Financial Update

TSX has its worst one-day percentage loss since 1987

Markets post big losses as U.S. recession now official

· TSX -864.41pts (Reuters) after gaining over 1,100 points last week, the TSX plunged 9.3% led by the energy and financial sectors. The prospect that the Conservative minority government could be ousted also had some impact on the sell-off. In Ottawa, opposition parties have reached a tentative deal to bring down the Tory government and form a coalition government that would pump billions of dollars into the economy
· DOW -679.95pts as the National Bureau of Economic Research said the United States is in recession and has been for a year.
· Dollar -.53c to $80.31US. "If anything will suffer from political uncertainty, it's the Canadian dollar, and I think we saw that notably on Friday, when the dollar failed to rally despite the strength in the stock market,'' said Norman Raschkowan, chief investment officer at Mackenzie Financial Corp.
· Oil -$5.15 to $49.28US per barrel.
· Gold-42.20 to $776.80US per ounce
· www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices

Manulife Financial is moving to shore up its capital base after falling into a loss for the first time in its history as a public company. Canada's largest insurer will issue $2.125-billion in common equity at a discount after seeing its capital base eroded amid extreme volatility in financial markets.

A recession by another definition

RICHARD BLACKWELL TAKES QUESTIONS ON THE FINANCIAL CRISIS
RICHARD BLACKWELL December 2, 2008

How did the National Bureau of Economic Research (NBER) figure out that the United States has officially been in a recession for a year?

The NBER doesn't use the usual definition of a recession - two consecutive quarters of decline in gross domestic product (GDP). It instead looks for the peak of economic activity by considering GDP and several other factors, such as production, employment, consumption and real income.

When the peak is reached and the economy begins to decline significantly, that's when the recession has started, according to the NBER.

This often means that an official recession is not declared by the NBER until it is well under way, or is even over. And it means that there can sometimes be an official recession under way when there aren't two consecutive quarters of GDP decline. So far, that's the case this time. (U.S. GDP fell in the third quarter, but was up in the second.)

The recession will not be considered finished until the economy reaches its trough. But that, too, won't be determined until much later.

What is the NBER anyway?

The NBER was founded in 1920 by a group of economists who wanted to understand business cycles. It is a non-profit research organization with more than 1,000 university professors and researchers functioning as "associates" who study how the U.S. economy works. Since the 1960s, it has been considered the official arbiter of when the United States is in recession.

An NBER subgroup, the business-cycle-dating committee, actually makes the decision to declare a recession. That key committee is currently composed of economists from Harvard, Stanford, the Massachusetts Institute of Technology, Northwestern University, the University of California at Berkeley, and the U.S. Conference Board.

Has the NBER said when the recession will end?

The NBER refuses to make any forecasts, so they've given no public opinion on when the recession will end. They'll only tell us after the fact.

What's the point of declaring a recession a year after it has begun?

Economists, historians and bureaucrats study the NBER's analysis to help them figure out how recessions work, and what patterns are repeated. But to make short-term decisions, politicians usually use more immediate data such as the GDP figures or employment data.

When oil was about $50 (U.S.) a barrel a few years ago, what did a litre of gas cost? My recollection was that it was lower than it is now.

In fact, the last couple of times oil was at about current levels, the price of gas at the pump was pretty close to where it is now. Last week, with oil at just over $50 a barrel, the average price at the pump across Canada was about 83 cents (Canadian) a litre, according to figures compiled by Calgary company M.J. Ervin & Associates. The last time oil was about the $50 mark was in mid-January, 2007, and at that time the average price of gas was roughly 87 cents a litre.There's been talk about some companies' stock values going down to zero. What happens when a company gets to that point?

The Toronto Stock Exchange says a stock can never fall to zero, because for a trade to take place, there has to be a price set. Anybody bidding zero cents for a stock would have that bid rejected as invalid. But a stock can trade for as low as half a cent.