Financial Update

TSX continues its climb

· TSX +110.25pts (Reuters).TSX’s main index rose for the 5th straight session thanks to strength in energy and materials issues, raising hopes that the market is close to finding a bottom.
· DOW +pts closed for American Thanksgiving
· Dollar -.06c to $81.23US.
· Oil +$ to $54.44US per barrel. markets closed
· Gold to $808.50US per ounce markets closed
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices

Ottawa seeks more influence over banks

Eoin Callan, Financial Post

The Conservative government Friday sought the power to take stakes in the country's banks and to seize control of troubled financial institutions, in the most radical and far-reaching response yet to the crisis in the global financial system.

The new authority would allow the government to inject capital into private institutions or to take over a failing lender and split it into a "good bank" and "bad bank."

The radical measures would empower Ottawa to follow the example of Washington and London and other western capitals that have bought shares in banks and gained influence over their affairs.

The steps are "in keeping with the action plans we agreed to with our international counterparts at the G7 and G20 meetings," Jim Flaherty, the Minister of Finance, said Friday in his autumn economic statement.

The minister said he was seeking: "The legal ability to inject capital into a federally regulated financial institution to support financial stability, on terms that would protect taxpayers."

The measures mean the Conservatives are setting aside free-market ideological principles and internal party resistance, taking what they view as a pragmatic approach that borrows from the experience of other countries in battling the credit crisis.

While government officials do not anticipate using the new powers, they feared being caught with their hands tied if the credit crisis continued to drain capital from the country's banking system and intervention was required to save a bank or insurer.

Bay Street was cautiously welcoming of the moves, though executives and senior government officials had previously argued these new powers were not required.

"It is probably a prudent thing to do," said one person in the industry.

A senior industry figure said the government was "updating its toolkit to give it similar authorities to what is available to other governments around the world."

A bank official stressed that "these are tools that we hope they never have to use."

Mr. Flaherty warned that the country was "far from finished confronting unheard-of global economic and financial threats."

"Canada has not faced such severe economic tests in a generation," he added.

The legislation gives Mr. Flaherty similar powers to those used by Hank Paulson, United States' Treasury Secretary, to top inject capital into Wall Street institutions and bail out banks.

There were signs that the Conservatives were preparing to fight a pitched battle over a range of economic and emergency measures to depict opposition parties as threatening market stability if they voted against the government, with comparisons being made with the initial rejection of the $700-billion Washington bail out by Congress.

The legislation will also give new powers to the Canada Deposit Insurance Corporation to follow the example of its U.S. counterpart and seize and operate distressed lenders.

This would allow the federal agency to split up an institution into a "good bank" and "bad bank", hiving off crippling debts and continuing to make loans and operate the company until it can be wound down or sold.

The Conservatives are also seeking "the power to direct CDIC" to carry out emergency rescues and shotgun weddings like those carried out over in intense weekend negotiating sessions by U.S. authorities to avert failure by Citigroup, Washington Mutual, and Wachovia.

The CDIC is also being given a new borrowing limit of $15-billion to help fund these tasks.

The steps were agreed to following consultations between the Department of Finance, Bank of Canada and the Office of Superintendent of Financial Institutions.

The overall package reflects private advice given by central bankers and regulators who pressed the Conservatives to bring Canada into line with other leading industrialized nations.

Financial Update

· TSX +200.86pts (Reuters).TSX’s main index rose for the 4th straight session as strength in commodities overpowered a steep decline by BCE Inc
· DOW +247.14pts South of the border markets were buoyed by bargain-hunting among tech stocks and on renewed hopes for a General Motors bailout.
· Dollar -.34c to $81.29US.
· Oil +$3.67 to $54.44US per barrel.
· Gold -$10.00 to $808.50US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices

Your home: hot or not?

Financial Post Published: Saturday, November 22, 2008

Can your home weather the financial storm? Don R. Campbell, a real estate analyst and author of Real Estate Investing in Canada, gives a dozen ways to analyze your property's exposure to a downturn.

First, it's vital to remember that property markets are not national; they are regional, local and even vary widely from neighbourhood to neighbourhood in the same city.

That being said, there will always be hot real estate markets and others that are cold, but national and provincial figures are too generalized to be used by Canadian homeowners and investors to make sound decisions on their most important asset.

The 12 questions below will help you decide if your area and personal property are poised to go up, stay flat or collapse.

The more "yes" answers you get, the better the market will perform.

But overall, to dramatically reduce your risk, the most important thing to remember is: Don't fall in love with your property.

12 ESSENTIAL QUESTIONS

1 Is your area's average income increasing faster than the provincial average?
2 Is your area's population growing faster than the provincial average?
3 Is your area creating jobs faster than the provincial average?
4 Does your area have more than one major employer? 5 Is real estate booming in the surrounding region more than where you're looking?
6 Will the property values benefit from a major new development nearby?
7 Has the local and provincial political leadership created a growth atmosphere?
8 Is the region's economic development office helpful and proactive?
9 Is the neighbourhood located in an area of renewal or gentrification?
10 Is there a major transportation improvement occurring nearby?
11 Is the area attractive to Baby Boomers?
12 Is there a short-term perceived problem (negative stories, short-term layoffs) that will disappear?

In fact, there are 13 major influences on the long-term value of property. Underlying the local analysis of your property market you need to consider the outlook for Canada generally.

The Canadian economy and real estate are relatively well-positioned to withstand the economic storms that are buffeting property values in many other countries.

Financial Update

· TSX +1.99pts (Reuters). After 2 days of big rises, the TSX's main index eked out more tiny gain as firmness in financial shares, due in part to a U.S. Federal Reserve plan to aid consumer lending, offset weakness in technology and materials issues
· DOW +36.08pts Investors reacted to an announcement that the Federal Reserve will purchase up to $100 billion in direct mortgage obligations and another $500 billion in mortgage-backed securities. The Fed also unveiled a new program to help unfreeze the market that backs consumer debt such as credit cards, auto loans and student loans. Investors got some more good news about U.S. consumers. The Conference Board said its Consumer Confidence Index unexpectedly rose to 44.9 in November, up from a revised 38.8 in the previous month
· Dollar +.63c to $81.63US. rises to its highest level in a week as prices for oil, a key Canadian export, rose while a more optimistic tone in the market took the shine off the U.S. dollar's safe-haven status.
· Oil -$3.73 to $50.77US per barrel. falling near 7% as consumers and businesses have pulled back on energy spending, with massive layoffs and cost-cutting across almost every sector. That means less money will go toward powering everything from industrial plants to automobiles
· Gold -$1.00 to $818.50US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices

Optimists still rule on real estate Canwest News Service Published: Saturday, November 22, 2008

Canadians are still in a mood to mortgage. Nearly 4 in 10 Canadians still think that now is a good time to buy a house, even though the proportion who expect home prices to fall further has soared, according to a recent survey by the Canadian Association of Accredited Mortgage Professionals. Attitudes toward local conditions in the mid-October survey have shifted only slightly, with 38% of Canadians believing now is a good time to purchase a house -- still outweighing the 32% who believe it is a bad time. Meanwhile, only 0.28% of mortgages are in arrears, a proportion that is not only low but also steady, the organization said. Still, the proportion expecting home prices to fall has more than doubled from last fall to 35%. That's especially the case in British Columbia, where 48% expect prices to fall. Jim Murphy, association president, notes that anticipated mortgage credit growth would slow, but remain relatively strong.Close

Presented by

OECD warns of worst recession since early 1980s; Canada will be drawn in Julian Beltrame, The Canadian Press

OTTAWA - The Organization for Economic Co-operation and Development says Canada will not be immune from the current global malaise and will see its economy shrink by an average 0.5 per cent next year.

The group says almost all the 30 developed countries that make up the OECD have already entered the recession.

It estimates the OECD countries will have an average 1.4 per cent contraction in the fourth quarter of this year, the October-December period.

The OECD report is unwelcome news to the government as it prepares for Thursday's economic update and upcoming federal budget.

"No one in the world was predicting the kind of economic downturn and the severity and depth of the economic downturn that we've experienced in the last 12 weeks," Finance Minister Jim Flaherty said in the answering questions on the report in the House of Commons.

But Flaherty took comfort in the fact the OECD projecting that Canada would lead the recovery among G7 nations in 2010.

The think-tank says Canada's economy will advance by 2.1 per cent in 2010, a tepid rebound, given that it is coming off a down year.

Although the OECD praises Canada's relative strengths, including government fiscal positions, and relatively sound banking and housing sectors, the group says as an exporting nation, it cannot avoid being sideswiped by the global financial crisis and economic slowdown.

"Sharply deteriorating conditions in global financial markets, generalized softness in the U.S. economy and receding commodity prices are amplifying export weakness and dragging down domestic spending," the think-tank says.

It predicts unemployment will rise to 7%next year and 7.5 %in 2010, from the current 6.2 %.
Federal and provincial governments will record an accumulated deficit of 1.3 per cent of GDP next year, about $21.6 billion, and 1.7 per cent, or $28.2 billion, the following year.

But given that Canadian governments have been in surplus positions for most of the past decade, the upcoming deficits should not cause alarm, the group said.

"The general government is expected to move into deficit in 2009 and 2010, a largely cyclical outcome that is not alarming and leaves room to absorb eventualities but underlines the need to keep a lid on discretionary expenditure increases," it wrote in its report.

The report forecasts private consumption will fall 0.6 per cent next year.

Flaherty said Monday he expects to introduce a significant stimulus package comprising largely of construction projects to rebuild Canada's infrastructure in the next budget.

He also suggested he will move forward the timing of the budget to early next year to ensure the economic stimulus occurs as quickly as possible.

The OECD said the Bank of Canada should also act by reducing interest rates, something economists predict will occur at the next scheduled action date, Dec. 9.

In a separate report Tuesday, Statistics Canada said retail sales beat market expectations and rose 1.1 per cent in September from the previous month. It was the strongest increase in eight months, but was mostly discounted by economists because it came before the major stock market collapse.

As a gauge of how economic expectations have flipped in the past month or so, the OECD had been projecting positive growth for most of the developed countries as recently as September. But all that has changed in barely over a month.

The United States, it says, will be among the hardest hit next year with a gross domestic product contraction of 0.9 per cent next year, while the 15-member euro zone will shrink by an average 0.6 per cent.

Among the OECD countries, the group estimates eight million workers will lose their jobs over the next two years and that there is a risk, "albeit small," that some countries will experience deflation - falling prices.

The figures indicate that the developed world has now entered a slump estimated to last at least four quarters; two consecutive quarters is a common definition of recession.

"Many OECD economies are in, or are on the verge of, a protracted recession of a magnitude not experienced since the early 1980s," said Klaus Schmidt-Hebbel, the OECD's chief economist.

The OECD said the U.S. economy would contract by a massive 2.8 per cent in the last quarter this year, with a mild recovery anticipated in the third quarter of 2009.

In the euro zone, output is seen to have fallen by 0.9 per cent in the third quarter, followed by a 1.0 per cent decline in the fourth.

In Japan, the recession, which started in the second quarter of 2008, is only expected to last through to the first quarter of 2009, when output is expected to rebound by an annual rate of 0.8 per cent.

Because of the anticipated bounce-back in growth by the second half of next year, the OECD projected that economic output across its membership will rise in 2010 by 1.5 per cent.

The uncertainties around the projections are "exceptionally large", mainly on the downside and mostly relate to the assumption regarding the speed at which the financial market crisis is overcome, said the OECD's Schmidt-Hebbel.

He added that "prompt and massive" policy action to restore confidence and provide liquidity in the banking sector appears to have "successfully limited the period of panic" but that financial institutions still need to repair their balance sheets.

The OECD added that there was a justification for governments around the world to cut taxes or raise spending to ameliorate the effects of the recession. "It is vital that any discretionary action by timely and temporary," he said.

Financial Update

Commodities fuel up TSX sentiment as Wall Street gets a boost on Citigroup deal

· TSX +285.48 pts (Reuters). resource issues supported by rising oil prices and the U.S. government's rescue plan for banking giant Citigroup lifting market sentiment, particularly in the financial group.
· DOW +396.97pts
· Dollar +2.70c to $81.00US. rises to its highest level in a week as prices for oil, a key Canadian export, rose while a more optimistic tone in the market took the shine off the U.S. dollar's safe-haven status.
· Oil +$4.57 to $54.50US per barrel. as investors considered the prospect of a further OPEC supply cut and as stock markets rallied on the Citigroup news.
· Gold +$27.70to $819.50US per ounce

www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices were down across the curve as news that the U.S. government stepped in to prevent the collapse of the world's largest banking group prompted demand for recently beaten down equities.

Banks scramble to shore up reserves

Eoin Callan, Financial Post Published: Monday, November 24, 2008
Canada's two largest banks Monday moved to raise fresh capital to shore up their reserves as the worst financial crisis since the Great Depression continued to weaken the country's banking system.

TD Bank Financial Group said it was being forced to brave extremely volatile markets with a bid to raise up to $1.4-billion in cash, after coming under pressure from investors to take action over its shrinking capital base.

The bank took the remarkable step of selling a stake in itself on the open market, making it one of the few financial institutions in the world to issue common equity amid unprecedented turmoil in stock markets.

The risky move came as Royal Bank of Canada said it would make a more modest effort to raise $225-million by selling recallable preferred shares, after disclosing a $1-billion loss on investments that depleted its reserves.

The appeals for fresh capital underline how mounting credit losses are sapping Bay Street's financial strength at a time when the industry is bracing for the country's first recession in two decades.

RBC is attempting to raise the funds after revealing Monday that its capital level had fallen to 9% from 9.5%.

Bank of Montreal is expected to detail its own setbacks Tuesday.

But it was TD that has been forced to take the most dramatic step after revealing last week that its reserves had fallen to 8.3%, the lowest level of the big banks.

That disclosure triggered the worst fall in the firm's shares in a quarter century and prompted major shareholders to pressure Ed Clark, its chief executive, to address concerns about the capital base of the country's second-largest bank.

"We would probably prefer you get this issue behind you," investors told the executive, according to a person familiar with the dialogue.

The bank chief said in an interview that he "suddenly saw an opening" Monday to take the bold step of raising capital as markets rallied worldwide following a decision by Washington to inject $20-billion into Citigroup and backstop about $300-billion in potential losses.

The executive had said only days ago that it would be "extremely challenging" to raise cash in the current environment, but Monday said there appeared to be signs of healthy demand to buy shares in the bank at a discounted price.

Mr. Clark predicted it would "primarily be our existing shareholder base" that would provide the injection, adding that it also "looks like there is strong retail demand, which is very helpful."

The bank appeared to have completed the capital raising by last night, which Mr. Clark said would send a "powerful statement" that private investors were ready to pour more capital into the country's banks.

"It's done," said a person familiar with the sale process.

The shares were thought to have been sold at a cost of $39.50 each, or a discount of 8% from the price of $42.90 that TD's shares closed at Monday.

That means existing shareholders will see their claim on the bank's future earnings diluted, though Mr. Clark said he could compensate for this by increasing lending to consumers and businesses, and growing the bank's retail operation.

RBC was expected to take more time to issue preferred shares, after it warned Monday that net income would fall by 15% to $1.1-billion in the fourth quarter after accounting for a charge of $670-million arising from a $1-billion loss on its investments and a move to set aside more than $600-millon to cover bad loans.

The move to raise capital comes after Ottawa introduced emergency measures allowing the country's financial institutions to top up their reserves using increasing amounts of preferred shares, or "capital lite."

RBC said it was also taking advantage of new looser capital requirements to avoid recording heavier losses on its investments, by retroactively shifting securities out of its trading portfolio so their impaired value would not have to be recognized.

The losses are unlikely to be the last for Canada's top banks amid the ongoing credit crisis.
"I think there is more to come," said one financial analyst.

Housing, the market and you

Globe and Mail Update

November 24, 2008 at 1:21 PM EST

How much is your house or condo worth?

Property values have become a topic of consuming interest over the past couple of years, first as house prices soared and, more recently, as they have started moving in the other direction.

The question for Canadians is how closely the experience here will mirror that in the United States, where an orgy of high-risk mortgage lending earlier in the decade has led to an unprecedented collapse in house prices that is the root cause of the financial and economic crisis that has spread from south of the border around the world.

Some commentators have suggested Canada could be on the brink of the same sort of tidal wave of mortgage defaults and foreclosures now sweeping through the United States.

But Adrienne Warren is not among them.

Ms. Warren is a senior economist and manager at Bank of Nova Scotia in Toronto, which she joined in 1993 after graduating with a PhD in economics from York University.

Since 2004, she has been the editor of the bank's "Real Estate Trends" report, which focuses on the economic and financial market conditions shaping the North American residential and non-residential construction outlook. She is also the editor of the widely circulated "Weekly Trends," a round-up of economic, industry and financial developments from around the world.

Last Thursday, in the latest edition of Real Estate Trends, Ms. Warren argued that while Canadian house prices are down significantly, there is little or no danger that our real estate market will be crushed like its U.S. counterpart.

“This is not a U.S.-style bust caused by overbuilding, speculative buying and imprudent lending, but rather a cyclical slowdown accompanied by a valuation adjustment in several large centres where booming demand conditions and temporary supply constraints led to an overshooting in prices,” she said.

Ms. Warren is primed to take your questions on real estate and the prognosis Monday at noon, or get a jump on the queue by submitting your question here.

Editor's Note: globeandmail.com editors will read and allow or reject each question/comment.

Comments/questions may be edited for length or clarity. HTML is not allowed. We will not publish questions/comments that include personal attacks on participants in these discussions, that make false or unsubstantiated allegations, that purport to quote people or reports where the purported quote or fact cannot be easily verified, or questions/comments that include vulgar language or libellous statements. Preference will be given to readers who submit questions/comments using their full name and home town, rather than a pseudonym.

Sonali Verma: Welcome to the discussion. We have a lot of questions, so let's get right to it.

Zafar Abbas from Mississauga Canada writes: I have the same opinion that Canadian slide will not be like US. My question to Ms. Warren is how long the downwards trend will continue in the housing market, what areas will be affected most and what will the percentage decline. TI would apprecaite your response. Thank you.

Adrienne Warren:We think there are further downside risks to home prices in Canada, but the risks stem primarily from reduced affordability (typical at this point in any housing cycle) and a weakening economy, as opposed to the mortgage market problems and overbuilding that are behind the US housing correction.

As a result, the decline in prices will likely not be as deep as in the US. As the moment, we're forecasting national home prices to drop on average around 5% next year, with declines of about 10% in BC, Alberta, Saskatchewan and Ontario and relatively flat prices in the remaining provinces. This is based on the assumption of only a very mild recession in Canada, which could turn out to be overly optimistic.

Housing cycles are generally quite long, both on the upswing and downswing. My guess is that we're looking at a number of years of relatively flat home prices in Canada, which would gradually lift affordability and bring new buyers back into the market.

John Galt from Vancouver Canada writes: Two questions:

1. At what point (Measurement) would the rate of foreclosure in Canada ring an alarm?
2. Do you think the US plan to aid homeowners in foreclosure (or in its proximity), and those with impaired values - fix the economy, or perpetuate the status quo?Thank you.

Adrienne Warren:The share of Canadian mortgages that are currently at least 90 days in arrears is still less than 0.3% of all outstanding mortgages. This is historically a very low level. I'm not sure if there is a hard and fast rule of what level would cause alarm bells, but for comparison purposes, the rate of arrears was about double this level in the 1991-1992 recession, and even then we didn't see widespread foreclosures. Keep in mind, any significant increase in foreclosures in Canada would likely be related to job losses and a weaker economy, and not affordability issues related to mortgage resets, etc as in the US. I'm keeping a closer eye on the job market here in Canada, which will likely lead any significant rise in foreclosures.

Propping up an overheated, overbuilt and overleveraged US housing market through various homeowner aid instruments will likely prolong the inevitable correction in the US housing market. As with various bailout packages being considered, however, the cost for the economy as a whole of doing nothing could be even greater. My personal preference would be to see some targeted initiatives with appropriate incentives and repayments build in.

Josephine Ochej from Toronto Canada writes: Given the current downturn and time of year, what are your thoughts on listing a house now vs waiting until Spring, when things may or may not have improved, but perhaps more buyers will be looking? Thank you.

Adrienne Warren:The latest sales figures from the Canadian Real Estate Association were indeed startling, as Canadian buyers moved to the sidelines en masse in October. This created a huge supply imbalance, and put further downward pressure on prices as sellers outnumbered buyers. I think buyers are understandably spooked by concerns over the economy and jobs, and plunging stock market values. I also expect many will wait out the market until the spring, for general economic and financial market conditions to (hopefully) stabilize. Unlike in the U.S., the majority of sellers in Canada are not in a situation where they are forced to sell, and may wish to wait for consumer confidence to return.

Former 2 Time CIBC Staffer from North Vancouver Canada writes: Does Ms. Warren buy into David Wolf (from ML) and Doug Porter (from BMO NB) that Canadian real estate prices are tracking US trends, but with a two year lag? If this is the case, isn't the magnitude of the price decline the same, but just a different time frame?

Adrienne Warren:I believe we are tracking US house price trends to some extent, as both countries have enjoyed a long housing boom which has inevitably come to an end. We can see this in the case of numerous other developed country housing markets, including the U.K., Ireland, Australia and Spain.

But simply looking at price trends does not get to the factors behind the softening in prices. In Canada, typical cyclical developments, mainly reduced affordability, increased supply and a slowing economy, are driving the softening in the housing market. South of the border, a massive oversupply of housing caused by widespread overbuilding and record foreclosures related to mortgage lending and products that don't exist in Canada, was (and still is) the biggest factor driving down home prices. We don't see either factor as a major risk to the Canadian market. Prices are moving down, but for somewhat different reasons and likely not as far.

Rob Allen from montreal Canada writes: I am looking to go from renting to buying...should I wait another 6 months or longer, or are lower prices factored in at this point with all the news on the economy and housing?

#2-variable or fixed rate mortgage?

Adrienne Warren:We're in a period of unprecedented financial market volatility and economic uncertainty, when forecasting home prices (or any economic or financial market variable for that matter) is a mug's game. It's a solid buyers' market in most parts of the country right now, with lots of choice and few bidding wars, and likely some deals to be had. But the risk is that prices could move lower still.

In any case, I don't see housing prices moving sharply higher again for some time. With the economy and inflation slowing, there is a good chance both variable and fixed rate mortgage costs will move lower over the next six months.

Paul Carey from Canada writes: Looking at residential real estate in the Greater Toronto Area. Do you see the suburb (outside the city core) prices adjusting differently compared to city prices?

Adrienne Warren:Prices have fallen more sharply in the city of Toronto over the past year than in the suburbs. However, much of this discrepancy appears to be related to the January 1, 2008 imposition of a new Land Transfer Tax, which led to a surge in sales and prices in the city late last year as buyers moved to avoid the new tax, and inflated prices above normal. Longer-term, demographic trends, especially immigration, are positive for price trends in both the city and the suburbs, with the latter remaining a more affordable option.

JOHN WELSMAN from Thamesville Canada writes: Ms. Warren....Do you think recreational property is more or less vulnerable to the current downturn than the general housing market? Thanks for your comments.

Adrienne Warren:Recreational property is generally more vulnerable during a downturn than primary homes, given that they are a luxury or discretionary purchase.

J. Kenneth Yurchuk from Canada writes:Good day Ms. Warren, and thanks for taking our questions. I am a home owner in an older neighbourhood of East End Toronto. (Realtors call it 'Upper Beaches' but in reality it's just South of the Danforth.) I purchased in the mid-nineties towards the end of the last period of depressed housing market in Toronto, and feel I got a pretty good deal.

My question is in regards to demographics, and changing trends. There appears to be a growing trend of people moving back into the city core from suburbia. Is this borne out by your observations, and what do you feel are the underlying causes. (Certainly 2 hour commutes on traffic jammed roads is one!) What effect do you feel this will have on housing demand in neighbourhoods like mine? And finally, is this a Toronto phenomena, or more widely spread across the country?

Adrienne Warren:There has been a general trend across the country of people moving back to city cores, which in many cases have been revitalized with more employment and shopping options, and a booming condo market. While I would expect this trend to continue, affordability issues mean that the suburbs will also remain a viable and popular housing option.

Imants Gaikis from Toronto Canada writes: I read that in the US a mortgagee can walk away and take a hit on their credit rating, but they are not forced to declare bankruptcy. Somewhere I heard that in Canada the mortgage is the personal responsibility of the mortgagee and that bancruptcy must be declared if the mortgage cannot be paid. Is my understanding of the Canadian situation true? Is this true in all provinces?

Adrienne Warren:There are important differences in bankruptcy laws between Canada and the US, as well as some differences between provinces. I can get back to you on the details.
Ger A from Oshawa Canada writes: Hello, I have three questions:

1. Which areas will be hit harder, downtown cores or outlying areas, for decline.
2. If the property is a rental property, do you think that will do better?
3. Do you think the condo market will take the worst of the downturn due to the sheer number of condos in Toronto?

Adrienne Warren:In general, there is probably a bit more downside price risk to the condo market, given that it appears a bit more oversupplied/overbuilt. I would also guess that downtown cores could have a bit more near-term downside risk given that they have generally seen the biggest price increases in recent years. Generalizations are hard to make, however, as housing markets are very localized. Talking to a few real estate agents in your market(s) of interest is probably the best bet on local trends.

D Chris from Calgary Canada writes: Ms. Warren: Economic forecasting and modeling is certainly an art, and not a science. In such volatile times, I would say this means that there is that much more uncertainty or margin of error in these exercises. With that in mind, and recognizing that your own expectations are not for dramatic real estate price declines in Canada, can you comment on what would have to happen in order for your expectations to turn out quite wrong -- that is, which sensitivities in your analysis could lead to quite dramatic real estate price declines? (Or put another way, what do you see as the major downside-risks?) Thank you.

Adrienne Warren:I completely agree that forecasting is an art, and incorporates a lot of subjective assumptions. There is a wider degree of uncertainty around our forecasts than usual right now, and the risks lie more on the downside than upside. In my view, the biggest risk for the housing market in Canada right now is a more substantial slowing in the economy and significant rise in unemployment.

Rebecca leung from Canada writes: When would be a good time for a first-time buyer to enter the market?

Adrienne Warren:It's a buyer's market right now, meaning more choice and less competition, but there is inherent price risk. My suggestion for potential first-time buyers is to speak to a mortgage advisor or broker with respect to your own financial situation. And of course, do plenty of research in the housing market you're interested in.

Rod Smelser from Maple Ridge, B.C. Canada writes: To what degree does it make any real sense to speak of the Canadian housing market, as opposed to several regional and metropolitan markets? Is there any economically meaningful way of separating investment and consumption demands in the housing market? Do rent to price ratios in that market have the same significance as earnings to price ratios do for liquid assets, and would an analysis of rent to price ratios indicate that any of the major metropolitan markets in Canada are out of equilibrium?
Adrienne Warren:I agree. For example, while news headlines widely reported on the 10% year-over-year decline in national average prices in Canada for October, average prices were actually only below year-ago levels in BC, Alberta and Ontario. Local differences are even wider. For a buyer and/or investor, local conditions are key, and maybe all that matters. From a macroeconomic perspective, however, aggregate figures can give us some insight into broader risks for the market and economy.

Wherearewe Going from Toronto Canada writes: When do you anticipate housing prices will stop dropping (when is the low point) and how long after that do you anticipate housing prices will remain flat? Could you speak to the US and the Canadian differences in timing. Thanks.

Adrienne Warren:I could see home prices in both Canada and the U.S. dropping a further 5% or so next year, though the magnitude of the peak to trough price correction would remain significantly larger in the US. Beyond that, price developments really depend on the economic outlook further out. I wish I had a crystal ball. Saying that, housing cycles are long on both the upswing and downswing, and I would expect home prices to remain relatively flat for a number of years until affordability is returned to the market.

sam slick from Canada writes: Out here in the west, if each government (provincial, municipal or transit levy) raises their taxes, does this impact the ability of the household to maintain their payments? If the economy gets worse and deflation is in the horizon, does this cause more stress to the household?

Adrienne Warren: On their own, higher taxes would generally reduce disposable income, and could reduce the ability of a household to maintain their payments. In the current environment of slowing economic growth, however, I think significant tax increases are unlikely. A weakening economy and the prospect of deflation does cause more stress to households, as it leads to weaker job gains and slowing wage growth.

M T from Toronto Canada writes: Has your price forecast for Canada ... and specifically the Toronto and Vancouver markets ... considered the impact of how the large number of unbuilt Condo units held by 'speculators' ; investors impact prices going forward ?

Adrienne Warren:The rising stock of unbuilt condo units poses a risk to prices in Toronto and Vancouver, particularly given the current severe stains in credit market globally, and the fact that much of the investment into this segment comes from overseas investors. However, because we're not close enough to the ground to consider all local variables, I couldn't make a city specific price forecast with any degree of confidence.

Financial Update

· TSX +430.68 pts to 7,724.76 (Reuters). All 10 subgroups of the TSX composite index finished up, however the TSX still finished down 9.9% for the week
· DOW +494.13pts after NBC News reported U.S. president-elect Obama would nominate New York Federal Reserve Bank president Tim Geithner as treasury secretary.
· Dollar +.99c to $78.30US.
· Oil +$.51 to $49.93US per barrel.
· Gold +$43.10 to $791.80US per ounce as investors again flocked to a safe haven
Washington has agreed to inject US$20-billion into Citigroup and backstop losses on a US$306-billion pool of loans after investors lost confidence in the ability of one of the world's largest banks to weather the financial crisis

Take an interest in bonds to understand mortgage rates

Fred Langan, Financial Post Published: Saturday, November 22, 2008

Mortgages are the biggest loan in just about everyone's life. And they can be the hardest to understand.

Why do mortgage rates move the way they do? Why don't the rates march in lock step with other interest rates?

When the Bank of Canada lowers interest rates the big banks usually play chicken for several hours waiting to see who will drop rates first. At the last cut, the TD Bank was the first to lower prime. The others followed within the hour.

If you had a variable rate mortgage tied to prime, then your mortgage rate moved lower. But all other mortgage rates stayed put.

Why? One pat answer is mortgage rates don't move with prime because mortgages are financed in the bond market.

Not true. Interest rates in the bond market influence mortgage rates, but that isn't where the money for mortgages comes from.

Banks get their mortgage money the same way they get other money: they take in deposits from bank accounts, GICs, etc., and then loan out the money at a higher rate. The difference, or the spread, is how commercial banks make most of their money.

The banks then put thousands of those mortgages together and repackage them as "mortgage-backed securities." These are sold to other institutions as a unit.

Since Canadian first mortgages are typically backed by housing assets, mortgage-backed securities here are seen as pretty safe investments, though the subprime variety were a disaster in the United States.

Here's where bonds come in: The bond market is made up of traders sitting at terminals in the world's financial capitals. The market is much bigger than the stock market and in many ways more important since it affects day-today interest rates.

When then banks want to set mortgage rates, they look at the yield, or interest rate, the bond is paying.

"Say the interest rate yield on a five-year government of Canada bond is 3%. The banks then have to set a rate high enough to cover all their costs of origination, selling and servicing the mortgage. They still have to be competitive with other lenders, so they set the five-year mortgage rate at 7%, but then discount on a person-by-person basis to around 5.5%" says Brendan Calder, now an adjunct professor at the Rotman School of Management at the University of Toronto. Before his academic career he was president of CIBC mortgages and before that, one of the people who set up the mortgage-backed securities business in the 1980s.
"So, if you want to know where mortgage rates are heading, watch the yields on government of Canada bonds," says Mr. Calder. "That's what mortgage brokers do."

Canadians have borrowed a total of $879-billion against their houses, according to the Bank of Canada.

"That includes residential mortgages and lines of credit secured against housing," says Jeremy Harrison, a spokesman for the Bank of Canada in Ottawa.

Just about half the mortgages, or $487-billion, are held by the chartered banks. The next biggest lenders are credit unions, which have $110-billion in mortgages outstanding. But the big banks set the trend.

Banks didn't always dominate the mortgage business. Until changes to the Bank Act in 1967, banks were not allowed to lend mortgages. Back then, trust companies dominated the business.
"The market dominance of the banks in the mortgage business has continued to grow," says Mr. Calder.

-Fred Langan is host of CBC News Business.

Financial Update

TSX hits 4-year low as banks feel heat

Carney concedes recession possible

· TSX -345.17 pts to 8490.56 (Reuters). sank to its lowest level in 4 years in a broad selloff led by key resource and financials issues on gloomy news from the banking sector which was down 5%. Financials comprise about 1/3 of the index’s total weighting
· DOW -427.47pts
· Dollar -1.48c to $79.38US.
· Oil -$0.77 to $53.62US per barrel. Falling to a 2 year low as investors, worried by plummeting stock markets, priced in lower crude demand as the global economic downturn shapes up to be the worst in decades. * see below for some great gas saving tips!
· Gold +$3.30 to $735.90US per ounce

Email the author

It's the first time Bank of Canada has said economy could stall

Julian Beltrame The Canadian Press OTTAWA

The Bank of Canada acknowledged for the first time that the Canadian economy could be headed for a recession, adding that more stimulus and lower interest rates are needed to cushion the steep fall.

Bank governor Mark Carney said in a speech before a London, England, business audience that the Canadian economy has deteriorated more quickly than he had anticipated even only a month ago, hinting strongly he will cut interest rates at the next opportunity Dec. 9.

While Carney did not talk about a recession in his speech, he later told reporters it was a distinct possibility.

"Starting from flat growth in the first quarter of 2009 and the second quarter of 2009 . . . recession is a possibility for Canada,'' he said at a news conference.

Recession is technically described as two straight quarters of economic shrinkage.
The Canadian economy grew smaller in the third quarter ended Sept. 30 and is expected to contract again in the current quarter ended Dec. 31.

In his speech, Carney said the economy was slowing faster than what the bank had forecast last month, when it projected a 0.4 per cent gross national product contraction in the last three months of 2008, and a meagre 0.6 per cent average growth in 2009.

But other voices have been marking down Canadian growth ever since.

Recently, the International Monetary Fund downgraded Canadian growth to 0.3 per cent next year, while several private-sector economists have predicted the economy will in fact shrink in 2009 for the first time in 17 years.

October was one of the worst months in the history of North American stock markets, with trading losses in Canada of nearly 20 per cent, wiping out hundreds of billions of dollars of stock value and eroding consumer and business confidence.

As well, prices for oil, metals and other commodities have dropped sharply in recent months, weakening the resources-based economies of western provinces.

Meanwhile, Ontario and Quebec's manufacturing companies have lost tens of thousands of jobs this year through plant and mill closures and layoffs.

In his speech, Carney said that despite having already cut official interest rates in half over the past year, "some further monetary stimulus will likely be required to achieve the inflation target over the medium term.''

Several private-sector economists are forecasting the bank's short-term trendsetting rate will be sliced by half a point to 1.75 per cent, the lowest ever targeted by the central bank.

In his speech, Carney blamed external forces for Canada's predicament. While the country's sound banking practices have acted as a buffer, the headwinds from the global slowdown and steep American slump are hitting Canadians.

Not only have commodity prices tumbled and the availability of credit tightened, he said, but the nature of the U.S. slowdown -- with its pressure points in the housing and auto sectors -- affects key Canadian exports of lumber, vehicles and parts.

The Canadian economic situation was a sidelight to the main message Carney delivered in London, but it underlined a key point -- that even countries like Canada that have their finances in order were helpless to fend off the carnage from the breakdown in U.S. and global financial markets.

He said the crisis developed in part because of a lack of effective international surveillance. He said Canada's experience -- with strong asset-to-capital ratios, less securitization of mortgages, and required insurance on risky mortgages -- shows that reforms urged at recent meetings of G7 and G20 leaders would work.

To get key markets such as interbank lending and commercial paper working again, he said, central banks may have to inject enough liquidity to in effect become "market makers of last resort.''

Financial Update

'Rainy day has arrived,' economist says

· TSX +40.28pts (Reuters) the gains weren't without a struggle - one that lasted late into the afternoon - as traders weighed dismal home building numbers, after the National Association of Home Builders/Wells Fargo housing market index tumbled to its weakest reading since it started in January 1985.
· DOW +151.17pts
· Dollar -.44c to $81.31US.
· Oil -$0.56 to $54.39US per barrel. analysts suggested prices might be bottoming out as they moved closer to the psychologically significant $50 mark.
· Gold -$9.30 to $732.60US per ounce

Gareth Watson, Canadian equity adviser at ScotiaMcLeod advises on guessing when markets will push off their lowest point:

"If you remain so focused on this magical bottom, I think you're losing sight of the bigger picture which is how you position yourself in this type of market."

'Rainy day has arrived,' economist says Chuck Howitt RECORD STAFF

A federal deficit of as much as $10 billion would not be out of the question to solve the daunting challenges facing the Canadian economy, Douglas Porter, deputy chief economist and managing director of BMO Capital Markets, told an economic forum in Waterloo last night.

The Canadian government has had 12 years of surpluses, Porter told Wilfrid Laurier University's 17th annual economic outlook forum. "We've been saving up for a rainy day and it's fair to say that rainy day has arrived."

The U.S. federal deficit could hit $750 billion this fiscal year and could go as high as $1 trillion next year after incoming president Barack Obama
"unleashes a fiscal spending package," said Porter, who has analyzed economic trends for more than 20 years.

Meanwhile, there's been some talk in the media that the Canadian federal deficit could hit $10 billion, he said.

"Ten billion dollars doesn't sound so bad stacked up against $1 trillion," Porter said.

The Canadian housing market has held up better than the U.S. market, but prices have begun to drop here, he said. The biggest declines, however, have occurred in the cities where prices went up the most, such as Calgary, Vancouver and Toronto.

Meanwhile, smaller communities such as Waterloo Region have weathered the storm much better because prices did not go up as much and won't slide as much either, he said.

The U.S. economy was in a mild recession even before the financial shocks of the past few months, Porter said. Now it is in a full recession, which he expects will last until the middle of 2009, when a mild recovery will begin.

He predicted a full recovery will occur in 2010 because politicians have been "incredibly aggressive" with interest rate cuts and fiscal stimulus packages. Lower oil prices will also help, he said.

Canada, which entered a recession in the fourth quarter of this year, will hold up better than the U.S. because our government, household and banking balance sheets are in better shape, he said.

The notion that when the U.S. sneezes, Canada gets a cold is a myth, he said. During recessions in the mid 1970s and early 2000s, Canada actually outperformed the U.S., he said.

Porter had good news for battered investors. Stock markets tend to drop sharply prior to a recession, then go through a period of bouncing around, "trying to find their bearings," he said. But the markets also tend to "sniff out" the recovery five to six months before it happens, he said.

"When some of the economic data is at its absolute worst, you'll see the equity markets going on an incredible uptick."

The dramatic slowdown in global growth, particularly in Asia, is the main reason why commodity prices, including oil, have plunged, sending the Canadian dollar down as well, he said.

Commodity prices could drop further, but will recover when the global economy begins to turn around, he said. "It's just going to take some time for the global economy to heal."

Against all odds, the U.S. dollar has risen but Porter said he's "not bullish" on that continuing because of high U.S. deficits.

Financial Update

· TSX -260.51pts (Reuters) led by a drop in financial stocks as significant job cuts at major US financial firms and weakening earnings outlooks weighed on investors.
· DOW -223.73pts with word of Citigroup Inc. slashing 52,000 more jobs on top of the previous 23,000 and Japan slipping into recession heightening worries about the severity of the global slowdown.
· Dollar +15c to $81.75US.
· Oil $2.09 to $54.95US per barrel. setting a new near 22-month low. Oil has fallen more than 60% from its July record above $147 a barrel as the credit crisis has hit the real economy and dampened fuel demand in the United States, the world's biggest energy consumer
· Gold -$.50 to $741.90US per ounce

The FP article below stresses the importance of the “KNOW YOUR CLIENT” rule. With a potential slow down in regular mortgage business, it may be easier to be deceived in the desire to maintain volume levels.

Identity theft strikes almost 1.7 million Canadians

Financial Post Canwest News Service HAMILTON -- Identify fraud has struck almost 1.7 million Canadians in the past year, according to a new national survey, exacting a heavy cost in both time and money to resolve the issue.

Online transactions were the source for 15 per cent of identity theft cases; debit card skimming made up another 13% of cases, according to the survey, done by the DeGroote School of Business at McMaster University in Hamilton.

"The amount of time and money lost due to identity fraud has a severe impact both on individuals and on Canada's economy. Individuals, governments and businesses all have parts to play in preventing identity theft and fraud," Susan Sproule, researcher at the McMaster eBusiness Research Centre based at DeGroote, said.

Victims spent more than 20 million hours and more than $150-million of their own money to resolve the fraud, according to the research.

The survey found that in the past year 6.5% of Canadian consumers -- about 1.7 million people -- experienced some kind of identity fraud, such as unauthorized credit card purchases or account access, having new accounts or loans taken out in their name, and being impersonated.

Despite the frequency of ID theft, the survey showed that Canadians are not going far enough to minimize the chance of fraud. Only 13% of identity fraud cases were reported to the police and nearly half of respondents -- 49% -- had never requested a copy of their credit report.

About one-fifth of survey participants reported that they had stopped or reduced the amount of shopping they do online because of concerns about identity fraud, and nine per cent reported that they have stopped or reduced online banking activities.

"If consumers are afraid to do business online, Canadian companies will not be able to reap the full benefits of e-business," Ms. Sproule said.

Financial Update

Harper says Canadians can breathe a bit easier after G20 agrees on plan of attack

· TSX -296.82pts (Reuters) ending another rough week on a sour note, as investors took profits from Thursday's 400 point rally and embraced tighter their fears that recession will cut oil demand and starve earnings in the oil sands.
· DOW -337.94pts
· Dollar -.94c to $81.16US.
· Oil -1.20 to $57.04US per barrel. A record drop in U.S. retail sales in October refreshed concerns that a prolonged recession will curb demand for oil.
· Gold +32.50 to $742.40US per ounce In one record-setting day, gold shot out of its funk and reasserted itself as the ultimate safe haven while the U. S. financial sector crumbles all around it.

WASHINGTON At least 110 banks have requested about $220 billion US from the U.S. Treasury Department’s rescue fund, and many more are expected to submit applications. The figures, from the banks’ own statements, indicate the requests are closing in on the $250 billion the Treasury set aside from the $700- billion fund to purchase stock in banks

G20 leaders head home with plan to fight mutual foe: the economic meltdown By Lee-Anne Goodman, The Canadian Press

WASHINGTON - The emergency G20 summit this past weekend brought together leaders from nations that have spent centuries as far apart politically and philosophically as they are geographically.

Yet former foes that include the United States, Russia, India and China are uniting in the face of a common enemy - a global economic meltdown that's threatening to plunge the world into a depression.

That doesn't mean, however, that there weren't tough pills to swallow and tensions along the way as the leaders of the far-flung G20 nations, including Prime Minister Stephen Harper, formulated a broad action plan aimed at combatting their mutual menace on numerous fronts.

The magnitude of the crisis is such that Harper emerged from the summit to suggest he would cast aside his longtime aversion to deficit spending and dole out whatever cash was necessary if it was for the good of the world's financial health.

"Look, if there is a worldwide agreement, then we will engage in sufficient stimulus to do our part in carrying global economic demand," Harper said.

"We will fulfil our part of that agreement."

Discussions were reportedly pointed at times behind the scenes at the summit, with French President Nicolas Sarkozy apparently causing some of the biggest frustrations.

Diplomats present at the summit told the Washington Post on Sunday that Sarkozy was the slowest to commit to a moratorium on protectionist measures and a reaffirmation of free trade at an extravagant White House dinner on Friday night.

His stance irked some of the developing world leaders whose countries have been brutalized by a decrease in exports in the face of the global economic crisis, and who would be further harmed by protectionist trade policies.

Sarkozy's calls for broad global regulation also prompted Harper to reiterate his argument that even in regulation-friendly Canada, the idea would be seen as trouncing on national sovereignty.
Senior Bush officials were also forced to play down a number of remarks Sarkozy made at his news conference following the summit, including his boast that Europeans got "virtually everything" they sought at the table.

Each country is expected to implement a series of reforms by the end of March aimed at easing the crisis and stimulating their economies. The G20 meets again on April 30, three months after the inauguration of president-elect Barack Obama.

While Obama wasn't at the summit, his presence nonetheless loomed large as his representatives - former secretary of state Madeleine Albright and one-time Republican congressman Jim Leach - met with officials of 17 of the G20 nations.

Canada was among them. A senior government official wouldn't reveal what was specifically discussed during the meeting.

But when the House of Commons resumes sitting on Tuesday for the first time since Harper's re-election last month, the prime minister is certain to be asked about the type of relationship he'll try to forge with Obama amid the economic meltdown.

He'll also likely face tough questions about the health of the Canadian economy.

Canada is still hoping to balance its budget, Harper said in Washington this weekend, and he assured Canadians that Ottawa was prepared to do whatever necessary to lessen the impact of the crisis.

"There are going to be very tough adjustments that will have very real effects in the Canadian economy but we will continue to be pragmatic and flexible while maintaining good, long-run economic policies."

Finance Minister Jim Flaherty is tabling a mini-budget at the end of this month, several weeks earlier than usual due to the crisis. He's suggested the government will announce new spending aimed at stimulating the economy.

Harper didn't rule out a bailout package for Canada's Big Three automakers on the weekend, a debate that was raging furiously in the United States as Washington decided whether to go ahead with a proposed US$25 billion lifeline for the car manufacturers.

Canada has to "ultimately undertake our own actions and be convinced that those actions are not just in the interests of the auto sector but in the best interests of the Canadian economy and Canadian taxpayers," he said.

Harper promised during his election campaign to put another $200 million into Canada's $250 million Auto Innovation Fund.

Obama, for his part, is in favour of rescuing the auto industry and its three million jobs.

"For the auto industry to completely collapse would be a disaster in this kind of environment," he said in an interview with "60 Minutes" scheduled to air Sunday night.

"So it's my belief that we need to provide assistance to the auto industry. But I think that it can't be a blank cheque."

Harper says Canadians can breathe a bit easier after G20 agrees on plan of attack Lee-Anne Goodman, The Canadian Press

WASHINGTON - Canadians can breathe a bit easier about the global economic meltdown after the world's most powerful countries agreed on a series of measures to help ease the crisis, Prime Minister Stephen Harper said Saturday.

"The declaration should give us all hope, and I would hope would give the markets some reassurance," Harper told a news conference, referring to the so-called G20 countries' communique following the end of their emergency summit.

Canada is in relatively good shape compared to other nations as it heads off the crisis, and will issue a financial update at the end the month.

The International Monetary Fund recently forecast that the Canadian economy will grow moderately over the next year and avoid falling into a recession.

Nonetheless Harper sounded a cautious tone Saturday as he addressed the media at the Canadian Embassy.

"There are going to be very tough adjustments that will have very real effects in the Canadian economy but we will continue to be pragmatic and flexible while maintaining good, long-run economic policies," said the prime minister, flanked by Finance Minister Jim Flaherty and Ambassador Michael Wilson.

"We will respond in a way that will minimize Canadians' exposure to these problems and maximize our ability to come out of this in a strong position."

Harper and 19 other world leaders, including President George W. Bush, emerged from the meeting to say they'd taken important first steps to deal with the financial meltdown that has the world economy on the brink of depression, and to prevent another from happening again.

Among other measures, they agreed to flag risky investing and regulatory weak spots in hopes of avoiding future financial meltdowns, and have endorsed broad goals to fend off any future crisis while reviving the global economy.

The plan endorses an early warning system for problems such as the speculation frenzy that fed the U.S. housing bubble. It also calls for the creation of "supervisory colleges" of financial regulators from many nations to better detect risky investing and other potential problems.

The G20 leaders, who meet again April 30 left Washington armed with a series of reforms to put in motion by the end of March.

"The big question is how do we establish good regulatory structure without destroying the incentive to innovate, without destroying the marketplace," Bush said Saturday outside the stately National Building Museum where the summit was held.

"Transparency is very important so that investors and regulators are able to know the truth."

Adding that the summit "is not going to solve the world's problems," Bush said: "There is more work to be done."

Bush called for the emergency summit a few weeks ago in the face of the worldwide economic meltdown. It's the largest meeting of its kind in more than a decade.

The meeting comes at an awkward time for Bush, a wildly unpopular lame-duck president who's leaving office in two months when Barack Obama is officially sworn in as America's 44th president.

Obama has made it clear since his historic election Nov. 4 that Bush is still the president, and must remain actively involved in dealing with the crisis in the next few weeks.

Nonetheless, many of the officials who descended upon Washington for the summit had been clamouring for access not to Bush and his people but to the man who holds the real power in the U.S. capital - Obama.

The president-elect appointed two emissaries - one-time secretary of state Madeleine Albright and former Republican congressman James Leach - to attend on his behalf, reluctant to be seen as interfering during the waning days of Bush's presidency.

Senior Canadian officials met with Albright and Leach early Friday, hours before Harper arrived in Washington to attend the extravagant White House dinner that kicked off the summit.

While the prime minister is opposed to a vast international regulatory system that would impose global rules on each country's banking systems, he has strongly advocated the notion of "peer review" of every G20 country's national financial regulations.

Harper said he was pleased to see that idea was embraced at the summit.

"There is an agreement to look at transparent assessments - independent transparent assessments - of financial regulatory systems, so that will happen," said Harper.

"Canada submitted to IMF assessments in the past, and as we told our American friends and others, we found those very useful in the past ... so that has been recognized in the declaration."
Not far from the summit, a handful of protesters carried neon yellow signs that read: "Money for people's needs, not bankers' greed" and "Money for jobs, not for war and occupation."

The countries represented at the summit were the U.S., Canada, Argentina, Australia, Brazil, Britain, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea and Turkey.

Those countries and the European Union make up the so-called G20.

Financial Update

TSX SOARS

· TSX +430.21pts (Reuters) up 5% with an enthusiastic surge in the final hours of trading as investors snapped up deals
· DOW +557.52 pts The 6.5% gains came despite a flurry of weak corporate earnings and dismal U.S. unemployment claims, which had left the markets fighting off weakness until the afternoon rally.
· Dollar +1.73c to $82.54US.
· Oil +$2.08 to $58.24US per barrel. Energy analysts have come to believe that demand, not supply, is in control of the market. OPEC slashed production quotas by 1.5 million barrels/day after meeting at the end of Oct. It had virtually no effect on tumbling crude prices.
· Gold -$13.30 to $705US per ounce

Flaherty offers crisis tips from ‘boring' Canada

Globe and Mail-Report on Business-Canadian Press

WINNIPEG — This is a guest column by Finance Minister Jim Flaherty in Thursday's Financial Times, posted on the Department of Finance's web site and titled ‘Boring' Canada's financial tips for the world:

The financial crisis that began 14 months ago in the U.S. has intensified and spread around the world, threatening to roll back economic progress that has been made over the past two decades. Governments have been responding in a co-ordinated fashion and will continue this work in the lead-up to the summit of the Group of 20 leading economies.

Few countries are as dependent on trade or as integrated into the global financial system as Canada. Yet our financial sector continues to weather the turbulence better than many other countries. This did not happen by chance. Canadians by nature are prudent and our financial system has been characterized as unexciting. Canada's regulatory regime ensures that stability and efficiency are balanced. As a result, Canadian taxpayers have not had their money put at risk in response to this crisis. If Canada's financial system is boring, perhaps the world needs to be more like Canada.

Before we examine grand designs for global regulatory regimes, we need to recognize that good regulation begins at home. Effective national regulatory regimes could have prevented this crisis and must be our first line of defence against any future one. We all need to draw lessons from those systems that worked well and apply them to our national regulatory regimes.

First, we need to regulate all pools of capital that rely on leverage. The crisis has demonstrated the devastating impact that unregulated entities can have. Transparency requirements must be the price of admission to global markets. Different financial services may have different regulatory requirements, but we need to bring them all under a regulatory umbrella.

Second, capital and liquidity buffers need to be large enough to handle big shocks. Moreover, regulators must restrain overall use of leverage. Some have criticised high Canadian capital requirements for banks as being too conservative. But the strong balance sheets of Canada's banks through this period speak for themselves.

Third, it is not enough for regulation to look at individual institutions. It needs to look at the system as a whole. Risks that may appear sensible in isolation can be unsustainable from a systemic perspective. This systemic vantage point must be used to mitigate any tendency to underestimate risk when times are good. This requires co-ordination across the government, central bank and regulatory agencies.

Fourth, we need to make market infrastructure more transparent and resilient. Non-transparent over-the-counter trades and naked short-selling reduced the stability of the system.

This crisis has demonstrated that even countries with strong financial systems can feel the effects of inadequate regulatory regimes elsewhere.

Countries may hesitate to impose new requirements on their own institutions if these measures will create a competitive disadvantage. This points to the importance of the fifth step:

strengthening international co-ordination, review and surveillance to create a better second line of defence. Canada was a pioneer of the joint International Monetary Fund-World Bank financial sector assessment program. This independent review of domestic financial systems should be mandatory and public. We need to strengthen the role of international colleges of supervisors to ensure better understanding of systemic risks and to co-ordinate national actions. We need IMF surveillance with teeth. Countries must live up to their responsibilities to support global financial stability and growth. Nowhere is this more important than in correcting global imbalances through appropriate exchange rate and macroeconomic policies to support growth.

The process of how we make decisions is equally important. In two decades of unprecedented growth, we have seen the emergence of dynamic new economic players that must be full participants at the global table. Canada took one of the largest share cuts of any country in the recent IMF reform exercise to ensure that emerging economies are better represented. This broader range of voices must be heard in other venues such as the Financial Stability Forum.
Together, these reforms must ensure that incentives are aligned to support stability and that resilience is built into the financial system.

The open market system did not fail in this crisis. However, some forgot Adam Smith's maxim that the invisible hand needs to be supported by an appropriate legal and regulatory framework. We need to work together to strengthen those frameworks, and that work must begin at home.”

Financial Update

Loonie falls like a stone with biggest one day drop on record
Ottawa boosts effort to fight spreading global credit crisis-adds another $50B to mortgage purchase program
· TSX -501.53pts (Reuters)
· DOW -411.30pts The tumbling markets are a combination of overall concerns about the slowing global economy and some of the economic developments and weak retail sales coming out of the United States, said Norman Raschkowan, chief investment officer at Mackenzie Financial Corp
· Dollar -2.77c to $80.81US. the biggest one-day drop on record at the Bank of Canada and surpassed the 2.69-cent fall on Oct. 10. Currency watchers say the loonie and other resource-linked currencies are being driven down by falling prices for commodities such as oil, metals and minerals and by global economic uncertainty
· Oil -$3.17 to $56.16US per barrel.
· Gold -$14.50 to $718.30US per ounce
(Reuters) U.S. Treasury Secretary Henry Paulson announced changes to the US$700-billion rescue plan for troubled financial firms. The markets may be "expressing its disappointment" that the treasury department appears to be moving away from the initial intent of relief program. Paulson said the program will not be used to purchase troubled mortgages and other assets from banks as originally planned, but the U.S. government will continue to invest banking companies to provide them with the capital they require to weather the credit crunch.
"So it sort of begs the question of how we're going to establish a market for these distressed assets and that may be contributing to some nervousness," Steve Malyon a Scotia Capital currency strategist said.
Ottawa boosts effort to fight spreading global credit crisis
RICHARD BLACKWELL AND HEATHER SCOFFIELD Globe and Mail Update
TORONTO — Ottawa has announced three new aggressive measures to get Canada's credit markets back in working order.

Finance Minister Jim Flaherty said Wednesday in Toronto the government would add $50-billion to its mortgage purchase program. He has also agreed to slash the price the government is charging to Canadian banks to insure their wholesale lending.

At the same time, the Bank of Canada is injecting another $8-billion into money markets over the next few weeks, in one-month money, through a new Canadian-dollar term lending facility it is setting up.

“Canada has stepped up to the plate in a major way this morning, announcing three major new actions today, all designed to crack the nute that is the credit crunch,” commented Eric Lascelles, chief economic strategist at TD Securities.

Ottawa “has introduced programs that should contribute to a notable narrowing in financial institution credit spreads, and possibly in credit spreads overall,” he said in a note to clients.

Mr. Flaherty's announcement means the government will now buy up to $75-billion of insured mortgage pools from the major banks, up from $25-billion.

He told reporters he made the move because he now expects an “extended period of stress in global credit markets.”

In addition to increasing the amount of money available to buy mortgage debt, the Department of Finance also slashed the price it will charge banks for guaranteeing their loans.

Commercial banks have complained loudly that the loan guarantee program designed by Ottawa a few weeks ago was too expensive to be of much use.

While other countries' banks could buy what amounts to insurance at a low price, Canadian banks were paying higher rates. The program was only useful for banks in dire trouble, and was putting the Canadian financial institutions at a competitive disadvantage globally.

In Ottawa, the Bank of Canada said it will put an additional $8-billion into one-month money markets, spread out in four auctions over the next few weeks, through a newly created Canadian-dollar term loan facility.

The Bank of Canada has hinted heavily in recent weeks that it had further measures in store, to make sure financial institutions have cash on hand to finance their transactions.

Financial institutions can post almost any kind of loan on their books as collateral, in order to take part in the auctions, the bank said.

“By providing greater flexibility for liquidity provision with respect to eligible collateral, the [new facility] will facilitate further improvement in money and credit markets.”

Canadian banks have been pressuring Ottawa to boost their help for the sector, and all countries have been urged, in a series of international meetings, to do much more in order to get the global economy back on track.

While lending spreads in some markets have edged down gradually in the past few weeks, Canada's key spreads have not moved much for a month, suggesting a lingering risk aversion among banks in Canada.

“At a time of considerable uncertainty in global financial markets, this action will provide Canada's financial institutions with significant and stable access to longer-term funding,” Mr. Flaherty said in a statement. “This extension of the program to purchase insured mortgages will further support the availability of credit, which will benefit Canadian households, businesses and the economy. In addition, it will earn a modest rate of return for the government with no additional risk to the taxpayer.”

Mr. Flaherty indicated last weekend that he understood the banks' complaints, and would consider acting. But Bank of Canada Governor Mark Carney said in an interview Ottawa had carefully designed the program, and suggested Canadian banks weren't at a global disadvantage because they are in far better shape than other banks around the world.

Financial Update

· TSX -264.68pts (Reuters) on a flurry of bad corporate news and weakening commodity prices
· DOW -168.58pts led down by a drop in the energy and materials sectors as commodity prices were pressured by concerns the economic downturn would hit demand
· Dollar -.61c to $82.97US.
· Oil -$3.73to $58.68US per barrel. Falling more than 5% as optimism waned that China's huge government stimulus plan will avert a prolonged global slowdown and Wall Street offered yet more evidence that consumers have gone into hiding.
· Gold -$18.00to $728.50US per ounce

Fannie Mae said yesterday that the housing finance company has taken over so many homes through foreclosures that if it were a town, it would be bigger than Dayton, Ohio
Survey suggests holiday spending could be at least as good as last year's

By The Canadian Press

TORONTO - A new survey suggests Canadians could spend more money this holiday season than they did last year, despite recent widespread indications that consumer confidence has been rattled.

Just over half of respondents to a survey by financial advisory firm Deloitte said they plan to spend at least as much this holiday season as they did last year. Meanwhile, 40 per cent said they will spend less this year, compared to the 25 per cent who said they planned to spend less in 2007 than they did in 2006.

Deloitte says lower gas prices will mean a little more money in pockets, but the survey also suggested shoppers will be looking for savings: 83 per cent said they planning to buy more items on sale this year.

And the sagging loonie will mean more shopping at home, the survey suggested, with 41 per cent saying they plan to shop south of the border, down from 64 per cent in 2007. There will also be less online shopping, the survey suggested, with 63 per cent saying they don't plan any holiday purchases on the Web.

A recent survey by the Conference Board of Canada found that consumer confidence fell in October to its lowest level in more than 25 years on dire global economic news.

U.S. offers help with mortgage payments Janet Whitman, Financial Post

NEW YORK -- As the weakening economy threatens to push millions more Americans into foreclosure, the U.S. government is dramatically stepping up efforts to keep homeowners from defaulting by making their monthly mortgage payments more affordable.

Fannie Mae and Freddie Mac, the two ailing mortgage-finance giants seized by the U.S.

government in September, Tuesday were given the authority to modify hundreds of thousands of home loans.

The new drive to keep Americans in their homes comes as U.S. government officials recognize that the ballooning foreclosure rate is putting the already-slumping economy in much greater peril.

It also follows mounting pressure on the government to help out homeowners since the authorization of a controversial US$700-billion, taxpayer-funded bailout for banks hurt by the housing crisis.

"Stabilizing our financial system will require not only strengthening our financial institutions so they are able to lend to our communities, but also helping homeowners avoid preventable foreclosures," Neel Kashkari, the interim U.S. Treasury official in charge of the bailout, said Tuesday afternoon during a televised Washington briefing announcing the new program.

The plan is less aggressive than a proposal pushed for by Sheila Bair, the outspoken chairman of the Federal Deposit Insurance Corp.

The proposal offered by the FDIC, a government agency that insures bank accounts, could have helped as many as three million of at-risk homeowners, instead of the hundreds of thousands under Tuesday's plan, by getting the government to provide a partial guarantee for bank losses on modified mortgages.

The plan from Ms. Bair, a Republican who's been cited as a contender to take over as U.S. Treasury Secretary in the Barack Obama administration, would have required about US$50-billion from the US$700-billion bailout fund.

Ms. Bair, who didn't attend Tuesday's press briefing, said in a statement the program unveiled was a step in the right direction, but doesn't go far enough to achieve wide-scale modifications of distressed mortgages.

"As we lend and invest hundreds of billions of dollars to help institutions suffering leveraged losses from defaulting mortgages, we must also devote some of that money to fixing the front-end problem: too many unaffordable home loans," she said in the statement, according to Bloomberg News.

Officials at the briefing said their mortgage-relief program would complement workout offerings from banks such as Bank of America Corp., Citigroup Inc., and J.P. Morgan Chase & Co.
It is targeting high-risk borrowers who are at least three months behind on their mortgage payments because of financial hardship, such as a lost job.

Homeowners who qualify could see their mortgage payments trimmed to 38% of their monthly income, a reduction achieved by cutting the interest rate, extending the life of the loan or putting off payment on part of the principal. Monthly interest rates for some borrowers could fall as low as 3%.

"As housing prices have fallen, delinquencies on mortgages have tripled... [hurting] families, their neighbours, whole communities and the overall housing market," said James Lockhart, director of the Federal Housing Finance Agency, an independent federal agency that now oversees Fannie and Freddie. "We need to stop this downward spiral."

Fannie and Freddie, which own or guarantee about 58% of all single-family mortgages across the United States, could end up offering less burdensome mortgage payments for hundreds of thousands of homeowners.

With Fannie and Freddie-backed mortgages representing only 20% of serious delinquencies, government officials are hoping for a broad adoption of the new, streamlined mortgage-workout process to come to the aid of the millions more Americans facing foreclosure over the next couple of years.

As an incentive, servicers, the companies that handle monthly mortgage payments, would be paid US$800 for each modified loan.

Financial Update

North American Markets split directions…

· TSX +86.52 pts (Reuters) led by a jump in mining stocks - as investors turned their attention to China's massive stimulus package of 4 trillion yuan to loosen credit conditions, cut taxes and embark on major infrastructure spending.
· DOW -73.27pts New York markets failed to shake lingering fears over the troubled U.S. economy.
· Dollar -.6c to $83.58US.
· Oil +$1.37to $62.41US per barrel. Crude is bought and sold in dollars, and when the dollar falls against foreign currencies, investors often sell the U.S. currency and buy oil.
· Gold +$12.30to $746.50US per ounce

Home construction beats expectations, while prices rise

Jamie Sturgeon, Financial Post

Canada's housing market showed some resiliency through September and October, as national new home prices unexpectedly rose two months ago while the rate of construction on new homes was higher-than-expected in October, a pair of reports said Monday.

Statistics Canada reported that new-home prices rose in September even as the year-over-year increase fell to its slowest pace since 2000.

New home prices gained 0.1% between August and September, StatsCan said. Year-over-year, home prices appreciated 2.1% -- the slowest pace in more than eight years, and down from August's 2.3% rise.

The results were better than expected though, as economists predicted new home prices would decline 0.1% in September, according to the median of 14 responses in a Bloomberg survey.

Meanwhile, construction on new homes remained above 200,000 starts in October, Canada Mortgage Housing Corp. said Monday, defying expectations among most industry watchers calling for a protracted slowdown.

The seasonally adjusted annual rate of housing starts declined 3.1% to 211,800 units in the month, down from 218,600 in September, but still well above the consensus view among economists that predicted between 195,000 and 200,000 new homes annualized.

"This is in stark contrast to the [United States] where over the first nine months of this year, starts are down 29.8% compared to year-ago levels," wrote Paul Ferley, assistant chief economist at Royal Bank of Canada in a morning note to clients.

"Housing starts remained strong in October and are consistent with our new home construction forecast for [the year]," said Bob Dugan, chief economist at the agency.

Single-detached starts in urban areas declined 1.1%, while construction on urban multi-family dwellings such as condominiums and townhouses fell by 6%, CMHC said.

By province, urban starts decreased in British Columbia, the Prairies and Ontario, CMHC said. In contrast, starts leapt 41,300 in Quebec, while builders began construction on 9,600 units in the Atlantic provinces.

Starts on detached urban housing declined in every province except Ontario, where construction increased 10%, the agency said.

It is the second month in a row that CMHC figures have come in widely-better-than expected.
October's numbers are in line with the 212,000 annualized rate the agency forecast for this year.
However, last month's pullback from September may also indicate the country's housing market has begun to downshift toward CMHC's projection of 178,000 starts for 2009, a more constant rate, historically.

"For the first 10 months of 2008, actual starts in rural and urban areas combined were down an estimated 1.6% compared to the same period last year," the agency said.

"The current tight credit conditions are expected to put further downward pressure on new construction through next year," RBC's Mr. Ferley added.

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Financial Update

· TSX +40.80 pts (Reuters) led by a jump in gold stocks -as investors snapped up beaten down shares following a huge selloff over the last 2 sessions. Traders were also encouraged after a report showed Canada unexpectedly added jobs in Oct.
· DOW +248.02pts with energy shares fronting the gains, as bargain hunters stepped in after two days of losses, helping foster hope that global intervention will help an economy that shed nearly a quarter million jobs in October.
· Dollar +.26c to $84.18US.
· Oil +$0.27to $61.04US per barrel. Increasing evidence that OPEC production cutbacks were taking hold also helped support prices.
· Gold +$2.00to $733.20US per ounce

Government restructures AIG bailout WASHINGTON (Reuters) - The Federal Reserve said on Monday the U.S. government would buy $40 billion of shares in insurer American International Group as part of a restructured bail-out package intended to prevent the firm from collapsing.

Flaherty eyes measures to ease credit flow Paul Vieira, Financial Post Sat Nov 8,08
SAO PAULO -- The Finance Minister, Jim Flaherty, acknowledged Saturday that funding pressures remain in Canada, with banks reluctant to lend to certain ailing sectors, and is in talks about undertaking further measures aimed at easing the flow of credit.

"There are credit constraints in the Canadian economy, and naturally the banks are concerned extending credit in certain sectors in the Canadian economy, because of their concerns about the viability of their customers," said Mr. Flaherty in Sao Paulo, where he is attending a meeting of Group of 20 finance and central bank officials.

He said that Department of Finance officials have spoken with the federal banking regulator and the chartered banks about the credit tightness. "I can look at additional measures that we could take."

Nancy Hughes Anthony, president of the Canadian Bankers Association, said the Minister was right to acknowledge that funding pressures exist in Canada.

"While banks are open for business and are active in providing credit, we are all working hard to ensure that our banks and financial sector remain strong while at the same time meet the credit needs of businesses that are having a tough time because of the economic downturn," she said Saturday.

It is one of the first acknowledgments from Mr. Flaherty that measures taken to date, by Finance and the Bank of Canada, are not entirely having their desired effect.

The central bank has made nearly $27-billion available to financial markets, and expanded both the type of collateral it will accept and the number of market players that can access its cash. Meanwhile, the federal government has pledged to acquire at least $25-billion of bank mortgages and has offered to backstop interbank lending through a temporary insurance scheme.

This past week, a coalition of manufacturers called on Ottawa to issue a temporary guarantee on loans and lines of credits because credityworthy producers of goods remain unable to access cash. Also, Canada's top bank and insurance executives have urged Ottawa to take fresh steps to ease funding pressures, mainly by cutting the price for banks to participate in the government-backed insurance program.

The fee to access the insurance on wholesale debt was set at 1.6%, which financial institutions must pay to get the government's guarantee. This was Ottawa's response to moves by other governments, most notably the United States, to issue guarantees on lending, and ensure that Canadian banks were not put a competitive disadvantage compared to their peers.

One of the potential outcomes of this weekend's G20 meeting is a co-ordinated response by industrialized and emerging economies to take measures that would mitigate further economic damage to countries as a result of the U.S.-originated credit crunch.

Financial Update

North American markets slump on economic worry

· TSX -331.79 pts (Reuters) The Canadian dollar closed lower versus a stronger U.S. dollar as a slide in prices for key Canadian commodities along with tumbling equity markets sparked demand for the greenback.
· Dow -443.48pts
· Dollar -1.70c to $83.92US. Commodity prices were much lower ... and extreme risk aversion prompted a flight back into the greenback," said Sal Guatieri, senior economist at BMO Capital Markets.
· Oil -$4.53to $60.77US per barrel. a near 7% drop in the price of oil, took most of the blame for the Canadian currency's latest slide
· Gold -10.10to $731.30US per ounce

Canada may skirt recession: IMF Julian Beltrame The Canadian Press

Evidence was mounting yesterday that Canada may be following the rest of the world on the path to recession, even as global policy-makers look to new measures to combat the economy-destroying financial crisis.

In its latest update, the International Monetary Fund sharply downgrades the economic outlook for Canada and the rest of the world from its previous projection a month ago.

The world organization, headquartered in Washington, said Canada's economy will avoid recession by the slightest of margins with 0.3 per cent growth next year, while all other G7 leading industrial counties will see their economies actually contract, led by Germany and the U.S.

The IMF's latest forecast for Canada is well down from the relatively robust 1.2 per cent advance it had predicted only last month.

"Prospects for global growth have deteriorated over the past month,'' the body said, urging governments to act to stimulate their economies.

The darkening outlook shook markets around the world, with stocks plunging the Tokyo index more than six per cent, while shares fell 3.3 per cent in Toronto and 4.8 per cent in New York's main exchange.

Yesterday brought more indications that the economy in Canada is slowing sharply.

An official government report showed bankruptcies in Canada were climbing steeply even before the worst of the financial crisis hit, increasing by almost 19 per cent in September from the previous month and 28 per cent from a year ago.

And in an indication that Canada's housing slump is deepening, permits for new housing fell 4.9 per cent during September, the second straight monthly decrease and sixth during the year.
Overall, building permits rose 13.4 per cent in September largely on the strength of publicly financed non-residential construction.

Worse news is expected to come this morning with the new employment report from Statistics Canada.

Many economists believe the October jobs number will usher in an uncomfortable period of monthly job losses that will begin to track what is occurring in the U.S., which has already shed 760,000 jobs this year.

"The worst part for the economy is largely still ahead of us,'' said Derek Holt, vice-president of economics with Scotia Capital.

"The speed at which things are deteriorating is alarming.''

Have a great weekend!

Financial Update

· TSX -229.38 pts (Reuters)commodities prices slumped as stock markets returned their gaze to the faltering global economy

· Dow -486.01pts
· Dollar -1.25c to $85.62US.
· Oil -$5.23to $65.30US per barrel the cost of a barrel has fallen 56% since July. Demand for gasoline in Oct. was 2.3% lower than a year earlier, the weekly Energy Information Administration report said.
· Gold -14.70to $741.30US per ounce gold and base metals prices fell on a firmer U.S. dollar.

Financial Post-City of Toronto existing home prices plunged 13% in October from a year ago and are now even lower than two years ago, the Toronto Real Estate Board said Wednesday.

Bank of England makes dramatic interest rate cut Reuters LONDON - The Bank of England slashed borrowing costs on Thursday by 150 basis points to soften the blow of a sharp economic downturn. The cut took interest rates to 3% from 4.5%.

Most economists polled by Reuters had forecast a half-point cut although several had changed their forecasts following a series of gloomy data. Ten out of 62 analysts predicted a full percentage point cut.

The central bank has never cut interest rates by more than half a point since it was made independent in 1997. The last time rates were slashed by a percentage point was in 1993, when the country was struggling to emerge from a recession.

Christian Vits, Bloomberg News The European Central Bank will cut interest rates for the second time in less than a month today as the region's economy suffers its worst slump in 15 years, economists said.

It's time for radical action,'' said Ken Wattret, an economist at BNP Paribas SA in London. ``This is a very severe economic downturn, interest rates should come down a long way.'' ECB policy makers meeting in Frankfurt will lower the benchmark lending rate to 3.25% from 3.75%, according to 54 of 55 economists in a Bloomberg survey.

Canada set to fight Europe over financial cure Paul Vieira and Eoin Callan I,Financial Post,
Canada is set to fight efforts by European leaders to champion an overhaul of the global financial system at this weekend's historic meeting of finance ministers and central bankers from the Group of 20 countries.

Jim Flaherty, the Minister of Finance, signalled the country's hard-line approach Wednesday in Peru while meeting his counterparts at the Asia-Pacific Economic Co-operation forum. He warned of European countries - led by France - that are trying too ambitiously to put a quick end to the current financial crisis, and find a cure to fight future credit crunches.

"Countries need to get their own systems in order to ensure that not only are their own institutions sound, but also that systemically they are sound," Mr. Flaherty said.

Prime Minister Stephen Harper will also take steps in the same tone when he meets Thursday in Toronto with bank and insurance executives.

The hastily convened talks on King Street will be used to help shape Ottawa's stance at upcoming international summits and press a domestic agenda to strengthen Canada's financial system.

The meeting will help inform the negotiating position of Mr. Flaherty as he heads from the APEC meeting to Sao Paulo, Brazil, for the G20 gathering, where he will be joined by Mark Carney, the Bank of Canada governor.

Mr. Flaherty and Mr. Carney are set to push a more pragmatic approach to preventing future financial crises, such as the one that has hit the global economy and forced governments to inject trillions of dollars into capital markets.

They will argue governments should focus on sound regulation of their domestic markets. Also, the two plan to highlight the Canadian system and its capital requirements of financial institutions, and how those rules have allowed the country to weather the credit malaise better than most.

While finance ministers and central bankers in Sao Paulo are to deal with more focused, technical matters, their discussions will set the groundwork for a meeting of world leaders, including Canada's Prime Minister, Stephen Harper, on Nov. 15 in Washington.

The gathering, however, appears to be shaping up as a divide between the efforts led by the French and British to overhaul the global financial system by introducing binding financial regulations all countries are to adhere to, and enforced by a reinvigorated International Monetary Fund.

But Canada, the United States, Australia and potentially other emerging economies will advocate a more "minimalist" approach to addressing future disruptions in the capital markets, said John Kirton, a foreign policy specialist at the University of Toronto and director of the school's G20 research group. This approach preaches a patient response to dealing with the crisis, and is skeptical of binding global regulations.

"Canada is sitting on the minimalist end of the spectrum and is probably even more minimalist than the United States for a number of basic reasons – one of them, the crisis has not come to Canada, yet," Mr. Kirton said.

Maurice Levi, a professor of finance at the University of British Columbia's Sauder School of Business, said he backs Mr. Flaherty's approach.

"This has become an international financial problem because risk has been spread all over the world – but it is not, intrinsically, a global problem," Mr. Levi said, noting the problem emanated from the packaging of subprime mortgages in the United States.

The Sao Paulo gathering is viewed as a historic encounter in the short history of the 20-nation group, because the top industrialized nations now seek the co-operation of the emerging giants to deal with the current credit crunch, and protect against similar market disruptions in the future.

The financial crisis "is a worldwide phenomenon ... and so we all need to be rowing the boat in the same direction," said Nancy Hughes Anthony, president of the Canadian Bankers Association, who will be closely watching what develops this weekend.

But she added the G20 members must have realistic ambitions. "It is nice to dream about creating new international bodies, but we have to improve our regulatory structure through our home regulators by more international co-operation. That's the way to go."

Ottawa's own domestic push to create a new national watchdog to supervise Canadian securities markets will also get strong support from Bay Street when Prime Minister Harper meets executives, who will bring to the talks a list of pressing short-term needs and longer-range ambitions.

People participating in the talks said the meeting would include banking executives from the Royal Bank of Canada, TD Bank, Bank of Nova Scotia, and Bank of Montreal, Canadian Imperial Bank of Commerce, and insurance executives from Manulife Financial and Sun Life.

The Conservatives are receptive to key demands from Bay Street to take fresh steps to level the playing field by easing funding and capital pressures on Canadian financial institutions, while weighing fiscal moves that would help Bay Street rebound.

But an aide to the prime minister indicated the government was unlikely to heed the request of manufacturers and issue temporary guarantees on loans and line of credits in an effort to get financing into companies' coffers.

Have a great day!