Rare Voices of Optimism

All you see these days are headlines like “Recession Fears,” “Credit Crisis,” “Recession or Depression?,” “Stock Markets in Tailspin” and so forth. Doom and gloom galore wherever you look.

Where are the optimists? They’re too few and far between, and those who admit to being optimistic more often than not seem delusional. For example, a few days ago, I read an article in “The Wall Street Journal” from an executive at General Motors, no less, who ventured to say that he expected this economic downturn to be short-lived, and who even called for improvements in the automobile industry in the coming quarters. My reaction was, “You gotta be kidding me!”

And then in yesterday’s “The Globe and Mail,” there was a similar voice. It came from the Canadian National Railway Company (CN), which just closed fiscal 2007 with a record profit of $2.2 billion. The company also bravely forecasted just as successful a fiscal 2008, in spite of the wobbling U.S. economy, bloodbath on the global stock markets, and rising energy prices.

Considering the aforementioned doom and gloom galore, investors are likely to be skeptical hearing that anyone is doing well when such economic conditions prevail. I certainly was skeptical, to put it mildly, when I heard that GM was bullish about its 2008 outlook.


But this is what CN’s CEO, Hunter Harrison, said during a conference call with analysts on Tuesday, “I’m looking forward to a real bounce back in 2008, despite some of the things that we read every day.” Harrison added, “[We] expect revenues to grow between six percent and eight percent in 2008, while diluted earnings per share might be in the mid-to-high single digit range.” According to Harrison, CN could end up with seven hundred and fifty million dollars in free cash flow this year.

Harrison bases this forecast on the Canadian dollar maintaining close-to-parity level with the U.S. dollar, rather than repeating the November historic high of US$1.10, as well as the resilience that the company demonstrated last year in spite of certain challenges, such as labor disputes in February and avalanches in March. The icing on the cake was that CN increased its dividend by 10%.

But let’s leave CN’s financial statements aside for the moment. Companies such as CN are, in a way, like barometers of a country’s economic health. For example, as the U.S. housing market took a turn for the worse, CN saw forest-product shipments report a sharp decrease. On the other hand, transportation in categories such as petroleum, chemicals, coal, grain, ore and fertilizers reported sharp increases.

Canada’s economic situation is not nearly as dire as is the situation south of the border. We know that. But the fact that our economy is not in as much pain is not helping Canada’s stock markets much. The boards are still flashing red left, right and center, and the pain is likely to continue through 2008, and probably into 2009, too, in spite of companies like CN defying the force of financial gravity.