Financial Update

· TSX +4.30 setting another record high

· Dow -131.24

· Dollar -.10c to $98.22

· Oil +2.67 to $136.68US per barrel

· Gold + $6.60US to $890.90US

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

A barrel of oil: $250

THE CANADIAN PRESS

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It promises to be a whole new world if oil prices continue their relentless upward spiral

June 19, 2008

Tamsyn Burgmann
The Canadian Press

TORONTO

When a wiry, bearded man tried to enlist Pennsylvania labourers to punch deep holes in the earth in 1859 in search of oil, they thought he was crazy.

But what may have appeared foolhardy to the workers seemed worth a shot to Edwin L. Drake, who went on to strike black gold, launching the modern petroleum industry.

Not even Drake could have predicted how oil would transform a civilization, let alone that one day, the head of the world's largest utility would forecast that the price of a barrel of oil could eventually skyrocket to $250 US -- possibly by as early as next year.

Though largely dismissed by industry analysts, the wild card $250-a-barrel scenario -- floated last week by Alexey Miller, chief executive of Russian gas producer Gazprom -- would have far-reaching implications and change life in Canada on nearly every level, experts and observers say.

"It would really rewrite the map of the way we live our lives,'' said Richard Worzel, a financial analyst, author and one of Canada's best-known futurists.

"You can pick any aspect of our lives, and it would change it significantly.''

Energy infuses everything Canadians do, from the most basic travel and home-heating needs to pervasive applications in food production, manufacturing and industry.

Such a sustained increase in oil prices would result in widespread inflation and dramatic lifestyle changes, Worzel said.

Fresh produce in the winter would be costly and difficult to come by, as would most products manufactured overseas, he said. Home-schooling and telecommuting would become commonplace, while manufacturers would develop new means of mobilizing their workforces.

"Half the workforce is wired with a BlackBerry now, anyway,'' said Robert J. Sawyer, an award-winning science-fiction author based in Mississauga.

With the proliferation of computers and high-speed broadband Internet access, Canadians and their families are already hard-wired for a more virtual lifestyle, Sawyer said.

"Instead of people in single-occupant vehicles pouring into the downtown and spending their money to do that, they're the ones telling their boss, 'I don't even want to come in, unless you're going to pay me to do that."'

Sawyer said he envisions a resurgence of national rail service for passengers looking to traverse the country.

Worzel said hybrid buses, high-occupancy vehicle lanes and carpooling would dramatically rise in popularity in the short term before Canadians, unable to bear the situation much longer, would be forced to make more dramatic lifestyle changes.

Real estate prices would soar in the cities, while the value of country homes would depreciate as people moved to a more compact, European model of living, he said.

The local pub would be a central social hub in a new, neighbourhood-oriented society, while smaller homes would become commonplace.

"We'd value our agricultural lands, and not pave them over,'' said economist David Foot, co-author of the bestselling book Boom, Bust & Echo.

Outrageous oil prices would finally push Canadians into truly more sustainable practices, as the gains from global trade are reversed and society turns back to local production, he said.

"The world isn't flat anymore, it becomes very lumpy,'' Foot said. "At last, we may be able to create jobs at home rather than in some other country.''

As consumption and production come together, Foot said, pollution might fall off as society comes face to face with the immediate environmental consequences faced in countries like China and India. Solar energy and wind power would move to the forefront.

A soaring Canadian dollar would likely result, however, decimating exports, spurring uneven growth and triggering political turmoil, said David Detomasi, an assistant business professor at Queen's University in Kingston.

"It would radically change the politics of Canada,'' said Detomasi, who predicted a widening of the gap between rich and poor, and increased polarization between Canada's so-called "have'' and "have-not'' provinces.

Nonetheless, said Sawyer, it's highly unlikely oil prices would ever hit $250 a barrel or that North Americans would ever have to give up oil entirely

Financial Update

US housing market has so far wiped out $3 trillion in home equity….

· TSX +124.55 notched a new record high close of 15,069pts racking up its third session of triple digit gains...
· Dow -108.78
· Dollar +.52c to $98.32
· Oil -$.60 to $134.01US per barrel
· Gold + $.70US to $884.30US
Bond Rates: <http://www.bankofcanada.ca/en/rates/bonds.html> http://www.bankofcanada.ca/en/rates/bonds.html

Economic outlook "subprime," no recession: report

(Reuters)By Jim Christie

SAN FRANCISCO (Reuters) - The economy will likely avoid a formal recession, but its outlook through the end of next year is decidedly "subprime" with the deep housing downturn restraining growth to just above 1 percent, a UCLA Anderson Forecast report released on Wednesday said.

A "witch's brew of the popping of the housing bubble, a wounded financial system and increasing inflationary pressures coming from rising commodity prices will keep the economy on a subprime growth path for the next several quarters," according to the forecasting unit's report.
Despite aggressive Federal Reserve interest rate cuts since last September intended to stimulate the U.S. economy, it will post "tepid" average gross domestic product growth rate of 1.2 percent from the third quarter of 2007 through the fourth quarter of 2009, the report said. It also sees the unemployment rate hitting 6 percent by the end of next year, up from 5.5 percent in May.

"Moreover, because both headline and core inflation will remain uncomfortably high over the next several quarters, we believe the Federal Reserve has ceased cutting interest rates and that the next change in policy will be to increase the federal funds rate starting in mid-2009," the report said.

The unit's economists expect the remainder of this year and 2009 to resemble recoveries from recessions in 1990-91 and 2000-01, each spurred largely by asset price declines, in commercial real estate in the former and stock prices after the Internet bubble burst in the latter.
CONSUMERS TAPPED OUT

The housing market's steep decline -- its worst tumble since the Great Depression, so far wiping out about $3 trillion in home equity -- coupled with gasoline prices topping $4 a gallon argues against a resurgence of brisk consumer spending in the near term.

"To be sure the $108 billion in tax rebates will certainly help in the third quarter, but in our view it will be analogous to a one quarter 'sugar rush' for the economy," the report said.

"In fact the combined effect of the waning effects of the tax rebates and the end of the investment incentives associated with the government's stimulus package in December, could very well lead to a decline in GDP in the first quarter of 2009," the report added.

On a broader note the report said growth in consumer spending, financed by the collapse in savings and increased borrowing from abroad, may have peaked.

"The weaker exchange value of the dollar is signaling that the game may be up making it more difficult for the U.S economy to continue to consume more than it produces."

Meanwhile, net exports are on the upswing, adding less than 1 percent to real GDP growth, but just enough to stave off recession, the report said.

The Federal Reserve appears to turning its attention toward traditional inflation concerns amid higher commodity prices. "What is worrying the Fed is that real interest rates are lower now than they were during the deflation scare of 2003-04," the report said.

"Most observers now believe that it was the very low real interest rates of that period that set the stage for the housing and credit bubbles that came later," it added. "As a result, we do not believe that the tepid economic growth we are forecasting will prevent the Fed from raising interest rates in mid-2009."

UCLA Anderson forecasters also expect tighter regulation of the financial services in place next year after the Federal Reserve's sponsored rescue of Bear Stearns and its opening of its discount window to Wall Street investment banks.

Those moves "permanently changed the role of the Federal Reserve in the economy," the report said. "We suspect that just as after the Panic of 1907 led Congress to create a national monetary commission that in turn recommended the creation of the Federal Reserve System in 1913, a similar commission will come into being next year."

"By the time the process is completed, it is highly likely that large investment banks, hedge funds, mutual funds and pension funds will come under the umbrella of a new regulatory regime."