Financial Update for April 30, 2009

Indexes power ahead

• TSX +68.28
• DOW +168.28 In New York, stocks rallied after the Federal Reserve held interest rates steady, as expected, but issued a slightly more upbeat economic outlook.
• Dollar +1.15c to 83.18USD
• Oil +$.1.05 to $50.97US per barrel
• Gold +6.90 to $900.50USD per ounce
• Canadian 5 yr bond yields +.04bps to 2.01- Four weeks ago it was 1.73.
http://www.financialpost.com/markets/market_data/money-yields-can_us.html
The bond yield was up again, and this time over the 2.00 mark. Four weeks ago it was 1.73. So the spread is down to 1.77%. This may be the time to watch these yields and spreads very closely.

*The yield, which is the rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield (and the decrease in spread) is something to watch over the next week or so. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise (with all lenders).

In its statement, the the US Federal bank gave a more upbeat take on the economy than it has recently, although the tone remained cautious. The Fed said that "although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time."

The statement also said the pace of contraction appears to be somewhat slower, a belief that has helped lift stocks over the last two months

A reading on first-quarter gross domestic product showed the U.S. economy shrank at an annualized rate of 6.1%, much steeper than the 4.7% decline analysts expected, but still narrower than the 6.3% drop in the fourth quarter.

Financial Update for April 29, 2009

Stock markets close lower amid bullish consumer sentiment data, banking worries
We started quite negative this morning based on the swine flu and the news down in the States that Citigroup and Bank of America may need some more cash. Then the confidence numbers came out and they were much better than expected and people started to rally around those," said Lex Kerkovius, senior research analyst at McLean and Partners Wealth Management Ltd., in Calgary, Alberta.

• TSX -46.77
• DOW -8.05
• Dollar -.07c to 81.93USD
• Oil -$.22to $49.92US per barrel partly because of worries the flu outbreak could cut back on air travel, lowering demand.
• Gold -14.60 to $893.60USD per ounce
• Canadian 5 yr bond yields +.04bps to 1.97. Four weeks ago it was 1.74.
. http://www.financialpost.com/markets/market_data/money-yields-can_us.htm

*The yield, which is the rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield (and the decrease in spread) is something to watch over the next week or so. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise (with all lenders).

U.S. housing bottoming says analyst

Financial Post by David Pett

US housing is at the bottom according to a recent Lombard Street Research daily note. Some crumbs of good news may offer hope the housing market is finally bottoming, but this is the hardly the meal investors might be looking for. Investors should wait for clearer signs of recovery before considering investing in U.S. homebuilders.

Signs of recovery for US housing presented by Gabriel Stein at Lombard Street don't amount to much. New home sales for March were less negative than for February, for example, which these days seem to be as good as a rise. The encouraging interpretation is that new home sales might have actually bottomed when looking at the three month trend. Since supply of new homes is so low, the lowest since 2002, at some point, inventories will clear, and "residential housing will pick up again" says Stein.

The only problem with this thesis is that delinquency rates are in a clear rising trend, according to a recent report from Zelman & Associates and will continue to add to the supply of existing homes. Modification of mortgages is only "scratching the surface" with only 4.4% of delinquent mortgages modified in January 2009 according to Zelman; therefore, the quarterly foreclosure rate is not expected to decline until the fourth quarter of 2010.

Finally, two different house price measures offer conflicting signals. The Federal Housing Finance Administration's price index rose in January and February, but data today for the S&P Case/Shiller index for March shows an uninterrupted decline.

Homebuilder stocks have nearly doubled from March lows suggesting that the fire is finally out for this industry, but the data suggests there are still burning embers suggesting investors might get burned.

Financial Update for April 28, 2009

In this day and age of volatility, this isn't a huge down." Ian Nakamoto, director of research at MacDougall, MacDougall & MacTier

• TSX -154.68 breaking a 4-session rally, as fears of an international swine flu outbreak rattled commodity prices, dampening hopes for an economic recovery.
• DOW -51.29
• Dollar -.67c to 82.00USD
• Oil -$1.41to $50.14US per barrel partly because of worries the flu outbreak could cut back on air travel, lowering demand.
• Gold -6.20 to $907.40USD per ounce
• Canadian 5 yr bond yields -.01bps to 1.93. Four weeks ago it was 1.90.

http://www.financialpost.com/markets/market_data/money-yields-can_us.html

Financial Post General Motors Corp. will be owned by the U.S. government and shrink drastically under a sweeping and final fix proposed by the automaker that will see it slash its Canadian workforce by more than half and tell hundreds of dealers across the country they’re no longer needed.

Financial Update for April 27, 2009

TSX completes the week with a big finish
• TSX +139.98 to 9,549.48
• DOW +229.23
• Dollar +.96c to 82.67USD
• Oil +$1.93to $51.55US per barrel
• Gold +7.50 to $914.10USD per ounce
• Canadian 5 yr bond yields -.01bps to 1.93.

http://www.financialpost.com/markets/market_data/money-yields-can_us.html

By The Canadian Press

TORONTO - Workers at Chrysler Canada have accepted a labour concession deal that their union reached with the beleaguered automaker. The deal was approved by 87 per cent of those who voted.

CAW president Ken Lewenza says high acceptance vote is a recognition that everyone involved in the auto industry has an interest in maintaining good jobs. The deal finalized Friday will save Chrysler about $240 million a year. The deal doesn't cut base wages or pensions - the savings are achieved in areas like increased productivity. Chrysler said it needed to drastically reduce its labour costs in order to put a viable restructuring plan forward. It has to come up with such a plan to get bailout loans from the federal and Ontario governments.

Chrysler Canada employs about 10,000 hourly workers and 1,000 white collar employees at its Ontario facilities in Windsor, Brampton and Toronto

G7 puts weight behind banking overhaul

KEVIN CARMICHAEL

From Saturday's Globe and Mail

OTTAWA — The world's richest countries are endorsing efforts in the United States and Europe to finally expunge the banking system of toxic assets, healing over rifts to make what could be a final push to restore confidence in the world economy.
Finance ministers and central bank governors from the Group of Seven industrial nations said Friday that the Obama administration's review of the health of the United States' 19 biggest banks will help convince investors that it's safe again to invest in financial institutions.

They also backed similar efforts in Britain and Germany, and in a statement issued at the conclusion of their meeting, they “underscored the imperative of strengthening our national efforts to address systemic risks” and ensure “adequate capitalization of financial institutions.”

That's crucial to reversing the deepest global economic collapse since the Second World War.

“We need to get credit flowing again, and that means you’ve got to sort out these toxic assets,' says the U.K.'s Alistair Darling.

Without credit, businesses can't expand to take full advantage of the hundreds of billions governments from France to China to Australia have pumped into their economies to stimulate demand.

But without investors' capital, banks can't lend because their balance sheets are littered with mortgage-backed securities and similar assets made worthless by the financial crisis. “I have been saying for some time that in countries where impaired assets are a problem, they have to be dealt with,” Mr. Flaherty said.

“I was pleased to see the United States and the United Kingdom are making progress with implementation, and also Germany is developing a plan.”

Mr. Flaherty's conversion is significant because he had emerged as a vocal critic of his counterparts' delays in dealing with all the impaired assets on banks' books.
It suggests U.S. Treasury Secretary Timothy Geithner and Federal Reserve chairman Ben Bernanke have made believers of a group that was showing signs of strain over abortive attempts by the U.S. government to settle on a plan to shore up financial institutions that many advisers have dismissed as zombies alive only because of government life support.

“The U.S. is acting as expeditiously as possible,” Mr. Flaherty said at a press conference.

Mr. Flaherty and Canada's central bank governor, Mark Carney, had good reason for frustration with the slow work the Obama administration made of facing up to the problems with the banks that are at the heart of the financial crisis.

Both were counting on quick resolutions of the issues in the U.S. and European financial systems when they set out their own plans to fight Canada's first recession in almost two decades.

In January, Mr. Carney was satisfied enough that his counterparts in the U.S. and Europe would act that he predicted a relatively strong rebound in 2010, and Mr.

Flaherty stated confidently that he could spend $40-billion on stimulus programs and still return the federal budget to surplus by 2013.

Mr. Carney this week slashed his outlook for growth in 2010 after estimating that Canada's economy contracted by more than 7 per cent annualized in the first quarter, the biggest fall on record. Mr. Flaherty is sticking to his budget forecast, but many economists say that projection is on shaky ground.

The G7 finance chiefs stressed that their unprecedented stimulus programs are working. While acknowledging that risks remain, they said a recovery “should begin” before the end of the year.

“We have acted resolutely to support growth and restore confidence in the financial system and the flow of credit,” the ministers and central bankers said in their statement. “Recent data suggest that the pace of decline in our economies has slowed and some signs of stabilization are emerging.”

The G7's attempt to shift investors' focus on the glimmers of hope is competing with substantial shadows that dominate the current reality.

Japan's second-largest bank, Mizuho Financial Group Inc., this week posted a wider-than-expected loss as bad loans surged, and Caterpillar Inc., the world's largest maker of bulldozers and excavators, posted its first quarterly loss in 16 years.
The IMF estimates worldwide losses tied to bad loans and securitized assets may reach $4.1-trillion (U.S.) by the end of 2010.

Investors could ignore the rhetoric and wait for more evidence policy makers are willing to back their talk with money and action.

There's also the problem of winning co-operation from the banks themselves.

The rescue programs being offered by governments propose buying the impaired assets for much less than the banks paid for them. That presents an incentive to hold the assets in hope of eventually gaining a better price, which only exacerbates the crisis of confidence in the financial system.

“I am doubtful that such a statement means a lot,” said Barbara Matthews, managing director of Washington-based BCM International Regulatory Analytics and a former U.S. Treasury attaché to the European Union. “In an environment where the institutions that are holding the toxic assets say they don't want to sell them, it is difficult for the leaders to make a pledge to deal with the assets because it would essentially amount to saying that they're going to force the sale of those assets.”

Still, there's reason to think the top economic policy makers from the world's richest countries have some sway in markets starved for cash.

Central banks in the U.S., Britain, Japan and Switzerland are buying government and corporate debt in a bid to lower borrowing costs.

And the G7 is working seriously with the emerging market nations that make up the Group of 20. It's a level of commitment that the current generation has never seen, and it's left an impression.

“They have a lot of power and they are using it,” said Daniel Schwanen, an economist and deputy executive director of the Waterloo, Ont.-based Centre for International Governance Innovation.

Financial Update for April 24, 2009

TSX Zooms again!

• TSX +130.35 to 9,409.50 investors shrugged off gloomy economic data and focused on a surge in the tech sector
• DOW +70.49
• Dollar +1.06c to 81.71USD Oil +$.77to $49.62US per barrel
• Gold +14.10 to $906.20USD per ounce
• Canadian 5 yr bond yields +.05bps to 1.94. Four weeks ago it was 1.88. The spread today vs the Merix 3.69% Quick Close 5 year rate is 1.75%. http://www.financialpost.com/markets/market_data/money-yields-can_us.html

• March existing home sales fell to a 4.57-million unit annual rate from a 4.71-million rate in February, the National Association of Realtors said.

• The number of Americans filing new claims for unemployment rose last week to 640,000 from a revised 613,000 the previous week, topping economists' estimates.

• Chrysler is reportedly set to enter Chapter 11 as soon as next week, The New York Times reported Thursday. The Treasury Department is overseeing the process, which will reportedly protect union members' pensions and retiree health care benefits.

Canadian economy falls at steepest pace in at least 50 years

By Julian Beltrame, The Canadian Press

OTTAWA - The Canadian economy took a shocking fall during the first quarter, dropping at the steepest pace in at least 50 years to what the Bank of Canada says might be the bottom.

The central bank said Thursday it does not plan any immediate action but is watching for further trouble and considering dramatic new interventions into stressed financial markets.

Gross domestic product fell an estimated 7.3 per cent - the biggest contraction since comparable records began being kept in 1961. And for the year Canada will actually outdo the United States in the race to the bottom with a three per cent slump.

The central bank said another shock would spur it to move in a new direction, now that it has fired the last of its traditional monetary policy bullets by dropping the overnight target interest rate to 0.25 per cent, the lowest level practical, and committing to keep it there for a year.

"If there were a need to do something else - which is a big if - we would look to communicate that at a regularly scheduled announcement date," said bank governor Mark Carney, indicating no new action is planned until at least June.

Earlier, the central bank laid out just what it had in mind - injecting new money into credit markets through what it calls quantitative and credit easing.

Carney said he remains optimistic that aggressive policy measures by himself and other central bankers and governments will work, but he wants to let markets and Canadians know he is not out of options.

The bank's remaining arsenal includes unconventional measures rarely tried in modern economies, such as expanding the reserves available for chartered banks to pump up lending or purchasing corporate bonds to bring down credit costs for businesses.

Increasing the money supply increases the risks of high inflation down the road, but Carney said he would only act in a "deliberative and principled" fashion.

The objective, he said, is to ensure that there is enough liquidity in credit markets so that businesses and individuals will have access to credit at low rates. This will help spur economic activity, he said.

But economist Douglas Porter of BMO Capital Markets said the odds on Carney moving into quantitative easing have lessened.

"While the bank is not 'philosophically opposed' to quantitative easing, they seem reluctant to do more, at least at this point.," he said.

Still, the lack of progress both at home and around the world continues to surprise the central bank's governing council.

The Canadian economy will shrink by three per cent this year, Carney said, as opposed to the 1.2 per cent he predicted in January. The world economy will fall 0.8 per cent, as opposed to 1.1 per cent growth forecast three months ago.

The bank says Canada will begin to recover next year with a growth rate of 2.5 per cent, but in the meantime will suffer a devastating recession - deeper than in the United States, the centre and cause of most of the problems.

The main reason is that U.S. weakness in the housing and auto sectors is hammering critical Canadian export industries - vehicles, parts and forest products.

Meanwhile, the loss of 270,000 Canadian jobs in the first quarter, combined with declining household worth, has sapped consumer confidence and driven down spending.
"Government spending is the only component of demand expected to show positive growth in the quarter," the bank said.

Carney appeared frustrated with having to revise expectations so sharply in a matter of months, and blamed inaction in the United States and Europe for the fact the recession will be deeper, last longer and its recovery be more muted that it needed to be.

"If we had to boil it down to one issue, it's the slowness with which other G7 countries have dealt with the problems in their banks," he said. "There has not been as much progress as we had expected in January."

But he said recently announced measures will work once implemented, leading to growth in the world economy and also in Canada.

"There is light at the end of the tunnel, the Canadian economy will begin to grow again," he said, noting that signs of bottoming out are starting to appear.

Still, the recession will leave residual damage, he admitted. Plants have shut down, industries are restructuring, particularly in the auto and forestry sectors, putting a "speed limit" on the economy's ability to advance in the future.

The country's capacity for non-inflationary growth has been halved 1.2 per cent this year, and will only be at 1.5 per cent in 2010 and 1.9 per cent in 2011, the bank said.

Although Carney stressed that the bank has not made any decisions on quantitative and credit easing, the Bank of Canada lengthy monetary policy report released Thursday morning gives plenty of reasons to suspect it will be needed.

In an unusually lengthy analysis, the central bank's governing council said economies need aggressive measures, and massive stimulus moves by governments have produced modest results so far.

"Timely and credible action is required to address the impaired assets on bank balance sheets and to restore the normal flow of credit," the report said.
However, "progress on these measures has been slower than expected in the United States and other major financial centres."

The world has already suffered its worst setback in economic activity since the Second World War, global credit markets remain fragile, confidence is at rock bottom, and international banks have lost much of their capacity to lend, the report says.

Canadian financial markets are healthier, it adds, but credit is still tighter than normal and interest rates have risen, particularly for corporations.

If the bank needs to resort to non-traditional interventions, it will, Carney said.
The more dramatic approach would be quantitative easing - essentially increasing the money supply to improve the availability and cost of obtaining credit.

This would flood credit markets with money, making loans more easily available to businesses and households and, given the law of supply and demand, less costly.

One of the Bank of Canada's roles is to print money - there are about $50 billion worth of banknotes currently in circulation - but Carney said quantitative easing would be "an electronic fashion of creating new central bank money."

The second measure would be credit easing, a more targeted approach for the bank to enter specific stressed credit markets, such as commercial paper or car leasing.

"Credit easing does not need to be financed through an expansion of settlement balances (printing money)," the bank said. "It could, instead, be financed either by reducing holdings of other assets or by increasing government deposit liabilities, so that the monetary base remains unchanged."

Financial Update for April 23, 2009

Canada's recession resilience (article below)

• TSX +31.98 as stable commodity prices helped energy and gold shares hold their own against weak financial issues.

• DOW -82.99
• Dollar -.24c to 80.65USD
• Oil +$.30to $48.85US per barrel
• Gold -$9.80 to $892.50USD per ounce
• Canadian 5 yr bond yields +.02bps to 1.89. Four weeks ago it was 1.94. The spread today vs the Merix Quick Close 5 year rate is 1.80%.
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html

There will be lots of information coming out today. Bank of Canada governor Mark Carney will be explaining (maybe vaguely) the reasons for the BoC rate drop and expectations we should have for the future, quantitative easing (printing money), and how this will all affect the Canadian economy. Here is an article from the Financial Post that expands on this. Keep an eye on this as it will affect bond rates/yields which could affect mortgage rates.

Terence Corcoran: Quantitative schemes at the Bank of Canada

Posted: April 22, 2009, 9:17 PM by Ron Nurwisah

Terence Corcoran, central banks

On Thursday we will learn what the Bank of Canada will do next to stimulate the economy, how it will apply the now famous “quantitative easing” phase of its ongoing effort.

The bank is already giving away money, setting an overnight rate of 0.25% — “virtually zero,” as former governor John Crow says in his commentary. At the chartered banks, astute mortgage borrowers can almost lock in less than 2% for the next year, assuming borrowers are willing to take a flyer on current Governor Mark Carney’s statement that it will not be changing rates again for the next year.

With mortgages going for next to nothing, you might expect house sales to be climbing. But they are not, at least not yet — an indication that there is more to getting an economy moving than monetary policy and interest-rate manipulation. Nor has there been much to show from the deficit spending extravaganzas announced by Ottawa and the provinces.

And so now the Bank of Canada is apparently set to announce the next phase in its attempt to kick start borrowing and lending. The bank has already bought up more than $30-billion in various securities from private institutions over the last six months in an attempt to ease credit pressures in some markets. But it has done so carefully without creating excess monetary stimulus that would risk future inflation. This next phase will be different, “unconventional,” according to a Bank of Canada description.

Until now, no Canadian central banker has ever used the words “quantitative easing.” Only in the last few weeks has the Bank of Canada issued quick definitions of the phrase. What is quantitative easing? It’s the bank’s “purchase of financial assets through creation of central bank reserves.” The result is twofold. First, the new reserves are also known as “printing money.” The reserves provide the chartered banks with new ability to increase their lending to business and households. Second, by buying financial securities, the Bank of Canada would be increasing the supply of money to a particular market, thereby driving down the interest rates on those securities. If the bank were to buy 10-year corporate bonds, for example, then 10-year bond rates should decline.

So that’s the theory. Quantitative easing is supposed to do two things: increase the money supply via chartered bank expansion of lending and reduce longer-term interest rates in areas of the market the Bank of Canada usually has no influence over. The other technique, called “credit easing,” also involves buying private market securities, but in a way that does not necessarily increase the money supply and the risk of inflation.

In its monetary report on Wednesday, the Bank is expected to more precisely identify how, when and even if it will start engaging in the business of buying up financial securities so as to drive down longer-term interest rates and increase the money supply beyond the rates of increase already taking place.

The risks in this next phase are numerous. As John Crow reports, eventually the big run up in the Bank’s assets has to stop and the process will have to be reversed. The financial securities will have to be sold back into the market.

Running around with mop, pail and squeegee to scoop up the excess monetary stimulus will require a degree of central bank fortitude that does not always come easy. The political pressure on central bankers to become what Mr. Crow calls “team players” in keeping growth up at the risk of higher inflation could weaken their resolve. In an odd note on this subject, the Bank of Canada’s recent Q & A says that “if a profound disagreement were to occur between the Bank and the government, the Minister of Finance could issue a written directive to the Governor ... This would most likely result in the Governor’s resignation.”

That’s never happened, adds the bank, perhaps hopefully.

Another uncertainty is that the quantitative and credit easings may not work. The credit markets and the economies of the world are stalled due to lack of confidence and a market belief that the investment climate is still too risky. The cause of the risk is not interest rates or lack of ready cash or liquidity.

There is no absolute proof of this, but investors are likely holding back due to growing concern over government involvement in the economy, especially from the United States, the most crucial drag on the Canadian economy. The Obama administration is setting itself up as controlling manager and chief lever-puller of the banking and financial system, the auto industry and the energy markets. No amount of quantitative easing or stimulus activity in Canada can overcome that drag.
Canada's recession resilience

The Globe and Mail Report on Business RICHARD BLACKWELL

April 23, 2009

The International Monetary Fund's report yesterday said the world is in the deepest recession in 70 years. That's pretty depressing. Did they have any good news?
The IMF's world economic outlook was a discouraging read, but there was a little positive news about Canada.

For one thing, the report noted that Canada has had just three recessions since 1960, far fewer than most other countries. (New Zealand has had 12, Switzerland and Italy have each had nine.)

The report also said that many countries have been in economic decline for a long time, while ours is relative recent. Ireland's economy has been shrinking for almost two years, for example, and Denmark has been in recession for five quarters. Canada only fell into recession in the last quarter of 2008.

Still, the IMF notes that worldwide recessions prompted by financial crises are more severe and the recovery is slower than other downturns.

We hear a lot about the shift from full-time employment to part-time, but are there other measures of the quality of jobs available?

CIBC World Markets does an interesting analysis of the job market that looks at the "quality" of jobs. When full-time employment shrinks and the number of part-time jobs grows - as it has recently - the quality of the job market decreases.

Similarly, when self-employment increases as regular jobs disappear, quality declines.

Still, while both those considerations have contributed to a decline in job quality, there is another factor that has offset the effects, CIBC says. Because so many job cuts have been among low-paying jobs (often held by younger workers), and high-paying positions have been relatively immune, the overall quality of employment has not changed much, the economists say.

That's not much comfort to those who are unemployed, but it is one other way of looking at the job picture in a macro light.

I understand that hourly workers at GM, Chrysler and Ford do not pay directly into their company pension plans. Does this mean they can also contribute to their own RRSPs, and effectively have two pensions?

The hourly auto workers are subject to the same rules as everyone else, which means they have a "pension adjustment" to their RRSP contribution limits, related to the value of the contributions the company makes to their defined-benefit plans.

This means that any worker's annual RRSP contribution room will be reduced considerably, depending on how much the employer puts into the pension. The adjustment depends on the total going into the plan - it doesn't matter who makes contributions.

Many workers with defined-benefit plans have some room for RRSP contributions, but it is often very limited.

Financial Update for April 22, 2009

Financials, energy issues power TSX higher

• TSX +121.02 solid gains spurred by stronger oil prices and optimistic comments from U.S. Treasury Secretary Timothy Geithner, while Teck Cominco soared 37% on news it had deferred billions in debt payments.
• DOW +127.83
• Dollar +.15c to 80.89USD
• Oil +$.63 to $46.51US per barrel
• Gold -$4.80 to $882.40USD per ounce
• Canadian 5 yr bond yields -bps to 1.87. Four weeks ago it was 1.86. The spread today between the 5 yr quick close and the bond yield is -1.82
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html

What the rate cut means for mortgages

Garry Marr, Financial Post

The latest rate cut means consumers buying a house can borrow for as little as 3% interest on their loan if they are willing to buy into the Bank of Canada's statement Tuesday that it won't be changing rates until June, 2010.

If you don't believe the bank will hold steady on its promise, you can lock into five-year, fixed-rate mortgages for as low as 3.85% on a discounted basis -- the lowest rate in Canadian history.

But all of that may amount to nothing when it comes to soothing a Canadian housing market in which new construction has fallen below 200,000 on an annualized basis for the first time in seven years. March existing-home sales were off 13.7% from a year ago.

"What is 25 basis points among friends? It's really nothing," said Benjamin Tal, senior economist with CIBC World Markets. "This is not something that is going to change the course of the market. It only helps at the margin."

Mr. Tal did say mortgage refinancings have risen dramatically in the past few months as Canadians who might have borrowed at 5.75% just over two years ago are ready to eat any interest rate penalty because a five-year rate mortgage is now so low.

The penalty to break an existing mortgage is the greater of three months interest or what is called the interest rate differential. The interest rate differential is the lost interest between your current rate and market rates.

Mr. Tal says while there is not much lower for variable-rate mortgages to go, the gap between short-term money and long-term money is still significant enough that the temptation is not to lock in.

"You might do better the first two years [of a five-year mortgage] but not the remaining three. I'm convinced long-term interest rates will rise. I can see [long-term] rising 200 basis points. These are emergency rates and at some point this emergency will end," says the economist.

John Turner, the director of mortgages at the Bank of Montreal says he's never seen anything like what is going on in today's market.

"There is a possibility of another drop," says Mr. Turner. "But does your tummy feel good about something that has a higher possibility of going up than going down any further."

He is convinced these lower rates will boost the housing market. The 13.7% decline in home sales in March was the smallest year over year decline in six months. "I think there is a segment of the market that couldn't afford a home before," said Mr. Turner.

Don Lawby, chief executive of Century 21 Canada, said while rates are declining, banks are getting tighter with how they hand out credit.

"If you are self-employed, the banks are demanding more documentation. Appraisals are getting harder too. It's not what you bought the house for but what it's appraised for," said Mr. Lawby, who also heads up a mortgage broker business. "There is not a lot of subprime out there for people with any credit problems in their history."

Quantitative easing Q&A with the BoC

FP Posted: April 21, 2009, 10:16 PM by Alia McMullen

With interest rates now at a record low 0.25%, theBank of Canada has provided definitions of quantitative easing and credit easing on its website.

What happens when the policy interest rate approaches zero?

"The traditional monetary policy instrument used by central banks to stabilize the economy and maintain price stability is the policy interest rate. When the policy rate moves towards zero, a central bank may consider using other tools to provide stimulus to the economy and achieve its inflation objective. This can include consideration of so-called 'unconventional' monetary measures such as quantitative easing and credit easing."

What is quantitativeeasing?

"Quantitative easing is the purchase by a central bank of financial assets through creation of central bank reserves. As a result, the price of the purchased assets (which can include government securities or private assets) rises and the yield on the assets falls. The expansion of reserves available to commercial banks also encourages them to increase the supply of credit to households and businesses.

In economic terminology, quantitative easing uses 'unsterilized' funding; in other words, the reserves of the central bank are increased to finance asset purchases."
What is credit easing?

"Credit easing is the targeted purchase by a central bank of private sector assets in certain credit markets which are important to the functioning of the financial system. The goal of credit easing is to reduce risk premiums and improve liquidity and trading activity in specific markets so that credit will flow and demand in the economy will expand.

Credit easing can be done on a 'sterilized' basis; in other words, there is no need to increase central bank reserves in order to undertake credit easing. If undertaken on an unsterilized basis, this amounts to combining credit easing with quantitative easing."

Financial Update for April 21, 2009

• TSX -311.50Stock markets dropped heavily as crude oil prices fell to the lowest level since mid-March and fears grew that big American banks are imperiled by swelling bad debts.

• DOW -289.60
• Dollar -1.56c to 80.74USD
• Oil -$4.45 to $45.88US per barrel. Energy stocks tumbled 6.5% as the May crude oil contract tumbled 8.8% on a stronger U.S. dollar and higher inventories
• Gold +$19.40 to $867.80USD per ounce
• Canadian 5 yr bond yields -.09bps to 1.87. Four weeks ago it was 1.76. The spread today is -1.82
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html

Financial Update for April 20, 2009

Here’s an updated forecast from Bloomberg regarding the BOC announcement tomorrow…. The prediction is The Bank of Canada WILL NOT change interest rates.

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Canadian Dollar Weakens as Inflation Rate Unexpectedly Slows By Chris Fournier

April 17 (Bloomberg) -- Canada’s currency depreciated for a second day against its U.S. counterpart as a government report showed the annual inflation rate unexpectedly slowed last month.

“We’re going to see inflation hugging bottom for a good long time,” said Derek Holt, an economist at Scotia Capital Inc., a unit of Canada’s third-largest bank. “The markets are fixated on what the Bank of Canada is going to do next week.”

The annualized increase in consumer prices was 1.2 percent in March, compared with 1.4 percent in the previous month, Statistics Canada said today in Ottawa. The median forecast of 20 economists in a Bloomberg News survey was for the rate to remain at 1.4 percent. The Bank of Canada cut its benchmark interest rate last month to a record low of 0.5 percent. Policy makers will leave it unchanged when they meet on April 21, according to the median forecast of 19 economists surveyed by Bloomberg.

“All eyes await Tuesday’s Bank of Canada meeting,” said Firas Askari, head currency trader in Toronto at BMO Nesbitt Burns, a unit of Bank of Montreal. “On its merits, the Canadian dollar should be a bit better.”

Governor Mark Carney is due to announce guidelines on April 23 about quantitative easing, a policy in which a central bank buys government debt to try to revive economic growth.

• TSX +98.28
• DOW +5.90
• Dollar -.37c to 82.30USD
• Oil +$.35 to $50.33US per barrel.
• Gold -$12.00 to $867.80USD per ounce
• Canadian 5 yr bond yields +.06bps to 1.96. Four weeks ago it was 1.72. The spread today is -.173
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html

Has elusive 'second derivative' arrived?

KEVIN CARMICHAEL From Friday's Globe and Mail

OTTAWA — Before a shrinking economy rebounds, the pace of decline must slow.
Economists call it the "second derivative," a bit of calculus they are using a lot these days as they search for the bottom of the biggest global recession since the Second World War.

A spate of economic data yesterday suggested that mathematical moment has arrived.
In the United States, for example, a government report yesterday showed that new claims for unemployment benefits decreased by 53,000 to 610,000 last week, the lowest level since January.

Factories in the Philadelphia region reported that orders were falling less rapidly last month, and builders broke ground on 358,000 single-family homes at an annual rate in March, little changed since January.

Figures such as those are reinforcing the idea the breakneck rate at which the world's biggest economy was contracting at the end of last year is easing to a less-frightening pace.

Investors are taking a breath and having a closer look at future prospects. Some like what they see.

The Standard & Poor's 500-stock index in New York rose yesterday, and has soared almost 30 per cent higher than the 22-year low reached on March 9. Canada's benchmark stock index, the Toronto-based S&P/TSX composite, climbed more than 1 per cent and is 15 per cent higher since the end of March.

"Flat is the new up," said Craig Wright, chief economist at Royal Bank of Canada in Toronto. "What we are seeing now is less bad news."

Economic reports these days are a mix of dour assessments of the present and hopeful signs about the future.

Canadian factory shipments were 18.7 per cent lower in February from a year earlier, a stark reminder of the heavy blow dealt manufacturers by the global recession. At the same time, the Statistics Canada report showed that factories depleted inventories by 1 per cent, a positive sign because companies must reduce stockpiles before they resume production.

In China, a government report said the world's third-largest economy grew at an annual rate of 6.1 per cent in the first quarter, the slowest in almost a decade.

Still, many economists focused on separate indicators that showed urban fixed-asset investment surged by almost a third in March and industrial output growth accelerated, suggesting the country's $585-billion stimulus program is taking hold.

Container traffic carrying consumer goods on the West Coast of North America picked up in March after severe declines in the first two months of the year, according to new figures. At Port Metro Vancouver, according to new statistics, container traffic in March was down 1.6 per cent from a year ago, slowing the rate of decline in 2009 to 15 per cent from 21.5 per cent in February.

"No one wants to be so bold and so stupid as to say this is the bottom," said Glen Hodgson, chief economist at the Conference Board of Canada in Ottawa. "But this is what happens in recession. The rate of decay slows down."

Even if the second derivative has arrived, it isn't exactly providing pain relief.
China needs growth rates of 8 per cent and higher to fully employ its vast population. And if Canada's factories are meeting orders from existing stockpiles, then they aren't employing people to run their machines.

In fact, the recession is likely to persist longer than typical downturns, and the recovery could be far more muted.

The International Monetary Fund released new research yesterday that looked at past recessions and found that slumps sparked by financial crises or that are part of a synchronized downturn tend to deal heavier blows because banks aren't lending and importers aren't buying.

The current global recession is the result of both. Since 1960, that has happened six times. On average, those recessions lasted almost two years and recoveries were generally "weak," the IMF said.

"I'm not sure how comforting a bottom it is with levels of activity as low as they are right now," said Peter Hall, chief economist at Export Development Canada. "If the second derivative is declining, that means the pace of decline is slowing, but you are still declining."

Financial Update for April 17, 2009

Financials lead the way to solid stock market gains following JPMorgan earns The spring rally on markets, now in its 6th week, has been driven in large part by growing optimism that the financial industry is on the mend.

• TSX +97.26 as good news from U.S. banks raised hopes the financial sector is recovering
• DOW +95.81
• Dollar -.44c to 82.67USD from the 13-week high it raced to earlier as its move through a key level sparked a wave of selling as traders felt it got ahead of itself
• Oil +$.43 to $49.98US per barrel.
• Gold -$13.70 to $879.80USD per ounce
• Canadian 5 yr bond yields +.02bps to 1.90. Four weeks ago it was 1.71
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html

Thanks to DBD David Neville in the Maritimes for creating our bond chart. He has added a line (bottom below the date) that shows the spread between the bond yield and the 5 year fixed rate. This is key now as the spread grows smaller, it could trigger either a stop to the dropping rates or, eventually, an increase in rates. There are many factors that influence rates, bond yield is but one, so use this as a guide only.

Financial Update for April 16, 2009

Late day gains in financial stocks help take stock markets higher

• TSX +14.49 with a late day burst of strength from the financial sector
• DOW +109.44
• Dollar +.74c to 83.11USD
• Oil -$.16 to $49.25US per barrel. amid an indication that falling demand is lifting U.S. crude stocks far more than expected.
• Gold +$1.50 to $893.50USD per ounce
• Canadian 5 yr bond yields -.01bps to 1.84
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html

Realtors say March home sales data contains promising signs By The Canadian Press
OTTAWA - The number of existing homes sold last month was down from a year ago, but continued an upward trend that began in February, the Canadian Real Estate Association said Wednesday.

The association, which represents real-estate brokerage firms, also reported that the national average price for homes fell again in March compared with the same month last year.
]
"Housing markets are starting to show signs of buyer interest because of lower prices and interest rates," CREA president Dale Ripplinger said in a statement.

Sales of existing homes listed with the industry's MLS service totalled 35,225 units across Canada in March. That's 13.5 per cent below actual sales in March 2008, but CREA said it's the smallest year-over-year decline in six months.

The association also noted that, on a seasonally adjusted basis, March sales were seven per cent higher than in February, which was 10.3 per cent above January.

The association said the number of transactions in March was 18 per cent higher than in January, when activity was the lowest in a decade.

The average house price in Canada fell to just under $289,000 - down 7.7 per cent from March 2008 - also the smallest year-to-year decline in six months.

Robert Kavcic, of BMO Capital Markets, wrote in a separate analysis saying that "the improvement in recent months is an encouraging sign that the Canadian housing market has crossed the halfway point for this downturn."

He noted that the number properties put up for sale fell in March, but the ratio of listings-to-sales remained slightly elevated at 2.2.

"Despite two months of improved sales activity, buyers are still in control of the Canadian real estate market," Kavcic wrote.

"Further price declines and low mortgage rates will ultimately help trigger a recovery, but a reversal in the wave of job losses is one major pre-requisite still outstanding."

Financial Update for April 15, 2009

First-time home buyers could find a welcoming market, but approach with caution article below

• TSX -54.00
• DOW -137.63
• Dollar +.36c to 82.37USD
• Oil -$.64 to $49.41US per barrel.
• Gold +$3.80 to $891.20USD per ounce
• Canadian 5 yr bond yields -.01bps to 1.84 four weeks ago it was 1.89. The spread between the 5 year bond yield and the Merix 5 year fixed rate is now 2.11%.
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html

Mortgage rates unlikely to fall further: Brookfield

Sean B. Pasternak, Bloomberg Financial Post Mortgage rates in Canada, which have plunged by almost 50% in the last year, aren't likely to fall further, said Phil Soper, chief executive of Brookfield Real Estate Services Fund.

"Certainly with the Bank of Canada's target rate set at virtually zero, there's very little room," Mr. Soper said Tuesday at a conference in Toronto on Canada's real estate market. The rate is "the lowest it's been in anyone in this room's lifetime."

Rates for home loans have been dropping during the biggest financial crisis since the Great Depression, with some lenders offering mortgages approaching 4%, Mr. Soper said. That compares with an average posted five-year rate of 7.5% a year ago, according to the Bank of Canada. He added that home prices in Canada aren't likely to rise "sharply" over the next two years.

Bank of Montreal, which sponsored the conference, lowered its rate for a five-year fixed-rate mortgage this month to 4.15%.

"We are approaching almost zero interest rates," at the Bank of Canada, said John Turner, the Toronto-based bank's director of mortgages. "The question becomes, how much upward pressure will there be as we come out of this recession?"

The Bank of Canada last month cut its benchmark lending rate to 0.5%, its lowest ever, and said it's preparing to use policies beyond interest rate moves to revive an economy hit by a recession and tight credit markets. The next rate announcement is April 21.

Canadian existing home sales rose in February for the first time since September as buyers took advantage of lower mortgage rates and prices, according to the Canadian Real Estate Association's Multiple Listing Service. Sales of existing homes rose 8.6% from January to 28,669 units.

Bank of Montreal senior economist Sal Guatieri predicted that Canada's housing market will decline further this year, without the "crash" experienced in the U.S.

First-time home buyers could find a welcoming market, but approach with caution
By Kristine Owram, The Canadian Press TORONTO - Real-estate experts say low mortgage rates and more affordable homes in many markets are drawing out first-time home buyers in droves, but one independent analyst says the correction in Canadian home prices hasn't been nearly as dramatic as some believe.

Phil Soper, chief executive of Brookfield Real Estate Services, which operates under the Royal LePage banner, said prices are falling and lenders are lowering their rates making the market more attractive to people looking to buy their first home.

"The uptick in first-time home buyer purchases across the country is quite astonishing," said Soper, speaking Tuesday at a BMO conference on Canada's housing market. "Affordability in places like Vancouver has improved for the first time in a very long time."

BMO senior economist Sal Guatieri said the average mortgage payment has fallen by one-third or $600 a month from its peak, while average resale home prices have fallen 14 per cent from their highs.

Guatieri said he expects resale prices to fall "moderately further" this year for a cumulative decline in prices of approximately 20 per cent.

But Peter Norman, a consultant with independent real-estate adviser Altus Group, said the dramatic drops in home prices seen in places like Vancouver, Edmonton and Calgary are the exception rather than the norm.

"This is not a housing adjustment period in Canada," Norman said in an interview.
"Certainly housing demand has slowed down because the economy is the pits, but housing supply has slowed down a lot as well as a result.... Outside of a couple of sub-markets there hasn't been much of a downward adjustment on price."

Still, other changes in the market are making this a good time to buy a first home - as long as the buyer can afford it, Norman said.

"There are a lot fewer of those stories of really rapidly selling houses, bidding wars, all that kind of stuff, so I think it can be a bit more of a sane market for somebody who's trying to buy right now," Norman said. "It may take away some of the anxiety or it may help you make a better decision."

And most importantly, overall affordability in the housing market has improved.

"If it wasn't for the recession and the aversion to financial risk that people have right now, it would probably be a very active market and a very good market," Norman said.

The Canadian Real Estate Association reported that house prices and sales continued to slide across Canada in February - the latest month for which data is available - compared to the same time last year, but activity was up for the first time since September.

The association said resale home prices fell 9.2 per cent across Canada in February to an average of $281,972 while sales fell 31 per cent to 25,373 units, the smallest year-over-year decline since October 2008. Seasonally adjusted sales fell 26.8 per cent.

Meanwhile, the number of homes that traded hands on the multiple listing service, or MLS, was up 8.6 per cent above seasonally adjusted levels in January.

Financial Update for April 14, 2009

TSX extends rally on commodity gains

Canada's got the best of both worlds. You’ve got the financials and all the resources kicking in," said Pyle. "So the litmus test now will be adding on to this week because now we're less than 200 points from the high we saw in January."

• TSX +98.50 to finish higher for a 3rd straight session, extending the “spring rally’ to a 6th week, with financial issues buoyed by optimism that quarterly U.S. bank results this week will show the sector has stabilized after being shaken hard in the global financial crisis.
• DOW -25.57Traders were uneasy after a New York Times report that the U.S. Treasury has directed GM to lay the groundwork for a potential bankruptcy filing by June 1.
• Dollar +.39c to 82.01USD
• Oil -$1.19 to $50.05US per barrel.
• Gold +$12.50 to $895.80USD per ounce
• Canadian 5 yr bond yields -.01bps to 1.85 four weeks ago it was 1.86. The spread between the 5 year bond yield and the Merix 5 year fixed rate is now 2.09%.
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html


Wells Fargo to post record US$3B profit Wants to repay US$25-billion bailout cash Jonathan Stempel And Elinor Comlay, Reuters

Wells Fargo & Co. said it expects to post a record US$3-billion first-quarter profit, causing its shares to soar and providing a welcome jolt to the broader stock market and banking sector.

The fourth-largest U. S. bank is the first major U. S. lender to indicate how it fared in the January-March period.

Coming as the government performs "stress tests" on 19 major banks, the preliminary quarterly results suggest that lenders focused on traditional banking activities may handle the recession better than analysts and investors expect.

"In this terrible environment, to exceed on the upside is going to raise the bar pretty high," said Matt McCormick, an analyst at Bahl & Gaynor Investment Counsel in Cincinnati.

Wells Fargo said quarterly profit after preferred stock dividends was US$2.3-billion to US$2.4-billion, or US55¢ per share, on revenue of about US$20-billion.
Analysts on average expected profit of US25¢ per share on revenue of US$18.81-billion, Reuters said. Wells Fargo expects to report full quarterly results on April 22.

Financial Update for April 13, 2009

Banks, oils power TSX to fifth weekly gain

"We had some pretty dismal jobs numbers in Canada as unemployment rose to 8%, but that's been overshadowed by positive sentiment surrounding the financial sector," said Elvis Picardo, analyst and strategist at Global Securities in Vancouver. "Since the financial sector has been front and center in the midst of this turmoil, any improvement reflects positively on the rest of the economy and the rest of the equity markets."

• TSX +217.84 to 9,187.12 as financial issues got a lift from upbeat news from the U.S. banking sector and higher oil prices boosted energy shares.
• DOW +246.27
• Dollar +.80c to 81.62USD
• Oil +$2.86 to $52.24US per barrel.
• Gold -$2.60 to $882.50USD per ounce
• Canadian 5 yr bond yields +.04bps to 1.86 four weeks ago it was 1.90
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html

Obama says U.S. economy beginning to show 'glimmers of hope'

Fri Apr 10, 3:37 PM Liz Sidoti, The Associated Press

WASHINGTON - U.S. President Barack Obama said Friday the economy is showing "glimmers of hope" despite continuing stresses, and he signalled more steps to brighten the business climate.

Obama commented to reporters after meeting at the White House with members of his economic team, including Treasury Secretary Timothy Geithner, economic adviser Larry Summers and Federal Reserve Chairman Ben Bernanke.

"What we're starting to see is glimmers of hope across the economy," the president said, although he also noted that the economy is "still under severe stress."
"Whatever we do ultimately has to translate into economic growth and jobs," Obama said.

He said there has been a significant uptick in the number of homeowners seeking to refinance their mortgages, which will put money back into their pockets. He said a 20-per-cent increase last month in the Small Business Administration's largest program means that small companies, often prized as the backbone of the economy, "are starting to get money."

But Obama also pointed to the high rate of joblessness - which climbed to a 25-year high of 8.5 per cent in March - and acknowledged that "we've still got a lot of work to do."

"We're starting to see progress," he declared, "and if we stick with it, if we don't flinch in the face of some difficulties, then I feel absolutely convinced that we are going to get this economy back on track."

Obama said he and his advisers discussed the stability of the financial system and a program to help banks clear their books of bad assets that have made normal lending difficult if not impossible.

Friday's meeting was Obama's first with his economic team since his return this week from an overseas trip partly focused on the global economic slump. He participated in a meeting in London of leaders from the 20 wealthiest and developing economies.

The backdrop for the meeting was the still-fragile economy that has begun to show hints of a possible recovery, including a strong profit forecast from Wells Fargo and Co., a drop in claims for unemployment benefits and predictions of solid April sales from several retailers.

Also promising were less jittery stock investors, shoppers and homebuyers, slowly thawing credit markets that were once frozen and stabilizing economic indicators that had been going from bad to worse.

All that has at least one Obama adviser sounding cautiously optimistic.
"There has been a substantial anecdotal flow over the last six to eight weeks of things that felt a little bit better," Summers, director of Obama's National Economic Council, said Thursday.

"The sense of a ball falling off a table, which is what the economy has felt like since the middle of last fall, I think we can be reasonably confident that that is going to end within the next few months, and we will no longer have that sense of a free-fall."

Financial Update for April 9, 2009

• TSX +144.53 as oil prices rebounded and gave a boost to energy shares, while financials rose on news of U.S. aid for insurers.
• DOW +47.55
• Dollar +.03c to 80.82USD
• Oil +$.23 to $49.38US per barrel.
• Gold +$2.60 to $885.90USD per ounce
• Canadian 5 yr bond yields -.04bps to 1.82 four weeks ago it was 1.87
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html

Housing starts post surprise jump Financial Post

OTTAWA - Home construction rose unexpectedly in March, led by Ontario and Quebec, Canada Mortgage and Housing Corporation said Wednesday.

There were 154,700 housing starts on an annualized basis during the month, up from a revised 136,100 units in February, the government agency said.

Many economists had expected housing starts to dip to 130,000 units in March.

"Higher multiple starts in Ontario and Quebec were the main contributors to the rise in new construction activity in March," said Bob Dugan, CMHC's chief economist.

"While the multiples segment experienced the largest increase, the overall boost in starts was broad based, encompassing the singles segment as well."

Urban housing starts were up 17% to 127,900 units in March, the agency said. Urban multiple starts rose 28.3% to 81,500 and urban single starts were 1.3% higher at 46,400.

Construction of urban units rose by an annualized 35% in Ontario and 23.3% in Quebec. Meanwhile, urban activity fell 17.3% in British Columbia, 7.9% in Atlantic Canada and by 7.5% in the Prairies.

Rural starts were flat at 26,800 units in March.

"New home construction is now at a more sustainable level after having been exceptionally strong over the past seven years, exceeding 200,000 units per year," CMHC said.

Millan Mulraine, economics strategist at TD Securities, said the report "suggests that new housing starts activity pickup aggressively in March after six consecutive monthly declines."

"However, in the grand scheme of things, the key economic fundamental factors continue to point to further weakness in Canadian housing sector activity, and as such we believe that this surprising pickup in construction activity is likely to be a one-month wonder, and expect activity to soften in the coming months," he said.

The CMHC report comes a day after TD Economic forecast average Canadian house prices to fall to about $246,000 in 2009 - down 24% from the peak of $324,000 in 2007 - while overbuilding in the residential market, particularly in the Prairies, should prevent the sector from making a quick recovery from the current downturn in sales, prices and construction.

"A glut in the housing stock means that builders will have to rein in residential construction further - particularly in the most overbuilt markets. As well, excess inventories in certain markets will prove an additional drag on home prices," it said.

The TD report said house prices have been overshooting their fundamental value by about 9% since 2005 as speculation drove up prices and encouraged overbuilding.

Financial Update for April 8, 2009

TSX pulled down by oil, but gold shines

• TSX -191.42 as investors took profits from the spring rally on nervousness over first-quarter corporate earnings reports while financials groaned under the weight of a new, huge figure on the value of toxic assets on banks' balance sheets could hit $4 trillion
• DOW -186.29
• Dollar +.05c to 80.79USD
• Oil -$1.90 to $49.15US per barrel.
• Gold +$10.50 to $883.30USD per ounce
• Canadian 5 yr bond yields -.04bps to 1.86 four weeks ago it was 1.91
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html

Ottawa is providing nearly $1 billion in guarantees calculated to reassure consumers and parts suppliers that do business with shaky auto companies, most notably General Motors and Chrysler.

Canadian cities need to 'stop being humble' 'Go Out And Get It'; Time to emerge from shadow of U. S.: author

Shannon Proudfoot, Canwest News Service

This recession is a "great reset" that offers Canada a chance to emerge from the shadow of its reeling southern neighbour, says a leading urban theorist.

Richard Florida, director of the Martin Prosperity Institute at the University of Toronto, says Canadian cities need to "stop being so humble" and see themselves as global models of exactly the sort of livable communities the United States desperately needs.

"Canadian cities have already achieved many of the things that Barack Obama would like to see American cities achieve," he says. "Our cities are dense, they have a middle class, they have good public schools, our people have health care, the social safety net we have enables people to adjust, we're open to immigration."

Mr. Florida has just released the Canadian edition of his latest bestseller, Who's Your City?, which is part urban study and part self-help guide to finding the right place to live.

The book's central tenet is that location is more important than ever and the world is getting "spikier," not flatter. Mr. Florida argues that global economic and creative output is increasingly driven by "mega-regions" to which he's assigned Seussian names such as Tor-Buff-Loo-Mon-Tawa (stretching from Toronto and Waterloo to Ottawa and Montreal and south to Buffalo and Rochester) and Cascadia (Vancouver down to Seattle and Portland).

"I think those are really the key strong, world-class hubs of the Canadian economy," Mr. Florida says. "Other regions like Calgary, Edmonton, Winnipeg, they're all going to do fine, but those are really the hubs. Our challenge has to be to make them stronger." Mr. Florida is probably best known for his concept that the "creative class" -- a broad category he defines as those who create for a living, whether in engineering, the arts, biotech or small business -- wields the greatest clout in today's economy.

Ottawa is perceived as a "sleepy government town," but research for the new book revealed it's in fact home to the highest proportion of creative-class workers in Canada, he writes, with 43% of workers in creative fields of some kind -- a higher percentage than New York, London or San Francisco.

Singles should take note of the finding that Calgary and Edmonton are home to thousands more single men than women, while Toronto boasts 22,500 more unattached women. Several remote northern communities scored high on the singles ranking because there are so many singles there and lots of bars and restaurants per capita in which they can meet, says Kevin Stolarick, research director for the Martin Prosperity Institute.

"Whitehorse, Yellowknife and Iqaluit tended to do just phenomenally for singles," he says, adding, "We can't tell everybody to move to Iqaluit --it's not going to work."
Overall, Canada is a more urban country than the United States, Mr. Florida says -- something that seems "bizarre" given our massive land mass. Eighty per cent of the Canadian population lives on 2% of the land, he says, and while the five biggest American cities account for 23% of the country's economic output, Canada's five major centres crank out 53% of this nation's GDP, he says.

"I think the fact that we have weathered this recession well and we don't have a financial crisis and our banks are stable gives us an opportunity now to really reposition ourselves," says Mr. Florida, who relocated to Toronto a year and a half ago from Washington, D. C. "I think that Canada's cities have some of the biggest upsides in this economic reset."

He advocates linking Canada's mega-regions by high-speed rail that will transform them into long-distance suburbs of each other. Creative-class workers are most "buffered" from the recession fallout, he says, but Canada also needs to create more and better service industry jobs because they're not as susceptible to outsourcing as manufacturing jobs.

"I think we owe it to the Windsors of the world, who have lost their core industries or are rapidly losing them, to connect them to new growth centres," he says. "So instead of Windsor being a connection to Detroit, it really needs to be connected to a more growing, thriving area like Toronto."

This economic crisis will put a halt to the "brain drain" of Canada's best and brightest seeking opportunities in the United States, he predicts, and may soon shift to a "brain circulation" that will see many return home.

"I do think the era of Canadians going elsewhere to find their fame and fortune is over," he says. "Canada's big cities are at that moment now and we just have to take advantage of it and we have to stop being so humble, we have to go out and get it."
Average home price will fall to $246,000 in '09 Alia McMullen, Financial Post
Canadian house prices have further to fall, while overbuilding in the residential market, particularly in the Prairies, will prevent the sector from making a quick recovery from the current downturn in sales, prices and construction, according to a report by TD Economics.

TD economists expect the average Canadian house price to fall to about $246,000 in 2009, down 24% from the peak of $324,000 in 2007. As of February, the average nation-wide house price stood at $282,000, down 13% from its peak.

The report, released Tuesday, found house prices had been overshooting their fundamental value by about 9% since 2005 as speculation drove up prices and encouraged overbuilding.

"Declines in prices are now returning to fundamental-justified values. We estimate this process to be roughly half done, both in terms of time and value adjustments," the report said.

Now, as housing prices correct, the economists believe the excess supply of housing in the market will continue to weigh on the sector throughout 2009. However, Canada will avoid a U.S.-style housing crash because the oversupply of housing is much smaller.

TD estimates the overhang of residential homes in the Canadian market is equal to about three month's supply, compared to about 10 months in the United States. As a result of the overhang combined with low prices, housing construction would likely remain 20% below its potential level and fall to 125,000 in 2009 and increase slightly to 135,000 in 2010. In September 2007, new homes were being constructed at a seasonally adjusted annualized rate of 273,000.

"A glut in the housing stock means that builders will have to rein in residential construction further -- particularly in the most overbuilt markets. As well, excess inventories in certain markets will prove an additional drag on home prices," it said.

TD said Calgary and Edmonton had accumulated "worrisome" inventories of unsold single family homes, while the overhang of supply in Saskatoon's was at a historical high. Montreal also had a growing inventory of unsold condos and apartments. Toronto and Vancouver have so far avoided a major oversupply in inventories, however the large number of condos under construction in both cities raised the possibility of mounting oversupply this year.

Meanwhile, lower interest rates and house prices have helped housing become slightly more affordable Mortgage payments cost the consumer about 34% of an average household income in 2007, compared with 22% in 2000. This rate is predicted to have fallen to 32% in 2008.

Financial Update for April 7, 2009

• TSX -49.59
• DOW -41.74
• Dollar -.53c to 80.74USD
• Oil -$1.46 to $51.05US per barrel.
• Gold -$24.50 to $872USD per ounce
• Canadian 5 yr bond yields +.02bps to 1.90 four weeks ago it was 1.86
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html

For all you Bank of Canada Rate watchers out there…
A further explanation of what may lie ahead for the Bank of Canada in terms of its new “quantitative easing” policy, as well as a subtle rate prediction at the end of the article.

What is Quantative easing? Quantitative easing is an economic term describing an action that may be taken by a country's central bank in times of economic stress. A central bank controls the amount of available currency in a country, and it can create new money through what are known as open market operations. Put very simply, this means that the central bank creates or prints money out of thin air, although in an indirect way. When this is done in order to stimulate an economy in recession, it is known as quantitative easing, since it seeks to ease an economic burden by increasing the quantity of available currency. (www.wisegeek.com)

Canada Quantitative Easing to Be ‘Gentler’ Than U.S., CIBC Says
By Greg Quinn

April 6 (Bloomberg) -- Canada will adopt a “gentler” form of quantitative easing than the U.S. has because of its explicit inflation targeting policies and healthier banks, said Avery Shenfeld, chief economist at Canadian Imperial Bank of Commerce.

Bank of Canada Governor Mark Carney will adopt so-called quantitative or credit easing within six months of announcing guidelines on April 23, Shenfeld said in a telephone interview from Toronto today. The central bank may purchase corporate debt -- such as short-term commercial paper -- and government bonds that mature in three to seven years, he said.

The Bank of Canada has almost run out of room for using interest-rate cuts to stimulate an economy in recession, after it lowered its key borrowing rate to 0.5 percent on March 3.

Policy makers may be able to boost the economy by purchasing securities to revive debt markets, without using the transactions to inject newly created money into the economy. “It might not be true quantitative easing,” Shenfeld said.

Under quantitative easing, asset purchases can be paid for with new money created by the central bank. The extra cash is supposed to encourage banks to expand lending to consumers and businesses.

The U.S. Federal Reserve’s extraordinary policies are reflected in its balance sheet, which has more than doubled over the past year. The Fed has taken on assets including mortgage securities, corporate debt and now long-term Treasuries under its latest policy decision last month.

“In Canada, the banking system isn’t as broken and therefore a lighter hand will be required,” Shenfeld said.

The Bank of Canada’s 2 percent inflation target will also limit how far the central bank is willing to go to boost demand, Shenfeld said.

‘All-out War’

“Only in the unlikely event that Canadian core inflation goes negative on a sustained basis would we expect the Bank to launch an all-out war on deflation that also pumped up money growth,” he said.

The core inflation rate, the consumer price index excluding eight volatile products, will slow to a 0.8 percent annual pace in the fourth quarter, he predicts.

Governor Carney said at an April 1 speech that publishing guidelines doesn’t mean using extraordinary policies is “preordained,” and any new steps will be consistent with the inflation target.

The Bank of Canada will probably keep its benchmark lending rate unchanged at 0.5 percent through the first quarter of next year, opting first to scale back its quantitative or credit easing policies when the economy picks up again, Shenfeld also said. Gross domestic product will contract until the fourth quarter when it will expand at a 2.5 percent pace, he said.

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.

Financial Update for April 6, 2009

TSX Pulled down slightly by Gold

• TSX -7.38
• DOW +39.51 Buoying markets was a pledge by the world's major powers of more than US$1 trillion to help combat the global economic crisis and a change to U.S. accounting rules that had forced banks to value their assets at current prices.
• Dollar +.68c to 81.27USD
• Oil -$.13 to $52.51US per barrel. Oil prices dipped after the U.S. government reported that the country's unemployment rate rose to the highest rate since late 1983 as employers eliminated 663,000 jobs. There was some relief that the number was below expectations after estimates of 742,000.
• Gold -$11.60 to $895.60USD per ounce Actions agreed to at the G20 summit in London sparked fresh optimism for global growth and weighed on the price of gold -- traditionally a safe-haven for nervous investors - yanking gold-mining stocks down 7%
• Canadian 5 yr bond yields +.06bps to 1.88 four weeks ago it was 1.85
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html


A few pieces of data will be released this week, but the bulk of the attention will be on Thursday's employment data, which is expected to show Canada's economy shed 55,000 jobs in March
Rise in Home Sales Helps Counter Gloomy Jobs Data
New York Times (04/02/09) P. B2; Healy, Jack The National Association of Realtors reported thatsales of pending homes rose a seasonally adjusted 2.1% in February from a month earlier, bolstered by double-digit increases in the Northeast and Midwest. The index of pending-home sales — which encompasses deals that have signed contracts but have not closed — bounced off a record low.

Financial Update for April 3, 2009

As Group of 20 leaders left London last night pledging to do "whatever is necessary" to get the world economy growing again, there is an emerging belief that a global recovery is already underway -- and that the upswing may be as robust as the fall was dramatic. Article below

TSX tops 9,000 point benchmark!
• TSX+131.32 to 9,073.14. shot to its highest close in nearly 3 months on hopes that actions agreed to at the G20 summit in London, which included a trillion-dollar deal to help combat the global financial crisis, would help restore global growth.
• DOW +216.48
• Dollar +1.29c to 80.59USD
• Oil +$1.27 to $48.39US per barrel.
• Gold -$18.70 to $907.40USD per ounce
• Canadian 5 yr bond yields +.09bps to 1.82 four weeks ago it was 1.81
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html

World leaders pledge US$1-trillon in aid

World markets applaud

Simon Kennedy and Kitty Donaldson in London, Bloomberg

World leaders agreed on a regulatory blueprint for reining in the excesses that fed the worst financial crisis in six decades and pledged more than US$1-trillion in emergency aid to cushion the economic fallout.

The Group of 20 policymakers, meeting in London, called for stricter limits on hedge funds, executive pay, credit-rating firms and risk-taking by banks. They tripled the firepower of the International Monetary Fund (IMF) and offered cash to revive trade to help governments weather the turmoil resulting from the surge in unemployment. They avoided the divisive question of whether to deliver more fiscal stimulus to their own economies.

The statement amounts to an effort to rewrite the rules of capitalism to address an integrated world economy that has outgrown the ability of nations to keep it in check. The assembly echoed -- on an international stage -- the introduction in the U.S. of securities regulation after the 1929 crash.

"By any measure the London summit was historic," President Barack Obama said after the talks. U.K. Prime Minister Gordon Brown said, "we have reached a new consensus that we take global actions together to deal with the problems we face."

The measures to fight the recession and reform finance helped push U.S. stocks up, extending a global advance, and Treasuries down. The Dow Jones Industrial Average exceeded 8,000 for the first time since Feb. 10, before settling up 216.48 points, or 2.79%, at 7,978.08, while the S&P 500 rose 23.30 points, or 2.87%, to 834.38. In Toronto, the S&P/TSX composite index rose 131.32 points, or 1.47%, to close at 9,073.14, marking its highest closing level since Jan. 9.

Even as the G-20 leaders said they will maintain power over their own markets and companies rather than cede it to a cross-border regulator, they closed ranks behind "greater consistency and systematic co-operation" to flesh out a new regulatory order first outlined at a November meeting in Washington.

The crackdown is "a major step forward," Nobel laureate Joseph Stiglitz, a professor at Columbia University, said in an interview. "It's a historic moment when the world came together and said we were wrong to push deregulation."

Blaming "major failures" in regulation as "fundamental causes" of the credit crunch, the G-20 said national regulators will be revamped to better monitor threats to the international system.

A new Financial Stability Board will be established to unite regulators and join the IMF in providing early warnings of potential threats. Once recovery is underway, work will begin on new rules aimed at avoiding excessive leverage and forcing banks to put more money aside during good times.

Hedge funds that are "systemically important" will be subjected to greater oversight, as will all key financial instruments, markets and instruments, the G20 said. That signals a setback for German Chancellor Angela Merkel and French President Nicolas Sarkozy, who wanted all of the investment funds brought under the spotlight.

That didn't stop the funds' lobby from complaining the US$1.4-trillion industry had been made a "scapegoat" for the market meltdown. "Although we agree that any entity that provides banking services should be regulated as a bank, the vast majority of hedge funds do not fall into this category," Andrew Baker, chief executive of the London-based Alternative Investment Management Association, said in an interview.

Principles will also be introduced on pay and bonuses to create "sustainable compensation schemes" after concern that executive remuneration rewarded short-term risk-taking over the long-run interests of companies. Accounting-standard setters were urged to improve valuation methods and credit-rating companies will be forced to meet a code of good practice.

Having proved a sticking point at the talks, the G20 said it will impose sanctions on tax havens that do not provide enough information. Officials split over the Organization for Economic Co-operation and Development publishing a list of such nations, agreeing in the end not to block it after Mr. Obama and Mr. Sarkozy hashed out a deal with Chinese President Hu Jintao.

After bilateral meetings around London on Wednesday, Thursday's summit was held at East London's barn-like Excel Center, within sight of the Canary Wharf, which houses Citigroup Inc.'s Citibank, Barclays PLC, HSBC Holdings Plc and Bank of America Corp. After a one and a half hour breakfast meeting, the group spent most of its time in a circular room, taking breaks for one-on-one chats in a separate lounge, a U.K. official said.

During the plenary sessions, the leaders wore microphones and got simultaneous translations for any of the 13 languages spoken. When one wanted to speak, he or she pressed a button, set off a light and waited for his or her turn.

After a lunch of filet of beef and talks that went 30 minutes beyond schedule, the room erupted in applause when the final text was agreed upon.

The G20's pact to impose tougher regulation marks a narrowing of differences after Ms. Merkel and Mr. Sarkozy entered the summit demanding Mr. Brown and Mr. Obama endorse a more detailed response to the crisis than that initially planned.

"We never thought we would find an agreement this large," Mr. Sarkozy said. Ms. Merkel called it a "victory for common sense."

Having committed US$2-trillion in fiscal packages to save their economies, the leaders said Thursday they would "deliver the scale of sustained fiscal effort necessary to restore growth," while ensuring sustainable budgets and price stability in the long term. With banks still bogged down by toxic assets, the G20 promised "to take all necessary actions" to restore the availability of credit and protect major institutions.

Mr. Obama and Mr. Brown have pushed for more spending, only to run into resistance from Ms. Merkel and Mr. Sarkozy, who argue they've done enough, have bigger social-safety nets and don't want to bust budgets. The IMF will gauge the policies taken, which should accelerate the recovery of the global economy to its long-term trend, the G20 said.

Inundated with record requests for loans from troubled economies, including Pakistan and Hungary, the IMF was told its war chest will be boosted by US$500-billion and it will receive another US$250-billion in special drawing rights, the agency's synthetic currency. Multilateral development banks, including the World Bank, will be enabled to lend at least US$100-billion more.

"It's historic, there's no question about it," said Colin Bradford, an economist at the Brookings Institution in Washington.In return for their contributions, emerging markets such as China and Brazil will receive more of a say in the fund, the G20 said. The IMF will also use revenue from sales of its gold reserves to aid the world's poorest countries, and its next leader will no longer automatically be a European.

The G20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United States, the U.K. and the European Union. Officials from Spain and the Netherlands were also present. The leaders will meet again in New York in September, Mr. Sarkozy said.

Financial Update for April 2, 2009

Markets Rally again! This rebound suggests that yesterday's rally may have been more than just end-of-quarter window dressing and that underlying support may be increasing," said Colin Cieszynski, market analyst at CMC Markets Canada. "Overall, recent trading suggests that bullish and bearish sentiment appears to be in balance and that equities may continue to trade back and forth."

• TSX+221.43. as investors refocused their attention on promising housing and manufacturing data.
• DOW +152.68
• Dollar +.02c to 79.30USD finishing at a level that belied its volatile range as risk appetite and technicals pulled the currency off a two-week low.
• Oil +$1.27 to $48.39US per barrel.
• Gold +$3.50 to $926.10USD per ounce
• Canadian 5 yr bond yields -.01bps to 1.73 four weeks ago it was 1.86
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html


Low rates not the only factor

Financial Planning

Helen Morris, Financial Post As mortgage rates remain low, homeowners looking to renew their mortgages can get some great deals. However, those people who are hoping to secure a good rate are also likely to be assessing their own wider financial well-being, what with increasing job losses, stock-market routs and the recession.

"If you [are] in a market sector that may be subject to layoffs or you believe that your employer may have issues and may not be there for you tomorrow," says Peter Veselinovich, vice-president, banking and mortgage operations at Investors Group, "you may want to adjust the amount of your payments to reflect what a reduced cash flow or revenue flow into your home might look like."

This could mean looking at a longer amortization period.

Mr. Veselinovich says it is crucial not to look at your mortgage in isolation but as part of your overall financial plan. Mortgage professionals suggest shopping for rates well before your renewal date.

"I would consult with a mortgage broker 120 days prior to your renewal date because we can hold a rate for you," says Heather Paterson, mortgage specialist with Invis in Toronto, an independent mortgage brokerage. "If rates go down, we can get you a lower rate; if rates go up, then we've got you protected at today's rate."

The sub-prime fiasco aside, there are many products and lenders operating in what's known as the conventional mortgage market in Canada. These are the lenders who provide mortgages for individuals with regular jobs and decent credit ratings.

"The overall mortgage rate environment in Canada is exceedingly good. You can get a five-year fixed mortgage for less than 5% ... there have been increases in the variable rate product -- it used to be there was a discount up to 1%," says Jim Murphy, president and CEO of the Canadian Association of Accredited Mortgage Professionals (CAAMP). "Today the best you can do is probably prime plus 0.6%."
This means that as the prime rate has fallen, variable customers could be looking at a rate as low as 3.6%.

"The difference in those rates is really the insurance premium for peace of mind you're going to get by locking in your rate," Mr. Veselinovich says. "I like to call it the insomnia factor ... if you're going to be concerned that ... any material movement in interest rates could reflect a payment that you could no longer afford ... then you should be looking at a fixed-rate mortgage."

Many economists expect rates to continue to decline.

"Going into the second half of this year, we will start to see a lower mortgage rate," says James Marple, economist in economic forecasting at TD Economics. "Going into 2010, we're starting to see signs of an economic recovery ... We start to see inflation picking up and we will see short-term interest rates rise."

Mr. Murphy says it is crucial to ask lots of questions and not only about the rate.

If you are thinking of moving house in the near future, check whether your mortgage is portable without penalty if, for example, you move to another province. Most national lenders will be happy to do this but some smaller regional institutions may not be able to. Each mortgage deal has many varied aspects, so analyzing it in detail is crucial. For example, many have penalties associated with early repayment or early exit from the deal.

"If you're not satisfied with the answers you're getting, go to somebody else," Mr. Murphy says. "The rate environment itself is low and going lower. I think the lenders are trying to provide the best products they can in uncertain times."

Financial Update for April 1, 2009

Stocks surge on last day of quarter despite economic woes

• TSX+124.17 as traders continued to buy into a 3-week-old rally despite news of another month of economic contraction in Canada and a disappointing reading on American consumer confidence.
• DOW +86.90
• Dollar +.03c to 79.28USD
• Oil +$1.25 to $49.66US per barrel.
• Gold +$7.30 to $925USD per ounce
• Canadian 5 yr bond yields -.05bps to 1.74 four weeks ago it was 1.91
• http://www.financialpost.com/markets/market_data/money-yields-can_us.html

Big summit, small hopes; leaders meet on economy

By Tom Raum, The Associated Press LONDON - Desperate but divided on ways to lift their countries from economic misery, world leaders converged for an emergency summit Tuesday holding scant hopes of finding a magic-bullet solution for the crisis that brought them hurrying to London. Prime Minister Stephen Harper arrived Tuesday evening, as did U.S. President Barack Obama and others.

Even as the leaders were arriving, the United States acknowledged its allies would not go along with a massive burst of stimulus spending, while Europe was forced to backpedal from hopes for tighter financial regulation. Instead, leaders are trumpeting the limited common ground they could reach, including more money for the International Monetary Fund and closer scrutiny of hedge funds and tax havens. As for the broader issues, they're hoping for the best, or at least that they will do no harm.

Choosing the right mortgage

New tack stresses sense, not cents

Ray Turchansky, Canwest News Service Published: Monday, March 30, 2009 FP Mortgages-Special Report

Traditionally, the most important consideration in choosing a fixed or variable mortgage has been which strategy would save the most money.

But that might no longer be the case: Choosing a type of mortgage and term today may come down to what makes sense for the individual homeowner rather than what saves cents.

"If you were buying a house 10 years ago, fixed versus variable was the biggest decision you made," says Moshe Milevsky, finance professor at Toronto's York University and executive director of the Individual Finance and Insurance Decisions Centre. "But now there are more important things in place. Equity prices are falling, housing prices are falling. I think there are three or four things more important than fixed versus variable now."

Mr. Milevsky's 2001 study of five-year rolling interest rates from 1950 to 1999 showed that 88.6% of the time, homeowners would have been better off with floating or short-term mortgages rather than five-year, fixed-rate mortgages, saving an average of $22,000 on a $100,000 mortgage amortized over 15 years.

"The last time I looked at it, a year ago, the same strategy was holding up. Roughly ... 85% of the time, you were better off going with variable rates, rather than fixed rates."

Another, lesser consideration was peace of mind: New homebuyers might sleep better when essentially paying an insurance premium as part of locking-in payments for five years.

But saving a few dollars should no longer be the determining factor in the fixed-variable dilemma.

"Too much emphasis has been based on this study," Mr. Milevsky says. "It's the most-downloaded item on our Web site. But if you look at interest rates right now, you're debating over a per cent. When fixed rates were 9% and variable rates were 5%, that's a big difference. That's another issue."

The flattening of the bond yield curve in recent years meant you might pay only 1% or 1.5% more to lock in a long-term rate, and that made the stability of fixed rates much more attractive than it was five years earlier.

Many homeowners with variable rates below prime are now offered renewal rates above prime. Discounts can sometimes be negotiated on longer terms, and other times on variable rates.

"Renewing is not just a day at the bank, it's a major event in the life of your house," says Mr. Milevsky, adding that low rates make other considerations more important in the fixed-variable debate. "If you're going to renew in a year or two, what if your housing price is lower than the value of the loan, and the banks won't give you that again? What about locking in as long as possible? If I get the five-year rate, they're not going to bother me.

"No. 2 is how much money is put down. If you put down only 5%, how much of an effect will that have on your credit rating? Banks are more cautious. Getting a deal might depend on whether you go fixed or variable.

"[Then] there's the question of employment. If you do not have a mortgage with flexibility, what if you can't make a payment for months?"

One compromise may be a combination mortgage that is part-fixed and part-variable.
"I'm getting to be a bigger fan than I used to be," Mr. Milevsky says. "I used to say 'diversify your assets, not your liabilities,' but if you can make the deal to lock in some of your mortgage, that might be a good thing. But that's two mortgages, with two sets of prices, and if it's an extra $200 that's one thing, but an extra $1,000 is another."