Dire warning from Sino-Forest...The Saga Continues

The chase by Marty Cej:

Sino-Forest, the Hong Kong-based and Toronto-listed forestry company that saw more than $6 billion in value evaporate last year amid fraud allegations, said late last night that its historic financial statements and audit reports should not be relied upon. The admission appeared in an announcement that the company is "optimistic" that it will reach a waiver agreement with some of its bondholders. While shares of Sino-Forest remain halted with a nominal value of a penny a share, the stock of Greenheart Group, a Hong-Kong listed timber merchant, rallied 50 percent overnight to close at 90 Hong Kong cents. Sino-Forest remains one of the most compelling stories in Canadian financial market history for several reasons, many of which will be explored Friday morning with short-seller Carson Block, whose allegations in June toppled Canada's biggest forestry company. Sino-Forest continues to struggle to explain and refute Block's allegations or address issues raised by the company's auditor and the OSC. Beginning at 8:30 am Eastern, Block will take us through the research that led him to accuse Sino-Forest of fraud and to tell us whether it can happen again.
Among the most widely-read stories on BNN's website this morning was the warning from Canadian bank CEOs that Canada's housing market is showing signs of peaking. We made it our top story yesterday afternoon and will continue to pursue it today with Bank of Montreal CEO Bill Downe, who joins us for half an hour starting at 1:00 pm Eastern. It's a story that affects every Canadian and all of our viewers.
Auto parts maker Magna said that 2012 revenue will rise to a range of $27.8-billion to $29.3-billion, just shy of the average expectation for sales of $29.6-billion. It's hard to say whether this announcement will be taken by the market as a warning since sales will be higher than 2011 and the new forecast is higher than its own previous forecast if still below the market' expectations. The fact is the company continues to put more of its stuff into each car, sales are rising and the operating margin is widening. There is a lot to examine in the company's announcement this morning. Thankfully, Frances Horodelski is a CFA and can spit out ratios like a Nascar fan spittin' out tobaccy juice. Yeehaw, I say. Yeehaw.
After Steve Ballmer's rousing speech to kick off the Consumer Electronics Show in Las Vegas and intimidating poor Ryan Seacrest on stage, Microsoft now says that industry-wide sales of PCs will probably fall short of analysts forecasts in the fourth quarter due to supply issues stemming from floods in Thailand. Watch shares of the PC makers, the chipmakers and Microsoft. Ford Motor Co. said yesterday as well that its profit was hurt by the Thailand floods. Are there any more warnings to come from companies with significant production in this key country?
The Federal Statistics Office in Weisbaden, Germany, said today the German economy shrank "roughly" 0.25 percent in the fourth-quarter, leading some economists to conclude that Europe's largest economy has already slipped into recession. While most economists and investors agree that broader Europe is already in a recession, perhaps even a severe one, word that Germany may be in the same boat has sent European stocks, North American index futures and copper prices lower. While the Federal Statistics Office in Weisbaden says its estimate is "unofficial," I dare you to call up the Federal Statistics Office in Weisbaden and challenge their figure. I dare you.
Keep an eye on oil today as Germany pushes for a European embargo on importing Iranian oil. Iran also said today that one of its nuclear scientists was killed by a magnet bomb fixed to his car by a motorcyclist who sped past. Iran has blamed Israel for the assassination, which adds to a number of killings of Iranian nuclear scientists in recent years.
Mitt Romney solidified his status as the frontrunner for the Republican presidential nomination by taking the New Hampshire primary last night. Libertarian Ron (The Fed Oughta Be Dead) Paul surged to a second-place finish, which surprised no one since New Hampshire's official slogan is "Live Free or Die" and its unofficial slogans include "New Hampshire: Go Away and Leave Us Alone" and "New Hampshire: Don't Take it For Granite."

A tale of two job reports

The chase by Marty Cej:

Prime Minister Harper says job creation will be among his top priorities in 2012, a good thing considering Canada's unemployment rate rose for a third straight month in December, putting the country on an uncertain footing for the new year. The unemployment rate rose to 7.5 percent from 7.4 percent last month as a gain of 17,500 new jobs was outweighed by a surge in people looking for work.

The headline gain of 17,500 failed to erase the plunge 18,600 jobs in the preceding month and was marked by a jump of 43,100 part-time positions that helped offset a tumble of 25,500 full-time jobs. Economist Doug Porter at BMO Capital Markets says "the soggy details reinforce the point that the job market struggled late last year after a banner start to 2011," and Mark Chandler at RBC notes that "the job trend will be seen as a disappointment."

The Canadian dollar dropped in the wake of the report as the market priced in the likelihood that the Bank of Canada will have to remain on the sidelines for longer or perhaps lean towards interest rate cuts if the economy deteriorates much further. We need to take a look at the new expectations for the Bank of Canada, the split between regions – Quebec shed 25,700 jobs! – and the industries that are creating jobs vs. those that are losing them. We also need to talk about the quality of the new jobs that were added this month.

And we'll also need to compare the Canadian jobs picture with the U.S. situation. The U.S. economy added 200,000 jobs last month compared to an estimate of 155,000 new non-farm jobs. The unemployment rate fell to 8.5% from 8.7%. The U.S. report will dominate price action for financial markets today.

In the meantime, European stocks are mixed, currencies and commodities are little changed, and stock index futures are pointing to a mixed open as traders await the U.S. jobs report. Also, Hungary's debt was just downgraded to 'junk' status by Moody's.

One of the more interesting markets to cover today will be base metals after Alcoa said late yesterday that it would cut its global smelting capacity by 12 percent, or 531,000 metric tons. We need to ask what the cut means to world supply and what it tells us about global demand. We also need to ask what it means for Alcoa's earnings and how it sets up the market for the start of fourth-quarter earnings season, which Alcoa kicks off on Monday.

As noted earlier this week, the negative to positive ratio of S&P 500 profit warnings vs. forecast upgrades currently sits at 3.8. In other words, almost four companies are warning for each company that is raising its guidance. The historical average is 2.2. This could be a tough earnings season if analysts don't start cutting their forecasts soon.

Among the Canadian corporate stories we're watching today is Jean Coutu, which reported a modest gain in both profit and revenue in the third quarter. The company had plenty to say about the "deflationary impact" of the introduction of many new generic drugs. Plenty to see here, folks, plenty to see.

I'm running late again and the web editors are breathing down my neck with their chai tea breath, which is intimidating in a strangely calm yet energizing way.