Financial Update

TSX UP! Dow UP! Dollar UP! Oil UP! Gold UP!

· TSX continued skyward +201pts Thurs and another 156pts Friday to reach a new high
of 14,984.
· Dow also up both days +94. + 41.36
· Dollar +.43c to $ $1.00
· Oil +$.76 to $127.82US per barrel is worrying not just for consumers, but also for major oil
firms and producer countries fearful of demand destruction and a potential price collapse.
“The price is scary,” a Sr oil executive said. “The market may be poised for a big drop,
especially if the speculators exit in a hurry.” So far, the highest profile predictions have
been for further price rises
· Gold +13.60+US to $917US

Bond Rates: <http://www.bankofcanada.ca/en/rates/bonds.html> http://www.bankofcanada.ca/en/rates/bonds.html

Tip:
Dow Jones Industrial Average (DJIA)

There are thousands of investment indexes around the world for stocks, bonds, currencies and commodities however the DJIA is one of the best known and most widely quoted stock market averages in the media. It contains an average made up of 30 actively traded blue chip stocks spanning many different industries that trade on the New York Stock Exchange. The Dow, as it is called, is a barometer of how shares of the largest U.S. companies are performing.. The DJIA is calculated by adding the prices of each of the 30 stocks and dividing by a divisor. The average is quoted in points rather than dollars. It is price weighted, meaning that a $2 change in a $100 per share stock will have a greater affect than a $2 change in a $20 per share stock

TSX Composite Index

Comprises the majority of market capitalization for Canadian-based, Toronto Stock Exchange listed companies. It is the leading benchmark used to measure the price performance of the broad, Canadian, senior equity market. It was formerly known as the TSE 300 Composite Index
Please find attached an interesting mortgage article from The Financial Post on the different exotic mortgages and how both US and Canada were affected by their utilization of them.

HOW WOULD YOU LIKE YOUR MORTGAGE?

Sarah Dougherty Canwest News Service Published: Saturday, May 17, 2008
It's difficult to imagine what lenders and brokers were thinking when they dreamed up the shaky mortgage products that set off the U. S. housing meltdown.
Take the "Ninja" mortgage, for example. That's the catchy phrase one lender used for the "no income, no job, no assets" home loan for which just about anyone could qualify. Other lenders offered "liar loans" that let borrowers merely state their incomes without producing backup documentation.

In Canada, lending standards never deteriorated to the same extent, thanks to a less-fragmented and more-conservative banking sector and different regulatory environment.
But regulators have recently cut lenders in Canada some slack. Combine those changes with the entrance of new players on the mortgage scene and you have more choices for Canadian consumers, but perhaps some hidden risks for the housing market.

"Canada was kind of an anomaly compared to international mortgage markets," says Derek Holt, vice-president of Scotia Capital Economics, part of Scotiabank. "We didn't have as much mortgage product innovation. "

That changed in 2006 when the federal government liberalized the mortgage insurance market in Canada, Mr. Holt says. Until then, only Canada Mortgage and Housing Corp. (CMHC), the government-owned housing agency and one other company offered the mortgage insurance required when homebuyers put down less than 20% of the purchase price.

The changes allowed more foreign mortgage insurers to come to Canada and stimulated competition. New products emerged, including 40-year amortizations, 100% and interest-only mortgages. But the proliferation of options has some homebuyers confused. "There are so many variables in the mortgage market that you really need a road map," says Jim Rawson, a regional manager in Toronto with Invis, an independent mortgage brokerage.

So, how do some of the new products work and how risky are they for borrowers and the housing market?

With interest rates dropping, consumers might consider a front-loaded variable-rate mortgage. This option gives you a larger-than-normal discount from the prime interest rate for an initial period, say six months, before you have to decide whether to lock into a fixed rate. "This can be a terrific product for people considering playing the [interest] rate game ... if you think rates will come down again," Mr. Rawson says.

The only trick is to make sure you are, indeed, allowed to convert to a fixed rate and that when you do, you'll get the best discounted rate available, Mr. Rawson says.

Longer amortization periods, now up to 40 years, also are new. This option can suit young borrowers with high income-earning potential, people with other major short-term expenses, buyers in higher-priced urban markets and income property investors.

Mr. Holt estimates longer-term mortgages now account for three-quarters of monthly insured purchase applications in Canada, with 40-year products accounting for half of that.

The upside of this change, Mr. Holt says, is it will bring more buyers into the market. A longer period to repay also means less risk to credit markets in the short term because it eases cash flow difficulties for borrowers, he says.

But over the long haul, 40-year mortgages raise a new set of risks for housing and credit markets. "The shock risks from interest rate changes and changes in employment become accentuated if you are using higher-leveraged products," Mr. Holt says. And, of course, there is no free lunch: 40-year terms come with tougher qualifying criteria, higher interest rates and higher mortgage insurance premiums.

Then there are interest-only mortgages. These loans let borrowers pay only interest and no principal for the first five or 10 years. This option can be attractive for young buyers with high income-earning potential or borrowers expecting a large inflow of money from an inheritance, for example.

Given all these innovations, this is "no longer your grandfather's mortgage market," Mr. Holt says. But that doesn't mean Canada is headed down the same treacherous path as the U.S. market

The Canadian market is more resilient, Mr. Holt says. Subprime or low-quality mortgages make up only a small portion of Canadian mortgages, unlike the U. S. peak in 2006 of one in four.
We also have stronger underwriting standards than the U. S. market, Mr. Holt says.
But Canadians are paying a price indirectly. Some mortgage rates are higher than they should be because Canadian banks are taking writedowns related to U. S. mortgage-based securities.