• TSX +97.27
• DOW +30.69
• Dollar +1.13c to 95.65cUS
• Oil +$1.94 to $77.96US per barrel.
• Gold +$21.40 to $1,186.90USD per ounce Gold prices extended their record run hitting another new all time high
•
Home ownership becomes more expensive in third quarter
Module body
By The Canadian Press
TORONTO - The cost of homeownership in Canada became more expensive in the third quarter, according to a report by RBC Economics Research.
The bank says this hasn't happened since the spring of 2008 and was due to a slight rise in mortgage rates and higher property values. The RBC index measures the proportion of pre-tax household income needed to service the costs of owning a home.
During the third quarter, the benchmark detached bungalow moved up by one per cent to 40.2 per cent and the standard townhouse rose by 0.7 per cent to 32.3 per cent.
The standard condo climbed by 0.5 per cent up to 27.6 per cent and a standard two-storey home increased 1.2 per cent to 45.8 per cent.
RBC says housing demand has outgrown supply, leading to a more competitive market and widespread increases in home values.
"With such strong momentum in the housing market and the cyclical low in mortgage rates behind us, it seems unlikely that affordability will improve in the near future," said RBC senior economist Robert Hogue.
"The housing market still faces obstacles, as mortgages have become more difficult to handle for many Canadians amid challenging labour conditions. This is likely to persist until the economic recovery is well established and job creation is sustained next year."
Thursday, November 26, 2009
Wednesday, November 25, 2009
Financial Update For Nov. 25, 2009
• TSX -84.39
• DOW -17.24
• Dollar -.19c to 94.52cUS
• Oil -$1.54 to $76.02US per barrel.
• Gold +$1.20 to $1,165.50USD per ounce Gold prices extended their record run hitting another new all time high
How many credit cards should you have?
by Michelle Warren, Bankrate.com
When banks introduced Canada's first credit card, Chargex, in 1968, it was designed as a convenient tool for their most valued customers. Today's creditors have a more egalitarian approach — it seems that if you have a pulse, you can have a credit card.
But why stop at one? According to Statistics Canada, there are 3.1 credit cards in circulation for every Canadian over the age of 18 — that's 74 million cards.
According to Laurie Campbell, program manager for the Credit Counselling Service of Toronto, it's not uncommon for people to carry eight or 10 cards and a debt load of $30,000 or more. "The biggest problem we see is overspending with credit cards," she says. "There is a direct correlation between debt and the amount of credit cards you have."
Canadians charged more than $170 billion to Visa and MasterCard in 2004, compared to $39 billion in 1990, according to Statistics Canada.
"People don't see it as real money and that leads to impulse spending," says Campbell. Indeed, studies show the average person spends 112 percent more on a credit card than he would if using cash.
As a result, people are living beyond their means. As many as 50 percent of credit card users don't pay their balance each month, opting instead to carry debt and pay interest ranging from a 1.9 percent introductory rate to almost 30 percent on some retail cards.
Credit flux
"We don't recommend consumers carry a balance," says Scott Hannah, executive director of the Credit Counselling Society in Vancouver, B.C. Sometimes, however, it's unavoidable when essential expenses arise, such as auto repairs. The key is recognizing the difference between a want and a need. "Easy and quick access to credit really obscures thinking," he says.
Credit has never been more accessible. With more than 600 institutions issuing Visa and MasterCard cards, add to that the retail card market (24 million in circulation), and it's easy to see why wallets are bulging with plastic. In 2003, Canadians received 191.7 million credit-card offers — about six for each person — according to market research firm Mail Monitor.
It's a competitive market and credit card companies profit from interest and user fees. These days, juggling more than one card or carrying a balance is made easier because a standard minimum monthly payment is as low as two percent, whereas it used to be 5 percent. But remember, if you owe $5,000 at 18 percent interest and pay only the minimum each month, it will take about 30 years to pay off the card (that's if you never use it again).
"People can carry a lot more debt," Hannah says. "It's easier to spend, but harder to pay back."
The perks of credit
On the flip side, credit cards are hugely convenient and by today's standards, a necessity — you can't even rent a movie without one. With more transactions taking place on the Internet, a credit card is handy for finding deals on books or flights. Some cards also have benefits, such as travel insurance, member discounts or points programs.
Retail cards, while charging interest in the 24 to 28 percent range, offer lucrative reward programs and discounts. It's OK to take advantage of such perks, but Campbell cautions there's no real benefit if you carry a balance.
"It may make sense to have a credit card for a favourite retailer," says Hannah, but not one for every store you shop at.
The magic number
Experts agree that in most cases one card is enough.
It used to be that some outlets only accepted one type of card, so it made sense to have a Visa, MasterCard and maybe an American Express, but those days are over. "If you have an all-purpose card, 99 percent of the time you're going to be able to use that card," says Campbell.
Hannah seconds the one-card rule, but he recommends keeping business expenditures separate with two cards.
Christine McDonald, a spokeswoman for the Financial Consumer Agency of Canada, says the key is "making sure you use the credit you have wisely." She warns juggling too many cards makes it harder to keep track of spending and payments and hurts your credit score.
One's credit rating is based largely on credit outstanding, but how much credit you have at your disposal is also considered. Even if there's nothing owing, just having cards can influence lenders when it comes to granting a mortgage. Several credit cards indicate the potential to get in over your head fast.
Credit cards do help establish a credit history, but Campbell says "people don't need more than one to build up their credit rating."
Choosing a card
It's important to choose the right card. As a general rule, those who carry a balance are better off paying a small annual fee for a low-interest-rate card, while those who pay in full each month may opt for a standard higher-rate card.
Cutting credit
When credit card spending is out of control, the best thing to do is cut up the cards and pay down debt. For some people it makes sense to consolidate debt with a lower-interest line of credit. Otherwise, Campbell recommends paying off the card with the highest rate of interest first. A credit counsellor can help explore the options. Once the debt is paid, contact the issuer and close the account.
Credit cards are two-faced — they're convenient and come with plenty of perks, but can lead to trouble if you overspend or juggle multiple cards. One, perhaps, two, is all most people need — anything more is playing with fire.
• DOW -17.24
• Dollar -.19c to 94.52cUS
• Oil -$1.54 to $76.02US per barrel.
• Gold +$1.20 to $1,165.50USD per ounce Gold prices extended their record run hitting another new all time high
How many credit cards should you have?
by Michelle Warren, Bankrate.com
When banks introduced Canada's first credit card, Chargex, in 1968, it was designed as a convenient tool for their most valued customers. Today's creditors have a more egalitarian approach — it seems that if you have a pulse, you can have a credit card.
But why stop at one? According to Statistics Canada, there are 3.1 credit cards in circulation for every Canadian over the age of 18 — that's 74 million cards.
According to Laurie Campbell, program manager for the Credit Counselling Service of Toronto, it's not uncommon for people to carry eight or 10 cards and a debt load of $30,000 or more. "The biggest problem we see is overspending with credit cards," she says. "There is a direct correlation between debt and the amount of credit cards you have."
Canadians charged more than $170 billion to Visa and MasterCard in 2004, compared to $39 billion in 1990, according to Statistics Canada.
"People don't see it as real money and that leads to impulse spending," says Campbell. Indeed, studies show the average person spends 112 percent more on a credit card than he would if using cash.
As a result, people are living beyond their means. As many as 50 percent of credit card users don't pay their balance each month, opting instead to carry debt and pay interest ranging from a 1.9 percent introductory rate to almost 30 percent on some retail cards.
Credit flux
"We don't recommend consumers carry a balance," says Scott Hannah, executive director of the Credit Counselling Society in Vancouver, B.C. Sometimes, however, it's unavoidable when essential expenses arise, such as auto repairs. The key is recognizing the difference between a want and a need. "Easy and quick access to credit really obscures thinking," he says.
Credit has never been more accessible. With more than 600 institutions issuing Visa and MasterCard cards, add to that the retail card market (24 million in circulation), and it's easy to see why wallets are bulging with plastic. In 2003, Canadians received 191.7 million credit-card offers — about six for each person — according to market research firm Mail Monitor.
It's a competitive market and credit card companies profit from interest and user fees. These days, juggling more than one card or carrying a balance is made easier because a standard minimum monthly payment is as low as two percent, whereas it used to be 5 percent. But remember, if you owe $5,000 at 18 percent interest and pay only the minimum each month, it will take about 30 years to pay off the card (that's if you never use it again).
"People can carry a lot more debt," Hannah says. "It's easier to spend, but harder to pay back."
The perks of credit
On the flip side, credit cards are hugely convenient and by today's standards, a necessity — you can't even rent a movie without one. With more transactions taking place on the Internet, a credit card is handy for finding deals on books or flights. Some cards also have benefits, such as travel insurance, member discounts or points programs.
Retail cards, while charging interest in the 24 to 28 percent range, offer lucrative reward programs and discounts. It's OK to take advantage of such perks, but Campbell cautions there's no real benefit if you carry a balance.
"It may make sense to have a credit card for a favourite retailer," says Hannah, but not one for every store you shop at.
The magic number
Experts agree that in most cases one card is enough.
It used to be that some outlets only accepted one type of card, so it made sense to have a Visa, MasterCard and maybe an American Express, but those days are over. "If you have an all-purpose card, 99 percent of the time you're going to be able to use that card," says Campbell.
Hannah seconds the one-card rule, but he recommends keeping business expenditures separate with two cards.
Christine McDonald, a spokeswoman for the Financial Consumer Agency of Canada, says the key is "making sure you use the credit you have wisely." She warns juggling too many cards makes it harder to keep track of spending and payments and hurts your credit score.
One's credit rating is based largely on credit outstanding, but how much credit you have at your disposal is also considered. Even if there's nothing owing, just having cards can influence lenders when it comes to granting a mortgage. Several credit cards indicate the potential to get in over your head fast.
Credit cards do help establish a credit history, but Campbell says "people don't need more than one to build up their credit rating."
Choosing a card
It's important to choose the right card. As a general rule, those who carry a balance are better off paying a small annual fee for a low-interest-rate card, while those who pay in full each month may opt for a standard higher-rate card.
Cutting credit
When credit card spending is out of control, the best thing to do is cut up the cards and pay down debt. For some people it makes sense to consolidate debt with a lower-interest line of credit. Otherwise, Campbell recommends paying off the card with the highest rate of interest first. A credit counsellor can help explore the options. Once the debt is paid, contact the issuer and close the account.
Credit cards are two-faced — they're convenient and come with plenty of perks, but can lead to trouble if you overspend or juggle multiple cards. One, perhaps, two, is all most people need — anything more is playing with fire.
Financial Update For Nov. 24, 2009
TSX +44.69 to 11,624.02 touching its highest level in nearly 14 months as an early rally in oil prices powered energy stocks, while financials gained ground ahead of a flood of bank earnings reports.
• DOW +132.79
• Dollar +1.24c to 94.71US
• Oil +$0.09 to $77.56US per barrel.
• Gold +$5 to $1,164.70USD per ounce Gold prices extended their record run hitting a new all time high
BMO Financial Group, the first of Canada's banks to report its fourth quarter results, posted a 16% increase in profit Tuesday led by its personal and commercial banking segment.
Canadians can't shop their way to recovery, say economists
Paul Vieira, Financial Post
OTTAWA -- The robust retail data for September suggest domestic consumption was strong enough to help Canada post positive growth for the third quarter and, technically, pull the country out of a recession.
But a strong broad-based recovery - the type warranted following the depth of this recession - is not in the cards, at least for now, analysts warn, as the surging loonie and tepid U.S. household demand hold the Canadian economy back.
Consumer spending, in fact, may be the only thing going for the Canadian economy at this point - and even then it shouldn't come as much of a surprise given record-low interest rates, and the relative health of the Canadian housing and banking sectors vis-Ã -vis the United States.
There is certainly no denying the strength of the retail data, released Monday. Sales grew 1% month over month in September, Statistics Canada reported, following a similar, and upwardly revised, finding for August. Overall, it was the seventh monthly gain in the past nine months, and results in an annualized increase of 5.2% for the quarter. Consumer spending makes up roughly 60% of the Canadian economy.
"Right now, that's all there is" in the Canadian economy, said Carlos Leitao, chief economist at Montreal's Laurentian Bank Securities. "What is keeping the economy afloat is domestic demand. It can go for a while, but not forever. It's not sustainable."
Mr. Leitao added some of the retail surge in Canada may be due to households opting to open their wallets after fearing they were headed for a worst-case depression scenario.
However, in a note to clients, Laurentian Bank warned Canadian households continue to accumulate debt amid meagre income growth, and remain vulnerable to future economic shocks, such as sudden rate hikes or tax increases. Further concern emerged in insolvency data from last week, which suggested personal bankruptcies ramped up considerably in the third quarter - a sign that domestic consumption has its limits.
Douglas Porter, deputy chief economist at BMO Capital Markets, said some contribution from the trade-oriented sector is required to secure growth.
"We need some kind of recovery in exports and manufacturing, even if it is feeble, for a broad-based recovery. Domestic spending has been enough to end the recession. But it will not be enough to start a recovery."
For now, the September retail data, combined with gains in the month for manufacturing and wholesale sales, likely point to economic expansion for the final month of the third quarter, after July and August posted flat to negative growth. Economists, such as those at Royal Bank of Canada, now project GDP to expand anywhere from 0.5% to 1% for the three-month period ended Sept. 30 - well below most expectations for the period, including the 2% growth envisaged by the Bank of Canada.
Any hope for stronger growth won't materialize, Mr. Porter said, until there is evidence that the U.S. economy has "broken free from the shackles of its recession." The U.S. economy grew by an estimated 3.5% in the third quarter, but analysts argue the growth was "artificial" because it was spurred by government stimulus schemes, such as the cash-for-clunkers.
Meanwhile, the strong dollar, which gained more than US1¢ Monday, means manufactured goods are more expensive for U.S. consumers. But it also means lower prices for imports and that might be skewing the retail data, said Peter Hall, chief economist at Crown financier Export Development Canada. "That might be benefiting [domestic] consumption right now."
Should the Canadian dollar remain at current levels a year from now, Mr. Hall warned that could shave up to 3% from the country's bottom-line GDP. "That's pretty staggering."
• DOW +132.79
• Dollar +1.24c to 94.71US
• Oil +$0.09 to $77.56US per barrel.
• Gold +$5 to $1,164.70USD per ounce Gold prices extended their record run hitting a new all time high
BMO Financial Group, the first of Canada's banks to report its fourth quarter results, posted a 16% increase in profit Tuesday led by its personal and commercial banking segment.
Canadians can't shop their way to recovery, say economists
Paul Vieira, Financial Post
OTTAWA -- The robust retail data for September suggest domestic consumption was strong enough to help Canada post positive growth for the third quarter and, technically, pull the country out of a recession.
But a strong broad-based recovery - the type warranted following the depth of this recession - is not in the cards, at least for now, analysts warn, as the surging loonie and tepid U.S. household demand hold the Canadian economy back.
Consumer spending, in fact, may be the only thing going for the Canadian economy at this point - and even then it shouldn't come as much of a surprise given record-low interest rates, and the relative health of the Canadian housing and banking sectors vis-Ã -vis the United States.
There is certainly no denying the strength of the retail data, released Monday. Sales grew 1% month over month in September, Statistics Canada reported, following a similar, and upwardly revised, finding for August. Overall, it was the seventh monthly gain in the past nine months, and results in an annualized increase of 5.2% for the quarter. Consumer spending makes up roughly 60% of the Canadian economy.
"Right now, that's all there is" in the Canadian economy, said Carlos Leitao, chief economist at Montreal's Laurentian Bank Securities. "What is keeping the economy afloat is domestic demand. It can go for a while, but not forever. It's not sustainable."
Mr. Leitao added some of the retail surge in Canada may be due to households opting to open their wallets after fearing they were headed for a worst-case depression scenario.
However, in a note to clients, Laurentian Bank warned Canadian households continue to accumulate debt amid meagre income growth, and remain vulnerable to future economic shocks, such as sudden rate hikes or tax increases. Further concern emerged in insolvency data from last week, which suggested personal bankruptcies ramped up considerably in the third quarter - a sign that domestic consumption has its limits.
Douglas Porter, deputy chief economist at BMO Capital Markets, said some contribution from the trade-oriented sector is required to secure growth.
"We need some kind of recovery in exports and manufacturing, even if it is feeble, for a broad-based recovery. Domestic spending has been enough to end the recession. But it will not be enough to start a recovery."
For now, the September retail data, combined with gains in the month for manufacturing and wholesale sales, likely point to economic expansion for the final month of the third quarter, after July and August posted flat to negative growth. Economists, such as those at Royal Bank of Canada, now project GDP to expand anywhere from 0.5% to 1% for the three-month period ended Sept. 30 - well below most expectations for the period, including the 2% growth envisaged by the Bank of Canada.
Any hope for stronger growth won't materialize, Mr. Porter said, until there is evidence that the U.S. economy has "broken free from the shackles of its recession." The U.S. economy grew by an estimated 3.5% in the third quarter, but analysts argue the growth was "artificial" because it was spurred by government stimulus schemes, such as the cash-for-clunkers.
Meanwhile, the strong dollar, which gained more than US1¢ Monday, means manufactured goods are more expensive for U.S. consumers. But it also means lower prices for imports and that might be skewing the retail data, said Peter Hall, chief economist at Crown financier Export Development Canada. "That might be benefiting [domestic] consumption right now."
Should the Canadian dollar remain at current levels a year from now, Mr. Hall warned that could shave up to 3% from the country's bottom-line GDP. "That's pretty staggering."
Thursday, November 19, 2009
Financial Update for Nov. 19, 2009
• TSX +22.69(Reuters)
• DOW -11.11
• Dollar -.31c to 94.83cUS
• Oil +$.44to $79.58US per barrel.
• Gold +$1.90 to $1,140.70USD per ounce
'Everything for sale at a price'
Rick Spence, Financial Post
Maybe there are just two types of entrepreneurs: those who stand ready to sell their companies at a moment's notice, and those who think of their businesses as intensely personal achievements, fused to their skills, their self-image, and their hopes and dreams.
Both types showed up at an all-star business panel in Toronto last week organized by WXN, the Women's Executive Network, to discuss the buying and selling of businesses. The participants included two brawlers from the hit TV series, Dragons' Den, Kevin O'Leary and Robert Herjavec, and two award-winning women entrepreneurs: Teresa Cascioli, former CEO of Lakeport Brewing, and Rebecca MacDonald, founder of the fixed-price utility giant Just Energy.
The panel started off by noting how timely the topic is. "This is a phenomenal time to be in the market," said MacDonald, whose company made an acquisition just three months ago. "I have never seen more distress sales than I'm seeing today. If you've got cash, prices are low and it's time to buy."
O'Leary, who introduced himself as one of Just Energy's biggest shareholders through his O'Leary mutual funds, demonstrated his contrarian nature by questioning Mac-Donald's thesis. "Maybe those aren't distressed values," he said. "Maybe they're realistic values given today's market."
Many companies "kill shareholder value," he added, when they acquire other businesses that don't immediately boost the buyers' income statements. "What's important is free cash flow," he maintained. "If I buy my competitor's business, will I generate more cash than I had without it? That's the only question that matters."
As he often does on TV, Herjavec challenged O'Leary's assertion. The founder of computer-security company Herjavec Group said he had just closed a deal that cashes in on the same tough times Mac-Donald cited. "We bought a $15-million company with no money down, based on their own cash flow," he said. "If I had approached this guy with this deal three years ago, he would have laughed at me."
What matters, said Herjavec, isn't just cash, but whether the deal will give his company more market coverage and access to additional customers.
Having turned around troubled Lakeport Brewing of Hamilton prior to selling it to Labatt in 2007, Cascioli sided with the sellers. Her advice to entrepreneurs: "If you're selling, hold out. If you can ride out [the current downturn], you will get more money tomorrow than you'll get today."
But the fireworks really began when O'Leary advised the entrepreneurs in the audience to consider their business as being on the market at all times. "When someone wants to buy your business, sell it to them." (Assuming they're offering cash, that is. O'Leary thinks taking stock in return for your shares is like betting against your own horse.)
"Go take the cash and pursue some other opportunity," O'Leary advised. "Taking a business liquid again is a rare opportunity."
"Everything is for sale, at a price," MacDonald agreed. Her own experience shows it's smart to entertain all offers. She sold a previous business after some hardball negotiations with a foreign buyer. Imagine her delight when she got the cheque and found that while she had been thinking in dollars, her buyer had been negotiating in pounds sterling!
But again Herjavec disagreed. "I would rather invest in other companies than sell mine," he said. "I'm an operator. Starting a business from zero is hard. I don't think I want to do that again."
This time MacDonald took Herjavec on. "Kevin and I don't agree on a lot," she said. "But we agree that if you are not willing to sell your business, you don't have a business. You have a hobby."
Cascioli went even further. "If you don't want to sell your business, there's something wrong with you. If you are so passionate that you are going to stay there forever, you are devaluing your business."
Herjavec agreed that when there's an offer, you have to look at it: "You owe it to your family." But it was clear where his heart lies: "I like to build businesses. I like to grow them." Not constantly trade them in for something shinier.
Before the panel ended, O'Leary offered one more insight: Buyer beware. His former firm, The Learning Co., bought 35 companies in its successful campaign to consolidate the educational software market. In making deals, he said, "I make the assumption going in that everyone's lying to me." His rule of thumb: after he and his team estimate the value of an acquisition, based on the data available, they pore over all the documents. If they believe the company is likely to underperform their projections by 20% or less, they'll sign the deal. But if the shortfall is a nickel over 20%, they'll walk away.
In an interview after the panel, O'Leary clarified a point: "It's not really that they're lying," he said. "They're just over-optimistic about their prospects -- 100% of the time."
• DOW -11.11
• Dollar -.31c to 94.83cUS
• Oil +$.44to $79.58US per barrel.
• Gold +$1.90 to $1,140.70USD per ounce
'Everything for sale at a price'
Rick Spence, Financial Post
Maybe there are just two types of entrepreneurs: those who stand ready to sell their companies at a moment's notice, and those who think of their businesses as intensely personal achievements, fused to their skills, their self-image, and their hopes and dreams.
Both types showed up at an all-star business panel in Toronto last week organized by WXN, the Women's Executive Network, to discuss the buying and selling of businesses. The participants included two brawlers from the hit TV series, Dragons' Den, Kevin O'Leary and Robert Herjavec, and two award-winning women entrepreneurs: Teresa Cascioli, former CEO of Lakeport Brewing, and Rebecca MacDonald, founder of the fixed-price utility giant Just Energy.
The panel started off by noting how timely the topic is. "This is a phenomenal time to be in the market," said MacDonald, whose company made an acquisition just three months ago. "I have never seen more distress sales than I'm seeing today. If you've got cash, prices are low and it's time to buy."
O'Leary, who introduced himself as one of Just Energy's biggest shareholders through his O'Leary mutual funds, demonstrated his contrarian nature by questioning Mac-Donald's thesis. "Maybe those aren't distressed values," he said. "Maybe they're realistic values given today's market."
Many companies "kill shareholder value," he added, when they acquire other businesses that don't immediately boost the buyers' income statements. "What's important is free cash flow," he maintained. "If I buy my competitor's business, will I generate more cash than I had without it? That's the only question that matters."
As he often does on TV, Herjavec challenged O'Leary's assertion. The founder of computer-security company Herjavec Group said he had just closed a deal that cashes in on the same tough times Mac-Donald cited. "We bought a $15-million company with no money down, based on their own cash flow," he said. "If I had approached this guy with this deal three years ago, he would have laughed at me."
What matters, said Herjavec, isn't just cash, but whether the deal will give his company more market coverage and access to additional customers.
Having turned around troubled Lakeport Brewing of Hamilton prior to selling it to Labatt in 2007, Cascioli sided with the sellers. Her advice to entrepreneurs: "If you're selling, hold out. If you can ride out [the current downturn], you will get more money tomorrow than you'll get today."
But the fireworks really began when O'Leary advised the entrepreneurs in the audience to consider their business as being on the market at all times. "When someone wants to buy your business, sell it to them." (Assuming they're offering cash, that is. O'Leary thinks taking stock in return for your shares is like betting against your own horse.)
"Go take the cash and pursue some other opportunity," O'Leary advised. "Taking a business liquid again is a rare opportunity."
"Everything is for sale, at a price," MacDonald agreed. Her own experience shows it's smart to entertain all offers. She sold a previous business after some hardball negotiations with a foreign buyer. Imagine her delight when she got the cheque and found that while she had been thinking in dollars, her buyer had been negotiating in pounds sterling!
But again Herjavec disagreed. "I would rather invest in other companies than sell mine," he said. "I'm an operator. Starting a business from zero is hard. I don't think I want to do that again."
This time MacDonald took Herjavec on. "Kevin and I don't agree on a lot," she said. "But we agree that if you are not willing to sell your business, you don't have a business. You have a hobby."
Cascioli went even further. "If you don't want to sell your business, there's something wrong with you. If you are so passionate that you are going to stay there forever, you are devaluing your business."
Herjavec agreed that when there's an offer, you have to look at it: "You owe it to your family." But it was clear where his heart lies: "I like to build businesses. I like to grow them." Not constantly trade them in for something shinier.
Before the panel ended, O'Leary offered one more insight: Buyer beware. His former firm, The Learning Co., bought 35 companies in its successful campaign to consolidate the educational software market. In making deals, he said, "I make the assumption going in that everyone's lying to me." His rule of thumb: after he and his team estimate the value of an acquisition, based on the data available, they pore over all the documents. If they believe the company is likely to underperform their projections by 20% or less, they'll sign the deal. But if the shortfall is a nickel over 20%, they'll walk away.
In an interview after the panel, O'Leary clarified a point: "It's not really that they're lying," he said. "They're just over-optimistic about their prospects -- 100% of the time."
Wednesday, November 18, 2009
Financial Update For Nov. 18, 2009
Rapid rebound fuels fears of housing bubble
• TSX +117.74(Reuters) up for the 3rd day in a row as nine of its 10 main groups were higher
• DOW +30.46
• Dollar -.36c to 95.14cUS
• Oil +$.24to $79.14US per barrel.
• Gold +$.20 to $1,138.80USD per ounce
OTTAWA (Reuters) - Canadian CPI-consumer price index rose on an annual basis in October for the first time since May due to less downward pressure on gasoline prices and rising food and household costs, Statistics Canada said on Wednesday. The consumer price index slipped 0.1 percent for the month but climbed 0.1 percent in the 12-month period. It was the first positive reading after four months of deflation but still below market expectations of a 0.3 percent gain.
Rapid rebound fuels fears of housing bubble
Garry Marr, Financial Post
Canadian existing home prices are now rising at a pace not seen in 20 years, fueling talk that a bubble may be forming in the market.
The average price of a home sold last month was $341,079, a 20.7% increase from a year ago, the Ottawa-based Canadian Real Estate Association said Monday. Sales also continued to climb with 42,288 units trading hands, a 41% jump from October, 2008.
At the same time that demand continues to surge and interest rates remain at historic lows, supply remains critically low. New listings last month in the country's 25 largest market were off 16% from a year ago.
"I don't think it's a bubble yet," said Doug Porter, an economist with Bank of Montreal. "The rapid-fire rebound in Canadian housing is showing no sign of letting up. While that may be causing some sweaty palms among bubble-phobes, the quick turn is a vivid illustration that monetary policy still works in this country."
Mr. Porter says large markets are skewing average prices, creating a national picture that might seem more buoyant than it is in reality. Toronto, the largest market in the country, saw a 20% increase in price last month from year ago. In Vancouver, the most expensive market in the country, sales were up 170.8% from a year ago.
"There is a little bit of magic in the way they put these numbers together," said Mr. Porter,
Derek Holt, senior vice-president of economics at Scotia Capital, called what's happening in the marketplace today a once in a lifetime situation. He says record low interest rates, tight supply, a favourable lending environment and government stimulus program have all helped stir the housing pot.
"It's more the medium term, two three years, where we could get into headaches potentially," said Mr. Holt. questioning whether consumers buying today are ready for interest rates that could be three to four percentage points higher by 2011.
Real estate author Garth Turner said the latest figures prove his thesis that Canada is now in a real estate bubble. "We got this type of growth in sales and prices in the middle of a recession. The latest GDP numbers show the economy actually contracted," says Mr. Turner.
A new study from the Canadian Association of Accredited Mortgage Professionals released yesterday shows Canadians are benefitting from the lower interest rates. The average mortgage rate negotiated in the past year was 4.55%, a decline from 5.41% a year ago.
"Clearly people are thinking the worst is behind us and that comes as we have record low rates," said Jim Murphy, president of CAAMP. "If rates were to spike dramatically, there could be some concern but we just don't see that."
Gregory Klump, chief economist with CREA said while the latest numbers appear dramatic they have to be kept in context. "Activity in the early part of 2009 had fallen to a decade low. With improvement in consumer confidence and interest rates, sales activity was expected to respond.," he said.
Mr. Klump suggested prices will ease up as seller's start to take advantage of higher prices. However, CREA is now predicting prices will rise 4.2% this year after suggesting they would only increase by 1.5%.
Michael Polzler, executive vice president of Re/Max Ontario-Atlantic Canada Inc., said he's been expecting these type of price increases. "Last year at this time, everything just stopped. They were very realistic example of where everything was it," he said. "Now we are just back to kind of normal. You are going to see these type of numbers continues into the spring because we are comparing them to last year."
• TSX +117.74(Reuters) up for the 3rd day in a row as nine of its 10 main groups were higher
• DOW +30.46
• Dollar -.36c to 95.14cUS
• Oil +$.24to $79.14US per barrel.
• Gold +$.20 to $1,138.80USD per ounce
OTTAWA (Reuters) - Canadian CPI-consumer price index rose on an annual basis in October for the first time since May due to less downward pressure on gasoline prices and rising food and household costs, Statistics Canada said on Wednesday. The consumer price index slipped 0.1 percent for the month but climbed 0.1 percent in the 12-month period. It was the first positive reading after four months of deflation but still below market expectations of a 0.3 percent gain.
Rapid rebound fuels fears of housing bubble
Garry Marr, Financial Post
Canadian existing home prices are now rising at a pace not seen in 20 years, fueling talk that a bubble may be forming in the market.
The average price of a home sold last month was $341,079, a 20.7% increase from a year ago, the Ottawa-based Canadian Real Estate Association said Monday. Sales also continued to climb with 42,288 units trading hands, a 41% jump from October, 2008.
At the same time that demand continues to surge and interest rates remain at historic lows, supply remains critically low. New listings last month in the country's 25 largest market were off 16% from a year ago.
"I don't think it's a bubble yet," said Doug Porter, an economist with Bank of Montreal. "The rapid-fire rebound in Canadian housing is showing no sign of letting up. While that may be causing some sweaty palms among bubble-phobes, the quick turn is a vivid illustration that monetary policy still works in this country."
Mr. Porter says large markets are skewing average prices, creating a national picture that might seem more buoyant than it is in reality. Toronto, the largest market in the country, saw a 20% increase in price last month from year ago. In Vancouver, the most expensive market in the country, sales were up 170.8% from a year ago.
"There is a little bit of magic in the way they put these numbers together," said Mr. Porter,
Derek Holt, senior vice-president of economics at Scotia Capital, called what's happening in the marketplace today a once in a lifetime situation. He says record low interest rates, tight supply, a favourable lending environment and government stimulus program have all helped stir the housing pot.
"It's more the medium term, two three years, where we could get into headaches potentially," said Mr. Holt. questioning whether consumers buying today are ready for interest rates that could be three to four percentage points higher by 2011.
Real estate author Garth Turner said the latest figures prove his thesis that Canada is now in a real estate bubble. "We got this type of growth in sales and prices in the middle of a recession. The latest GDP numbers show the economy actually contracted," says Mr. Turner.
A new study from the Canadian Association of Accredited Mortgage Professionals released yesterday shows Canadians are benefitting from the lower interest rates. The average mortgage rate negotiated in the past year was 4.55%, a decline from 5.41% a year ago.
"Clearly people are thinking the worst is behind us and that comes as we have record low rates," said Jim Murphy, president of CAAMP. "If rates were to spike dramatically, there could be some concern but we just don't see that."
Gregory Klump, chief economist with CREA said while the latest numbers appear dramatic they have to be kept in context. "Activity in the early part of 2009 had fallen to a decade low. With improvement in consumer confidence and interest rates, sales activity was expected to respond.," he said.
Mr. Klump suggested prices will ease up as seller's start to take advantage of higher prices. However, CREA is now predicting prices will rise 4.2% this year after suggesting they would only increase by 1.5%.
Michael Polzler, executive vice president of Re/Max Ontario-Atlantic Canada Inc., said he's been expecting these type of price increases. "Last year at this time, everything just stopped. They were very realistic example of where everything was it," he said. "Now we are just back to kind of normal. You are going to see these type of numbers continues into the spring because we are comparing them to last year."
Tuesday, November 17, 2009
Financial Update For Nov. 17, 2009
Variable-Rate Mortgages: 3- or 5-Year?
• TSX +104.58 (Reuters)
• DOW -+136.49
• Dollar +.31c to 95.50cUS
• Oil +$2.56 to $78.90US per barrel.
• Gold +$22.50 to $1,138.60USD per ounce
• TSX +104.58 (Reuters)
• DOW -+136.49
• Dollar +.31c to 95.50cUS
• Oil +$2.56 to $78.90US per barrel.
• Gold +$22.50 to $1,138.60USD per ounce
Financial Update For Nov. 16, 2009
• TSX +46.92 (Reuters)
• DOW -73.00
• Dollar -.50c to 95.19cUS
• Oil -$.59 to $76.35US per barrel.
• Gold -$10.10 to $1,116.70USD per ounce
• DOW -73.00
• Dollar -.50c to 95.19cUS
• Oil -$.59 to $76.35US per barrel.
• Gold -$10.10 to $1,116.70USD per ounce
Wednesday, November 11, 2009
Financial Update For Nov. 11, 2009
• TSX -60.14 (Reuters) fell for the first time in six sessions on Tuesday as investors cashed in recent profits
• DOW +20.03
• Dollar +.66c to 95.23cUS
• Oil -$.38 to $79.05US per barrel.
• Gold +$1.10 to $1,101.90USD per ounce
Canadian economic growth’s lost decade Aging population and low productivity will limit growth for 10 years study says
By Julian Beltrame
OTTAWA — It may one day be remembered as the lost decade, in economic terms.
A new report published by the TD Bank says Canada is headed for a decade of stagnant growth that will test the budgets of Canadian households and governments alike.
The bank says a combination of post-recession adjustments, the aging population and low productivity will limit Canada’s potential growth to about two per cent over the next 10 years.
That is two-thirds the level of growth experienced the previous two decades, the report says.
And it could be even more muted than that. The bank said the ”other elephant in the room“ that could further depress economic growth is the measures governments may adopt to control climate change.
”It is critical to recognize that things will not simply return to how they were,“ economists Derek Burleton and Grant Bishop wrote.
“This (muted growth) represents a new normal for the budgets of households and governments, as well as the returns on domestic capital investment.”
And there is not much that anyone can do about it, the economists said in an interview.
Structural adjustments brought out by the recession will keep potential growth — broadly defined as sustainable growth when an economy is at full capacity — at about 1.6 per cent for the next three years.
Actual growth will likely edge higher during this period until the economy shakes off the rust from the recession and returns to full capacity.
But then Canada will be hit by an aging workforce time bomb as the baby boom generation moves into retirement — restricting growth to about 2.1 per cent from 2013 to the end of the century’s second decade.
“The real depressing element is lower labour force growth,” explained Bishop. “There is no way to fix the fact the (baby boom generation) will be leaving the labour force and there aren’t going to be enough people to replace them.”
Burleton notes that Canada will not be unique among industrialized countries in entering a lengthy period of more modest economic activity.
The U.S. economy will be operating under a speed governor for some time. Federal Reserve officials issued a fresh warning Tuesday that unemployment, which topped 10 per cent in October, will remain high for the next several years and continue to restrain needed consumer spending.
Where Canada is somewhat unique, particularly compared with the United States, is its history of low productivity gains, which Burleton calls the country’s ”Achilles heel.“
The economists say Canadian workers will be able to produce more going forward, partly because of government policies like tax harmonization and increased business investment in machinery and equipment. But it will not be enough to overcome the loss of workers to retirement.
“Without attention to Canada’s languishing performance in technological innovation, a renewed emphasis on building a highly skilled workforce, and a reduction in regulatory barriers to competition, productivity growth will continue to stagnate relative to our international peers,” the report asserts.
For Canadians, this means modest income growth with real per capital gross domestic product — a proxy for living standards — increasing by about one per cent for the decade, half the rate of the two previous decades.
”Household income cannot outpace economy-wide growth over the long haul,“ the economists point out. ”(And) households cannot continue to borrow at rates exceeding income growth and prospective asset appreciation.“
For governments, the challenge will be how to return to balanced budgets as revenue growth slows well below what they were used to before the recession.
The economists say one possibility is for governments to increase taxes. The other is severe spending restraint in the range of two or three per cent — less than half pre-recession levels.
”It’s within the realm of possibility governments can balance budgets without tax increases, but it will take hard choices on the spending front,“ Burleton said.
The TD Bank report is not the first to warn of lower growth potential going forward and the perils of an aging population.
The Bank of Canada’s latest monetary report estimates potential output of 1.2 per cent this year, rising to 1.9 per cent in 2011, but does not project further into the future.
The parliamentary budget officer, Kevin Page, has also recently spoken on the challenge to government finances posed by an aging population and is expected to issue a major report on the issue early next year.
• DOW +20.03
• Dollar +.66c to 95.23cUS
• Oil -$.38 to $79.05US per barrel.
• Gold +$1.10 to $1,101.90USD per ounce
Canadian economic growth’s lost decade Aging population and low productivity will limit growth for 10 years study says
By Julian Beltrame
OTTAWA — It may one day be remembered as the lost decade, in economic terms.
A new report published by the TD Bank says Canada is headed for a decade of stagnant growth that will test the budgets of Canadian households and governments alike.
The bank says a combination of post-recession adjustments, the aging population and low productivity will limit Canada’s potential growth to about two per cent over the next 10 years.
That is two-thirds the level of growth experienced the previous two decades, the report says.
And it could be even more muted than that. The bank said the ”other elephant in the room“ that could further depress economic growth is the measures governments may adopt to control climate change.
”It is critical to recognize that things will not simply return to how they were,“ economists Derek Burleton and Grant Bishop wrote.
“This (muted growth) represents a new normal for the budgets of households and governments, as well as the returns on domestic capital investment.”
And there is not much that anyone can do about it, the economists said in an interview.
Structural adjustments brought out by the recession will keep potential growth — broadly defined as sustainable growth when an economy is at full capacity — at about 1.6 per cent for the next three years.
Actual growth will likely edge higher during this period until the economy shakes off the rust from the recession and returns to full capacity.
But then Canada will be hit by an aging workforce time bomb as the baby boom generation moves into retirement — restricting growth to about 2.1 per cent from 2013 to the end of the century’s second decade.
“The real depressing element is lower labour force growth,” explained Bishop. “There is no way to fix the fact the (baby boom generation) will be leaving the labour force and there aren’t going to be enough people to replace them.”
Burleton notes that Canada will not be unique among industrialized countries in entering a lengthy period of more modest economic activity.
The U.S. economy will be operating under a speed governor for some time. Federal Reserve officials issued a fresh warning Tuesday that unemployment, which topped 10 per cent in October, will remain high for the next several years and continue to restrain needed consumer spending.
Where Canada is somewhat unique, particularly compared with the United States, is its history of low productivity gains, which Burleton calls the country’s ”Achilles heel.“
The economists say Canadian workers will be able to produce more going forward, partly because of government policies like tax harmonization and increased business investment in machinery and equipment. But it will not be enough to overcome the loss of workers to retirement.
“Without attention to Canada’s languishing performance in technological innovation, a renewed emphasis on building a highly skilled workforce, and a reduction in regulatory barriers to competition, productivity growth will continue to stagnate relative to our international peers,” the report asserts.
For Canadians, this means modest income growth with real per capital gross domestic product — a proxy for living standards — increasing by about one per cent for the decade, half the rate of the two previous decades.
”Household income cannot outpace economy-wide growth over the long haul,“ the economists point out. ”(And) households cannot continue to borrow at rates exceeding income growth and prospective asset appreciation.“
For governments, the challenge will be how to return to balanced budgets as revenue growth slows well below what they were used to before the recession.
The economists say one possibility is for governments to increase taxes. The other is severe spending restraint in the range of two or three per cent — less than half pre-recession levels.
”It’s within the realm of possibility governments can balance budgets without tax increases, but it will take hard choices on the spending front,“ Burleton said.
The TD Bank report is not the first to warn of lower growth potential going forward and the perils of an aging population.
The Bank of Canada’s latest monetary report estimates potential output of 1.2 per cent this year, rising to 1.9 per cent in 2011, but does not project further into the future.
The parliamentary budget officer, Kevin Page, has also recently spoken on the challenge to government finances posed by an aging population and is expected to issue a major report on the issue early next year.
Tuesday, November 10, 2009
Financial Update For Nov. 10, 2009
Gold and Loonie SOAR on American dollar weakness- gold tops $1,100 with another record close
Dow Jones hits 2009 high
Canadian home builders scramble to meet demand - sale prices in October up 20% from a year ago
• TSX +236.46 (Reuters) investors continued to be buoyed by the weekend pledge from the Group of 20 rich and developing countries to maintain stimulus measures as long as economies remained weak .
• DOW +203.52 to 10,226.94 closing at its highest level this year.
• Dollar +1.57c to 94.57cUS The big mover in the currency markets was the pound, which slipped 0.5 per cent to $1.66 after the Fitch ratings agency warned that Britain was the major economy most at risk of losing its triple A debt rating.
• Oil +$2.00 to $79.43US per barrel.
• Gold +$5.70 to $1,100.80USD per ounce
Canadian home builders scramble to meet demand
Garry Marr, Financial Post
The Canadian housing market's surprising turnaround is spreading to new home construction as developers scramble to respond to a supply shortage that has sent pricing soaring for existing homes.
But any increase in construction on the new home side will likely not surface fast enough to feed the demand for housing that continues to be spurred on by record low interest rates.
Canada Mortgage and Housing Corp. said Monday there were 157,300 units constructed last month on a seasonally adjusted annualized basis, a 5.4% increase from a month earlier. Annualized starts at dropped as low as 118,500 in April.
"There is not a lot of inventory around," said Gary Friend, president of the Canadian Home Builders' Association, adding his industry has been careful not to speculate. "We have to watch our Ps and Qs, as we try to meet this demand."
Any increase in supply would be welcomed as a shortage of new listings has lead to a spike in prices. The Canadian Real Estate Association said last month existing home prices across the country were up 13.6% in September from a year ago as a supply problem was evident in almost every city.
The shortage has yet to ease despite the suggestion higher prices would coax homeowners to sell. This month the Toronto Real Estate Board reported sale prices in October were up 20% from a year ago.
"The existing homes market is in short supply so we've gone from a buyer's market to seller's market. The way it gets linked is you get some spillover into the new homes market and that's starting to happen," said Bob Dugan, chief economist with CMHC.
The agency has already upped its forecast for new home construction for 2010 from 150,300 to 164,900. Even at that level though, construction is still well off the 211,000 new starts recorded in 2008.
Paul Ferley, assistant chief economist with the Royal Bank of Canada, said "at the margins" new home construction could help ease the housing crunch. "Builders are aware and will contribute where they can to advance construction activity but no they can't turn on a dime."
Dow Jones hits 2009 high
Canadian home builders scramble to meet demand - sale prices in October up 20% from a year ago
• TSX +236.46 (Reuters) investors continued to be buoyed by the weekend pledge from the Group of 20 rich and developing countries to maintain stimulus measures as long as economies remained weak .
• DOW +203.52 to 10,226.94 closing at its highest level this year.
• Dollar +1.57c to 94.57cUS The big mover in the currency markets was the pound, which slipped 0.5 per cent to $1.66 after the Fitch ratings agency warned that Britain was the major economy most at risk of losing its triple A debt rating.
• Oil +$2.00 to $79.43US per barrel.
• Gold +$5.70 to $1,100.80USD per ounce
Canadian home builders scramble to meet demand
Garry Marr, Financial Post
The Canadian housing market's surprising turnaround is spreading to new home construction as developers scramble to respond to a supply shortage that has sent pricing soaring for existing homes.
But any increase in construction on the new home side will likely not surface fast enough to feed the demand for housing that continues to be spurred on by record low interest rates.
Canada Mortgage and Housing Corp. said Monday there were 157,300 units constructed last month on a seasonally adjusted annualized basis, a 5.4% increase from a month earlier. Annualized starts at dropped as low as 118,500 in April.
"There is not a lot of inventory around," said Gary Friend, president of the Canadian Home Builders' Association, adding his industry has been careful not to speculate. "We have to watch our Ps and Qs, as we try to meet this demand."
Any increase in supply would be welcomed as a shortage of new listings has lead to a spike in prices. The Canadian Real Estate Association said last month existing home prices across the country were up 13.6% in September from a year ago as a supply problem was evident in almost every city.
The shortage has yet to ease despite the suggestion higher prices would coax homeowners to sell. This month the Toronto Real Estate Board reported sale prices in October were up 20% from a year ago.
"The existing homes market is in short supply so we've gone from a buyer's market to seller's market. The way it gets linked is you get some spillover into the new homes market and that's starting to happen," said Bob Dugan, chief economist with CMHC.
The agency has already upped its forecast for new home construction for 2010 from 150,300 to 164,900. Even at that level though, construction is still well off the 211,000 new starts recorded in 2008.
Paul Ferley, assistant chief economist with the Royal Bank of Canada, said "at the margins" new home construction could help ease the housing crunch. "Builders are aware and will contribute where they can to advance construction activity but no they can't turn on a dime."
Monday, November 9, 2009
Financial Update for Nov. 9, 2009
TSX +69.72 (Reuters) ending higher for a 4th straight session as gold miners rallied around record high bullion prices, offsetting the index's fall at the outset on weak jobs data that fueled worry about economic recovery.
• DOW +17.46 crossing the 10,000 threshold again to 10,023
• Dollar -.83c to .93.cUS after Statistics Canada said more than 43,000 jobs were lost in Canada last month, a huge miss compared with the consensus by economists, who had forecast the addition of 10,000 jobs
• Oil -$2.19 to $77.43US per barrel.
• Gold +$6.40 to $1,095.10USD per ounce after going as high as US$1,101.90. Gold is reacting to the bad news that the unemployment rate in the U.S. is above expectations. Everyone is focusing on the fragility of the recovery," said Michael Sprung, president at Sprung & Co. Investment Counsel. Gold hit the record high shortly after markets opened
G20 pledges to maintain emergency support until recovery is assured
ST. ANDREWS, Scotland - Finance officials from rich and developing countries pledged Saturday to maintain emergency support for their economies until recovery is assured, but failed to reach a clear agreement to bear the cost of fighting climate change.
There was also a mixed reaction among the Group of 20 leading rich and emerging countries to a British-led push to consider a fund for bank bailouts, possibly financed by a tax on financial transactions, to ensure that taxpayers don't bear the brunt of any future rescues.
The grouping - representing around 90 per cent of the world's wealth, 80 per cent of world trade and two-thirds of the world's population - said in a statement after talks in St. Andrews, Scotland, that economic recovery is "uneven and remains dependent on policy support."
U.S. Treasury Secretary Timothy Geithner said U.S. jobs figures out Friday showing unemployment at a 26-year high of 10.2 per cent "reinforced that this is still a very tough economic environment."
While the "process of growth is now beginning," that fledging growth still needs to be reinforced to create jobs and get businesses investing to underpin the recovery in the housing market and elsewhere, Geithner said.
"If we put the brakes on too quickly, we will weaken the economy and the financial system, unemployment will rise, more businesses will fail, budget deficits will rise, and the ultimate cost of the crisis will be greater," he told reporters in Scotland. "It is too early to start to lean against recovery."
The statement smoothed over divisions among G20 members about whether it was time to start talking about exit strategies to unwind recent massive stimulus measures. Germany, France and Russia have called for a joint plan on when countries should start repaying debt, and the European Central Bank has indicated it will soon start withdrawing some of its emergency lending to banks.
The officials also emphasized the need for quick implementation of banking industry reform, saying that stronger standards should be developed by the end of 2010, that could be put into force by the end of 2012 as financial conditions improve.
The G20 is comprised of Argentina, Australia, Brazil, Britain, Canada, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United States and the rotating EU presidency.
• DOW +17.46 crossing the 10,000 threshold again to 10,023
• Dollar -.83c to .93.cUS after Statistics Canada said more than 43,000 jobs were lost in Canada last month, a huge miss compared with the consensus by economists, who had forecast the addition of 10,000 jobs
• Oil -$2.19 to $77.43US per barrel.
• Gold +$6.40 to $1,095.10USD per ounce after going as high as US$1,101.90. Gold is reacting to the bad news that the unemployment rate in the U.S. is above expectations. Everyone is focusing on the fragility of the recovery," said Michael Sprung, president at Sprung & Co. Investment Counsel. Gold hit the record high shortly after markets opened
G20 pledges to maintain emergency support until recovery is assured
ST. ANDREWS, Scotland - Finance officials from rich and developing countries pledged Saturday to maintain emergency support for their economies until recovery is assured, but failed to reach a clear agreement to bear the cost of fighting climate change.
There was also a mixed reaction among the Group of 20 leading rich and emerging countries to a British-led push to consider a fund for bank bailouts, possibly financed by a tax on financial transactions, to ensure that taxpayers don't bear the brunt of any future rescues.
The grouping - representing around 90 per cent of the world's wealth, 80 per cent of world trade and two-thirds of the world's population - said in a statement after talks in St. Andrews, Scotland, that economic recovery is "uneven and remains dependent on policy support."
U.S. Treasury Secretary Timothy Geithner said U.S. jobs figures out Friday showing unemployment at a 26-year high of 10.2 per cent "reinforced that this is still a very tough economic environment."
While the "process of growth is now beginning," that fledging growth still needs to be reinforced to create jobs and get businesses investing to underpin the recovery in the housing market and elsewhere, Geithner said.
"If we put the brakes on too quickly, we will weaken the economy and the financial system, unemployment will rise, more businesses will fail, budget deficits will rise, and the ultimate cost of the crisis will be greater," he told reporters in Scotland. "It is too early to start to lean against recovery."
The statement smoothed over divisions among G20 members about whether it was time to start talking about exit strategies to unwind recent massive stimulus measures. Germany, France and Russia have called for a joint plan on when countries should start repaying debt, and the European Central Bank has indicated it will soon start withdrawing some of its emergency lending to banks.
The officials also emphasized the need for quick implementation of banking industry reform, saying that stronger standards should be developed by the end of 2010, that could be put into force by the end of 2012 as financial conditions improve.
The G20 is comprised of Argentina, Australia, Brazil, Britain, Canada, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, South Korea, Turkey, the United States and the rotating EU presidency.
Wednesday, November 4, 2009
Financial Update For Nov. 3, 2009
• TSX +147.55 (Reuters) to 11,025.90 as a volatile session was helped my a surge in gold prices. As well, strength in railway stocks helped to lift the index after news that Warren Buffett's Berkshire Hathaway will buy rail company Burlington Northern Santa Fe Corp in a $26 billion deal
• DOW -17.53
• Dollar +.84c to 93.62
• Oil -$1.47 to $79.60US per barrel.
• Gold -$30.90 to $1,084.90USD per ounce after the International Monetary Fund announced it sold 200 tonnes of gold to India's central bank for a total of 6.7 billion dollars to bolster its finances.
Ford Motor Co issued a surprisingly strong quarterly profit of just under US$1 billion Monday
Gold seen as a hedge against greenback
Alia McMullen, Financial Post
Gold soared to a record high Tuesday after India surprised the market with the biggest single purchase of the commodity by a central bank in the past 30 years -- a signal governments around the world are becoming increasingly uncomfortable about the sliding value of the U.S. dollar.
"It's certainly indicative that the monetary authorities in India are not overwhelmingly upbeat about the outlook for the U.S. dollar," said Erik Nilsson, senior international economist at Scotia Capital. "Bear in mind too that we're talking about a jurisdiction that has had a long standing love affair with gold."
Mr. Nilsson said India had increased its gold reserves to hedge against its U.S.-dollar holdings, which total about US$268.4-billion.
He said the increasing demand for gold as a hedge against the greenback was helping to set the stage for an alternative reserve currency or asset to the U.S. dollar, a proposal that has been trumpeted by countries such as China, France, India and Russia. However, any such change would not come quickly, Mr. Nilsson said.
The cost of an ounce of gold rose US$30.90 Tuesday to hit a record US$1,084.90 after it was announced the Reserve Bank of India had purchased 200 tonnes of the precious metal from the International Monetary Fund.
The IMF said the purchases were made in installments between Oct. 19 and Oct. 30 for a total value of US$6.7-billion.
Timothy Green, author of The Ages of Gold, said it was "the biggest single central-bank purchase that we know about for at least 30 years."
Indeed, the purchase amounts to almost half of the 403.3 tonnes that the IMF approved for sale in September to diversify its sources of funding. The IMF owns more than 3,000 tonnes of gold.
Bart Melek, global commodities analyst at BMO Capital Markets, said the Reserve Bank of India's gold purchase pushed the country's gold reserves up to 7.1% of its total reserve assets. He said other countries, including China and Russia, have also been buying more gold, a trend that would likely continue while the U.S. economy remained volatile. On average, countries hold about 12.6% of their reserves in gold, up from 9.9% a year ago. Some of this represents an increase in gold holdings, but another driver of the increased proportion is the rise in the value of gold.
The price of gold has surged 52% since bottoming on Nov. 12 last year.
"Historically, gold has been a hedge against instability, has been a hedge against inflation, has been known to behave counter cyclically to equity markets," Mr. Melek said. "Gold has reasserted its historic role of being a hedge, basically insurance against bad stuff, against everything from geopolitical problems to inflation to dollar issues."
He said in the bullish case, gold could continue to push higher to average US$1,300 on an annual basis by the end of 2010 or early 2011.
Brian Christie, analyst at Desjardins Securities, said central-bank demand would be an important driver of the gold price, with India's purchase adding to the positive momentum for the commodity.
"China is rumoured to be interested in some or all of the remaining IMF bullion; however, it is likely very sensitive to price," Mr. Christie said. "Since the transaction with India was done at fair market value, the Chinese could be waiting for a pullback in the gold spot before pursuing this purchase further."
With holdings of US$2.3-trillion, China is the largest holder of U.S.-dollar reserves and has been actively looking to diversify its portfolio.
• DOW -17.53
• Dollar +.84c to 93.62
• Oil -$1.47 to $79.60US per barrel.
• Gold -$30.90 to $1,084.90USD per ounce after the International Monetary Fund announced it sold 200 tonnes of gold to India's central bank for a total of 6.7 billion dollars to bolster its finances.
Ford Motor Co issued a surprisingly strong quarterly profit of just under US$1 billion Monday
Gold seen as a hedge against greenback
Alia McMullen, Financial Post
Gold soared to a record high Tuesday after India surprised the market with the biggest single purchase of the commodity by a central bank in the past 30 years -- a signal governments around the world are becoming increasingly uncomfortable about the sliding value of the U.S. dollar.
"It's certainly indicative that the monetary authorities in India are not overwhelmingly upbeat about the outlook for the U.S. dollar," said Erik Nilsson, senior international economist at Scotia Capital. "Bear in mind too that we're talking about a jurisdiction that has had a long standing love affair with gold."
Mr. Nilsson said India had increased its gold reserves to hedge against its U.S.-dollar holdings, which total about US$268.4-billion.
He said the increasing demand for gold as a hedge against the greenback was helping to set the stage for an alternative reserve currency or asset to the U.S. dollar, a proposal that has been trumpeted by countries such as China, France, India and Russia. However, any such change would not come quickly, Mr. Nilsson said.
The cost of an ounce of gold rose US$30.90 Tuesday to hit a record US$1,084.90 after it was announced the Reserve Bank of India had purchased 200 tonnes of the precious metal from the International Monetary Fund.
The IMF said the purchases were made in installments between Oct. 19 and Oct. 30 for a total value of US$6.7-billion.
Timothy Green, author of The Ages of Gold, said it was "the biggest single central-bank purchase that we know about for at least 30 years."
Indeed, the purchase amounts to almost half of the 403.3 tonnes that the IMF approved for sale in September to diversify its sources of funding. The IMF owns more than 3,000 tonnes of gold.
Bart Melek, global commodities analyst at BMO Capital Markets, said the Reserve Bank of India's gold purchase pushed the country's gold reserves up to 7.1% of its total reserve assets. He said other countries, including China and Russia, have also been buying more gold, a trend that would likely continue while the U.S. economy remained volatile. On average, countries hold about 12.6% of their reserves in gold, up from 9.9% a year ago. Some of this represents an increase in gold holdings, but another driver of the increased proportion is the rise in the value of gold.
The price of gold has surged 52% since bottoming on Nov. 12 last year.
"Historically, gold has been a hedge against instability, has been a hedge against inflation, has been known to behave counter cyclically to equity markets," Mr. Melek said. "Gold has reasserted its historic role of being a hedge, basically insurance against bad stuff, against everything from geopolitical problems to inflation to dollar issues."
He said in the bullish case, gold could continue to push higher to average US$1,300 on an annual basis by the end of 2010 or early 2011.
Brian Christie, analyst at Desjardins Securities, said central-bank demand would be an important driver of the gold price, with India's purchase adding to the positive momentum for the commodity.
"China is rumoured to be interested in some or all of the remaining IMF bullion; however, it is likely very sensitive to price," Mr. Christie said. "Since the transaction with India was done at fair market value, the Chinese could be waiting for a pullback in the gold spot before pursuing this purchase further."
With holdings of US$2.3-trillion, China is the largest holder of U.S.-dollar reserves and has been actively looking to diversify its portfolio.
Tuesday, November 3, 2009
Financial Update For Nov. 3, 2009
CMHC forecasts continued new housing rebound
• TSX -32.40(Reuters)
• DOW +76.71
• Dollar +.35c to 92.78
• Oil -$1.13 to $78.13US per barrel.
• Gold -$13.70 to $1,053.40USD per ounce
CMHC forecasts continued new housing rebound
The Canadian Press
OTTAWA — The national housing agency is reporting that housing starts have started to recover and it expects the recovery to continue.
Canada Mortgage and Housing Corp. predicts starts will reach 141,900 this year and increase to 164,900 in 2010.
The CMHC’s fourth-quarter market outlook forecasts housing markets will continue to strengthen over the next year as economic conditions improve.
It says demand for existing homes has rebounded and both new and existing home markets are characterized by lower inventory levels.
However, the national housing agency says the strong pace of sales in the second and third quarters partly reflects delayed activity and is not likely to be sustained.
The CMHC says it expects the level of sales to move back closer in line with anticipated economic conditions.
It predicts existing home sales will reach 441,300 units in 2009 and increase to 445,150 units in 2010, while the average price is expected to be $312,950 in 2009 and $324,500 in 2010.
Hopes for recovery get a boost from manufacturing, construction and home sales news
By Martin Crutsinger
WASHINGTON — Hopes for the fledgling U.S. economic recovery got a boost Monday from better-than-expected news on manufacturing, construction and contracts to buy homes.
The surprisingly strong readings provided some comfort that the U.S. economy is packing more momentum than assumed going into the end of the year. Still, with jobs scarce, lending tight and consumers wary of spending, it’s unclear whether the gains can be sustained as government stimulus programs wind down.
The U.S. Institute for Supply Management’s gauge of manufacturing activity grew in October at the fastest pace in more than three years. It was driven by businesses’ replenishing of stockpiles, higher demand for American exports and support from the U.S. government’s $787-billion US stimulus program.
The ISM index shot up to 55.7 in October, the third straight reading above 50, which signals growth in the sector. It was the highest level since April 2006.
“It clearly looks like we are seeing a turnaround in the manufacturing sector,” said David Wyss, chief economist at Standard&Poor’s in New York.
Economists cautioned that the manufacturing pattern seen in the past two post-recession recoveries likely will be repeated this time: In each case, early strength in manufacturing, led by companies’ restocking of inventories, faded within a few months.
Wyss agrees that the ISM index could dip below 50 in the first quarter of next year. But he thinks that would be a temporary slump and not a sign that the economy was dipping back into recession.
“A bit of a slip in manufacturing would be consistent with a sluggish recovery,” he said.
The overall economy, as measured by the gross domestic product, expanded at a 3.5 per cent rate in the July-September quarter. That number provided compelling evidence that the longest recession since the 1930s was ending. Wyss said he expects GDP growth to slow to around 1.7 per cent in the current quarter and to remain sluggish in the first half of next year.
Other economists are more optimistic, with some forecasting that GDP growth could come in around three per cent in the current quarter. They pointed to the government report Monday that construction spending rose a bigger-than-expected 0.8 per cent in September, fuelled by the strongest jump in home construction in six years. The gain in housing offset continued weakness in construction of office buildings, hotels and shopping centres.
In a third report, the National Association of Realtors said the volume of signed contracts to buy previously occupied homes rose 6.1 per cent in September to a reading of 110.1. That’s the highest level since December 2006. And it’s more than 21 per cent above a year ago.
The eighth straight monthly gain came as the housing market rebounds from the worst downturn in decades. The improvement has been aided by federal intervention to lower mortgage rates and bring more buyers into the market. For example, the contracts to buy homes rose as buyers scrambled to qualify for a tax credit for first-time buyers that expires at the end of this month. Congress is moving to extend the credit until April 30.
“We think this recovery is sustainable,” said Sal Guatieri, an economist at BMO Capital Markets. “We think there is enough government stimulus in place to push the economy forward and manufacturing will be getting support from a weakening U.S. dollar and strength in Asia which will boost exports.”
Manufacturing in China, which posted the strongest growth of the world’s major economies in the third quarter, expanded for an eighth straight month in October, according to a survey by a government-sanctioned industry group. European surveys also showed growth despite the recent climb by the euro and pound against the dollar. That currency gap makes Europe’s exports more expensive.
The expanding signs of a U.S. rebound gave an initial boost to investors on Wall Street Monday, but the rally lost steam on a retreat in financial stocks. The Dow Jones industrial average added about 75 points in late afternoon trading, while broader indexes were mixed.
At the White House, President Barack Obama said the public and private sectors must find more ways to create jobs to continue the recovery. In remarks at the start of a meeting with his economic advisers, Obama credited his stimulus package for recent better economic figures, including the manufacturing boost.
But layoffs continue. Sun Microsystems Inc. said in October it plans to eliminate up to 3,000 jobs before it’s acquired by Oracle Corp.
In October, the ISM said 13 of the 18 manufacturing industries surveyed expanded, led by petroleum and coal production, apparel and furniture. Three industries shrank.
“There’s still a lot of caution from our clients,” said Richard Zambacca, president of Think Resources, an engineer staffing company in Atlanta. “People are looking for funding.”
The Associated Press
• TSX -32.40(Reuters)
• DOW +76.71
• Dollar +.35c to 92.78
• Oil -$1.13 to $78.13US per barrel.
• Gold -$13.70 to $1,053.40USD per ounce
CMHC forecasts continued new housing rebound
The Canadian Press
OTTAWA — The national housing agency is reporting that housing starts have started to recover and it expects the recovery to continue.
Canada Mortgage and Housing Corp. predicts starts will reach 141,900 this year and increase to 164,900 in 2010.
The CMHC’s fourth-quarter market outlook forecasts housing markets will continue to strengthen over the next year as economic conditions improve.
It says demand for existing homes has rebounded and both new and existing home markets are characterized by lower inventory levels.
However, the national housing agency says the strong pace of sales in the second and third quarters partly reflects delayed activity and is not likely to be sustained.
The CMHC says it expects the level of sales to move back closer in line with anticipated economic conditions.
It predicts existing home sales will reach 441,300 units in 2009 and increase to 445,150 units in 2010, while the average price is expected to be $312,950 in 2009 and $324,500 in 2010.
Hopes for recovery get a boost from manufacturing, construction and home sales news
By Martin Crutsinger
WASHINGTON — Hopes for the fledgling U.S. economic recovery got a boost Monday from better-than-expected news on manufacturing, construction and contracts to buy homes.
The surprisingly strong readings provided some comfort that the U.S. economy is packing more momentum than assumed going into the end of the year. Still, with jobs scarce, lending tight and consumers wary of spending, it’s unclear whether the gains can be sustained as government stimulus programs wind down.
The U.S. Institute for Supply Management’s gauge of manufacturing activity grew in October at the fastest pace in more than three years. It was driven by businesses’ replenishing of stockpiles, higher demand for American exports and support from the U.S. government’s $787-billion US stimulus program.
The ISM index shot up to 55.7 in October, the third straight reading above 50, which signals growth in the sector. It was the highest level since April 2006.
“It clearly looks like we are seeing a turnaround in the manufacturing sector,” said David Wyss, chief economist at Standard&Poor’s in New York.
Economists cautioned that the manufacturing pattern seen in the past two post-recession recoveries likely will be repeated this time: In each case, early strength in manufacturing, led by companies’ restocking of inventories, faded within a few months.
Wyss agrees that the ISM index could dip below 50 in the first quarter of next year. But he thinks that would be a temporary slump and not a sign that the economy was dipping back into recession.
“A bit of a slip in manufacturing would be consistent with a sluggish recovery,” he said.
The overall economy, as measured by the gross domestic product, expanded at a 3.5 per cent rate in the July-September quarter. That number provided compelling evidence that the longest recession since the 1930s was ending. Wyss said he expects GDP growth to slow to around 1.7 per cent in the current quarter and to remain sluggish in the first half of next year.
Other economists are more optimistic, with some forecasting that GDP growth could come in around three per cent in the current quarter. They pointed to the government report Monday that construction spending rose a bigger-than-expected 0.8 per cent in September, fuelled by the strongest jump in home construction in six years. The gain in housing offset continued weakness in construction of office buildings, hotels and shopping centres.
In a third report, the National Association of Realtors said the volume of signed contracts to buy previously occupied homes rose 6.1 per cent in September to a reading of 110.1. That’s the highest level since December 2006. And it’s more than 21 per cent above a year ago.
The eighth straight monthly gain came as the housing market rebounds from the worst downturn in decades. The improvement has been aided by federal intervention to lower mortgage rates and bring more buyers into the market. For example, the contracts to buy homes rose as buyers scrambled to qualify for a tax credit for first-time buyers that expires at the end of this month. Congress is moving to extend the credit until April 30.
“We think this recovery is sustainable,” said Sal Guatieri, an economist at BMO Capital Markets. “We think there is enough government stimulus in place to push the economy forward and manufacturing will be getting support from a weakening U.S. dollar and strength in Asia which will boost exports.”
Manufacturing in China, which posted the strongest growth of the world’s major economies in the third quarter, expanded for an eighth straight month in October, according to a survey by a government-sanctioned industry group. European surveys also showed growth despite the recent climb by the euro and pound against the dollar. That currency gap makes Europe’s exports more expensive.
The expanding signs of a U.S. rebound gave an initial boost to investors on Wall Street Monday, but the rally lost steam on a retreat in financial stocks. The Dow Jones industrial average added about 75 points in late afternoon trading, while broader indexes were mixed.
At the White House, President Barack Obama said the public and private sectors must find more ways to create jobs to continue the recovery. In remarks at the start of a meeting with his economic advisers, Obama credited his stimulus package for recent better economic figures, including the manufacturing boost.
But layoffs continue. Sun Microsystems Inc. said in October it plans to eliminate up to 3,000 jobs before it’s acquired by Oracle Corp.
In October, the ISM said 13 of the 18 manufacturing industries surveyed expanded, led by petroleum and coal production, apparel and furniture. Three industries shrank.
“There’s still a lot of caution from our clients,” said Richard Zambacca, president of Think Resources, an engineer staffing company in Atlanta. “People are looking for funding.”
The Associated Press
Monday, November 2, 2009
Financial Update For Nov. 2, 2009
• TSX -248.21 to 10,805(Reuters)
• DOW -119.48 to 9,762
• Dollar -1.08c to 92.
• Oil -$2.09 to $77.46US per barrel.
• Gold -$4.80 to $1,034.70USD per ounce
CIT Group files for Chapter 11 bankruptcy protection
By Stephen Manning
WASHINGTON — Lender CIT Group has filed for Chapter 11 bankruptcy protection, in an effort to restructure its debt while trying to keep loans flowing to the thousands of mid-sized and small businesses.
CIT made the filing in New York bankruptcy court Sunday, after a debt-exchange offer to bondholders failed. CIT said in a statement that its bondholders have overwhelmingly approved a prepackaged reorganization plan which will reduce total debt by $10 billion while allowing the company to continue to do business.
“The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy,” said Jeffrey Peek, chair and chief executive. Peek has said he plans to step down at the end of the year.
CIT’s move will wipe out current holders of its common and preferred stock, likely meaning the U.S. government will lose the $2.3 billion it sunk into CIT last year to prop up the ailing company. The government could have lost billions more, however, had it not declined to hand over more aid to the company earlier this year.
The Chapter 11 filing is one of the biggest in U.S. corporate history. CIT’s bankruptcy filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion. Its collapse is the latest in a string of huge cases driven by the financial crisis over the past two years, as bailed out industry heavyweights like General Motors and Chrysler both entered bankruptcy court.
CIT has been trying to fend off disaster for several months and narrowly avoided collapse in July. It has struggled to find funding as sources it previously relied on, such as short-term debt, evaporated during the credit crisis.
It received $4.5 billion in credit from its own lenders and bondholders last week, reportedly made a deal with Goldman Sachs to lower debt payments, and negotiated a $1 billion line of credit from billionaire investor and bondholder Carl Icahn. But the company failed to convince bondholders to support a debt-exchange offer, a step that would have trimmed at least $5.7 billion from its debt burden and given CIT more time to pay off what it owes.
It is unclear what the filing will mean for the country’s small businesses, many of which look to CIT for loans to cover expenses like buying materials at a time when other credit is hard to come by.
Analysts have warned that already ailing sectors, like retailers, could be hit especially hard, since CIT serves as the short-term financier for about 2,000 vendors that supply merchandise to more than 300,000 stores.
The Associated Press
Canada’s economy still sputtering
October 30, 2009
OTTAWA —Canada’s economy unexpectedly went into reverse again in August, adding new uncertainty about the strength and sustainability of the recovery.
The country’s real gross domestic product slipped 0.1 per cent in August — the first outright decline in three months — in a broad set-back led by oil-and-gas extraction, mining, utilities, mining and manufacturing.
The markets reacted strongly to today’s news, led by the Canadian dollar’s one-cent dive to the mid-92-cent level.
Economists said the negative reading, after a flat July that was not revised upwards as some had hoped, will make it very difficult for the economy to match the Bank of Canada’s newest forecast announced last week that growth would average two per cent in the third quarter.
With only the September data remaining, it would take a massive bounce to meet the expectation.
If it’s a recovery, “it’s a pretty wimpy start of a recovery,” said Scotiabank senior economist Derek Holt.
With the strong dollar likely having cut into exports and boosted imports in September, Holt said it is not beyond the realm of possibility that the quarter as a whole could turn in a negative performance — which would mean the recession, technically, did not end.
“I don’t rule out a negative (reading) at all,” he said.
That is still not the base-case scenario envisioned by economists, however. Most, including Holt, believe the third quarter will show modest growth, but not enough to boost confidence and far behind the 3.5-per-cent pace set by the U.S. for the corresponding period.
The two-country comparison appears to support a report by the Canadian Centre for Policy Alternatives this week that argued the United States had done a far better job of rolling out stimulus spending than Ottawa. The report estimates the President Obama administration has outspent the Harper government seven-to-one so far.
About half of the gross domestic product jump in the U.S. during the third quarter was attributed to the wildly popular cash-for-clunkers program and government incentives for new home buyers, both of which have ended.
“We now put more hope in a strong quarter four, but there is no doubt that the Canadian economy has been slower out of the recessionary gate that we had initially expected,” said Meny Grauman, an economist with CIBC.
Grauman said the Bank of Canada is now likely to keep interest rates at the lowest practical level of 0.25 per cent until the end of 2010, well beyond the conditional commitment of next summer.
That changes the picture of the loonie going forward and puts into question earlier expectations it would reach parity by the end of the year, and possibly rise above next year.
The August fall-back was almost entirely due to continued weakness in the critical goods producing part of the economy, with consumer-generated activity remaining strong.
Oil-and-gas extraction fell 2.3 per cent, as maintenance work at some crude petroleum facilities on the East Coast slowed production. Natural gas production also retreated.
The output of the mining sector excluding oil and gas extraction declined 1.4 per cent.
Manufacturing activity decreased 0.7 per cent, with eight of the 21 major groups retreating. Wholesale declined 0.5 per cent, reflecting weakness in foreign and domestic demand.
Meanwhile, retail sales increased 0.3 per cent, the public sector advanced 0.4 per cent, construction gained 0.2 per cent, and the level of activity of real estate agents and brokers remained high for a third straight month.
The output of utilities also rose, 1.8 per cent, as natural-gas distribution and the production of electricity increased.
The Canadian Press
• DOW -119.48 to 9,762
• Dollar -1.08c to 92.
• Oil -$2.09 to $77.46US per barrel.
• Gold -$4.80 to $1,034.70USD per ounce
CIT Group files for Chapter 11 bankruptcy protection
By Stephen Manning
WASHINGTON — Lender CIT Group has filed for Chapter 11 bankruptcy protection, in an effort to restructure its debt while trying to keep loans flowing to the thousands of mid-sized and small businesses.
CIT made the filing in New York bankruptcy court Sunday, after a debt-exchange offer to bondholders failed. CIT said in a statement that its bondholders have overwhelmingly approved a prepackaged reorganization plan which will reduce total debt by $10 billion while allowing the company to continue to do business.
“The decision to proceed with our plan of reorganization will allow CIT to continue to provide funding to our small business and middle market customers, two sectors that remain vitally important to the U.S. economy,” said Jeffrey Peek, chair and chief executive. Peek has said he plans to step down at the end of the year.
CIT’s move will wipe out current holders of its common and preferred stock, likely meaning the U.S. government will lose the $2.3 billion it sunk into CIT last year to prop up the ailing company. The government could have lost billions more, however, had it not declined to hand over more aid to the company earlier this year.
The Chapter 11 filing is one of the biggest in U.S. corporate history. CIT’s bankruptcy filing shows $71 billion in finance and leasing assets against total debt of $64.9 billion. Its collapse is the latest in a string of huge cases driven by the financial crisis over the past two years, as bailed out industry heavyweights like General Motors and Chrysler both entered bankruptcy court.
CIT has been trying to fend off disaster for several months and narrowly avoided collapse in July. It has struggled to find funding as sources it previously relied on, such as short-term debt, evaporated during the credit crisis.
It received $4.5 billion in credit from its own lenders and bondholders last week, reportedly made a deal with Goldman Sachs to lower debt payments, and negotiated a $1 billion line of credit from billionaire investor and bondholder Carl Icahn. But the company failed to convince bondholders to support a debt-exchange offer, a step that would have trimmed at least $5.7 billion from its debt burden and given CIT more time to pay off what it owes.
It is unclear what the filing will mean for the country’s small businesses, many of which look to CIT for loans to cover expenses like buying materials at a time when other credit is hard to come by.
Analysts have warned that already ailing sectors, like retailers, could be hit especially hard, since CIT serves as the short-term financier for about 2,000 vendors that supply merchandise to more than 300,000 stores.
The Associated Press
Canada’s economy still sputtering
October 30, 2009
OTTAWA —Canada’s economy unexpectedly went into reverse again in August, adding new uncertainty about the strength and sustainability of the recovery.
The country’s real gross domestic product slipped 0.1 per cent in August — the first outright decline in three months — in a broad set-back led by oil-and-gas extraction, mining, utilities, mining and manufacturing.
The markets reacted strongly to today’s news, led by the Canadian dollar’s one-cent dive to the mid-92-cent level.
Economists said the negative reading, after a flat July that was not revised upwards as some had hoped, will make it very difficult for the economy to match the Bank of Canada’s newest forecast announced last week that growth would average two per cent in the third quarter.
With only the September data remaining, it would take a massive bounce to meet the expectation.
If it’s a recovery, “it’s a pretty wimpy start of a recovery,” said Scotiabank senior economist Derek Holt.
With the strong dollar likely having cut into exports and boosted imports in September, Holt said it is not beyond the realm of possibility that the quarter as a whole could turn in a negative performance — which would mean the recession, technically, did not end.
“I don’t rule out a negative (reading) at all,” he said.
That is still not the base-case scenario envisioned by economists, however. Most, including Holt, believe the third quarter will show modest growth, but not enough to boost confidence and far behind the 3.5-per-cent pace set by the U.S. for the corresponding period.
The two-country comparison appears to support a report by the Canadian Centre for Policy Alternatives this week that argued the United States had done a far better job of rolling out stimulus spending than Ottawa. The report estimates the President Obama administration has outspent the Harper government seven-to-one so far.
About half of the gross domestic product jump in the U.S. during the third quarter was attributed to the wildly popular cash-for-clunkers program and government incentives for new home buyers, both of which have ended.
“We now put more hope in a strong quarter four, but there is no doubt that the Canadian economy has been slower out of the recessionary gate that we had initially expected,” said Meny Grauman, an economist with CIBC.
Grauman said the Bank of Canada is now likely to keep interest rates at the lowest practical level of 0.25 per cent until the end of 2010, well beyond the conditional commitment of next summer.
That changes the picture of the loonie going forward and puts into question earlier expectations it would reach parity by the end of the year, and possibly rise above next year.
The August fall-back was almost entirely due to continued weakness in the critical goods producing part of the economy, with consumer-generated activity remaining strong.
Oil-and-gas extraction fell 2.3 per cent, as maintenance work at some crude petroleum facilities on the East Coast slowed production. Natural gas production also retreated.
The output of the mining sector excluding oil and gas extraction declined 1.4 per cent.
Manufacturing activity decreased 0.7 per cent, with eight of the 21 major groups retreating. Wholesale declined 0.5 per cent, reflecting weakness in foreign and domestic demand.
Meanwhile, retail sales increased 0.3 per cent, the public sector advanced 0.4 per cent, construction gained 0.2 per cent, and the level of activity of real estate agents and brokers remained high for a third straight month.
The output of utilities also rose, 1.8 per cent, as natural-gas distribution and the production of electricity increased.
The Canadian Press
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