Crisis? What crisis? Most Canadians upbeat heading into 2009: Poll By Terry Pedwell, The Canadian Press
OTTAWA - A new poll suggests a significant majority of Canadians remain optimistic as they look ahead to 2009 - notwithstanding all the gloomy talk about a looming recession. The Canadian Press Harris-Decima survey found that 58% of respondents were upbeat about the coming year, and only 21% were pessimistic. Another 20% said their outlook was neither optimistic nor pessimistic.
However according to Joe Castaldo, Canadian Business magazine; We haven’t seen the worst of it yet. That’s the message from the 136 Canadian CEOs surveyed about the economy by COMPAS Inc.More than 60 % of the respondents believe the Canadian economy will become “somewhat” or “a lot” worse over the next six months, whereas 20% say it will remain about the same. Only 14% of the CEOs say the economy has already hit bottom.
· TSX +326.74pts (Reuters)
· DOW -31.62pts
· Dollar -.63c to $.82.07US.
· Oil +$2.31to $40.02US per barrel.
· Gold +$4.10 to $875.30US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
A quick skim of notable business events of 2008:
JANUARY:
KPMG reports global auto industry executives are increasingly cheerful and "profitability expectations are starting to grow."
Canadarm maker MacDonald, Dettwiler and Associates Ltd. announces a $1.3-billion sale of its space business to U.S.-based Alliant Techsystems. The deal was shot down in May by the federal government.
Manulife Finance invests $500 million in CIBC at $65.26 a share. CIBC stock ended the year under $50, while Manulife shares fall from $40 to under $20.
Congress and the Bush administration agree on a stimulus package giving most U.S. taxpayers refunds of $600 to $1,200.
Applause erupts in a Montreal courtroom as Vincent Lacroix, former head of the Norbourg investment firm, gets a 12-year prison term for bilking 9,200 investors of $115 million.
FEBRUARY:
Chrysler introduces the Challenger, a Canadian-made muscle car with a 425-horsepower V-8. General Motors reports a 2007 net loss of US$38.7 billion.
The United Nations World Food Program says many of the world's poor are going hungry because of soaring food prices caused partly by the use of crops to make biofuels.
The U.K. government nationalizes Northern Rock after the first run on a British bank in 140 years.
Nortel Networks eliminates 2,100 jobs and moves 1,000 to "higher-growth and lower-cost geographies." Its shares close Feb. 27 at $9.68, down from $35 a year earlier. By the end of 2008, Nortel is a penny stock. It closed Monday at 32.5 cents in Toronto.
MARCH:
Conrad Black reports to Coleman prison in Florida to begin a 6 1/2-year sentence for fraud and obstructing justice. Friends describe the fallen media magnate as "serene."
The Zimbabwean dollar falls to 25 million to one U.S. dollar.
American investment bank Bear Stearns fails and is taken over by JPMorgan Chase.
APRIL:
A natural gas discovery by Forest Oil Corp. prompts a flurry of interest in the St. Lawrence Lowlands of Quebec.
The federal government pays pork producers $50 million to kill 150,000 pigs to ease oversupply.
Crocs Inc. announces the closure of its Quebec City factory, ending 670 jobs as it shifts shoe production to Mexico.
Toyota becomes the world's most prolific carmaker, passing General Motors in terms of production.
Computer maker Dell announces the closure of its 2 1/2-year-old Ottawa call centre, eliminating 1,100 jobs.
Investors in $32 billion of asset-backed commercial paper, frozen since August 2007, approve a plan to restructure the notes. The restructuring drags on, now expected to be resolved in January.
MAY:
Quebec furniture maker Shermag Inc. seeks court protection from creditors.
General Motors announces it will shut its transmission plant in Windsor, Ont., in 2010, hitting 1,400 workers.
An earthquake in Sichuan province kills an estimated 69,000 people. Analysts predict only a transitory jolt to China's economy.
The Canadian Auto Workers union concludes hasty negotiations with the Detroit Three automakers, accepting a pay freeze.
Atomic Energy of Canada Ltd. cancels two new MAPLE medical-isotope reactors, blaming costs and risks.
As oil prices spiral higher, restaurants complain of thefts of cooking-oil grease for use as diesel fuel.
Statistics Canada reports that for the first time more Canadians are involved in selling products than in manufacturing them.
JUNE:
Research In Motion stock peaks at $150.30 on the TSX. It ends the year at less than one-third that price.
In a move the Canadian Auto Workers calls an illegal betrayal, General Motors says it will shut four truck plants, including one in Oshawa, Ont., that employs 2,600 people.
The Organization for Economic Co-operation and Development predicts tougher times, but in Canada "no recession is expected."
Former TV personality Ed McMahon says his Beverly Hills house is facing foreclosure.
Federal Reserve chairman Ben Bernanke says the risk of a serious recession appears to have diminished.
Shares in fertilizer maker Agrium Inc. peak at $116, before ending the year under $40. Potash Corp. hits $246, closing 2008 at one-third that level.
RCMP lay fraud charges against former Nortel CEO Frank Dunn. On the same day the Mounties charge Royal Group Technologies founder Vic De Zen in an unrelated case.
JULY:
Bombardier Inc. announces it will go ahead with the long-delayed CSeries airliner.
The U.S. government bails out mortgage giants Fannie Mae and Freddie Mac.
Crude oil peaks at US$147.27 on July 11, then begins a long, steep decline.
General Motors presents its 2010 Camaro muscle car, to be assembled in Oshawa.
AUGUST:
The House of Commons subcommittee on oil and gas and other energy prices begins probing what one MP calls "a bread and butter issue that no one can ignore."
Oil prices, mining stocks and the Canadian dollar all slide, with crude ending the month at US$115 a barrel, en route to about $40 at year-end.
Maple Leaf Foods recalls ready-to-eat meat products amid a nationwide Listeria outbreak blamed for 20 deaths.
Barbie maker Mattel Inc. wins US$100 million in a California copyright lawsuit against MGA Entertainment, maker of Bratz dolls.
SEPTEMBER:
Lehman Brothers, a 158-year-old U.S. investment bank, files for bankruptcy, triggering panic on financial markets.
Merrill Lynch, America's largest stock brokerage, is rescued in a takeover by Bank of America valued at US$50 billion.
Central banks inject hundreds of billions of dollars into credit markets to support confidence, and slash interest rates to encourage borrowing.
The Toronto Stock Exchange's main index suffers a record one-day point loss, dropping 840.93 points on Sept. 29. That record is broken Dec. 1 with a plunge of 864.41 points.
OCTOBER:
Russian oligarch Oleg Deripaska is forced to sell his 20 million shares in Canadian autoparts maker Magna International to prop up other parts of his empire.
Zimbabwe's inflation rate is reported at 231 million per cent.
The U.S. Congress approves a $700-billion financial-industry bailout.
Paul Krugman, a critic of the Bush administration (and of the financial-sector bailout) wins the Nobel prize in economics.
NOVEMBER:
Gasoline prices fall decisively under $1 a litre in much of Canada, down from summer peaks above $1.40.
Canwest Global Communications cuts 560 jobs, five% of its workforce, and writes down the value of its Canadian TV operations by $1 billion.
Bank of Canada governor Mark Carney says "recession is a possibility for Canada."
Teck Cominco Ltd. suspends dividends, slashes spending and sells assets as it staggers under US$9.8 billion in debt taken on to acquire the Fording Canadian Coal Trust in October. Teck stock, which peaked at $52.90 last spring, ends the year at about one-tenth that price.
The executives of the Detroit Three automakers fly to Washington in corporate jets to beg for a $25-billion bailout.
Canadian car dealers appeal for government aid.
BHP Billiton, the world's largest mining company, gives up on a US$68-billion hostile takeover of Rio Tinto, whose holdings include Alcan.
A 34-year-old worker at a Long Island Wal-Mart is trampled to death as the holiday shopping season opens.
DECEMBER:
Ted Rogers, founder of Canada's largest cable-TV and cellphone network operator, dies at 75.
The Detroit Three CEOs go to Washington again to appeal for aid - this time driving hybrid vehicles.
Wall Street fixture Bernard Madoff, 70, is charged with fraud in an alleged Ponzi scam said to have cost investors US$50 billion.
The proposed $52-billion takeover of BCE Inc. by an investor group led by the Ontario Teachers' Pension Plan collapses.
Merchandise worth US$100 million is stolen from the Harry Winston jewelry store in Paris.
Former Hollinger newspaper executive David Radler is released after 10 months of a 29-month prison term for fraud, secured in a plea bargain for testifying against former associate Conrad Black.
Newspaper publisher Sun Media cuts 600 jobs, 10% of its staff.
The Newfoundland and Labrador government moves to expropriate resource rights held by Abitibi Bowater after the newsprint maker says it will shut a paper mill and cut 800 workers.
The Federal Reserve cuts its key policy interest rate to a record low of between zero and 0.25 per cent
Tuesday, December 30, 2008
Monday, December 29, 2008
Financial Update
· TSX 1.36pts (Reuters) on Christmas Eve-closed Thurs and Fri
· DOW +47.07pts
· Dollar +.67cto $.82.70US. on Christmas Eve-closed Thurs/Fri
· Oil +$2.36 to $37.711US per barrel.
· Gold +$23.30 to $870.40US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
The Financial Post has been running “The Wisdom Series” in which it asks prominent Canadian business men the same series of questions about today’s economy. I found the responses of Anthony Boetckh worth sharing. Quoting from article attached “(Authorities) have plans in case of nuclear attack but there was no disaster plan for a meltdown in the financial system.”
Wisdom series: Long, slow recovery ahead for Canada, says BoeckhPresident of Boeckh Investments Inc., Anthony Boeckh,
Jacqueline Thorpe, Financial Post Published: Monday, December 22, 2008
From 1968 to 2002, he was chairman, chief executive and editor-in-chief of Montreal-based BCA Publications, publisher of, among others, the highly regarded Bank Credit Analyst, a monthly big-picture analysis of the U.S. economy and financial markets. BCA is now owned by Euromoney.
He was also chairman of Greydanus, Boeckh and Associates from 1985-99, a fixed-income investment firm which managed $2-billion in assets when it was sold to Toronto-Dominion Bank in December, 1999.
With a PhD in finance and economics from The Wharton School, University of Pennsylvania, Mr. Boeckh has taught economics at McGill University and is a founding trustee of the Fraser Institute.
He recently spoke to Financial Post economics writer Jacqueline Thorpe about what he sees as the key challenges ahead.
QWhat stage are you at now, both in life and work?
A I work with my son and his brother-in-law and my former CFO and a few others essentially managing family assets. They do all the investing. I spend all my time looking at the big picture.
QHave you ever seen the global economy in worse shape?
A No. It sounds trite but it's a very complex and very dangerous situation. I think the thing that is so frightening about it is the speed of the collapse. Nobody's had time to adjust to it. The whole system is frozen up -- it's completely paralyzed -- and people are panicking. The people in authority don't know what's happening, didn't know what was happening before we went into it.
They had no idea of the risks. They had no game plan. They have plans in case of nuclear attack but there was no disaster plan for a meltdown in the financial system. They're making up the rules as they go along and crossing their fingers and hoping it works.
QWhat is the reason for how we got here?
A The fundamental cause of this thing is the deeply flawed international monetary system. You really have to go back to Nixon and Aug. 15, 1971, when he took the U.S. off gold. At the time, it really was as clear as a bell what that signified and it really meant the U.S. was not going to submit themselves to international monetary discipline....That began the whole process of inflation. [Former U.S. Federal Reserve Governor Paul] Volcker put an end to that in the early '80s but after that the inflation really showed up in the form of credit and asset inflation. We've really been in a credit in asset inflation for 20 years.... The rise in private debt relative to GDP was a very stable relationship for a long time, they moved up very close together. Then the growth in debt just started to take off relative to GDP. Every time you'd have a recession, you'd get a little correction and then it would take off again. Then after the last recession in 2000-02 there was no correction in the debt at all. It just kept going straight up. The big flaw in the system was there was no discipline on the United States to live within their means.
QDo you think we should be back on the gold standard then?
A The gold standard was denigrated and has been for decades. People say it was a really rigid system and there were all these crises in the 19th century, but one way of looking at it is it imposed a discipline on the system and nobody's figured out a better way to impose discipline.
Even though you had crises every 10 years or so, they were never catastrophic. You took off the discipline in 1971 and we've had a debt bubble, an asset bubble building for 35 years and we're facing a crisis now much bigger than in the 19th century. The only way of preventing it from becoming a disaster is to print a whole bunch of money and have massive fiscal deficits, which nobody would argue isn't going to cause problems in the future.
QHow does this compare to other economic crises in the past, like the stagflation of the 1970s?
A That was also a pretty scary time as well. It was a totally different type of situation. It was an inflationary drama and there [were] the two oil price shocks and an actual shortage of oil because of the OPEC embargo. I was living in the U.K. at the time ... and it was really a first-hand look into the depth of this thing because the coal miners were on strike and there wasn't enough oil and the government put the economy onto a three-day work week and the stock market dropped in half and then it dropped in half again. So things just fell apart and you just had this feeling of being out of control, and I think that's the same sort of feeling now for different reasons. Nobody really has anything solid to base a view on ... [People] are just terrified their assets are going to go to zero, they can't retire, they won't have any money, they won't have a job.
QIn terms of the policy response, are we on our way to getting things fixed?
A I don't think "fixed" is the right word because it's not a question of fixing it. The whole issue is trying to contain the downside. The concern has been that ever since this started the authorities are lagging behind, they are always playing catch-up ... [Now] the Treasury and the Fed are so deep in this thing in terms of bailouts, there's no way they're going to stop. Eventually I think it's going to work. That's why I don't think we're looking at a 1930s scenario.
QIf you were running the country, what would you do?
A I think in Canada the government has been much more complacent, in part for good reason because the banking system is in much better condition. We have been big beneficiaries of commodities and a lot of companies have made a lot of money so there is a bigger cushion here but at the end of the day, Canada is extremely vulnerable if deflation gets prolonged because we're very dependent on commodity exports and, of course, they get slaughtered in an extended deflation. But also because we're a small and open economy, there's a limit to what we do and how we do it.
QAre we facing a long-haul recovery for the market now or do you see some conditions in place for a rebound?
A I think it's going to be a very long time before we really think of getting back to "normal," whatever that means, because I don't think things have been normal for a long time. It's just that it was all disguised under a bunch of debt. It's going to be a very long and slow recovery in the economy -- assuming we don't go into a disaster scenario, which is possible but not likely. The markets are very anticipatory. The cliché is they anticipate the recovery six to nine months ahead. If we are going to have a recovery ... after another year, then the markets could easily hit bottom in the next three, four or five, six months. My sense is it has come down so fast and so far, that we're probably not all that far from a bottom.
QWhat is your longer-term outlook for the global economy?
A Basically we're going through a transformation of transferring private debt into public debt. That will go on probably for years. It will allow the private sector to deleverage but will eventually lead to a fiscal crisis. We won't be aware of it until we get the next recovery. Then there will be a real problem because there will be too much government debt out there, and interest rates are going to start going up early in the cycle, and everybody's going to be afraid of that and with all the stimulus they've put in the system, there's a real risk of inflation taking off again. The really big concern is on energy because you look around the world and all the energy companies are slashing their capital budget, which means in the next recovery there is going to be an even bigger shortage of oil and gas, and you can't print oil. I think we're going to have a series of crises, and a lot of volatility, and we're not going to get back to anything we recognize as normal for a very long time. I think in the next recovery oil is going to up dramatically. Unless we have an extended depression, energy will come back for sure.
QYou are a founding trustee of the Fraser Institute, which is dedicated to free markets. Is capitalism under threat?
A Capitalism needs to be judged over very long periods of time, and if you do that and look back in history, in countries where it has taken root, it has generated sustained massive improvements in living standards everywhere. But capitalism is fraught with recurring crises because of its competitive nature [which leads to] creative destruction. Nobody has figured out how to stop that nor should they. The trouble is, it's not so great for the people in the short term which are part of the destruction. Like the domestic car industries. They are in the process of being destroyed, they will probably get bailed out but eventually they will be destroyed as they have been in the U.K. and a lot of places. It's not so great if you're one of those guys but a lot of industries are rising up all the time and it's part of the capitalist process, that innovation is constantly taking place. You've entrepreneurs out there trying to find to ways to use new technologies, to create profits, and that's what creates rising living standards.
· DOW +47.07pts
· Dollar +.67cto $.82.70US. on Christmas Eve-closed Thurs/Fri
· Oil +$2.36 to $37.711US per barrel.
· Gold +$23.30 to $870.40US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
The Financial Post has been running “The Wisdom Series” in which it asks prominent Canadian business men the same series of questions about today’s economy. I found the responses of Anthony Boetckh worth sharing. Quoting from article attached “(Authorities) have plans in case of nuclear attack but there was no disaster plan for a meltdown in the financial system.”
Wisdom series: Long, slow recovery ahead for Canada, says BoeckhPresident of Boeckh Investments Inc., Anthony Boeckh,
Jacqueline Thorpe, Financial Post Published: Monday, December 22, 2008
From 1968 to 2002, he was chairman, chief executive and editor-in-chief of Montreal-based BCA Publications, publisher of, among others, the highly regarded Bank Credit Analyst, a monthly big-picture analysis of the U.S. economy and financial markets. BCA is now owned by Euromoney.
He was also chairman of Greydanus, Boeckh and Associates from 1985-99, a fixed-income investment firm which managed $2-billion in assets when it was sold to Toronto-Dominion Bank in December, 1999.
With a PhD in finance and economics from The Wharton School, University of Pennsylvania, Mr. Boeckh has taught economics at McGill University and is a founding trustee of the Fraser Institute.
He recently spoke to Financial Post economics writer Jacqueline Thorpe about what he sees as the key challenges ahead.
QWhat stage are you at now, both in life and work?
A I work with my son and his brother-in-law and my former CFO and a few others essentially managing family assets. They do all the investing. I spend all my time looking at the big picture.
QHave you ever seen the global economy in worse shape?
A No. It sounds trite but it's a very complex and very dangerous situation. I think the thing that is so frightening about it is the speed of the collapse. Nobody's had time to adjust to it. The whole system is frozen up -- it's completely paralyzed -- and people are panicking. The people in authority don't know what's happening, didn't know what was happening before we went into it.
They had no idea of the risks. They had no game plan. They have plans in case of nuclear attack but there was no disaster plan for a meltdown in the financial system. They're making up the rules as they go along and crossing their fingers and hoping it works.
QWhat is the reason for how we got here?
A The fundamental cause of this thing is the deeply flawed international monetary system. You really have to go back to Nixon and Aug. 15, 1971, when he took the U.S. off gold. At the time, it really was as clear as a bell what that signified and it really meant the U.S. was not going to submit themselves to international monetary discipline....That began the whole process of inflation. [Former U.S. Federal Reserve Governor Paul] Volcker put an end to that in the early '80s but after that the inflation really showed up in the form of credit and asset inflation. We've really been in a credit in asset inflation for 20 years.... The rise in private debt relative to GDP was a very stable relationship for a long time, they moved up very close together. Then the growth in debt just started to take off relative to GDP. Every time you'd have a recession, you'd get a little correction and then it would take off again. Then after the last recession in 2000-02 there was no correction in the debt at all. It just kept going straight up. The big flaw in the system was there was no discipline on the United States to live within their means.
QDo you think we should be back on the gold standard then?
A The gold standard was denigrated and has been for decades. People say it was a really rigid system and there were all these crises in the 19th century, but one way of looking at it is it imposed a discipline on the system and nobody's figured out a better way to impose discipline.
Even though you had crises every 10 years or so, they were never catastrophic. You took off the discipline in 1971 and we've had a debt bubble, an asset bubble building for 35 years and we're facing a crisis now much bigger than in the 19th century. The only way of preventing it from becoming a disaster is to print a whole bunch of money and have massive fiscal deficits, which nobody would argue isn't going to cause problems in the future.
QHow does this compare to other economic crises in the past, like the stagflation of the 1970s?
A That was also a pretty scary time as well. It was a totally different type of situation. It was an inflationary drama and there [were] the two oil price shocks and an actual shortage of oil because of the OPEC embargo. I was living in the U.K. at the time ... and it was really a first-hand look into the depth of this thing because the coal miners were on strike and there wasn't enough oil and the government put the economy onto a three-day work week and the stock market dropped in half and then it dropped in half again. So things just fell apart and you just had this feeling of being out of control, and I think that's the same sort of feeling now for different reasons. Nobody really has anything solid to base a view on ... [People] are just terrified their assets are going to go to zero, they can't retire, they won't have any money, they won't have a job.
QIn terms of the policy response, are we on our way to getting things fixed?
A I don't think "fixed" is the right word because it's not a question of fixing it. The whole issue is trying to contain the downside. The concern has been that ever since this started the authorities are lagging behind, they are always playing catch-up ... [Now] the Treasury and the Fed are so deep in this thing in terms of bailouts, there's no way they're going to stop. Eventually I think it's going to work. That's why I don't think we're looking at a 1930s scenario.
QIf you were running the country, what would you do?
A I think in Canada the government has been much more complacent, in part for good reason because the banking system is in much better condition. We have been big beneficiaries of commodities and a lot of companies have made a lot of money so there is a bigger cushion here but at the end of the day, Canada is extremely vulnerable if deflation gets prolonged because we're very dependent on commodity exports and, of course, they get slaughtered in an extended deflation. But also because we're a small and open economy, there's a limit to what we do and how we do it.
QAre we facing a long-haul recovery for the market now or do you see some conditions in place for a rebound?
A I think it's going to be a very long time before we really think of getting back to "normal," whatever that means, because I don't think things have been normal for a long time. It's just that it was all disguised under a bunch of debt. It's going to be a very long and slow recovery in the economy -- assuming we don't go into a disaster scenario, which is possible but not likely. The markets are very anticipatory. The cliché is they anticipate the recovery six to nine months ahead. If we are going to have a recovery ... after another year, then the markets could easily hit bottom in the next three, four or five, six months. My sense is it has come down so fast and so far, that we're probably not all that far from a bottom.
QWhat is your longer-term outlook for the global economy?
A Basically we're going through a transformation of transferring private debt into public debt. That will go on probably for years. It will allow the private sector to deleverage but will eventually lead to a fiscal crisis. We won't be aware of it until we get the next recovery. Then there will be a real problem because there will be too much government debt out there, and interest rates are going to start going up early in the cycle, and everybody's going to be afraid of that and with all the stimulus they've put in the system, there's a real risk of inflation taking off again. The really big concern is on energy because you look around the world and all the energy companies are slashing their capital budget, which means in the next recovery there is going to be an even bigger shortage of oil and gas, and you can't print oil. I think we're going to have a series of crises, and a lot of volatility, and we're not going to get back to anything we recognize as normal for a very long time. I think in the next recovery oil is going to up dramatically. Unless we have an extended depression, energy will come back for sure.
QYou are a founding trustee of the Fraser Institute, which is dedicated to free markets. Is capitalism under threat?
A Capitalism needs to be judged over very long periods of time, and if you do that and look back in history, in countries where it has taken root, it has generated sustained massive improvements in living standards everywhere. But capitalism is fraught with recurring crises because of its competitive nature [which leads to] creative destruction. Nobody has figured out how to stop that nor should they. The trouble is, it's not so great for the people in the short term which are part of the destruction. Like the domestic car industries. They are in the process of being destroyed, they will probably get bailed out but eventually they will be destroyed as they have been in the U.K. and a lot of places. It's not so great if you're one of those guys but a lot of industries are rising up all the time and it's part of the capitalist process, that innovation is constantly taking place. You've entrepreneurs out there trying to find to ways to use new technologies, to create profits, and that's what creates rising living standards.
Tuesday, December 23, 2008
Financial Update
· TSX-302.47pts (Reuters) as analyst downgrades of energy and fertilizer companies combined with a steep drop in crude prices dragged the resource-heavy market into a broad selloff. Also Japanese auto giant Toyota Motor Corp. projected its first-ever full-year operating loss.
· DOW -59.42pts
· Dollar +.26c to $82.03US.
· Oil -$2.45 to $39.91US per barrel. While prices pose a challenge for some investors, the declines in oil prices could have a positive impact on consumers, suggested Bruce Latimer, a trader at Dundee Securities. "You're also seeing gasoline very, very cheap out there," he said. "And that's certainly going to put a few more dollars into consumers' pockets."
· Gold +$9.80 to $847.20US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Big banks face rising pressure to loosen credit
Flaherty certain to demand action when he joins Carney in meeting with financial CEOs next month Les Whittington
OTTAWA–The big banks are facing mounting pressure from Ottawa to do more to make credit available to Canadians during the current economic meltdown.
But Finance Minister Jim Flaherty's ability to convince the banks to loosen their lending practices may depend largely on his political skills.
After years of passing up opportunities to tighten regulation of bank practices, Parliament has few weapons at its disposal –other than marshalling public opinion – when it comes to a standoff with the country's biggest financial institutions.
Flaherty, who will join Bank of Canada Governor Mark Carney in a closed-door meeting with bank CEOs in January, is certain to demand action at a time when complaints about a credit squeeze are echoing through business and government right across the country.
"Access to credit is a huge issue – the minister hears about it in every pre-budget consultation he does, and it's something that we need to continue pressing on," a senior government official said yesterday.
Flaherty has made it clear he feels his extensive efforts to help the banks weather the global credit crunch aren't being reciprocated. And the official points out that these special measures by the federal government are temporary and don't have to be extended.
At issue are the Harper government's plan to purchase $75 billion in bank-held mortgages and its guarantee of up to $200 billion in bank borrowing. Both programs, which are meant to free up credit for business and consumers, expire in the spring.
Asked yesterday whether Flaherty would extend them in the current atmosphere between Ottawa and the banks, the official said pointedly, "Generally speaking, if programs are not effective, you don't continue with them."
With businesses closing and jobs disappearing as the economy plummets ever downward, the ability of companies to obtain loans has become a matter of national urgency.
Quebec Finance Minister Monique Jérôme-Forget said after a meeting of federal-provincial treasurers this week the credit crunch was the most pressing topic raised in the closed-door conference.
And Greg Selinger, Manitoba's representative, said ominously that the ministers from across the country ought to have a talk with the bank CEOs about Canada's "national interests."
When Parliament resumes in late January, the bank chiefs can expect to be called on the carpet by the House of Commons finance committee to explain their lending activities, says Dan McTeague, the Liberal consumer affairs critic.
"Members of Parliament like myself have so far received what is a very disturbing number of calls from creditworthy clients who are having a tough go of it and are prepared to take it up with MPs on the hope that we would demand some accountability from the chartered banks," said McTeague (Pickering-Scarborough East).
Previewing his meeting with senior bankers next month, Flaherty says he will expect them to show that they are making credit more widely available.
And, in an unusual move, Carney has publicly urged the banks not to tighten up lending.
Through the federal finance department, the Office of the Superintendent of Financial Institutions and other agencies, Ottawa scrutinizes the banks' operations, their solvency and their consumer-related practices. But the Bank Act gives the government very little power to tell the banks how to operate.
"There's nothing he can do other than threat," Garth Turner, the former MP and financial commentator, says of Flaherty. "He has no big stick to hold over the banks."
And Flaherty's face-to-face talks with bank chief executives promise to be confrontational. Canada's major banks say they are being unfairly singled out for blame in a credit crunch that is affecting everyone.
Nancy Hughes Anthony, head of the Canadian Bankers Association, acknowledges obtaining loans may be getting tougher for some companies.
"With the Canadian and American economies slowing, there is no question that some of Canada's major industries are going through tough times. When providing credit, sound business practices require that such changing economic conditions be taken into account by lenders," she said in a statement this week.
But the banks maintain it is other lenders – not bankers – who are clamping down on credit.
"As many observers (including Carney) have noted, financing through non-bank sources is less and less available to Canadian businesses," Hughes Anthony said.
Duff Conacher, who heads the Canadian Community Reinvestment Coalition, says successive Conservative and Liberal governments have failed to provide the tools federal regulators need to accurately assess banks' lending practices. He advocates expanding the powers of the Financial Consumer Agency of Canada and the federal Competition Bureau to enable Ottawa to audit the banks' books.
· DOW -59.42pts
· Dollar +.26c to $82.03US.
· Oil -$2.45 to $39.91US per barrel. While prices pose a challenge for some investors, the declines in oil prices could have a positive impact on consumers, suggested Bruce Latimer, a trader at Dundee Securities. "You're also seeing gasoline very, very cheap out there," he said. "And that's certainly going to put a few more dollars into consumers' pockets."
· Gold +$9.80 to $847.20US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Big banks face rising pressure to loosen credit
Flaherty certain to demand action when he joins Carney in meeting with financial CEOs next month Les Whittington
OTTAWA–The big banks are facing mounting pressure from Ottawa to do more to make credit available to Canadians during the current economic meltdown.
But Finance Minister Jim Flaherty's ability to convince the banks to loosen their lending practices may depend largely on his political skills.
After years of passing up opportunities to tighten regulation of bank practices, Parliament has few weapons at its disposal –other than marshalling public opinion – when it comes to a standoff with the country's biggest financial institutions.
Flaherty, who will join Bank of Canada Governor Mark Carney in a closed-door meeting with bank CEOs in January, is certain to demand action at a time when complaints about a credit squeeze are echoing through business and government right across the country.
"Access to credit is a huge issue – the minister hears about it in every pre-budget consultation he does, and it's something that we need to continue pressing on," a senior government official said yesterday.
Flaherty has made it clear he feels his extensive efforts to help the banks weather the global credit crunch aren't being reciprocated. And the official points out that these special measures by the federal government are temporary and don't have to be extended.
At issue are the Harper government's plan to purchase $75 billion in bank-held mortgages and its guarantee of up to $200 billion in bank borrowing. Both programs, which are meant to free up credit for business and consumers, expire in the spring.
Asked yesterday whether Flaherty would extend them in the current atmosphere between Ottawa and the banks, the official said pointedly, "Generally speaking, if programs are not effective, you don't continue with them."
With businesses closing and jobs disappearing as the economy plummets ever downward, the ability of companies to obtain loans has become a matter of national urgency.
Quebec Finance Minister Monique Jérôme-Forget said after a meeting of federal-provincial treasurers this week the credit crunch was the most pressing topic raised in the closed-door conference.
And Greg Selinger, Manitoba's representative, said ominously that the ministers from across the country ought to have a talk with the bank CEOs about Canada's "national interests."
When Parliament resumes in late January, the bank chiefs can expect to be called on the carpet by the House of Commons finance committee to explain their lending activities, says Dan McTeague, the Liberal consumer affairs critic.
"Members of Parliament like myself have so far received what is a very disturbing number of calls from creditworthy clients who are having a tough go of it and are prepared to take it up with MPs on the hope that we would demand some accountability from the chartered banks," said McTeague (Pickering-Scarborough East).
Previewing his meeting with senior bankers next month, Flaherty says he will expect them to show that they are making credit more widely available.
And, in an unusual move, Carney has publicly urged the banks not to tighten up lending.
Through the federal finance department, the Office of the Superintendent of Financial Institutions and other agencies, Ottawa scrutinizes the banks' operations, their solvency and their consumer-related practices. But the Bank Act gives the government very little power to tell the banks how to operate.
"There's nothing he can do other than threat," Garth Turner, the former MP and financial commentator, says of Flaherty. "He has no big stick to hold over the banks."
And Flaherty's face-to-face talks with bank chief executives promise to be confrontational. Canada's major banks say they are being unfairly singled out for blame in a credit crunch that is affecting everyone.
Nancy Hughes Anthony, head of the Canadian Bankers Association, acknowledges obtaining loans may be getting tougher for some companies.
"With the Canadian and American economies slowing, there is no question that some of Canada's major industries are going through tough times. When providing credit, sound business practices require that such changing economic conditions be taken into account by lenders," she said in a statement this week.
But the banks maintain it is other lenders – not bankers – who are clamping down on credit.
"As many observers (including Carney) have noted, financing through non-bank sources is less and less available to Canadian businesses," Hughes Anthony said.
Duff Conacher, who heads the Canadian Community Reinvestment Coalition, says successive Conservative and Liberal governments have failed to provide the tools federal regulators need to accurately assess banks' lending practices. He advocates expanding the powers of the Financial Consumer Agency of Canada and the federal Competition Bureau to enable Ottawa to audit the banks' books.
Monday, December 22, 2008
Financial Update
A "Santa Claus" rally has become a Toronto Stock Exchange tradition, however it remains to been seen if the economic "Grinch" will steal Christmas this season.
· TSX+126.55pts (Reuters)
· DOW -25.88pts
· Dollar -1.11c to $81.77US.
· Oil -$2.35 to $33.87US per barrel. oil prices fell despite a cut in production by OPEC
· Gold -$23.20 to $836.40US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Restructuring plan approved for asset-based commercial paper Gary NorrisThe Canadian Press The 16-month-long nightmare in Canada's asset-backed commercial paper market appears finally to be at an end, thanks to a multibillion-dollar taxpayer guarantee.
The federal government and the governments of Ontario, Quebec and Alberta have agreed to "partner'' in supporting a restructuring of $32 billion worth of ABCP not issued by Canada's big banks.
Federal Finance Minister Jim Flaherty announced yesterday that Ontario and Quebec had agreed to help, and an Alberta Finance Ministry spokesperson said a few hours later that the province "has decided to do its part to support this agreement.''
The governments did not specify the size of the "senior funding facility'' they will provide to backstop what has become known as the Montreal accord.
But Flaherty said the deal will enable investors and commercial-paper issuers to "achieve a stable and effective restructuring agreement'' which "will protect financial stability and the health of Canada's financial markets.''
A Finance Department spokesperson said the size of the public support and other details would be released "later.''
The government had been approached for a guarantee of $9.5 billion.
"Unless someone does something totally irrational, there should be a deal,'' Colin Kilgour, an independent consultant to corporate holders of the frozen paper, said after Flaherty's announcement.
He added that the taxpayer commitment is probably close to the $9.5 billion proposed by a blue-ribbon committee toiling to untangle the mess.
Banks are trying, but can't do it all, association says The Canadian Press Big banks can't reignite the lending market on their own, despite government suggestions to the contrary, the head of the association for Canada's financial institutions said yesterday.
Nancy Hughes Anthony, president and chief executive of the Canadian Bankers Association, agreed that many sources for lending have been pulling back in the wake of the global credit crunch that has rocked financial markets around the world.
"Banks are working to fill the gap,'' she wrote in a statement, as Finance Minister Jim Flaherty stepped up the pressure on the banks to loosen up their lending practices to help revive the battered economy.
"But banks don't have the capacity to do it all.''
Bank of Canada governor Mark Carney and Flaherty are scheduled to meet with chief executives from the country's big banks in January to get an update on their lending practices.
"I expect (the banks) to make it evident to us that they are taking steps to make that more available in Canada,'' Flaherty said at a news conference yesterday in Saskatoon, where he was holding pre-budget meetings.
On Wednesday, Carney also urged the banks to pump more credit into the economy and he called on financial institutions to build up capital in good times and draw on it in bad -- the opposite of what is now occurring as bankers become more risk-averse in a shrinking economy.
The two sides are increasingly clashing over how much responsibility the banks should have toward the broader economy.
While the recession is worsening because of mounting plant closures and workers' rising job insecurities across the country, credit is also drying up, preventing companies from raising capital to invest and expand and consumers from buying cars, houses and other big-ticket items.
"It's a real tug of war that's going on,'' said Patricia Croft, chief economist and vice-president of Phillips Hager and North, a Vancouver-based money manager acquired by the Royal Bank earlier this year.
Croft said that banks and businesses are stuck in a "negative feedback loop,'' which might be more commonly known as a vicious circle: banks are reluctant to lend, which means that businesses cut back on capital spending, resulting in job cuts. That makes consumers spend less and default on credit payments, which in turn causes the banks to become even more reluctant lenders.
Happy Holidays!
· TSX+126.55pts (Reuters)
· DOW -25.88pts
· Dollar -1.11c to $81.77US.
· Oil -$2.35 to $33.87US per barrel. oil prices fell despite a cut in production by OPEC
· Gold -$23.20 to $836.40US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Restructuring plan approved for asset-based commercial paper Gary NorrisThe Canadian Press The 16-month-long nightmare in Canada's asset-backed commercial paper market appears finally to be at an end, thanks to a multibillion-dollar taxpayer guarantee.
The federal government and the governments of Ontario, Quebec and Alberta have agreed to "partner'' in supporting a restructuring of $32 billion worth of ABCP not issued by Canada's big banks.
Federal Finance Minister Jim Flaherty announced yesterday that Ontario and Quebec had agreed to help, and an Alberta Finance Ministry spokesperson said a few hours later that the province "has decided to do its part to support this agreement.''
The governments did not specify the size of the "senior funding facility'' they will provide to backstop what has become known as the Montreal accord.
But Flaherty said the deal will enable investors and commercial-paper issuers to "achieve a stable and effective restructuring agreement'' which "will protect financial stability and the health of Canada's financial markets.''
A Finance Department spokesperson said the size of the public support and other details would be released "later.''
The government had been approached for a guarantee of $9.5 billion.
"Unless someone does something totally irrational, there should be a deal,'' Colin Kilgour, an independent consultant to corporate holders of the frozen paper, said after Flaherty's announcement.
He added that the taxpayer commitment is probably close to the $9.5 billion proposed by a blue-ribbon committee toiling to untangle the mess.
Banks are trying, but can't do it all, association says The Canadian Press Big banks can't reignite the lending market on their own, despite government suggestions to the contrary, the head of the association for Canada's financial institutions said yesterday.
Nancy Hughes Anthony, president and chief executive of the Canadian Bankers Association, agreed that many sources for lending have been pulling back in the wake of the global credit crunch that has rocked financial markets around the world.
"Banks are working to fill the gap,'' she wrote in a statement, as Finance Minister Jim Flaherty stepped up the pressure on the banks to loosen up their lending practices to help revive the battered economy.
"But banks don't have the capacity to do it all.''
Bank of Canada governor Mark Carney and Flaherty are scheduled to meet with chief executives from the country's big banks in January to get an update on their lending practices.
"I expect (the banks) to make it evident to us that they are taking steps to make that more available in Canada,'' Flaherty said at a news conference yesterday in Saskatoon, where he was holding pre-budget meetings.
On Wednesday, Carney also urged the banks to pump more credit into the economy and he called on financial institutions to build up capital in good times and draw on it in bad -- the opposite of what is now occurring as bankers become more risk-averse in a shrinking economy.
The two sides are increasingly clashing over how much responsibility the banks should have toward the broader economy.
While the recession is worsening because of mounting plant closures and workers' rising job insecurities across the country, credit is also drying up, preventing companies from raising capital to invest and expand and consumers from buying cars, houses and other big-ticket items.
"It's a real tug of war that's going on,'' said Patricia Croft, chief economist and vice-president of Phillips Hager and North, a Vancouver-based money manager acquired by the Royal Bank earlier this year.
Croft said that banks and businesses are stuck in a "negative feedback loop,'' which might be more commonly known as a vicious circle: banks are reluctant to lend, which means that businesses cut back on capital spending, resulting in job cuts. That makes consumers spend less and default on credit payments, which in turn causes the banks to become even more reluctant lenders.
Happy Holidays!
Friday, December 19, 2008
Financial Update
Harper eyes stimulus worth $30-billion “We're going to do whatever it takes to get our economy through this recession and on to a long-term recovery”
But even as he put a price tag on the planned aid, Mr. Harper said he's prepared to go further if necessary. “It will be scalable. We will be able to move it up if we need to move it up,” he said.
· TSX -298.76pts(Reuters) led by a drop in energy and gold stocks as the price of oil continued to drop despite a massive production cut by OPEC and economic worries sent bank stocks lower.
· DOW -219.35pts paced by slumping energy-related shares, after the price of crude fell to 4 year lows and 2 of the nation's Big Three automakers said they would halt production
· Dollar -.93c to $82.93US.
· Oil -$3.54 to $40.06US per barrel. oil prices fell despite a cut in production by OPEC
· Gold -$7.90 to $860.60US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Flaherty picks team to help shape budget
RICHARD BLACKWELL From Friday's Globe and Mail
Finance Minister Jim Flaherty has reached out beyond his usual coterie of advisers to get help in crafting the crucial January budget that will spell out how Ottawa plans to get the economy back on track.
On Thursday, he announced a special 11-member advisory committee that will consult with him and suggest measures to be included in the budget. But the Economic Advisory Council will live beyond the budget and continue to provide advice in the future.
The group is devoid of bank economists or central bankers. In that sense it contrasts with U.S. president-elect Barack Obama's Economic Recovery Advisory Board, which is headed by a former chairman of the Federal Reserve Board and includes economists in addition to business leaders, labour officials and academics.
Mr. Flaherty's panel is also non-partisan. It will be chaired by Carole Taylor, the former minister of finance in British Columbia's Liberal government. And Power Corp. of Canada chairman Paul Desmarais Jr., a long-time Liberal supporter, will also be at the table.
Business luminaries on the committee include Vancouver entrepreneur Jimmy Pattison, James D. Irving, president of the forest products arm of the Irving family empire, Research In Motion Ltd. president Mike Lazaridis, and Geoff Beattie, president of the Thomson family holding company Woodbridge Co. Ltd.
Mr. Flaherty told reporters in Saskatoon Thursday he talked individually to each member and asked them to participate. “I called them all personally and said: ‘Your advice is needed for your country,' and all of them said: ‘Yes.'”
The group will meet for the first time in Toronto on Tuesday, then reconvene after Christmas.
Ms. Taylor said in an interview Thursday that Mr. Flaherty is attempting to “reach out” and gather views on what action to take. The new council's mandate “is to put together some sort of structure around private sector advice, ideas and opinions,” she said.
It's important to get broad input from experienced business people who are “on the ground,” she said, “because there is no solution we can pull off the shelf here that will deal with this.”
Ms. Taylor, who was dropped from the B.C. cabinet last summer after she announced she would not run again for the provincial legislature, said she is very happy to be back in a key role on a crucial public policy issue. “This is such an important moment in history that I was anxious to participate in some way.”
Another member of the committee is University of Calgary professor Jack Mintz, who has advised the government on tax issues in the past.
Mr. Mintz said it is too early to say how the committee will be organized, or in what form it will provide advice to the government. The group might want to warn Ottawa off some possible measures that could cause more harm than good, he said, in addition to recommending others.
In a recent commentary in The Globe and Mail, Mr. Mintz cautioned against bailing out weak companies. Retraining displaced workers is more effective than “keeping inefficient businesses operating,” he wrote.
Infrastructure spending can help, he added, but only if it is in support of projects that are ready to proceed. And a cut in income taxes is preferable to trimming the GST, he wrote.
Another committee member, Ajit Someshwar, who owns a number of small companies including information technology advisory firm CSI Consulting Inc., said it is a wise move to consult people with different skills when “we are sailing in uncharted waters.”
Mr. Pattison, who will bring another West Coast perspective to the committee along with Ms. Taylor, would not say what he will recommend to Mr. Flaherty. But he noted that “the U.S. is definitely worse off than we are,” and that, at the moment, “things are pretty good out here in B.C.”
But even as he put a price tag on the planned aid, Mr. Harper said he's prepared to go further if necessary. “It will be scalable. We will be able to move it up if we need to move it up,” he said.
· TSX -298.76pts(Reuters) led by a drop in energy and gold stocks as the price of oil continued to drop despite a massive production cut by OPEC and economic worries sent bank stocks lower.
· DOW -219.35pts paced by slumping energy-related shares, after the price of crude fell to 4 year lows and 2 of the nation's Big Three automakers said they would halt production
· Dollar -.93c to $82.93US.
· Oil -$3.54 to $40.06US per barrel. oil prices fell despite a cut in production by OPEC
· Gold -$7.90 to $860.60US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Flaherty picks team to help shape budget
RICHARD BLACKWELL From Friday's Globe and Mail
Finance Minister Jim Flaherty has reached out beyond his usual coterie of advisers to get help in crafting the crucial January budget that will spell out how Ottawa plans to get the economy back on track.
On Thursday, he announced a special 11-member advisory committee that will consult with him and suggest measures to be included in the budget. But the Economic Advisory Council will live beyond the budget and continue to provide advice in the future.
The group is devoid of bank economists or central bankers. In that sense it contrasts with U.S. president-elect Barack Obama's Economic Recovery Advisory Board, which is headed by a former chairman of the Federal Reserve Board and includes economists in addition to business leaders, labour officials and academics.
Mr. Flaherty's panel is also non-partisan. It will be chaired by Carole Taylor, the former minister of finance in British Columbia's Liberal government. And Power Corp. of Canada chairman Paul Desmarais Jr., a long-time Liberal supporter, will also be at the table.
Business luminaries on the committee include Vancouver entrepreneur Jimmy Pattison, James D. Irving, president of the forest products arm of the Irving family empire, Research In Motion Ltd. president Mike Lazaridis, and Geoff Beattie, president of the Thomson family holding company Woodbridge Co. Ltd.
Mr. Flaherty told reporters in Saskatoon Thursday he talked individually to each member and asked them to participate. “I called them all personally and said: ‘Your advice is needed for your country,' and all of them said: ‘Yes.'”
The group will meet for the first time in Toronto on Tuesday, then reconvene after Christmas.
Ms. Taylor said in an interview Thursday that Mr. Flaherty is attempting to “reach out” and gather views on what action to take. The new council's mandate “is to put together some sort of structure around private sector advice, ideas and opinions,” she said.
It's important to get broad input from experienced business people who are “on the ground,” she said, “because there is no solution we can pull off the shelf here that will deal with this.”
Ms. Taylor, who was dropped from the B.C. cabinet last summer after she announced she would not run again for the provincial legislature, said she is very happy to be back in a key role on a crucial public policy issue. “This is such an important moment in history that I was anxious to participate in some way.”
Another member of the committee is University of Calgary professor Jack Mintz, who has advised the government on tax issues in the past.
Mr. Mintz said it is too early to say how the committee will be organized, or in what form it will provide advice to the government. The group might want to warn Ottawa off some possible measures that could cause more harm than good, he said, in addition to recommending others.
In a recent commentary in The Globe and Mail, Mr. Mintz cautioned against bailing out weak companies. Retraining displaced workers is more effective than “keeping inefficient businesses operating,” he wrote.
Infrastructure spending can help, he added, but only if it is in support of projects that are ready to proceed. And a cut in income taxes is preferable to trimming the GST, he wrote.
Another committee member, Ajit Someshwar, who owns a number of small companies including information technology advisory firm CSI Consulting Inc., said it is a wise move to consult people with different skills when “we are sailing in uncharted waters.”
Mr. Pattison, who will bring another West Coast perspective to the committee along with Ms. Taylor, would not say what he will recommend to Mr. Flaherty. But he noted that “the U.S. is definitely worse off than we are,” and that, at the moment, “things are pretty good out here in B.C.”
Thursday, December 18, 2008
Financial Update
The Cupboard is almost bare
For the first time in its history, the U.S. Federal Reserve is effectively giving away money
· TSX +262.28pts (Reuters) TSX index surged more than 3% in a broad rally after the U.S. Federal Reserve cut its target for overnight interest rates to a record low range of zero to 0.25% and said it would do everything it can to chase away the economic gloom.
· DOW +359.61pts
· Dollar +2.02c to $83.21US. as sentiment toward the US dollar darkened with the Fed’s gloomy announcement that it will stop at nothing to flood the financial system with greenbacks
· Oil -$.91 to $44.51US per barrel.
· Gold +$6.30 to $841.70US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
The net worth of Canadian households fell by about $191 billion in the third quarter, and it's likely to have gotten worse as stock prices tumbled in the current three-month period. Bank of Montreal economist Doug Porter said that, although people don't tend to adjust their consumer spending in direct relation to their net worth, a decline in net worth will negatively impact the economy as ordinary Canadians tighten their wallets.
"As the stock market continued to weaken, it became obvious that it would have an effect, not just on consumer behaviour but also on business behaviour,'' Porter said in an interview. "I do think it was the intense financial market turmoil we saw over the fall that really played a big role in tipping the global economy into a full-fledged recession.''
Fed tries to steer economy out of long recession
Alia McMullen, National Post For the first time in its history, the U.S. Federal Reserve is effectively giving away money.
The central bank took the unprecedented step yesterday of slashing its benchmark interest rate to an extraordinarily low range of zero to a quarter per cent on Tuesday in an attempt to prevent the world's largest economy from suffering a long and painful recession.
"This is an historic move and it will go down in the annals of Fed history as the most aggressive attempt ever to reverse a deep recession, prevent deflation and spur financial-market re-normalization," said Sherry Cooper, the chief economist at BMO Capital Markets.
Stock indexes surged on the Fed action, with the Dow Jones industrial average up 4.2% to 8,924.14 and the S&P500 up 5.1% at 913.18. This helped to boost the S&P/TSX Composite Index 3.1% to 8,724.11.
The move had immediate benefits for fixed mortgage rates, with the long-term bond rates on which they are set tumbling on the Fed's signal that it would keep interest rates at an exceptionally low level for some time.
The Fed cut the Federal Funds Rate, at which the banks lend to each other, from 1% to a range of 0% to 0.25%. The reduction surpasses the previous low of half a per cent set during the Second World War, a sign of just how serious the current U.S. recession is.
"With every layoff announcement and stock market decline, consumer confidence drops," Ms. Cooper said. "It will take a mighty effort by central banks and government authorities to drag the global economy out of this ditch, but with the stimulus we are likely to see in coming months [from central banks and governments], the economy will hopefully bottom around midyear 2009 followed by a sluggish recovery in the second half and moderate growth in 2010."
But with no more room to cut rates, the Fed will embark on a new strategy to stimulate the economy by pulling "all available tools" out of its box. For the first time in its 95-year history, the Fed plans to buy debt from mortgage insurers Fannie Mae and Freddie Mac as well as mortgage-backed securities to help reduce mortgage rates. It also plans to provide additional funds for households, homeowners and small businesses.
For now, the Fed's efforts appear to be working. Yields on Fannie Mae and Freddie Mac 30-year fixed mortgage bonds as well as government 10-year and 30-year Treasuries -- which have a direct impact on fixed mortgage rates -- declined to record lows on Tuesday. These rates had been surging, despite official interest rate cuts, because investors had been looking for a safe haven to park their money and ride out the financial crisis.
Michael Englund, the chief economist at Action Economics in Boulder, Colo., said the Fed's plan to purchase mortgage-backed securities and possibly government Treasuries as well as their pledge to keep interest rates low would continue to put downward pressure on fixed mortgage rates and eventually help to stimulate the U.S. housing market.
However, problems in the U.S. economy stretch further than the deep housing slump. Economists expect the Fed to also begin to print money in an effort to prevent consumer prices from falling into a dangerous downward spiral. This alternative method of boosting the flow of money in the economy is known as quantitative easing, a strategy developed by the Bank of Japan during its lost decade of zero interest rates and price deflation.
Joshua Shapiro, chief U.S. economist at MFR in New York, said the Fed was clearly trying to fight off deflation, which is a persistent decline in consumer prices that comes hand in hand with job losses, wage cuts and a devaluation of money.
"The action taken [Tuesday] and the quantitative easing moves to come speak volumes about just how petrified policymakers are that the economy is in danger of sliding into a deflationary spiral that would be disastrous considering the highly leveraged condition of the economy," said.
The risk of deflation was evident just hours before the Fed's announcement. The Bureau of Labor Statistics reported that consumer prices for November fell a record 1.7% from the previous month, taking the annual rate to the 43-year low of 1.1% equalled in 1986 and 2002.
Mr. Shapiro expects the Fed to ultimately beat inflation, but he had a very pessimistic outlook for the U.S. economy. He predicted the economy to remain in a recession that could possibly extend past 2010.
For the first time in its history, the U.S. Federal Reserve is effectively giving away money
· TSX +262.28pts (Reuters) TSX index surged more than 3% in a broad rally after the U.S. Federal Reserve cut its target for overnight interest rates to a record low range of zero to 0.25% and said it would do everything it can to chase away the economic gloom.
· DOW +359.61pts
· Dollar +2.02c to $83.21US. as sentiment toward the US dollar darkened with the Fed’s gloomy announcement that it will stop at nothing to flood the financial system with greenbacks
· Oil -$.91 to $44.51US per barrel.
· Gold +$6.30 to $841.70US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
The net worth of Canadian households fell by about $191 billion in the third quarter, and it's likely to have gotten worse as stock prices tumbled in the current three-month period. Bank of Montreal economist Doug Porter said that, although people don't tend to adjust their consumer spending in direct relation to their net worth, a decline in net worth will negatively impact the economy as ordinary Canadians tighten their wallets.
"As the stock market continued to weaken, it became obvious that it would have an effect, not just on consumer behaviour but also on business behaviour,'' Porter said in an interview. "I do think it was the intense financial market turmoil we saw over the fall that really played a big role in tipping the global economy into a full-fledged recession.''
Fed tries to steer economy out of long recession
Alia McMullen, National Post For the first time in its history, the U.S. Federal Reserve is effectively giving away money.
The central bank took the unprecedented step yesterday of slashing its benchmark interest rate to an extraordinarily low range of zero to a quarter per cent on Tuesday in an attempt to prevent the world's largest economy from suffering a long and painful recession.
"This is an historic move and it will go down in the annals of Fed history as the most aggressive attempt ever to reverse a deep recession, prevent deflation and spur financial-market re-normalization," said Sherry Cooper, the chief economist at BMO Capital Markets.
Stock indexes surged on the Fed action, with the Dow Jones industrial average up 4.2% to 8,924.14 and the S&P500 up 5.1% at 913.18. This helped to boost the S&P/TSX Composite Index 3.1% to 8,724.11.
The move had immediate benefits for fixed mortgage rates, with the long-term bond rates on which they are set tumbling on the Fed's signal that it would keep interest rates at an exceptionally low level for some time.
The Fed cut the Federal Funds Rate, at which the banks lend to each other, from 1% to a range of 0% to 0.25%. The reduction surpasses the previous low of half a per cent set during the Second World War, a sign of just how serious the current U.S. recession is.
"With every layoff announcement and stock market decline, consumer confidence drops," Ms. Cooper said. "It will take a mighty effort by central banks and government authorities to drag the global economy out of this ditch, but with the stimulus we are likely to see in coming months [from central banks and governments], the economy will hopefully bottom around midyear 2009 followed by a sluggish recovery in the second half and moderate growth in 2010."
But with no more room to cut rates, the Fed will embark on a new strategy to stimulate the economy by pulling "all available tools" out of its box. For the first time in its 95-year history, the Fed plans to buy debt from mortgage insurers Fannie Mae and Freddie Mac as well as mortgage-backed securities to help reduce mortgage rates. It also plans to provide additional funds for households, homeowners and small businesses.
For now, the Fed's efforts appear to be working. Yields on Fannie Mae and Freddie Mac 30-year fixed mortgage bonds as well as government 10-year and 30-year Treasuries -- which have a direct impact on fixed mortgage rates -- declined to record lows on Tuesday. These rates had been surging, despite official interest rate cuts, because investors had been looking for a safe haven to park their money and ride out the financial crisis.
Michael Englund, the chief economist at Action Economics in Boulder, Colo., said the Fed's plan to purchase mortgage-backed securities and possibly government Treasuries as well as their pledge to keep interest rates low would continue to put downward pressure on fixed mortgage rates and eventually help to stimulate the U.S. housing market.
However, problems in the U.S. economy stretch further than the deep housing slump. Economists expect the Fed to also begin to print money in an effort to prevent consumer prices from falling into a dangerous downward spiral. This alternative method of boosting the flow of money in the economy is known as quantitative easing, a strategy developed by the Bank of Japan during its lost decade of zero interest rates and price deflation.
Joshua Shapiro, chief U.S. economist at MFR in New York, said the Fed was clearly trying to fight off deflation, which is a persistent decline in consumer prices that comes hand in hand with job losses, wage cuts and a devaluation of money.
"The action taken [Tuesday] and the quantitative easing moves to come speak volumes about just how petrified policymakers are that the economy is in danger of sliding into a deflationary spiral that would be disastrous considering the highly leveraged condition of the economy," said.
The risk of deflation was evident just hours before the Fed's announcement. The Bureau of Labor Statistics reported that consumer prices for November fell a record 1.7% from the previous month, taking the annual rate to the 43-year low of 1.1% equalled in 1986 and 2002.
Mr. Shapiro expects the Fed to ultimately beat inflation, but he had a very pessimistic outlook for the U.S. economy. He predicted the economy to remain in a recession that could possibly extend past 2010.
Monday, December 15, 2008
Financial Update
Yes Virginia, there IS a Santa Claus!
U.S. Treasury said it would step in to prevent a collapse of the major American automakers, (after the U.S. Senate voted down a US$14-billion bailout package Thursday night), and use funds from the Trouble Asset Relief Program (TARP)
TORONTO - Industry Minister Tony Clement says federal and Ontario governments have agreed on a proportional auto aid plan worth close to $2.8 billion to bail out the Canadian auto industry. Clement says the money is about 20% of the US$14 that the Bush administration is considering for General Motors, Ford and Chrysler. Canada has about 20% of North American auto production.
· TSX +123.55pts (Reuters) Lost in the market's closing numbers was the scope of the rally it put together after stumbling out of the gate to its lowest level in a week. "What saved the day was the U.S. statement that basically said they will not let the auto industry down, and that kind of reignited hope of U.S. government intervention toward the car industry."
· DOW +64.59 after the Treasury Department said it "will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry
· Dollar -1.14c to $79.92US. as oil prices retreated
· Oil -$1.70 to $46.288US per barrel. on another round of poor economic news that showed consumers cutting back on spending for a record 5th straight month.
· Gold -$6.10 to $820.50US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Here are some tips for communicating with your clients who are currently trying to sell their homes
Selling your home this holiday isn't ideal, but you can do it with these tips National Post
Life is unpredictable, which means you may find yourself trying to sell your home this month. With all the holiday hoopla -- the gifts, the eats -- it's not an ideal time, but Royal LePage says it's still doable.
Breathe. Relax. Follow these tips. –
· Lights Exterior lights give instant curb appeal, but keep it simple. Less is more and opt for white bulbs. –
· Quick trick Fake your garden by placing frost-resistant potted plants such as flowering kale or miniature trees in the walkway and give buyers a sense of the landscape potential.
· A warm home is always inviting. Be sure to have the heat set at a warm temperature for the entire day; fireplaces and candles should also be lit, even during the day.
· Size matters Choose a small Christmas tree; a huge one will make your room look smaller and more cluttered. - Stow away Cut back on clutter by hiding wrapped presents.
· Display photos of your home's gardens and patios in spring and summer to show potential buyers what the house looks like when it is not buried under snow and when leaves are on trees, not the ground. National PostClose
Presented by
December 11, 2008, 7:04 pm
Could a Bailout Actually Hurt the Detroit Three’s Business Model?
By Catherine Rampell
The prospective bailout package for the auto industry has many goals, one of which is to push the three Detroit automakers into making more fuel-efficient cars. Witness the bill:(b) PURPOSES — The purposes of this Act are — (1) to immediately provide authority and facilities to restore liquidity and stability to the domestic automobile industry in the United States; and (2) to ensure that such authority and such facilities are used in a manner that — (A) stimulates manufacturing and sales of automobiles produced by automobile manufacturers in the United States; (B) enhances the ability and the capacity of the domestic automobile industry to pursue the timely and aggressive production of energy efficient advanced technology vehicles…
Which should seem to make both environmental and business sense. As many have pointed out, part of the reason that General Motors and Chrysler are in a foxhole is that they invested in producing big, gas-guzzling vehicles like S.U.V.’s, which American consumers stopped buying when gas prices skyrocketed.
In other words, the American automakers gambled on the wrong business model. So forcing them to make smaller, more fuel-efficient cars should help save the environment and the companies themselves. Right?
One small problem. Gas prices have fallen precipitously since their peak this July. Nationwide, retail gasoline averaged $1.699 a gallon last week, which is less than it has been in nearly five years — before adjusting for inflation.
It’s entirely possible that, with gas prices so seductively low, Americans will rekindle their romance with big, fuel-inefficient vehicles. In other words, a push toward changing the business model to more fuel-efficient cars could doom the Detroit Three to failure once again.
Of course, if the broader goal is to reduce global warming and dependence on foreign oil, etc., there are ways that lawmakers could make fuel-efficient vehicles more attractive to consumers — say, through higher gas taxes or a cap-and-trade approach. But absent those other initiatives there is no guarantee that Americans will want the more fuel-efficient cars that lawmakers clearly want them to want.
The problem is that high gas prices are politically unpopular, despite what economists might argue about their Pigouvian virtues
I’m hardly the first to point out this undermining force in the auto bailout proposal. Allan Sloan mentioned it in Fortune. The Harvard economist Robert Z. Lawrence has also written about the need to “ensure higher U.S. oil prices and thereby sufficient demand for fuel-efficient cars and trucks in the future.”
As David Henderson at EconLog noted, Tom Brokaw even confronted President-elect Barack Obama about this predicament during his “Meet the Press” interview last week. In response, Mr. Obama said higher gas prices would be a hardship on Americans and then changed the subject. But of course, just a few minutes earlier Mr. Obama insisted that if the Detroit Three “want to survive, then they better start building a fuel-efficient car.”
U.S. Treasury said it would step in to prevent a collapse of the major American automakers, (after the U.S. Senate voted down a US$14-billion bailout package Thursday night), and use funds from the Trouble Asset Relief Program (TARP)
TORONTO - Industry Minister Tony Clement says federal and Ontario governments have agreed on a proportional auto aid plan worth close to $2.8 billion to bail out the Canadian auto industry. Clement says the money is about 20% of the US$14 that the Bush administration is considering for General Motors, Ford and Chrysler. Canada has about 20% of North American auto production.
· TSX +123.55pts (Reuters) Lost in the market's closing numbers was the scope of the rally it put together after stumbling out of the gate to its lowest level in a week. "What saved the day was the U.S. statement that basically said they will not let the auto industry down, and that kind of reignited hope of U.S. government intervention toward the car industry."
· DOW +64.59 after the Treasury Department said it "will stand ready to prevent an imminent failure until Congress reconvenes and acts to address the long-term viability of the industry
· Dollar -1.14c to $79.92US. as oil prices retreated
· Oil -$1.70 to $46.288US per barrel. on another round of poor economic news that showed consumers cutting back on spending for a record 5th straight month.
· Gold -$6.10 to $820.50US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Here are some tips for communicating with your clients who are currently trying to sell their homes
Selling your home this holiday isn't ideal, but you can do it with these tips National Post
Life is unpredictable, which means you may find yourself trying to sell your home this month. With all the holiday hoopla -- the gifts, the eats -- it's not an ideal time, but Royal LePage says it's still doable.
Breathe. Relax. Follow these tips. –
· Lights Exterior lights give instant curb appeal, but keep it simple. Less is more and opt for white bulbs. –
· Quick trick Fake your garden by placing frost-resistant potted plants such as flowering kale or miniature trees in the walkway and give buyers a sense of the landscape potential.
· A warm home is always inviting. Be sure to have the heat set at a warm temperature for the entire day; fireplaces and candles should also be lit, even during the day.
· Size matters Choose a small Christmas tree; a huge one will make your room look smaller and more cluttered. - Stow away Cut back on clutter by hiding wrapped presents.
· Display photos of your home's gardens and patios in spring and summer to show potential buyers what the house looks like when it is not buried under snow and when leaves are on trees, not the ground. National PostClose
Presented by
December 11, 2008, 7:04 pm
Could a Bailout Actually Hurt the Detroit Three’s Business Model?
By Catherine Rampell
The prospective bailout package for the auto industry has many goals, one of which is to push the three Detroit automakers into making more fuel-efficient cars. Witness the bill:(b) PURPOSES — The purposes of this Act are — (1) to immediately provide authority and facilities to restore liquidity and stability to the domestic automobile industry in the United States; and (2) to ensure that such authority and such facilities are used in a manner that — (A) stimulates manufacturing and sales of automobiles produced by automobile manufacturers in the United States; (B) enhances the ability and the capacity of the domestic automobile industry to pursue the timely and aggressive production of energy efficient advanced technology vehicles…
Which should seem to make both environmental and business sense. As many have pointed out, part of the reason that General Motors and Chrysler are in a foxhole is that they invested in producing big, gas-guzzling vehicles like S.U.V.’s, which American consumers stopped buying when gas prices skyrocketed.
In other words, the American automakers gambled on the wrong business model. So forcing them to make smaller, more fuel-efficient cars should help save the environment and the companies themselves. Right?
One small problem. Gas prices have fallen precipitously since their peak this July. Nationwide, retail gasoline averaged $1.699 a gallon last week, which is less than it has been in nearly five years — before adjusting for inflation.
It’s entirely possible that, with gas prices so seductively low, Americans will rekindle their romance with big, fuel-inefficient vehicles. In other words, a push toward changing the business model to more fuel-efficient cars could doom the Detroit Three to failure once again.
Of course, if the broader goal is to reduce global warming and dependence on foreign oil, etc., there are ways that lawmakers could make fuel-efficient vehicles more attractive to consumers — say, through higher gas taxes or a cap-and-trade approach. But absent those other initiatives there is no guarantee that Americans will want the more fuel-efficient cars that lawmakers clearly want them to want.
The problem is that high gas prices are politically unpopular, despite what economists might argue about their Pigouvian virtues
I’m hardly the first to point out this undermining force in the auto bailout proposal. Allan Sloan mentioned it in Fortune. The Harvard economist Robert Z. Lawrence has also written about the need to “ensure higher U.S. oil prices and thereby sufficient demand for fuel-efficient cars and trucks in the future.”
As David Henderson at EconLog noted, Tom Brokaw even confronted President-elect Barack Obama about this predicament during his “Meet the Press” interview last week. In response, Mr. Obama said higher gas prices would be a hardship on Americans and then changed the subject. But of course, just a few minutes earlier Mr. Obama insisted that if the Detroit Three “want to survive, then they better start building a fuel-efficient car.”
Friday, December 12, 2008
Financial Update
Stocks close sharply lower on worries about automaker aid, lower financials
· TSX -242.1pts(Reuters) as early gains in energy and mining stocks disappeared, losses in financials picked up amid a new wrinkle in the restructuring of commercial paper while telecom stocks fell with death of the BCE takeover attempt. The slide followed a report that Ottawa could be asked to provide between $5b and $10 b to salvage the restructuring of the seized-up market for Canadian asset-backed commercial paper, or ABCP. The plan has been stalled for months by market upheaval.
· DOW -196.33 NY markets also weakened due to a new wave of pessimism over the chances of Congressional approval for a bailout package for US carmakers. Those opposed are arguing that support for the domestic auto industry should carry significant concessions from autoworkers and creditors and reject tougher environmental rules imposed by House Democrats.
· Dollar +1.67c to $81.06US. as commodity prices ticked higher and the U.S. currency weakened.
· Oil +$4.46 to $47.98US per barrel. with traders expecting a significant OPEC production cut next week
· Gold +$17.80 to $826.60US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Article at the bottom Bank of Canada warns of possible debt, mortgage defaults if conditions worsen verifies this is a great time to be mining your data base for refinance opportunities. Don’t wait till after the holidays like your competition,
Here is an interesting commentary and from Forbes Magazine comparing to the US Banks.
In Crisis, Canadian Banks Survive And Thrive
Robert Elliott Caution never looked so good.
TORONTO--We Canadians are not prone to gloating. Still, many of us might be forgiven for having felt a twinge of national pride that our country's financial system has endured the current economic crisis with far less pain than that experienced by other global powers, particularly our neighbor to the south.
Recent estimates tally losses by Canada's six largest banks due to rotten subprime investments to be around $11.7 billion--no trifle, but insignificant in international terms.
Consider that Citigroup alone has written off more than $39 billion in subprime losses, $20 billion in the past year. UBS took a reported hit of $37 billion, while Wachovia incurred a nearly $24 billion write-down for just the third quarter, just before its takeover by Wells Fargo . The sorry list goes on, punishing major institutions across Europe, the U.K., Asia, Australia and the U.S.
To be sure, Canadian banks have suffered substantial credit losses due to exposure to U.S. real estate. In addition to billion dollar write-downs at several large lenders, Canadian banks are affected by the lack of liquidity in global markets. Many businesses have been unable to access the capital markets. The past year also saw a debilitating freeze in Canada's market for asset-backed commercial paper, much of that tied to bad mortgage credit in the U.S.
Still, given the deep interconnectedness of global financial markets--and our reliance on the U.S. for so much trade and investment--Canada's ability to dodge the worst of the crisis is telling.
There have been no bailouts or rescue plans and--significantly for depositors and creditors--no serious risk of systemic collapse, which makes Canada unique.
Was it a fluke? Hardly. Through a combination of regulatory discipline and cultural mind-set, Canada's banks have long operated with a conservatism that until recently seemed out of step with its peers worldwide. Ironically, that historic caution may now create an equally historic opportunity for the Canadian banking sector as it considers what role to play in the rewriting of America's financial order.
The contrast with the U.S. is striking. Since 1784, when Alexander Hamilton founded the Bank of New York, America has fostered a system of state-chartered banks, with federal policy actively restricting the emergence of national banks on the thinking that such oligopolies were inimical to the interests of farmers and small businesses.
The Canadian banking model began with our 1867 constitution giving the federal government exclusive authority over banks. This approach favored national players, with larger banks growing in step with Western expansion and the building of our railways.
Over time a core group of national institutions emerged as larger regional banks took over smaller lenders, consolidation that largely ended by the 1960s. Today, Canada's six dominant banks represent 96% of all national deposits; their portion of all Canadian banking assets surpasses 90%.
In recent decades, as U.S. banks catered to a wave of new investors with huge appetites for risk and asset growth, Canada's banks expanded at a snail's pace. Since the 1960s, Canada's Bank Act has restricted bank ownership, protecting Canadian banks from foreign takeovers but also effectively keeping a lid on domestic mergers. By statute, the five largest banks with equity over $8 billion must be widely held. Canada's current political uncertainty is not conducive to even the consideration of domestic bank mergers, let alone their approval.
Canada was recently ranked as the soundest banking system in the world by the World Economic Forum. Our prime regulator requires that Canadian deposit-taking institutions maintain a minimum of 7% Tier 1 capital and 10% total capital, levels that until recently were significantly higher than requirements in the U.S. and Britain. In the past, global institutions were critical of the high capital cost of doing business in Canada. Now these jurisdictions are demanding that their banks increase their capital.
For years, critics carped that regulatory restraints diminished Canada's banks on the global stage as other institutions went on buying sprees and aggressively built up assets, market capitalization and international prestige. But, as we are learning, the government's curbs and institutional conservatism meant that Canada's banks didn't place nearly the volume of tainted subprime assets on their books as banks in the U.S., Britain, Switzerland, Germany, Iceland and other countries did.
There is another reason Canada has avoided the worst of the subprime mess. Even during the dizziest days of mortgage-driven lending, many Canadian banks were leery about investing in complex and highly leveraged instruments tied to subprime loans. That meant Canada's banks were far less exposed to collateralized debt obligations, collateralized mortgage obligations and large-scale securitizations of subprime debt.
There is an ingrained attitude among many bankers here that if you don't truly understand the asset, it's not a wise play. Canadian banks grasped that one cannot generate creditworthy assets out of inherently uncreditworthy stuff and then spin those assets into ever more highly leveraged instruments. Long before the collapse of Bear Stearns, Canadian bankers expressed concern about the transparency of these "sow's ear" securities--they knew that what they didn't comprehend could come back to haunt them, a lesson not heeded in the U.S.
As the dust begins to settle from the shakeout in the U.S., Canada's banks face some interesting choices. While national politics limit mergers domestically, Canadian banks have a freer hand to invest outside the country.
Many Canadian banks have built a foundation in the U.S. Bank of Montreal owns Harris Bank in Chicago, and Toronto-Dominion Bank has been a major U.S. acquirer, including online brokerage TD Ameritrade ,as well as BankNorth and Commerce Bank, now rebranded as TD Bank. Royal Bank of Canada as over 400 RBC branches in the U.S., and National Bank of Canadahas become known in Florida and New York State for its Natbank centers.
With many U.S. banks searching for investment partners, Canada could become a much bigger factor in the months ahead, alongside Korea, Japan, Spain and other countries buying up sizable shares of U.S. financial institutions.
True to historic form, Canada's banks will not likely rush into the breach, even with the sell-offs of U.S. firms. The very prudence that helped insulate Canadian banks from some toxic assets will also guide their investments going forward. And different banks will have different strategies.
A few factors could keep Canadian banks on the sidelines for some months. First, it's not clear how much exposure U.S. banks still have to a domestic housing market that many analysts fear has not yet hit bottom. Second, the Canadian dollar has drifted from par with its American cousin and is now trading at around 80 cents to the greenback. As oil prices continue to drop, so goes the Canadian dollar, which could have an impact on any acquisitions.
The most likely scenario is for Canadian banks to build on their investments in U.S. regional banks. There are many smaller institutions and community banks that avoided heavy subprime lending but nonetheless were swept up in the same storm as the larger banks. Regional banks remain attractive targets for acquisition, especially in parts of the U.S. that already do significant trade with Canada. That's a potentially large sweep, given that Canada is the No. 1 trading partner for 42 U.S. states.
Look for more activity by Bank of Montreal in the American Midwest, with TD expanding in the Northeast and Royal Bank of Canada in the Southeast. Even Bank of Nova Scotia , with an international franchise in the Caribbean, Mexico and South America, may look closer to home. While not transformational, the acquisition of regional banks or books of U.S. business would reflect the opportunistic and careful growth that Canadian banks prefer.
Canadians may also become more visible investors in other financial institutions--including insurers, finance companies, even mortgage brokers. At some point, Americans' taste for credit will return, and Canadian banks could become an important pipeline for helping finance a new era of economic growth--conservatively, of course.
It wasn't long ago that a list of the world's largest banks would not have saved a spot for any Canadians, with Citigroup hovering around $180 billion in market cap and Bank of Americaat $200 billion. Today, Royal Bank of Canada ($37 billion market cap), Bank of Nova Scotia ($24 billion) and Toronto-Dominion Bank ($27 billion) all comfortably sit at the big boys' table. Indeed, RBC is now larger than Citigroup ($44 billion), and suddenly even Bank of Montreal ($13 billion) doesn't seem so small next to a BofA with a market cap of $74 billion.
As global financial markets continue to contract and regain their bearings, Canada's banks may gain newfound respect. Our country's regulatory scheme and risk management standards could be a role model for other jurisdictions, while our natural self-restraint and aversion to sub-grade assets could help institutions elsewhere establish their own 12-step programs for staying out of trouble.
What precise role Canada's banks will have in rewriting the U.S. financial landscape is still to be determined. But the crisis, one hopes, has taught Americans a new truism about us Canucks: In addition to loving our hockey and always getting our man, we have the soundest banking system in the world.
Robert Elliott, a Canadian banking attorney based in Toronto, is national co-chair of the Financial Institutions and Services Group with Fasken Martineau, one of Canada's largest law firms.
Bank of Canada warns of possible debt, mortgage defaults if conditions worsen
By Julian Beltrame, The Canadian PressOTTAWA - A significant number of Canadians are at risk of defaulting on mortgages and other loans if the global financial crisis deteriorates and triggers a deeper recession, the Bank of Canada warns.
In a sobering assessment of the financial crisis, the central bank concludes that significant risks remain for both the global economy and Canada if credit conditions don't begin to improve.
"With household balance sheets under pressure from weak equity markets, softening house prices, slowing income growth, and record-high debt-to-income ratios, a severe economic downturn could result in a substantial increase in default rates on household debt," the bank writes in its December financial systems review released Thursday.
The Bank of Canada says the number of "vulnerable households" - the three per cent with a debt-to-income ratio above 40 per cent - could double by the end of next year under this pessimistic scenario. That would mean tens of thousands of households could face crushing debt as Canadians lose jobs and family incomes drop to the point where they can't pay their bills.
The central bank notes that this would be a worst-case scenario. The "most likely outcome" is for global markets and credit conditions in Canada to gradually improve, it states.
This is partly because central banks and governments around the world have leaped into action with extraordinary measures such as cash injections, asset swaps and credit guarantees to backstop financial institutions to pump addditional billions of dollars of credit into the economy.
But the Canadian central bank's top officials also warn that the crisis is far from over and that there is "a significant risk of mutually reinforcing weakness in the financial sector and in the real economy."
That's the kind of negative feedback that felled the American economy, noted Douglas Porter, deputy chief economist with BMO Capital Markets, the brokerage arm of Bank of Montreal, adding it is no longer far-fetched to think it could happen here.
"Given the fact we're looking at the recession in the teeth, some of the worst-case scenarios have to be studied a little more closely," he said.
"It looks like we're going to get as close to the bank's worst-case scenario than anyone would have imagined possible as recently as three months ago."
After resisting the call for months, the Bank of Canada declared the economy in recession Wednesday when it slashed its trendsetting interest rate to the lowest level in 50 years at 1.5 per cent.
Most economists are forecasting growth at or below zero for 2009 with job losses of more than 100,000 and an unemployment rate above seven per cent.
For much of the last year, experts said the Canadian economy would perform better than the recession-ravaged U.S., where the housing, financial and manuufacturing sectors have been battered and the services sector is now feeling the effects.
But now, the slump in the auto, manufacturing and forestry industries in Ontario and Quebec has spread to the resources-based West as oil projects get shelved because of low crude prices and mines close because of slumping prices for nickel, copper, zinc and other primary metals.
Pressure is mounting on the federal government to shock the economy into recovery with a big stiumulus spending plan in its Jan. 27 budget. Late Thursday, Bank of Montreal's Porter urged Ottawa to spend as much as $16 billion next year to arrest the economy's slide into recession.
Porter said such a package should include spending on roads and bridges as well as a one-time bonus for seniors on public pensions, temporary cuts to payroll taxes and the GST, and spending vouchers that would give Canadians government cheques on the condition they spend rather than save.
As well, Porter says Ottawa should consider a one-time financial transfer to the provinces, which could put the money more directly to use.
Given the rising uncertainty, the Bank of Canada officials outlined five potential risks for the world and Canada, including a deeper and more prolonged recession as banks compelled to restore cash reserves tighten the screws on credit conditions even further.
For Canadians, the repercussions will be profound - higher joblessness, lower income growth and more home defaults from crushing debt loads, the bank says in its worst-case assessment.
And while Canadians' access to credit has not tightened significantly during the financial crunch, this could change if the crisis persists, the bank says.
The risk assessment is noteworthy for its predominantly gloomy outlook - although it remains a hypothetical one - and for the fact it was written by the bank's governing council headed by governor Mark Carney, rather than by lower-rank bank staff as is usually the case.
In the United States, millions of Americans have lost their homes in the last two years with the collapse of the sub-prime, or high-risk mortgage market, which led to sharply higher interest rates for homeowners with poor credit and produced widespread foreclosures.
In Canada, however, the housing sector has been more stable, but the jump in home prices that led to soaring values in Vancouver, Calgary, Toronto and other cities has begun to reverse.
Statistics Canada reported Thursday that new home sales fell for the first time in a decade in October, dropping 0.4 per cent from September.
According to the latest figures compiled by the Canadian Bankers Association, the percentage of mortgages that have gone unpaid for at least three months as of September was 0.29 per cent, or 11,362 of about 3.9 million mortgages in the country. Arrears in the U.S. are 6.5 times higher.
"Canadian trends are stable. American trends are worsening," according to the bankers' group.
In its report, the Bank of Canada says consumer debt woes will also cut deeply into bank profitability. In their recent financial reports, the six biggest Canadian banks reported a 38 per cent drop in profits for the just completed 2008 fiscal year to about $12 billion.
Much as has happened in the U.S., the central bank officials say the contagion could spread through the banking system and further restrict the availability of credit.
The Bank of Canada does caution that the vulnerability of Canada's housing sector should not be overstated.
It notes that lending practices in Canada have been far more conservative than those in the U.S. and that subprime mortgages account for about five per cent of the market as opposed to 14 per cent in the U.S. Banks are also insulated for defaults through government guaranteed mortgage insurance.
As well, although debt is high, low interest rates means that at present most households are able to comfortably manage their financial obligations.
Merrill Lynch economists David Wolf and Carolyn Kwan warned back in September that Canada was experiencing a similar housing meltdown as occurred in the U.S.
But Derek Holt of Scotia Capital agreed with the Bank of Canada that the situation here is not as dire.
"If we start off by looking at the household balance sheet it's 20 cents in debt for dollar of assets in Canada versus 26 cents in the United States. So we have 30 per cent less debt per each dollar," he explained.
· TSX -242.1pts(Reuters) as early gains in energy and mining stocks disappeared, losses in financials picked up amid a new wrinkle in the restructuring of commercial paper while telecom stocks fell with death of the BCE takeover attempt. The slide followed a report that Ottawa could be asked to provide between $5b and $10 b to salvage the restructuring of the seized-up market for Canadian asset-backed commercial paper, or ABCP. The plan has been stalled for months by market upheaval.
· DOW -196.33 NY markets also weakened due to a new wave of pessimism over the chances of Congressional approval for a bailout package for US carmakers. Those opposed are arguing that support for the domestic auto industry should carry significant concessions from autoworkers and creditors and reject tougher environmental rules imposed by House Democrats.
· Dollar +1.67c to $81.06US. as commodity prices ticked higher and the U.S. currency weakened.
· Oil +$4.46 to $47.98US per barrel. with traders expecting a significant OPEC production cut next week
· Gold +$17.80 to $826.60US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Article at the bottom Bank of Canada warns of possible debt, mortgage defaults if conditions worsen verifies this is a great time to be mining your data base for refinance opportunities. Don’t wait till after the holidays like your competition,
Here is an interesting commentary and from Forbes Magazine comparing to the US Banks.
In Crisis, Canadian Banks Survive And Thrive
Robert Elliott Caution never looked so good.
TORONTO--We Canadians are not prone to gloating. Still, many of us might be forgiven for having felt a twinge of national pride that our country's financial system has endured the current economic crisis with far less pain than that experienced by other global powers, particularly our neighbor to the south.
Recent estimates tally losses by Canada's six largest banks due to rotten subprime investments to be around $11.7 billion--no trifle, but insignificant in international terms.
Consider that Citigroup alone has written off more than $39 billion in subprime losses, $20 billion in the past year. UBS took a reported hit of $37 billion, while Wachovia incurred a nearly $24 billion write-down for just the third quarter, just before its takeover by Wells Fargo . The sorry list goes on, punishing major institutions across Europe, the U.K., Asia, Australia and the U.S.
To be sure, Canadian banks have suffered substantial credit losses due to exposure to U.S. real estate. In addition to billion dollar write-downs at several large lenders, Canadian banks are affected by the lack of liquidity in global markets. Many businesses have been unable to access the capital markets. The past year also saw a debilitating freeze in Canada's market for asset-backed commercial paper, much of that tied to bad mortgage credit in the U.S.
Still, given the deep interconnectedness of global financial markets--and our reliance on the U.S. for so much trade and investment--Canada's ability to dodge the worst of the crisis is telling.
There have been no bailouts or rescue plans and--significantly for depositors and creditors--no serious risk of systemic collapse, which makes Canada unique.
Was it a fluke? Hardly. Through a combination of regulatory discipline and cultural mind-set, Canada's banks have long operated with a conservatism that until recently seemed out of step with its peers worldwide. Ironically, that historic caution may now create an equally historic opportunity for the Canadian banking sector as it considers what role to play in the rewriting of America's financial order.
The contrast with the U.S. is striking. Since 1784, when Alexander Hamilton founded the Bank of New York, America has fostered a system of state-chartered banks, with federal policy actively restricting the emergence of national banks on the thinking that such oligopolies were inimical to the interests of farmers and small businesses.
The Canadian banking model began with our 1867 constitution giving the federal government exclusive authority over banks. This approach favored national players, with larger banks growing in step with Western expansion and the building of our railways.
Over time a core group of national institutions emerged as larger regional banks took over smaller lenders, consolidation that largely ended by the 1960s. Today, Canada's six dominant banks represent 96% of all national deposits; their portion of all Canadian banking assets surpasses 90%.
In recent decades, as U.S. banks catered to a wave of new investors with huge appetites for risk and asset growth, Canada's banks expanded at a snail's pace. Since the 1960s, Canada's Bank Act has restricted bank ownership, protecting Canadian banks from foreign takeovers but also effectively keeping a lid on domestic mergers. By statute, the five largest banks with equity over $8 billion must be widely held. Canada's current political uncertainty is not conducive to even the consideration of domestic bank mergers, let alone their approval.
Canada was recently ranked as the soundest banking system in the world by the World Economic Forum. Our prime regulator requires that Canadian deposit-taking institutions maintain a minimum of 7% Tier 1 capital and 10% total capital, levels that until recently were significantly higher than requirements in the U.S. and Britain. In the past, global institutions were critical of the high capital cost of doing business in Canada. Now these jurisdictions are demanding that their banks increase their capital.
For years, critics carped that regulatory restraints diminished Canada's banks on the global stage as other institutions went on buying sprees and aggressively built up assets, market capitalization and international prestige. But, as we are learning, the government's curbs and institutional conservatism meant that Canada's banks didn't place nearly the volume of tainted subprime assets on their books as banks in the U.S., Britain, Switzerland, Germany, Iceland and other countries did.
There is another reason Canada has avoided the worst of the subprime mess. Even during the dizziest days of mortgage-driven lending, many Canadian banks were leery about investing in complex and highly leveraged instruments tied to subprime loans. That meant Canada's banks were far less exposed to collateralized debt obligations, collateralized mortgage obligations and large-scale securitizations of subprime debt.
There is an ingrained attitude among many bankers here that if you don't truly understand the asset, it's not a wise play. Canadian banks grasped that one cannot generate creditworthy assets out of inherently uncreditworthy stuff and then spin those assets into ever more highly leveraged instruments. Long before the collapse of Bear Stearns, Canadian bankers expressed concern about the transparency of these "sow's ear" securities--they knew that what they didn't comprehend could come back to haunt them, a lesson not heeded in the U.S.
As the dust begins to settle from the shakeout in the U.S., Canada's banks face some interesting choices. While national politics limit mergers domestically, Canadian banks have a freer hand to invest outside the country.
Many Canadian banks have built a foundation in the U.S. Bank of Montreal owns Harris Bank in Chicago, and Toronto-Dominion Bank has been a major U.S. acquirer, including online brokerage TD Ameritrade ,as well as BankNorth and Commerce Bank, now rebranded as TD Bank. Royal Bank of Canada as over 400 RBC branches in the U.S., and National Bank of Canadahas become known in Florida and New York State for its Natbank centers.
With many U.S. banks searching for investment partners, Canada could become a much bigger factor in the months ahead, alongside Korea, Japan, Spain and other countries buying up sizable shares of U.S. financial institutions.
True to historic form, Canada's banks will not likely rush into the breach, even with the sell-offs of U.S. firms. The very prudence that helped insulate Canadian banks from some toxic assets will also guide their investments going forward. And different banks will have different strategies.
A few factors could keep Canadian banks on the sidelines for some months. First, it's not clear how much exposure U.S. banks still have to a domestic housing market that many analysts fear has not yet hit bottom. Second, the Canadian dollar has drifted from par with its American cousin and is now trading at around 80 cents to the greenback. As oil prices continue to drop, so goes the Canadian dollar, which could have an impact on any acquisitions.
The most likely scenario is for Canadian banks to build on their investments in U.S. regional banks. There are many smaller institutions and community banks that avoided heavy subprime lending but nonetheless were swept up in the same storm as the larger banks. Regional banks remain attractive targets for acquisition, especially in parts of the U.S. that already do significant trade with Canada. That's a potentially large sweep, given that Canada is the No. 1 trading partner for 42 U.S. states.
Look for more activity by Bank of Montreal in the American Midwest, with TD expanding in the Northeast and Royal Bank of Canada in the Southeast. Even Bank of Nova Scotia , with an international franchise in the Caribbean, Mexico and South America, may look closer to home. While not transformational, the acquisition of regional banks or books of U.S. business would reflect the opportunistic and careful growth that Canadian banks prefer.
Canadians may also become more visible investors in other financial institutions--including insurers, finance companies, even mortgage brokers. At some point, Americans' taste for credit will return, and Canadian banks could become an important pipeline for helping finance a new era of economic growth--conservatively, of course.
It wasn't long ago that a list of the world's largest banks would not have saved a spot for any Canadians, with Citigroup hovering around $180 billion in market cap and Bank of Americaat $200 billion. Today, Royal Bank of Canada ($37 billion market cap), Bank of Nova Scotia ($24 billion) and Toronto-Dominion Bank ($27 billion) all comfortably sit at the big boys' table. Indeed, RBC is now larger than Citigroup ($44 billion), and suddenly even Bank of Montreal ($13 billion) doesn't seem so small next to a BofA with a market cap of $74 billion.
As global financial markets continue to contract and regain their bearings, Canada's banks may gain newfound respect. Our country's regulatory scheme and risk management standards could be a role model for other jurisdictions, while our natural self-restraint and aversion to sub-grade assets could help institutions elsewhere establish their own 12-step programs for staying out of trouble.
What precise role Canada's banks will have in rewriting the U.S. financial landscape is still to be determined. But the crisis, one hopes, has taught Americans a new truism about us Canucks: In addition to loving our hockey and always getting our man, we have the soundest banking system in the world.
Robert Elliott, a Canadian banking attorney based in Toronto, is national co-chair of the Financial Institutions and Services Group with Fasken Martineau, one of Canada's largest law firms.
Bank of Canada warns of possible debt, mortgage defaults if conditions worsen
By Julian Beltrame, The Canadian PressOTTAWA - A significant number of Canadians are at risk of defaulting on mortgages and other loans if the global financial crisis deteriorates and triggers a deeper recession, the Bank of Canada warns.
In a sobering assessment of the financial crisis, the central bank concludes that significant risks remain for both the global economy and Canada if credit conditions don't begin to improve.
"With household balance sheets under pressure from weak equity markets, softening house prices, slowing income growth, and record-high debt-to-income ratios, a severe economic downturn could result in a substantial increase in default rates on household debt," the bank writes in its December financial systems review released Thursday.
The Bank of Canada says the number of "vulnerable households" - the three per cent with a debt-to-income ratio above 40 per cent - could double by the end of next year under this pessimistic scenario. That would mean tens of thousands of households could face crushing debt as Canadians lose jobs and family incomes drop to the point where they can't pay their bills.
The central bank notes that this would be a worst-case scenario. The "most likely outcome" is for global markets and credit conditions in Canada to gradually improve, it states.
This is partly because central banks and governments around the world have leaped into action with extraordinary measures such as cash injections, asset swaps and credit guarantees to backstop financial institutions to pump addditional billions of dollars of credit into the economy.
But the Canadian central bank's top officials also warn that the crisis is far from over and that there is "a significant risk of mutually reinforcing weakness in the financial sector and in the real economy."
That's the kind of negative feedback that felled the American economy, noted Douglas Porter, deputy chief economist with BMO Capital Markets, the brokerage arm of Bank of Montreal, adding it is no longer far-fetched to think it could happen here.
"Given the fact we're looking at the recession in the teeth, some of the worst-case scenarios have to be studied a little more closely," he said.
"It looks like we're going to get as close to the bank's worst-case scenario than anyone would have imagined possible as recently as three months ago."
After resisting the call for months, the Bank of Canada declared the economy in recession Wednesday when it slashed its trendsetting interest rate to the lowest level in 50 years at 1.5 per cent.
Most economists are forecasting growth at or below zero for 2009 with job losses of more than 100,000 and an unemployment rate above seven per cent.
For much of the last year, experts said the Canadian economy would perform better than the recession-ravaged U.S., where the housing, financial and manuufacturing sectors have been battered and the services sector is now feeling the effects.
But now, the slump in the auto, manufacturing and forestry industries in Ontario and Quebec has spread to the resources-based West as oil projects get shelved because of low crude prices and mines close because of slumping prices for nickel, copper, zinc and other primary metals.
Pressure is mounting on the federal government to shock the economy into recovery with a big stiumulus spending plan in its Jan. 27 budget. Late Thursday, Bank of Montreal's Porter urged Ottawa to spend as much as $16 billion next year to arrest the economy's slide into recession.
Porter said such a package should include spending on roads and bridges as well as a one-time bonus for seniors on public pensions, temporary cuts to payroll taxes and the GST, and spending vouchers that would give Canadians government cheques on the condition they spend rather than save.
As well, Porter says Ottawa should consider a one-time financial transfer to the provinces, which could put the money more directly to use.
Given the rising uncertainty, the Bank of Canada officials outlined five potential risks for the world and Canada, including a deeper and more prolonged recession as banks compelled to restore cash reserves tighten the screws on credit conditions even further.
For Canadians, the repercussions will be profound - higher joblessness, lower income growth and more home defaults from crushing debt loads, the bank says in its worst-case assessment.
And while Canadians' access to credit has not tightened significantly during the financial crunch, this could change if the crisis persists, the bank says.
The risk assessment is noteworthy for its predominantly gloomy outlook - although it remains a hypothetical one - and for the fact it was written by the bank's governing council headed by governor Mark Carney, rather than by lower-rank bank staff as is usually the case.
In the United States, millions of Americans have lost their homes in the last two years with the collapse of the sub-prime, or high-risk mortgage market, which led to sharply higher interest rates for homeowners with poor credit and produced widespread foreclosures.
In Canada, however, the housing sector has been more stable, but the jump in home prices that led to soaring values in Vancouver, Calgary, Toronto and other cities has begun to reverse.
Statistics Canada reported Thursday that new home sales fell for the first time in a decade in October, dropping 0.4 per cent from September.
According to the latest figures compiled by the Canadian Bankers Association, the percentage of mortgages that have gone unpaid for at least three months as of September was 0.29 per cent, or 11,362 of about 3.9 million mortgages in the country. Arrears in the U.S. are 6.5 times higher.
"Canadian trends are stable. American trends are worsening," according to the bankers' group.
In its report, the Bank of Canada says consumer debt woes will also cut deeply into bank profitability. In their recent financial reports, the six biggest Canadian banks reported a 38 per cent drop in profits for the just completed 2008 fiscal year to about $12 billion.
Much as has happened in the U.S., the central bank officials say the contagion could spread through the banking system and further restrict the availability of credit.
The Bank of Canada does caution that the vulnerability of Canada's housing sector should not be overstated.
It notes that lending practices in Canada have been far more conservative than those in the U.S. and that subprime mortgages account for about five per cent of the market as opposed to 14 per cent in the U.S. Banks are also insulated for defaults through government guaranteed mortgage insurance.
As well, although debt is high, low interest rates means that at present most households are able to comfortably manage their financial obligations.
Merrill Lynch economists David Wolf and Carolyn Kwan warned back in September that Canada was experiencing a similar housing meltdown as occurred in the U.S.
But Derek Holt of Scotia Capital agreed with the Bank of Canada that the situation here is not as dire.
"If we start off by looking at the household balance sheet it's 20 cents in debt for dollar of assets in Canada versus 26 cents in the United States. So we have 30 per cent less debt per each dollar," he explained.
Thursday, December 11, 2008
Financial Update
Canada stocks back in positive territory
· TSX +236.44pts (Reuters) as signs of reduced oil supplies sparked a rally in energy shares, but nagging concerns about Canada's economy, coupled with uncertainty over the fate of a rescue plan for U.S. automakers -- which bogged down Wednesday in political wrangling in Washington -- sent another chill through financials, which make up about a third of the broader TSX index.
· DOW +70.09pts
· Dollar +.31c to $79.39US. as commodity prices ticked higher.
· Oil +$1.45 to $43.52US per barrel. ahead of an expected production-quota cut next week by the Organization of Petroleum Exporting Countries.
· Gold +$34.60 to $808.80US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
In Canada, Prime Minister Stephen Harper says there will be no blank cheque for automakers and he wants to see the U.S. aid package before deciding on the Detroit Three's plea for billions of dollars in help from Ottawa.
Below is a Financial Post article regarding the decision of the Bank’s to not pass on the full 75 bps rate cut. Specifically:
“In normal times, financial institutions do better when the central bank lowers the cost of funds, happily passing on cheaper loan rates to consumers to encourage them to borrow more. But when the official rate starts getting closer to zero, the dynamics start to change, as the prime rate that banks charge customers is pushed nearer to their own cost of funds.”
Simply put, we’re in unchartered territory. The BOC rate is at a 50 year low. There’s little data available to see what Bank’s have done in the past under these circumstances. So while many economists suggest a further 50 bps rate cut is going to happen January 20th, there are absolutely no guarantees the Banks will follow. We’re getting to the point where further BOC rate cuts may not have much of an impact in terms of economic stimulus.
Bay Street changes rules of rates game
Eoin Callan and Gary Marr, Financial Post Published: Tuesday, December 09, 2008
Canadian bank executives say the cost of funding in international markets remains extraordinarily high.
Bay Street's profit margins are starting to come under pressure as official interest rates creep closer to zero, prompting retail banks to change the rules of the game so customers pay more.
While the Bank of Canada on Tuesday cut interest rates to the lowest level since the 1950s, the country's five big banks indicated they would no longer march in lock step with the central bank. Instead, Bay Street is keeping the cost of borrowing for consumers more elevated in a bid to protect corporate earnings, passing on only part of the rate cut to customers.
While the decision of Bay Street to pocket part of the Bank of Canada rate cut is seen as good for shareholders and bad for customers, there is less certainty about how it will impact wider demand, partly because there are few historical precedents.
"We just don't have much experience with this," said an official at the Federal Reserve who has studied how financial institutions behave when central banks cut rates close to zero.
The central banker said data were limited but suggests retail banks remain willing to lend even when official rates fall near zero, as they tend to find ways to protect profit margins on loans.
In normal times, financial institutions do better when the central bank lowers the cost of funds, happily passing on cheaper loan rates to consumers to encourage them to borrow more. But when the official rate starts getting closer to zero, the dynamics start to change, as the prime rate that banks charge customers is pushed nearer to their own cost of funds.
This was key to Tuesday's decision by RBC, TD, Scotiabank, BMO and CIBC to cut their prime rate by 50 basis points instead of the full Bank of Canada cut of 75 basis points, according to people in the industry.
Joan Dal Bianco, vice-president of real estate-secured lending with TD Bank, said it would have left the bank without a profit if the full rate cut had been passed on to customers with variable products tied to prime.
"We are still trying to earn something on this stuff. This has been quite the roller-coaster ride and it has not been too hot on the mortgage front. We just can't take on the whole 75-point cut," Ms. Dal Bianco said.
Nancy Hughes-Anthony, head of the Canadian Bankers Association, acknowledged the decision to break step with the Bank of Canada created a public-relations challenge for Bay Street.
But she said: "The banks are still borrowing in a very volatile marketplace. The Bank of Canada rate is only one component of their cost of funding, and while the cost of borrowing in international markets has come down a bit, it is still higher than before the crisis."
John Aiken, an analyst at Dundee Securities, said banks were "starting to see margin compression" as the central bank cut rates to 1.5% from 2.25%, while banks reduced their prime lending rate to 3.5% from 4%.
"The new loans that are being put in the books are arguably at a less profitable rate," he said.
Vince Gaetano, a vice-president with Monster Mortgage, said he expects pressure will start to mount on the banks in the coming weeks to reduce prime further.
"That's what happened the last time they tried to resist rate cuts," he said.
This willingness to pass on rate cuts is critical to determining the ability of the Bank of Canada to stimulate the economy in the midst of a downturn.
The central bank's own research shows "it is the real rate of interest that is most relevant" to the purchasing decisions of households, and that it can "influence demand only to the extent that adjustments to the [official] interest rate feed through to the real interest rate.
· TSX +236.44pts (Reuters) as signs of reduced oil supplies sparked a rally in energy shares, but nagging concerns about Canada's economy, coupled with uncertainty over the fate of a rescue plan for U.S. automakers -- which bogged down Wednesday in political wrangling in Washington -- sent another chill through financials, which make up about a third of the broader TSX index.
· DOW +70.09pts
· Dollar +.31c to $79.39US. as commodity prices ticked higher.
· Oil +$1.45 to $43.52US per barrel. ahead of an expected production-quota cut next week by the Organization of Petroleum Exporting Countries.
· Gold +$34.60 to $808.80US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
In Canada, Prime Minister Stephen Harper says there will be no blank cheque for automakers and he wants to see the U.S. aid package before deciding on the Detroit Three's plea for billions of dollars in help from Ottawa.
Below is a Financial Post article regarding the decision of the Bank’s to not pass on the full 75 bps rate cut. Specifically:
“In normal times, financial institutions do better when the central bank lowers the cost of funds, happily passing on cheaper loan rates to consumers to encourage them to borrow more. But when the official rate starts getting closer to zero, the dynamics start to change, as the prime rate that banks charge customers is pushed nearer to their own cost of funds.”
Simply put, we’re in unchartered territory. The BOC rate is at a 50 year low. There’s little data available to see what Bank’s have done in the past under these circumstances. So while many economists suggest a further 50 bps rate cut is going to happen January 20th, there are absolutely no guarantees the Banks will follow. We’re getting to the point where further BOC rate cuts may not have much of an impact in terms of economic stimulus.
Bay Street changes rules of rates game
Eoin Callan and Gary Marr, Financial Post Published: Tuesday, December 09, 2008
Canadian bank executives say the cost of funding in international markets remains extraordinarily high.
Bay Street's profit margins are starting to come under pressure as official interest rates creep closer to zero, prompting retail banks to change the rules of the game so customers pay more.
While the Bank of Canada on Tuesday cut interest rates to the lowest level since the 1950s, the country's five big banks indicated they would no longer march in lock step with the central bank. Instead, Bay Street is keeping the cost of borrowing for consumers more elevated in a bid to protect corporate earnings, passing on only part of the rate cut to customers.
While the decision of Bay Street to pocket part of the Bank of Canada rate cut is seen as good for shareholders and bad for customers, there is less certainty about how it will impact wider demand, partly because there are few historical precedents.
"We just don't have much experience with this," said an official at the Federal Reserve who has studied how financial institutions behave when central banks cut rates close to zero.
The central banker said data were limited but suggests retail banks remain willing to lend even when official rates fall near zero, as they tend to find ways to protect profit margins on loans.
In normal times, financial institutions do better when the central bank lowers the cost of funds, happily passing on cheaper loan rates to consumers to encourage them to borrow more. But when the official rate starts getting closer to zero, the dynamics start to change, as the prime rate that banks charge customers is pushed nearer to their own cost of funds.
This was key to Tuesday's decision by RBC, TD, Scotiabank, BMO and CIBC to cut their prime rate by 50 basis points instead of the full Bank of Canada cut of 75 basis points, according to people in the industry.
Joan Dal Bianco, vice-president of real estate-secured lending with TD Bank, said it would have left the bank without a profit if the full rate cut had been passed on to customers with variable products tied to prime.
"We are still trying to earn something on this stuff. This has been quite the roller-coaster ride and it has not been too hot on the mortgage front. We just can't take on the whole 75-point cut," Ms. Dal Bianco said.
Nancy Hughes-Anthony, head of the Canadian Bankers Association, acknowledged the decision to break step with the Bank of Canada created a public-relations challenge for Bay Street.
But she said: "The banks are still borrowing in a very volatile marketplace. The Bank of Canada rate is only one component of their cost of funding, and while the cost of borrowing in international markets has come down a bit, it is still higher than before the crisis."
John Aiken, an analyst at Dundee Securities, said banks were "starting to see margin compression" as the central bank cut rates to 1.5% from 2.25%, while banks reduced their prime lending rate to 3.5% from 4%.
"The new loans that are being put in the books are arguably at a less profitable rate," he said.
Vince Gaetano, a vice-president with Monster Mortgage, said he expects pressure will start to mount on the banks in the coming weeks to reduce prime further.
"That's what happened the last time they tried to resist rate cuts," he said.
This willingness to pass on rate cuts is critical to determining the ability of the Bank of Canada to stimulate the economy in the midst of a downturn.
The central bank's own research shows "it is the real rate of interest that is most relevant" to the purchasing decisions of households, and that it can "influence demand only to the extent that adjustments to the [official] interest rate feed through to the real interest rate.
Wednesday, December 10, 2008
Financial Update
Bank of Canada drops its rate to lowest level since 1958
· TSX -169.56pts (Reuters)
· DOW -242.85pts
· Dollar -.66c to $79.08US.
· Oil -$1.64 to $42.07US per barrel.
· Gold $5.00 to $772.40US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
OTTAWA - Michael Ignatieff has secured the federal Liberal leadership without a single vote being cast after his last remaining rival, Bob Rae, bowed out of the contest. Rae announced Tuesday that he's dropping out for the good of the party.
The links between now and 1958
Jacqueline Thorpe, Financial Post Published: Tuesday, December 09, 2008 In these times of economic 'crisis' it bears keeping in mind how little things change: economies boom and bust all the time.
For example, the last time Canadian interest rates were as low as they are today was in 1958 when Canada was emerging from recession. The economy, valued at about $32-billion at the time, was carried higher by a huge investment boom throughout the mid-1950s. Growth rates reached as high 9% in 1955 and 1956.
Then the boom went bust. The unemployment rate, which was 3.4% in 1956 hit 7.2% in 1961; growth slowed to about 1% as business spending fell off a cliff.
While business was retreating into a shell, consumers and governments led the recovery.
"Encouraged by an amply supply of mortgage funds, expenditures for residential construction reached an all-time high," the Canada Year Book for 1959 says.
The federal government, as it is contemplating today, shifted from a moderate surplus to a large deficit, playing "an important sustaining role in the economy." It raised spending on goods and services and increased transfer payments -- largely on employment insurance and other benefits.
By the middle of 1959 the economy was in full swing with growth expanding at 7% over 1958. Business investment surged. There was trouble brewing between the Bank of Canada and the government however.
While unemployment was still high and inflation low, James Coyne, Governor of the Bank of Canada, spied trouble ahead, especially in excessive spending and current account deficits, and tightened monetary policy.
The strategy was at odds with the government, which eventually tried to fire Mr. Coyne, ostensibly over his pension. He refused, but after the Senate found no misconduct on his part, he eventually resigned over the government's interference.
Now the Bank of Canada is fully independent from the government, so current governor Mark Carney should have no trouble raising rates again -- when he believes the time is right.
The FP article below discusses TDCT, however the same now applies to CIBC, RBC, BMO and Scotiabank
Canadian banks break ranks by holding back rate cut
Eoin Callan, Financial Post TD has decided to pass on to customers only part of the hefty cut in interest rates by the Bank of Canada.
The bank will pocket a third of the rate cut to improve its own profit margins, while customers will see the prime lending rate reduced by only .5 per cent, instead of the full .75 per cent rate cut announced by the central bank.
The decision is controversial because it comes at a time when governments and central banks worldwide are pumping liquidity into markets in a bid to make credit more available to consumers and businesses.
The Bank of Canada explained Tuesday that it was cutting rates by the most in years because the economy was sliding into a recession as the global outlook worsened.
But the impact of the monetary stimulus is lessened if banks only pass on part of the rate cut.
The move is also politically charged because of moves by the government to bring funding costs for banks down, including guaranteeing new borrowing by banks in international credit markets.
Yet bank executives say the cost of funding in international markets remains extraordinarily high.
Yet there have also been signs that TD has been looking for some time at breaking with the tradition in Canada of banks cutting the prime rate in lock step with the Bank of Canada.
In research papers and interviews the bank has been a leading advocate of the view that Canada is moving towards a model seen in other countries where institutions pick and choose how much of a rate cut to pass on to consumers.
This is creating new competitive dynamics in Canada's retail banking market that have little precedent, with rival banks watching each other closely and engaging in an elaborate game of chicken to determine who will cut most.
· TSX -169.56pts (Reuters)
· DOW -242.85pts
· Dollar -.66c to $79.08US.
· Oil -$1.64 to $42.07US per barrel.
· Gold $5.00 to $772.40US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
OTTAWA - Michael Ignatieff has secured the federal Liberal leadership without a single vote being cast after his last remaining rival, Bob Rae, bowed out of the contest. Rae announced Tuesday that he's dropping out for the good of the party.
The links between now and 1958
Jacqueline Thorpe, Financial Post Published: Tuesday, December 09, 2008 In these times of economic 'crisis' it bears keeping in mind how little things change: economies boom and bust all the time.
For example, the last time Canadian interest rates were as low as they are today was in 1958 when Canada was emerging from recession. The economy, valued at about $32-billion at the time, was carried higher by a huge investment boom throughout the mid-1950s. Growth rates reached as high 9% in 1955 and 1956.
Then the boom went bust. The unemployment rate, which was 3.4% in 1956 hit 7.2% in 1961; growth slowed to about 1% as business spending fell off a cliff.
While business was retreating into a shell, consumers and governments led the recovery.
"Encouraged by an amply supply of mortgage funds, expenditures for residential construction reached an all-time high," the Canada Year Book for 1959 says.
The federal government, as it is contemplating today, shifted from a moderate surplus to a large deficit, playing "an important sustaining role in the economy." It raised spending on goods and services and increased transfer payments -- largely on employment insurance and other benefits.
By the middle of 1959 the economy was in full swing with growth expanding at 7% over 1958. Business investment surged. There was trouble brewing between the Bank of Canada and the government however.
While unemployment was still high and inflation low, James Coyne, Governor of the Bank of Canada, spied trouble ahead, especially in excessive spending and current account deficits, and tightened monetary policy.
The strategy was at odds with the government, which eventually tried to fire Mr. Coyne, ostensibly over his pension. He refused, but after the Senate found no misconduct on his part, he eventually resigned over the government's interference.
Now the Bank of Canada is fully independent from the government, so current governor Mark Carney should have no trouble raising rates again -- when he believes the time is right.
The FP article below discusses TDCT, however the same now applies to CIBC, RBC, BMO and Scotiabank
Canadian banks break ranks by holding back rate cut
Eoin Callan, Financial Post TD has decided to pass on to customers only part of the hefty cut in interest rates by the Bank of Canada.
The bank will pocket a third of the rate cut to improve its own profit margins, while customers will see the prime lending rate reduced by only .5 per cent, instead of the full .75 per cent rate cut announced by the central bank.
The decision is controversial because it comes at a time when governments and central banks worldwide are pumping liquidity into markets in a bid to make credit more available to consumers and businesses.
The Bank of Canada explained Tuesday that it was cutting rates by the most in years because the economy was sliding into a recession as the global outlook worsened.
But the impact of the monetary stimulus is lessened if banks only pass on part of the rate cut.
The move is also politically charged because of moves by the government to bring funding costs for banks down, including guaranteeing new borrowing by banks in international credit markets.
Yet bank executives say the cost of funding in international markets remains extraordinarily high.
Yet there have also been signs that TD has been looking for some time at breaking with the tradition in Canada of banks cutting the prime rate in lock step with the Bank of Canada.
In research papers and interviews the bank has been a leading advocate of the view that Canada is moving towards a model seen in other countries where institutions pick and choose how much of a rate cut to pass on to consumers.
This is creating new competitive dynamics in Canada's retail banking market that have little precedent, with rival banks watching each other closely and engaging in an elaborate game of chicken to determine who will cut most.
Tuesday, December 9, 2008
Financial Update
· TSX +450.09pts (Reuters) Blue chips in Toronto jumped more than 5.5%-- led by a rise in mining stocks -- as investors welcomed President-elect Barack Obama's plan to create jobs and revive the economy, and reports that government help for the automakers is on the way.
· DOW +298.76pts Over the weekend, Obama outlined plans to create 2.5 million jobs by 2011 through repairing roads and bridges, modernizing schools and making public buildings more energy efficient, among other initiatives. Additionally, the White House said a deal to help the automakers is near. A roughly $15 billion loan package was finalized Monday.
· Dollar +1.06c to $79.74US. Canada’s dollar rose the most in 2 weeks as President-elect Barack Obama’s pledge to spend the most on infrastructure since the 1950s reduced the US currency’s haven appeal
· Oil +$2.90 to $43.71US per barrel. Dow Chemical said it will cut 5,000 full-time jobs, or around 11% of its workforce, close 20 plants and sell several businesses to cut back amid the recession. However, Dow shares gained 7%.
· Gold $16.90 to $767.400US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Canadian housing starts fell to 172,000 at a seasonally adjusted annual rate last month, down from 211,800 in October, Canada Mortgage and Housing Corp. reported Monday. The rate of urban starts decreased 21.6% month-over-month to 144,800 in November, with declines in all parts of the country as volatile multiple starts tumbled 29.1% to 81,700 while single-family starts eased 9.0% to 63,100.
Real estate: Where to buy now
by Duncan Hood, Moneysense
Real estate agents like to tell you that what matters is location, location, location. They're partly right. But what also matters is timing, timing, timing. Every city moves to its own economic rhythms. Smart real estate investing is a matter of knowing when to jump into the market and when to stay out.How do you know when the time is ripe? Rather than relying upon gut feel, we decided to take a more scientific approach to the question. We compiled data on the 35 major markets tracked by Canada Mortgage and Housing Corp. We analyzed each market in three different ways — by Value, by Momentum, and by Economic Strength. We assigned each market a letter grade in each of the three categories, then combined all that info into one overall grade. We awarded an A to the top 20% of cities. Average prospects had to make do with a B, while lacklustre prospects were handed a C or worse.
Many individual factors went into each grade. To calculate Value, for instance, we began by comparing average rents to average home prices, since we figured that the most basic indicator of a home's value is how much rent it can put in your pocket. High rents indicate that, if you were hit by a financial crisis, you could rent out your home for a reasonable sum. Even if you never plan to rent out your home that is still a comforting thought.To help us gain an even better sense of a city's Value, we looked at local wages and figured out the number of years of average household income that it would take to purchase the typical local home. We downgraded communities where local residents couldn't afford to buy homes easily; we gave highest marks to cities where they could. Our reasoning was that places where homes are affordable are places where real estate prices are solidly rooted in economic fundamentals and are therefore unlikely to plunge. The differences between communities can be huge. In Regina, a typical family needs two-and-a-half years of income to buy a home; in Vancouver, a typical family needs nearly eight years of income. Talking strictly in terms of bang for buck, Regina is a much better place to buy.But, of course, Value isn't everything. Some cities have enjoyed surging real estate markets for reasons that have little to do with local rents or typical wages. Some of these red-hot markets are cities that have lured outsiders with their natural beauty (think Vancouver); others are communities that have enjoyed bonanzas because of skyrocketing oil prices (that's you, Calgary).To give these cities their due we rated each of our 35 cities on Momentum, a measure of how hot each market is. To gauge Momentum, we looked at home sales in comparison to new real estate listings — a high number of sales-to-listings indicate that homes are selling relatively quickly and market momentum is therefore high. We also looked at how much home prices in each city have gone up over the last year and over the last four years. To top things off, we considered how much rents have gone up over the past four years, since rapidly rising rents indicate a community with pent-up demand for housing. If you've been following the real estate news, it probably won't surprise you to learn that the runaway winners in our Momentum survey are Regina and Saskatoon.The problem is that the same forces that conspire to drive up prices in a city can also turn in the opposite direction. To avoid being taken in by cities with weakening economies, we devoted our final grade to Economic Strength. We looked at how fast each community grew between 2001 and 2006 (the most recent year for which figures are available). We also factored in unemployment rates (based on 2007 data) and discretionary income levels, as well as a forecast from Canada Mortgage and Housing for unemployment in each city in 2008. The Economic Strength grades that resulted from all this number crunching held some surprises: it turns out that mighty Toronto and bustling Calgary have weaker economic outlooks than Fredericton and Barrie, Ont.Finally, we rolled our grades for Value, Momentum and Economic Outlook into one overall grade for each community. We had no runaway winners, but we did find seven cities that deserve an A-. They're a diverse lot. At the top are three Prairie cities — Regina, Saskatoon and Winnipeg — with relatively low home prices, strong momentum and good economic prospects. Just behind is Barrie, where home prices are higher and momentum is weaker, but the economic outlook is outstanding. By comparison, Sudbury, another mid-sized Ontario city, offers better home prices and stronger momentum, but dimmer economic prospects. Finally, Fredericton and Moncton demonstrate that New Brunswick has a lot to offer bargain hunters, especially as the province’s economy shows signs of life.Our analysis suggests you can find decent prospects in each part of Canada. We caution you, though, to use our results with care. Nobody can gauge what a city's economy will be like in 10 years. Our research, though, can help you analyze each city's current strengths. And that's a good starting point for any investor.Go West, young investorThree Prairie cities top our list of best places to buy now
· DOW +298.76pts Over the weekend, Obama outlined plans to create 2.5 million jobs by 2011 through repairing roads and bridges, modernizing schools and making public buildings more energy efficient, among other initiatives. Additionally, the White House said a deal to help the automakers is near. A roughly $15 billion loan package was finalized Monday.
· Dollar +1.06c to $79.74US. Canada’s dollar rose the most in 2 weeks as President-elect Barack Obama’s pledge to spend the most on infrastructure since the 1950s reduced the US currency’s haven appeal
· Oil +$2.90 to $43.71US per barrel. Dow Chemical said it will cut 5,000 full-time jobs, or around 11% of its workforce, close 20 plants and sell several businesses to cut back amid the recession. However, Dow shares gained 7%.
· Gold $16.90 to $767.400US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Canadian housing starts fell to 172,000 at a seasonally adjusted annual rate last month, down from 211,800 in October, Canada Mortgage and Housing Corp. reported Monday. The rate of urban starts decreased 21.6% month-over-month to 144,800 in November, with declines in all parts of the country as volatile multiple starts tumbled 29.1% to 81,700 while single-family starts eased 9.0% to 63,100.
Real estate: Where to buy now
by Duncan Hood, Moneysense
Real estate agents like to tell you that what matters is location, location, location. They're partly right. But what also matters is timing, timing, timing. Every city moves to its own economic rhythms. Smart real estate investing is a matter of knowing when to jump into the market and when to stay out.How do you know when the time is ripe? Rather than relying upon gut feel, we decided to take a more scientific approach to the question. We compiled data on the 35 major markets tracked by Canada Mortgage and Housing Corp. We analyzed each market in three different ways — by Value, by Momentum, and by Economic Strength. We assigned each market a letter grade in each of the three categories, then combined all that info into one overall grade. We awarded an A to the top 20% of cities. Average prospects had to make do with a B, while lacklustre prospects were handed a C or worse.
Many individual factors went into each grade. To calculate Value, for instance, we began by comparing average rents to average home prices, since we figured that the most basic indicator of a home's value is how much rent it can put in your pocket. High rents indicate that, if you were hit by a financial crisis, you could rent out your home for a reasonable sum. Even if you never plan to rent out your home that is still a comforting thought.To help us gain an even better sense of a city's Value, we looked at local wages and figured out the number of years of average household income that it would take to purchase the typical local home. We downgraded communities where local residents couldn't afford to buy homes easily; we gave highest marks to cities where they could. Our reasoning was that places where homes are affordable are places where real estate prices are solidly rooted in economic fundamentals and are therefore unlikely to plunge. The differences between communities can be huge. In Regina, a typical family needs two-and-a-half years of income to buy a home; in Vancouver, a typical family needs nearly eight years of income. Talking strictly in terms of bang for buck, Regina is a much better place to buy.But, of course, Value isn't everything. Some cities have enjoyed surging real estate markets for reasons that have little to do with local rents or typical wages. Some of these red-hot markets are cities that have lured outsiders with their natural beauty (think Vancouver); others are communities that have enjoyed bonanzas because of skyrocketing oil prices (that's you, Calgary).To give these cities their due we rated each of our 35 cities on Momentum, a measure of how hot each market is. To gauge Momentum, we looked at home sales in comparison to new real estate listings — a high number of sales-to-listings indicate that homes are selling relatively quickly and market momentum is therefore high. We also looked at how much home prices in each city have gone up over the last year and over the last four years. To top things off, we considered how much rents have gone up over the past four years, since rapidly rising rents indicate a community with pent-up demand for housing. If you've been following the real estate news, it probably won't surprise you to learn that the runaway winners in our Momentum survey are Regina and Saskatoon.The problem is that the same forces that conspire to drive up prices in a city can also turn in the opposite direction. To avoid being taken in by cities with weakening economies, we devoted our final grade to Economic Strength. We looked at how fast each community grew between 2001 and 2006 (the most recent year for which figures are available). We also factored in unemployment rates (based on 2007 data) and discretionary income levels, as well as a forecast from Canada Mortgage and Housing for unemployment in each city in 2008. The Economic Strength grades that resulted from all this number crunching held some surprises: it turns out that mighty Toronto and bustling Calgary have weaker economic outlooks than Fredericton and Barrie, Ont.Finally, we rolled our grades for Value, Momentum and Economic Outlook into one overall grade for each community. We had no runaway winners, but we did find seven cities that deserve an A-. They're a diverse lot. At the top are three Prairie cities — Regina, Saskatoon and Winnipeg — with relatively low home prices, strong momentum and good economic prospects. Just behind is Barrie, where home prices are higher and momentum is weaker, but the economic outlook is outstanding. By comparison, Sudbury, another mid-sized Ontario city, offers better home prices and stronger momentum, but dimmer economic prospects. Finally, Fredericton and Moncton demonstrate that New Brunswick has a lot to offer bargain hunters, especially as the province’s economy shows signs of life.Our analysis suggests you can find decent prospects in each part of Canada. We caution you, though, to use our results with care. Nobody can gauge what a city's economy will be like in 10 years. Our research, though, can help you analyze each city's current strengths. And that's a good starting point for any investor.Go West, young investorThree Prairie cities top our list of best places to buy now
Monday, December 8, 2008
Financial Update
In their battle over who can best bring stability to the Canadian economy, politicians have added another element of instability to the Toronto stock market.
· TSX +59.21pts (Reuters) In Canada, December has been the best-performing month over the past decade, with the S&P/TSX Composite rising in every Dec, for an average gain of 3.1%.
· DOW +259.18pts
· Dollar +44c to $78.68US..
· Oil -$2.86 to $40.81US per barrel. after data revealed that the U.S. economy had lost more than half a million jobs in Nov. The commodity fell 23.3% over the week to end at its lowest closing price since Dec. 10, 2004.
· Gold -$13.30 to $750.50US per ounce amid the deepening recessionary outlook, which would result in lower demand.
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Bankruptcy totals up sharply compared to last year Bankruptcies in Canada numbered 9,468 in October, up 7.2 per cent from September and 21.1 per cent from October 2007, with the pain concentrated among individuals. Record news services
Deteriorating economic conditions expected to persuade BoC to cut interest rates Canadians can look forward to more interest rate relief this week with the Bank of Canada expected cut its key interest rate again. It is widely anticipated the central bank will cut the rate by at least half a point to 1.75 per cent to deal with rapidly deteriorating economic conditions. The Canadian Press
White House, Democrats agree to $15B auto aid
Kevin Drawbaugh and John Crawley, Reuters WASHINGTON -- U.S. Democratic leaders and the White House reached a deal to provide billions of dollars in relief to the ailing U.S. auto industry, a senior congressional aide told Reuters on Friday.
The package, which Democratic leaders hope to win passage of next week and send to President George W. Bush, totals between US$15-billion and $17-billion, the aide said, speaking on condition of anonymity.
The plan would tap an existing US$25-billion Energy Department fund for advanced technology, a source with knowledge of the discussions told Reuters on Friday.
A stalemate between the White House and Congress over the source of money to help Detroit ended when Democratic leaders agreed to use the Energy Department money, the source said, speaking on condition of anonymity. However, crucial details such as what specific conditions to impose on automakers in exchange for the money had yet to be worked out and would be discussed over the weekend, the source said.
The amount is far less than the $34-billion requested this week by General Motors, Ford Motor, and Chrysler, but Democratic leaders believe the money will keep them going until Barack Obama replaces Bush as president on Jan. 20 and a new effort can be made for a rescue plan.
Harper pressured to act fast regarding auto sector
Paul Vieira in Ottawa and Nicolas Van Praet in Toronto, Financial Post After averting certain defeat by getting Parliament shut down, Prime Minister Stephen Harper now faces the unenviable task of deciding how to help the near-bankrupt Detroit automakers, and figuring out where his government will find the money
The Detroit three automakers have turned to Ottawa and Ontario for emergency aid totalling an estimated $6-billion, saying in submissions to the two levels of government that they need immediate help to stabilize their operations in Canada and fund future manufacturing.
"Regretfully, North American economic conditions now make it necessary for us to seek government assistance to sustain our business and supply chain," Arturo Elias, General Motors Corp.'s top executive in Canada, said in a statement.
GM, Canada's largest automaker, confirmed it is seeking $2.4-billion in repayable loans from Ottawa and Queen's Park, including an immediate $800-million infusion
· TSX +59.21pts (Reuters) In Canada, December has been the best-performing month over the past decade, with the S&P/TSX Composite rising in every Dec, for an average gain of 3.1%.
· DOW +259.18pts
· Dollar +44c to $78.68US..
· Oil -$2.86 to $40.81US per barrel. after data revealed that the U.S. economy had lost more than half a million jobs in Nov. The commodity fell 23.3% over the week to end at its lowest closing price since Dec. 10, 2004.
· Gold -$13.30 to $750.50US per ounce amid the deepening recessionary outlook, which would result in lower demand.
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Bankruptcy totals up sharply compared to last year Bankruptcies in Canada numbered 9,468 in October, up 7.2 per cent from September and 21.1 per cent from October 2007, with the pain concentrated among individuals. Record news services
Deteriorating economic conditions expected to persuade BoC to cut interest rates Canadians can look forward to more interest rate relief this week with the Bank of Canada expected cut its key interest rate again. It is widely anticipated the central bank will cut the rate by at least half a point to 1.75 per cent to deal with rapidly deteriorating economic conditions. The Canadian Press
White House, Democrats agree to $15B auto aid
Kevin Drawbaugh and John Crawley, Reuters WASHINGTON -- U.S. Democratic leaders and the White House reached a deal to provide billions of dollars in relief to the ailing U.S. auto industry, a senior congressional aide told Reuters on Friday.
The package, which Democratic leaders hope to win passage of next week and send to President George W. Bush, totals between US$15-billion and $17-billion, the aide said, speaking on condition of anonymity.
The plan would tap an existing US$25-billion Energy Department fund for advanced technology, a source with knowledge of the discussions told Reuters on Friday.
A stalemate between the White House and Congress over the source of money to help Detroit ended when Democratic leaders agreed to use the Energy Department money, the source said, speaking on condition of anonymity. However, crucial details such as what specific conditions to impose on automakers in exchange for the money had yet to be worked out and would be discussed over the weekend, the source said.
The amount is far less than the $34-billion requested this week by General Motors, Ford Motor, and Chrysler, but Democratic leaders believe the money will keep them going until Barack Obama replaces Bush as president on Jan. 20 and a new effort can be made for a rescue plan.
Harper pressured to act fast regarding auto sector
Paul Vieira in Ottawa and Nicolas Van Praet in Toronto, Financial Post After averting certain defeat by getting Parliament shut down, Prime Minister Stephen Harper now faces the unenviable task of deciding how to help the near-bankrupt Detroit automakers, and figuring out where his government will find the money
The Detroit three automakers have turned to Ottawa and Ontario for emergency aid totalling an estimated $6-billion, saying in submissions to the two levels of government that they need immediate help to stabilize their operations in Canada and fund future manufacturing.
"Regretfully, North American economic conditions now make it necessary for us to seek government assistance to sustain our business and supply chain," Arturo Elias, General Motors Corp.'s top executive in Canada, said in a statement.
GM, Canada's largest automaker, confirmed it is seeking $2.4-billion in repayable loans from Ottawa and Queen's Park, including an immediate $800-million infusion
Friday, December 5, 2008
Financial Update
· TSX -239.14pts (Reuters) to its lowest close in 2 weeks as a slide in oil prices shook the resource-heavy market, while the suspension of Canada's Parliament weighed on sentiment. The drop in the financial index came after 3 of the 4 Canadian banks that reported reporting quarterly earnings on Thursday posted lower profits and offered little in the way of outlook for 2009.
· DOW -215.45pts
· Dollar -1.54c to $78.24US. after rising on news of the suspension of parliament it fell nearly 2% in less than 90 minutes after leaders of opposition parties said they still aim to oust the country's Conservative government from power.
· Oil -$3.12 to $43.67US per barrel. more than 6% to the lowest level in almost 4 years in response to further bleak economic data that could spell a deeper decline in global energy demand.
· Gold -$5.00 to $763.80US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
As central banks around the world injected historic interest rate cuts into a rapidly deteriorating global economy Thursday, the spotlight fell squarely on the Bank of Canada, which has the added challenge of having to craft monetary policy amid intense political and fiscal-policy intrigue on Parliament Hill.
The European Central Bank cut rates three-quarters of a percentage point to 2.50%, the biggest amount in its 10-year history, Sweden slashed by a record 1.75 percentage points to 2% and the Bank of England cut rates a full percentage point to 2%.
Central banks are racing to catch up to a dramatic slump in global demand in recent weeks as the credit crunch and collapse in consumer and business confidence slashes factory production, sales and jobs around the world.
Next week is the Bank of Canada's turn. Analysts expect the bank to announce a 50 basis point cut on Tuesday, taking the overnight rate down to 1.75%, though money markets were betting it could unleash a more aggressive 75-basis-point chop.
"That's the below the radar play that's gaining some credence," said Eric Lascelles, chief economics and rates strategist at TD Securities. "You have to admit when you see central banks around the world cutting by 75, 100, 175 [basis points] in some cases, it suddenly seems plausible the Bank of Canada could cut by 75."
But Mr. Lascelles was sticking with his half-point call as of Thursday, saying a jump from a quarter-point cut to three-quarters might signal the bank had made an error in judgement somewhere along the way.
Derek Holt, vice-president of economics at Scotiabank, also believes Mark Carney, the Bank of Canada governor, will side with a 50-basis-point cut.
"He's been reticent to make those big calls in the last little while," Mr. Holt said. "I think 50 would be a material step in the direction of keeping some powder dry for when he can see the data deteriorate further and in our forecast, it's early next year."
The Bank of Canada makes its decision on interest rates as the drama continues to unfold in Otttawa. Prime Minister Stephen Harper won his government some time yesterday when the Governor-General Michaelle Jean agreed to prorougue Parliament.
It is likely that when the government returns with a budget on Jan. 27 it will contain some bold fiscal measures such as heftier spending on infrastructure or new tax cuts in order to try and win over a furious Opposition. The Opposition could nevertheless vote the budget down and fiscal stimulus could be delayed if a new election is called.
While the Bank of Canada is fully independent from the government, it takes into account fiscal measures that affect growth and inflation.
"Of course fiscal policy and monetary policy need to work in unison to achieve a particular goal and conceivably if you were to get a new government that was more committed to fiscal stimulus, could that decrease the need for monetary stimulus?" Mr. Lascelles said. "I suppose it could."
He added that with the political and fiscal situation so uncertain the central bank will likely put those considerations on the back burner for this announcement.
Mr. Holt added the bank will likely take the view that any government stimulus will be slow to hit the economy.
"The lags on fiscal policy around the world even for [President-elect Barack] Obama's plans to hit the ground running in January -- by the time you put out the tenders, prioritize the projects, get the suppliers all lined up, do your environmental and regulatory approvals -- it's a year before this stuff really hits the economy," he said. "So for monetary policy that means in the short term, economies around the world are much more reliant on central bank cuts."
The bank's main focus will be on the underlying economy, which has held up better than most so far but yesterday issued some worrying signals: the value of building permits plummeted 15.7% in October from September; the Ivey Purchasing Managers index dropped to its lowest on record at 40.2 in November from 52.2 in October; and bankruptcies surged 21% year-over-year in October.
· DOW -215.45pts
· Dollar -1.54c to $78.24US. after rising on news of the suspension of parliament it fell nearly 2% in less than 90 minutes after leaders of opposition parties said they still aim to oust the country's Conservative government from power.
· Oil -$3.12 to $43.67US per barrel. more than 6% to the lowest level in almost 4 years in response to further bleak economic data that could spell a deeper decline in global energy demand.
· Gold -$5.00 to $763.80US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
As central banks around the world injected historic interest rate cuts into a rapidly deteriorating global economy Thursday, the spotlight fell squarely on the Bank of Canada, which has the added challenge of having to craft monetary policy amid intense political and fiscal-policy intrigue on Parliament Hill.
The European Central Bank cut rates three-quarters of a percentage point to 2.50%, the biggest amount in its 10-year history, Sweden slashed by a record 1.75 percentage points to 2% and the Bank of England cut rates a full percentage point to 2%.
Central banks are racing to catch up to a dramatic slump in global demand in recent weeks as the credit crunch and collapse in consumer and business confidence slashes factory production, sales and jobs around the world.
Next week is the Bank of Canada's turn. Analysts expect the bank to announce a 50 basis point cut on Tuesday, taking the overnight rate down to 1.75%, though money markets were betting it could unleash a more aggressive 75-basis-point chop.
"That's the below the radar play that's gaining some credence," said Eric Lascelles, chief economics and rates strategist at TD Securities. "You have to admit when you see central banks around the world cutting by 75, 100, 175 [basis points] in some cases, it suddenly seems plausible the Bank of Canada could cut by 75."
But Mr. Lascelles was sticking with his half-point call as of Thursday, saying a jump from a quarter-point cut to three-quarters might signal the bank had made an error in judgement somewhere along the way.
Derek Holt, vice-president of economics at Scotiabank, also believes Mark Carney, the Bank of Canada governor, will side with a 50-basis-point cut.
"He's been reticent to make those big calls in the last little while," Mr. Holt said. "I think 50 would be a material step in the direction of keeping some powder dry for when he can see the data deteriorate further and in our forecast, it's early next year."
The Bank of Canada makes its decision on interest rates as the drama continues to unfold in Otttawa. Prime Minister Stephen Harper won his government some time yesterday when the Governor-General Michaelle Jean agreed to prorougue Parliament.
It is likely that when the government returns with a budget on Jan. 27 it will contain some bold fiscal measures such as heftier spending on infrastructure or new tax cuts in order to try and win over a furious Opposition. The Opposition could nevertheless vote the budget down and fiscal stimulus could be delayed if a new election is called.
While the Bank of Canada is fully independent from the government, it takes into account fiscal measures that affect growth and inflation.
"Of course fiscal policy and monetary policy need to work in unison to achieve a particular goal and conceivably if you were to get a new government that was more committed to fiscal stimulus, could that decrease the need for monetary stimulus?" Mr. Lascelles said. "I suppose it could."
He added that with the political and fiscal situation so uncertain the central bank will likely put those considerations on the back burner for this announcement.
Mr. Holt added the bank will likely take the view that any government stimulus will be slow to hit the economy.
"The lags on fiscal policy around the world even for [President-elect Barack] Obama's plans to hit the ground running in January -- by the time you put out the tenders, prioritize the projects, get the suppliers all lined up, do your environmental and regulatory approvals -- it's a year before this stuff really hits the economy," he said. "So for monetary policy that means in the short term, economies around the world are much more reliant on central bank cuts."
The bank's main focus will be on the underlying economy, which has held up better than most so far but yesterday issued some worrying signals: the value of building permits plummeted 15.7% in October from September; the Ivey Purchasing Managers index dropped to its lowest on record at 40.2 in November from 52.2 in October; and bankruptcies surged 21% year-over-year in October.
Thursday, December 4, 2008
Financial Update
Rising financials limit losses on TSX; N.Y. surges on mixed data
· TSX -30.85pts (Reuters) a burst in financial stocks helped offset political events in Canada which kept the TSX from tagging along with a rise in U.S. stock markets along with sliding energy shares
· DOW +172.80pts after investors weighed projections of big job losses and some decent retail news. Traders were pleased at news from market research that online retail spending came in at $846m, 2days ago on so-called Cyber Monday, up 15%from a year ago
· Dollar -.16c to $79.78US.
· Oil -$.17 to $46.69US per barrel.
· Gold -12.80 to $770.50US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Stimulus coming in January budget: Flaherty
Paul Vieira, Financial Post
OTTAWA -- The Finance Minister, Jim Flaherty, said Wednesday night there would be additional fiscal stimuli in the government's Jan. 27 budget because economic conditions are "deteriorating."
This marks the first confirmation from the Finance Minister that there will be stimuli in the coming budget. Canada, along with other Group of 20 nations, had agreed last month to spend 2% of its GDP to help pull the developed world out of a potentially protracted economic slowdown.
"There will be some additional stimulus, inevitably, in the budget given that we are seeing deteriorating fiscal conditions around the world," Mr. Flaherty said during a broadcast interview.
"It is quite clear the [economic] situation is getting worse. That is the reality and we are going to have to deal with that."
His comments emerged after news that the Prime Minister, Stephen Harper, will visit the Governor-General to ask that the current session of Parliament be terminated, or prorogued. If granted, the House of Commons would return Jan. 26, with a budget to follow the next day.
But more important, it would temporarily end a bid by the Opposition parties to bring down the government, on the basis that it failed to provide a fiscal stimulus package in last week's economic update.
Before Mr. Flaherty's interview, the Prime Minister, Stephen Harper, suggested in his address to the nation that additional measures aimed at stoking domestic demand would be part of the Jan. 27 budget.
Mr. Flaherty has been under the gun since the release of his fiscal update, which provided no new fiscal stimuli and said Canada - through previously legislated tax measures and scheduled infrastructure spending - would already be injecting roughly $30-billion into the economy next year.
But in his interview, Mr. Flaherty talked about possible measures he may introduce in the budget, such as: tax cuts; further liquidity injections into the financial system to spark more lending; new money toward infrastructure, on top of the $33-billion already allocated in the Building Canada fund; and help for the automotive sector.
The Liberal-NDP coalition that threatens to take down the Conservatives said its first priority would be a two-year fiscal stimulus package that would focus on infrastructure, housing construction and aid for ailing manufacturers.
The stimuli he is promising may add to the size of Ottawa's deficit next year. While the fiscal update projected a $100-million surplus for the 2009-10 fiscal year, most economists believe the shortfall will be in the $7-billion to $10-billion range.
Recession threat weighs on housing markets
BRENDA BOUW The Canadian Press
VANCOUVER — Housing prices will fall about 5 per cent across Canada by the end of 2009 as a slumping economy takes a bite out of consumer confidence, says the ReMax realtor company.
The biggest drops are expected to come in major cities in British Columbia, where prices have run up the most across Canada in recent years, and in manufacturing centres in southwestern Ontario hit with automotive and manufacturing job losses.
In a report released Wednesday, ReMax said Canada's average house price has retreated from 2007's record high and will fall three per cent this year to $300,000 and another 2 per cent next year to $293,000.
About 440,000 homes are expected to change hands in 2008, a drop of 15 per cent compared to 520,747 last year. ReMax predicts 2009 sales to be flat.
“The reason for that is purely consumer confidence, it's shaken terribly right now,” said Elton Ash, a ReMax regional vice-president located in Western Canada.
“There are a lot of questions over job prospects right now.”
The 3 per cent overall drop in prices predicted for 2008 comes despite gains in 22 major centres across Canada, with the exception of Calgary and Edmonton, where prices are expected to fall one per cent.
Mr. Ash said the national drop is driven by smaller centres, such as forestry, oil and gas, mining and manufacturing towns hard hit by a downturn in the economy that has resulted in layoffs and stalled project development.
“It's the smaller markets that have seen larger decreases as a result of economic performance,” said Mr. Ash.
In 2009, the largest drops are expected in both Victoria and Kelowna, B.C., where prices are predicted to fall 10 per cent in 2009 to an average of $440,000 and $378,000 respectively.
Prices in Vancouver, Canada's most expensive housing market, are predicted to slump seven per cent to $545,000 next year.
“B.C. had the biggest runup in prices nationally in recent years,” Mr. Ash said. “When you have that happen there is going to be a greater down cycle.”
Kitchener-Waterloo, Ont. is also expected to see a seven-per-cent price drop in housing in 2009, to an average of $250,000, followed by a four-per-cent drop in the nearby Hamilton-Burlington, Ont. region, to $268,000. Both are impacted by a downturn in the automotive and manufacturing sectors, which had laid off thousands of employees in recent months.
The Greater Toronto area, which includes manufacturing and the struggling financial services sector, is predicted to see a drop in house prices of two per cent to $376,000 next year.
On the upswing is St. John's, N.L., which is expected to see a 12-per-cent jump in house prices in 2009, which ReMax says is due to the “(Newfoundland Premier Danny) Williams effect on the overall economy.”
House prices in Regina are expected to rise nine per cent next year, while cities such as Ottawa, Edmonton, Calgary, Sudbury and Halifax are predicted to see prices remain flat next year.
Adrienne Warren, a senior economist at Scotiabank, said the ReMax estimates mirror her forecasts, although the bank's economists are predicting prices to end flat across the country this year compared to 2007 and by five-to-10 per cent in 2009.
“The big risk to the Canadian housing market right now is a more significant recession and more significant job losses as opposed to mortgage-specific related problems we are seeing in the U.S.,” Ms. Warren said.
“The price declines are driven by more supply and fewer buyers.”
The U.S. housing market crashed last year as a result of reckless lending practices that covered about one-third of mortgages. They eventually defaulted, which led to the toppling of the housing market and several financial institutions who backed the risky investments.
Merrill Lynch said recently that Canada's housing market is following the same troubled path that eventually led the US. market into a major downturn, but with a two-year lag. It said Canadian households are so deeply in debt that a “tipping point” is approaching for the overall real estate market.
Many economists, as well as the Canadian real estate industry, disagree the market here will be as bad as in the U.S., where prices have fallen 20 per cent since the peak in mid-2006, and are expected to fall another five per cent next year.
It its outlook released this week, the Canadian Association of Accredited Mortgage Professionals predicts mortgage approval activity (including new mortgages, transfers and refinancings) to fall nearly 12 per cent to $193-billion in 2008, compared to $218-billion in 2007.
Approvals are forecast to fall another 10 per cent to $174-billion in 2009 and another 1.6 per cent in 2010 to $171-billion. That follows a growth rate of about 11.5 per cent annually for the three years ended August 2008.
Putting a positive spin on its report Wednesday, ReMax said the drop in prices is good news for new home buyers.
“The depreciation of prices is certainly good news from a first-time home buyers perspective to bring affordability to the picture,” Mr. Ash said.
“For people moving from home A to home B, it doesn't matter as much.”
· TSX -30.85pts (Reuters) a burst in financial stocks helped offset political events in Canada which kept the TSX from tagging along with a rise in U.S. stock markets along with sliding energy shares
· DOW +172.80pts after investors weighed projections of big job losses and some decent retail news. Traders were pleased at news from market research that online retail spending came in at $846m, 2days ago on so-called Cyber Monday, up 15%from a year ago
· Dollar -.16c to $79.78US.
· Oil -$.17 to $46.69US per barrel.
· Gold -12.80 to $770.50US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Stimulus coming in January budget: Flaherty
Paul Vieira, Financial Post
OTTAWA -- The Finance Minister, Jim Flaherty, said Wednesday night there would be additional fiscal stimuli in the government's Jan. 27 budget because economic conditions are "deteriorating."
This marks the first confirmation from the Finance Minister that there will be stimuli in the coming budget. Canada, along with other Group of 20 nations, had agreed last month to spend 2% of its GDP to help pull the developed world out of a potentially protracted economic slowdown.
"There will be some additional stimulus, inevitably, in the budget given that we are seeing deteriorating fiscal conditions around the world," Mr. Flaherty said during a broadcast interview.
"It is quite clear the [economic] situation is getting worse. That is the reality and we are going to have to deal with that."
His comments emerged after news that the Prime Minister, Stephen Harper, will visit the Governor-General to ask that the current session of Parliament be terminated, or prorogued. If granted, the House of Commons would return Jan. 26, with a budget to follow the next day.
But more important, it would temporarily end a bid by the Opposition parties to bring down the government, on the basis that it failed to provide a fiscal stimulus package in last week's economic update.
Before Mr. Flaherty's interview, the Prime Minister, Stephen Harper, suggested in his address to the nation that additional measures aimed at stoking domestic demand would be part of the Jan. 27 budget.
Mr. Flaherty has been under the gun since the release of his fiscal update, which provided no new fiscal stimuli and said Canada - through previously legislated tax measures and scheduled infrastructure spending - would already be injecting roughly $30-billion into the economy next year.
But in his interview, Mr. Flaherty talked about possible measures he may introduce in the budget, such as: tax cuts; further liquidity injections into the financial system to spark more lending; new money toward infrastructure, on top of the $33-billion already allocated in the Building Canada fund; and help for the automotive sector.
The Liberal-NDP coalition that threatens to take down the Conservatives said its first priority would be a two-year fiscal stimulus package that would focus on infrastructure, housing construction and aid for ailing manufacturers.
The stimuli he is promising may add to the size of Ottawa's deficit next year. While the fiscal update projected a $100-million surplus for the 2009-10 fiscal year, most economists believe the shortfall will be in the $7-billion to $10-billion range.
Recession threat weighs on housing markets
BRENDA BOUW The Canadian Press
VANCOUVER — Housing prices will fall about 5 per cent across Canada by the end of 2009 as a slumping economy takes a bite out of consumer confidence, says the ReMax realtor company.
The biggest drops are expected to come in major cities in British Columbia, where prices have run up the most across Canada in recent years, and in manufacturing centres in southwestern Ontario hit with automotive and manufacturing job losses.
In a report released Wednesday, ReMax said Canada's average house price has retreated from 2007's record high and will fall three per cent this year to $300,000 and another 2 per cent next year to $293,000.
About 440,000 homes are expected to change hands in 2008, a drop of 15 per cent compared to 520,747 last year. ReMax predicts 2009 sales to be flat.
“The reason for that is purely consumer confidence, it's shaken terribly right now,” said Elton Ash, a ReMax regional vice-president located in Western Canada.
“There are a lot of questions over job prospects right now.”
The 3 per cent overall drop in prices predicted for 2008 comes despite gains in 22 major centres across Canada, with the exception of Calgary and Edmonton, where prices are expected to fall one per cent.
Mr. Ash said the national drop is driven by smaller centres, such as forestry, oil and gas, mining and manufacturing towns hard hit by a downturn in the economy that has resulted in layoffs and stalled project development.
“It's the smaller markets that have seen larger decreases as a result of economic performance,” said Mr. Ash.
In 2009, the largest drops are expected in both Victoria and Kelowna, B.C., where prices are predicted to fall 10 per cent in 2009 to an average of $440,000 and $378,000 respectively.
Prices in Vancouver, Canada's most expensive housing market, are predicted to slump seven per cent to $545,000 next year.
“B.C. had the biggest runup in prices nationally in recent years,” Mr. Ash said. “When you have that happen there is going to be a greater down cycle.”
Kitchener-Waterloo, Ont. is also expected to see a seven-per-cent price drop in housing in 2009, to an average of $250,000, followed by a four-per-cent drop in the nearby Hamilton-Burlington, Ont. region, to $268,000. Both are impacted by a downturn in the automotive and manufacturing sectors, which had laid off thousands of employees in recent months.
The Greater Toronto area, which includes manufacturing and the struggling financial services sector, is predicted to see a drop in house prices of two per cent to $376,000 next year.
On the upswing is St. John's, N.L., which is expected to see a 12-per-cent jump in house prices in 2009, which ReMax says is due to the “(Newfoundland Premier Danny) Williams effect on the overall economy.”
House prices in Regina are expected to rise nine per cent next year, while cities such as Ottawa, Edmonton, Calgary, Sudbury and Halifax are predicted to see prices remain flat next year.
Adrienne Warren, a senior economist at Scotiabank, said the ReMax estimates mirror her forecasts, although the bank's economists are predicting prices to end flat across the country this year compared to 2007 and by five-to-10 per cent in 2009.
“The big risk to the Canadian housing market right now is a more significant recession and more significant job losses as opposed to mortgage-specific related problems we are seeing in the U.S.,” Ms. Warren said.
“The price declines are driven by more supply and fewer buyers.”
The U.S. housing market crashed last year as a result of reckless lending practices that covered about one-third of mortgages. They eventually defaulted, which led to the toppling of the housing market and several financial institutions who backed the risky investments.
Merrill Lynch said recently that Canada's housing market is following the same troubled path that eventually led the US. market into a major downturn, but with a two-year lag. It said Canadian households are so deeply in debt that a “tipping point” is approaching for the overall real estate market.
Many economists, as well as the Canadian real estate industry, disagree the market here will be as bad as in the U.S., where prices have fallen 20 per cent since the peak in mid-2006, and are expected to fall another five per cent next year.
It its outlook released this week, the Canadian Association of Accredited Mortgage Professionals predicts mortgage approval activity (including new mortgages, transfers and refinancings) to fall nearly 12 per cent to $193-billion in 2008, compared to $218-billion in 2007.
Approvals are forecast to fall another 10 per cent to $174-billion in 2009 and another 1.6 per cent in 2010 to $171-billion. That follows a growth rate of about 11.5 per cent annually for the three years ended August 2008.
Putting a positive spin on its report Wednesday, ReMax said the drop in prices is good news for new home buyers.
“The depreciation of prices is certainly good news from a first-time home buyers perspective to bring affordability to the picture,” Mr. Ash said.
“For people moving from home A to home B, it doesn't matter as much.”
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