the centre, said they worked with mechanical and chemical engineers to make sure the site is up to code and abidies by the highest standard of occupational health and safety.

“This is just another tool in our tool box to make sure that we’re offering life-saving services to those who are using drugs,” she said.

Montaner acknowledged the process to get the site up and running took “an inordinate amount of time,” but said the centre worked hard to follow all regulations.

“We feel that doing this right, with appropriate scientific background, in a medically supervised environment, etc, etc, allows us to derive the data that ultimately will be sufficiently convincing for not just our leaders, but also the leaders across the country and across the world, to embrace the strategies that we are trying to develop.” he said.

Montaner said building the facility was possible thanks to a single $4-million donation from a longtime supporter.

Construction finished with less than a week before the launch of the next provincial election campaign and within a year of the next federal election.

Montaner said he is concerned about “some of the things that have been said publicly by some of the political leaders in the province and in the country.”

“We want to bring awareness to the people that this is a serious undertaking. This is a very massive investment, and we need to protect it for the benefit of people who are unfortunately drug dependent.” he said.

This report by The Canadian Press was first published Sept. 18, 2024.

The Canadian Press. All rights reserved.

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