· TSX +156.98pts (Reuters)
· DOW +108pts
· Dollar +.20c to $.82.10US.
· Oil +$5.57to $44.60US per barrel.
· Gold +$14.30 to $883.60US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
Donald Coxe: 'I Have Seen Economy Worse' Wisdom Series David Pett, Financial Post
Donald Coxe is a 35-year veteran of the Canadian investment community with experience as an advisor, strategist and money manager.
Mr. Coxe announced this month that he will step down as global portfolio strategist of BMO Financial Group to establish his own independent firm, Coxe Advisors LLC. He maintains his role as portfolio consultant to BMO's Coxe Commodity Strategy Fund and will continue to publish his portfolio strategy journal, Basic Points.
A true "renaissance man," Mr. Coxe is also an historian and lawyer, who has served as an associate editor of National Review magazine in New York, and general counsel for the Canadian Federation of Agriculture.
He has been chief executive of a Canadian investment-counselling firm, a strategist on Wall Street and CEO of Harris Investment Management Inc.
Earlier this year, he received the National Post/StarMine lifetime achievement award for excellence in investment research. He spoke with Financial Post reporter David Pett.
Q Have you ever seen the global economy in worse shape?
AYes, I have seen the economy in worse shape. I got into this business in 1972 and I can tell you that the economy was in worse shape in 1974 and 1975. The early '80s, when [former U.S.
Federal Reserve governor] Paul Volcker had to end the inflation spiral and interest rates got to 20%, was also a very bad time. Those were two scary times, and I am a survivor of both. These days I find myself spending a great deal of time dealing with people who, coming into the business much later than I did, think the only comparison now is with the Great Depression.
Q How is this crisis different from other economic crises in the past?
A One of the reasons it is different is demographics. Back in '74-'75, we had millions of young people coming out of high schools, colleges and universities in the OECD countries looking for jobs and there simply were none. The crisis today is partly because we don't have young people coming out now. Starting in 1971, the birth rate collapsed across the OECD countries and so now we are faced with our first downturn that resembles a Japanese-style situation. Japan had that idiot run-up of real-estate prices in the '80s, and it was bound to be a big collapse because by the mid-'80s they were producing more morticians than obstetricians. That is the state that the OECD finds itself in. Each new generation is 60% the size of the previous generation, so we are not going to get enough new young workers and enough family formations. The idea that real-estate prices will continue to go up is unmitigated idiocy.
Q And the crisis in the early 1980s?
A During the 1981-'82 cycle, interest rates were 20% compared to now where they are zero.
Obviously that's a dramatic difference.
Q How did we get here?
A We got here through the worst betrayal of capitalist principles by people with economic power in the history of capitalism. It was a very few people, all men on Wall Street and in London, who stopped being bankers to become promoters of structured products, which were based on bad mathematics. They thought they could sell them to greater fools without an impact to the greater economy. In doing so, they created a financial crisis that was entirely unnecessary. I'm not saying they committed crimes, but as far as I'm concerned, people like Stanley O'Neal, [former CEO of Mer-rill Lynch] and Jimmy Cayne, [former CEO] of Bear Stearns, should not be allowed to have memberships in good clubs hereafter and society should indicate to them that they are pariahs.
Q Is there any silver lining to the current crisis?
A One positive is that it might get rid of the shadow banking system, which worked with these Wall Street malefactors to come up with unrealistic prices for these "Jurassic Park" products that have attacked the whole global financial system.
Q Is the policy response to date the right one to get us back on track?
A This has achieved the impossible. The governments and central banks of the OECD countries are implementing the strategies recommended by the two greatest economists of the 20th century, both of whom didn't agree on anything. What you have are the monetary policies of Milton Friedman blended with budget deficits and pump-priming strategies of John Maynard Keynes. Everything being offered by the great economists is being tried at the same time, therefore, you have to assume we are going to get out of this mess. However, the fact that these two economists disagreed with each other, largely because of the implication of their theories on inflation, leads me to believe that when we get out of this current mess, we are going to be faced with another severe inflation challenge two or three years from now. Of course, we have to get out of this mess first. If you are running away from a bear but potentially running into the path of tigers, you must keep running away from the bear. That said, we are probably going to see some tigers.
Q If you were running the country what would you do?
AI commend the Canadian government on holding back on doing anything drastic because Canada was for a time avoiding the worst of this. But now it appears the real-estate cycle has moved into Canada, bringing with it a meaningful risk to the market. Central Canada is also faced with the possible bankruptcy of the Big Three auto-makers, so government will need to correlate their efforts with the U.S. government. One thing I would not do is assume the commodity industries in Canada are going to be in a recessionary condition forever. They are still the national treasures and if bids are made to take out the oil sands companies while they are depressed on US$40 oil, the government should not let them go because of the knock-down price. There are only a limited number of large world-class assets left in Canada.
Q What's been your leadership role as a well-respected member of the investment community?
A I think it's important for me to help investors keep their perspective. At some point, we switched from saying this is a downturn to the belief that things are worse now than at anytime since the Great Depression. That's a great leap, and I reject the analogy. For example, we had 40% unemployment in the Great Depression. Now it's 7%. So it is neither reasonable, nor sensible to tell people during a downturn like this that it could be the worst thing since the Great Depression. I do believe that it is important to use history, not abuse it.
Q Once the dust settles on the economic crisis, what other challenges lie ahead for us?
A I believe the next big challenge we have to face is the global food crisis. I'm working with the University of Guelph right now and in the spring we are organizing a colloquium, where we bring together scientists and investors to talk about solutions to the food shortage.
Friday, January 2, 2009
Financial Update
As the year ends, many are predicting a harsh 2009, however it doesn’t seem that long ago that extreme predictions about Y2K was the New Years Eve dialogue. I’m looking forward to a GREAT 2009!
· TSX +193.43pts (Reuters) as a broad-based rally offset weakness in mining shares due to lower gold prices.
· DOW +184.46pts as dreadful consumer-sentiment and house-price data were offset by the U.S. Treasury Department's injection of US$5 billion into GMAC Financial Services
· Dollar -.17c to $.81.90US.
· Oil -$.99to $39.03US per barrel. OPEC, which accounts for about 40% of global supply, has announced production cuts totaling more than 4m barrels per day in the last few months, and the armed conflict between Israel and Palestinian militants enters a third day. The fact that oil prices continue to fall shows how much things have changed in 5 months, as either would have previously sent the market in an upward tear
· Gold -$5.30 to $870.00US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
GMAC loosens credit to make vehicles easier to buy after federal aidBree Fowler, The Associated Press NEW YORK - The struggling financing arm of General Motors Corp., rescued by US$5 billion in federal aid, plans to use some of the money to make cars and trucks more affordable to a larger pool of customers. GMAC LLC on Tuesday promised to loosen its tight lending standards that have made loans harder to get for would-be buyers of GM vehicles. It's the first time that a financial institution has said it will use money from the $700-billion bank bailout to offer more affordable credit to consumers.
'This is economic war!' Jarislowsky warns Wisdom series Financial Post
In his 83 years, Stephen Jarislowsky has survived -- and thrived -- through more economic cycles than most wealth managers. Born in Berlin, he spent his boyhood in France during the Depression years, the Second World War and the Nazi invasion. His family moved to the United States in 1941, where Mr. Jarislowsky graduated from Cornell University and spent time in counter-intelligence for the U.S. Army in post-war Japan. Armed with an MBA from Harvard University, he moved to Montreal in 1949 and six years later founded Jarislowsky Fraser Ltd., an independent investment-counselling firm. Over the years, as his firm made clients rich by investing in high-quality growth stocks -- Jarislowsky's company manages about $52-billion in assets for pension funds, institutions and private customers -- he became a billionaire in his own right. Along the way, the frugal son of a wealthy industrialist and financier became a feisty advocate for shareholder rights -- he co-founded the Canadian Coalition for Good Governance in 2002 -- and gained a reputation as a straight talker.
Mr. Jarislowsky spoke with Theresa Tedesco, chief business correspondent, from his office in Montreal about what he described as "economic war" and the way to battle through it "correctly."
Q How is this current economic crisis different than what you've experienced before?
A This is as big as the big Depression. This is a type of recession/depression that happens usually after the kind of greed sprees which are associated with bubbles.
Q Do you think political leaders and central bankers are on the right track in trying to solve the problems?
A What they are doing with these interest rates is totally cosmetic because whether the interest rate is 2% or zero makes absolutely no difference. People are scared out of their wits, scared of losing their jobs, scared that they don't have enough money to pay the rent. You see it already from the banks. All the banks want to do is get their balance sheets in shape so they won't go bust. Every corporation in the land is going to cut back so it won't go bust. That's called a balance-sheet depression because what they are trying to do is make sure that they are not going to go bust and they will do anything to get rid of costs, to get rid of debt in order to survive. And whether you give money at 1%, 2% or 10%, history has shown that people don't borrow until their house is strictly in order, they didn't go out and spend money.
Q Have we learned anything from past economic cycles?
A No, and we have so much information today and yet, we are so disconnected.
Q What alarms you the most right now?
A What alarms me the most isn't just one thing. We are going into this in the worst financial shape that you can possibly imagine, where the public hasn't saved for something like five or six years, and we started out with a complete collapse of the world banking system.
Q How long do you predict the recession/depression will last?
A We're in for at least two years if it's handled right. If it's not handled right, we can be sitting here seven or eight years from now.
Q How would you fix it?
A This is not curable the way a normal recession is curable; 1929 wasn't. It's a balance-sheet recession, not a temporary lowering in demand or the inflation recession of the 1970s. The inflation recession got rid of the debt. If you attack this the way you would a normal recession, that's exactly the wrong way.
Q Are you saying we need to fight the crisis with inflation?
A Unfortunately, you have to create inflation to get rid of the debt. The only way to get housing to go up again is through inflation, by reducing the value of the mortgages. The only way to get the consumer back purchasing things is to get rid of their debts and that can only be done through inflation. I'm not somebody who believes in inflation. I think it's an awful thing, but there's no alternative.
Q Does this mean you are not satisfied with the solutions tabled so far?
A Absolutely, I never underestimate the stupidity of mankind, which is based on greed and fear and what they do when they are afraid or too greedy. When the emotions rule, you can be sure it will lead to some form of stupidity of one form or another. The idea of saving GM [General Motors Corp.] is the dumbest thing in the world. Let it go bankrupt, let it go renegotiate its wages and put them on the comparable level paid by its competitors. What we need is common sense, logic, rationality, putting aside politics and fighting the common enemy. What worries me is the proroguing of Parliament and losing two months to tackle the problems. I've been trying to tell the politicians for Christ's sake, don't do something politically stupid. This is economic war!
Q If you were Governor-General of Canada, what would you have done when faced with the choice of proroguing Parliament to give the Conservative government of Stephen Harper time to table a budget or allowing the Opposition to form a coalition government?
A I would not have prorogued Parliament because I am democratically inclined. Having said that, I believe we need a coalition of all the parties, just like in wartime, to get at it. We need to stop this bitter infighting, put politics and ideology aside and hopefully do the right thing, rather than experiment with the wrong things like what they are doing in the United States, where they are panicking. This is a total emergency situation that has to be handled correctly.
· TSX +193.43pts (Reuters) as a broad-based rally offset weakness in mining shares due to lower gold prices.
· DOW +184.46pts as dreadful consumer-sentiment and house-price data were offset by the U.S. Treasury Department's injection of US$5 billion into GMAC Financial Services
· Dollar -.17c to $.81.90US.
· Oil -$.99to $39.03US per barrel. OPEC, which accounts for about 40% of global supply, has announced production cuts totaling more than 4m barrels per day in the last few months, and the armed conflict between Israel and Palestinian militants enters a third day. The fact that oil prices continue to fall shows how much things have changed in 5 months, as either would have previously sent the market in an upward tear
· Gold -$5.30 to $870.00US per ounce
www.bankofcanada.ca/en/rates/bond-look.html Canadian bond prices
GMAC loosens credit to make vehicles easier to buy after federal aidBree Fowler, The Associated Press NEW YORK - The struggling financing arm of General Motors Corp., rescued by US$5 billion in federal aid, plans to use some of the money to make cars and trucks more affordable to a larger pool of customers. GMAC LLC on Tuesday promised to loosen its tight lending standards that have made loans harder to get for would-be buyers of GM vehicles. It's the first time that a financial institution has said it will use money from the $700-billion bank bailout to offer more affordable credit to consumers.
'This is economic war!' Jarislowsky warns Wisdom series Financial Post
In his 83 years, Stephen Jarislowsky has survived -- and thrived -- through more economic cycles than most wealth managers. Born in Berlin, he spent his boyhood in France during the Depression years, the Second World War and the Nazi invasion. His family moved to the United States in 1941, where Mr. Jarislowsky graduated from Cornell University and spent time in counter-intelligence for the U.S. Army in post-war Japan. Armed with an MBA from Harvard University, he moved to Montreal in 1949 and six years later founded Jarislowsky Fraser Ltd., an independent investment-counselling firm. Over the years, as his firm made clients rich by investing in high-quality growth stocks -- Jarislowsky's company manages about $52-billion in assets for pension funds, institutions and private customers -- he became a billionaire in his own right. Along the way, the frugal son of a wealthy industrialist and financier became a feisty advocate for shareholder rights -- he co-founded the Canadian Coalition for Good Governance in 2002 -- and gained a reputation as a straight talker.
Mr. Jarislowsky spoke with Theresa Tedesco, chief business correspondent, from his office in Montreal about what he described as "economic war" and the way to battle through it "correctly."
Q How is this current economic crisis different than what you've experienced before?
A This is as big as the big Depression. This is a type of recession/depression that happens usually after the kind of greed sprees which are associated with bubbles.
Q Do you think political leaders and central bankers are on the right track in trying to solve the problems?
A What they are doing with these interest rates is totally cosmetic because whether the interest rate is 2% or zero makes absolutely no difference. People are scared out of their wits, scared of losing their jobs, scared that they don't have enough money to pay the rent. You see it already from the banks. All the banks want to do is get their balance sheets in shape so they won't go bust. Every corporation in the land is going to cut back so it won't go bust. That's called a balance-sheet depression because what they are trying to do is make sure that they are not going to go bust and they will do anything to get rid of costs, to get rid of debt in order to survive. And whether you give money at 1%, 2% or 10%, history has shown that people don't borrow until their house is strictly in order, they didn't go out and spend money.
Q Have we learned anything from past economic cycles?
A No, and we have so much information today and yet, we are so disconnected.
Q What alarms you the most right now?
A What alarms me the most isn't just one thing. We are going into this in the worst financial shape that you can possibly imagine, where the public hasn't saved for something like five or six years, and we started out with a complete collapse of the world banking system.
Q How long do you predict the recession/depression will last?
A We're in for at least two years if it's handled right. If it's not handled right, we can be sitting here seven or eight years from now.
Q How would you fix it?
A This is not curable the way a normal recession is curable; 1929 wasn't. It's a balance-sheet recession, not a temporary lowering in demand or the inflation recession of the 1970s. The inflation recession got rid of the debt. If you attack this the way you would a normal recession, that's exactly the wrong way.
Q Are you saying we need to fight the crisis with inflation?
A Unfortunately, you have to create inflation to get rid of the debt. The only way to get housing to go up again is through inflation, by reducing the value of the mortgages. The only way to get the consumer back purchasing things is to get rid of their debts and that can only be done through inflation. I'm not somebody who believes in inflation. I think it's an awful thing, but there's no alternative.
Q Does this mean you are not satisfied with the solutions tabled so far?
A Absolutely, I never underestimate the stupidity of mankind, which is based on greed and fear and what they do when they are afraid or too greedy. When the emotions rule, you can be sure it will lead to some form of stupidity of one form or another. The idea of saving GM [General Motors Corp.] is the dumbest thing in the world. Let it go bankrupt, let it go renegotiate its wages and put them on the comparable level paid by its competitors. What we need is common sense, logic, rationality, putting aside politics and fighting the common enemy. What worries me is the proroguing of Parliament and losing two months to tackle the problems. I've been trying to tell the politicians for Christ's sake, don't do something politically stupid. This is economic war!
Q If you were Governor-General of Canada, what would you have done when faced with the choice of proroguing Parliament to give the Conservative government of Stephen Harper time to table a budget or allowing the Opposition to form a coalition government?
A I would not have prorogued Parliament because I am democratically inclined. Having said that, I believe we need a coalition of all the parties, just like in wartime, to get at it. We need to stop this bitter infighting, put politics and ideology aside and hopefully do the right thing, rather than experiment with the wrong things like what they are doing in the United States, where they are panicking. This is a total emergency situation that has to be handled correctly.
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