Financial Update for April 8, 2009

TSX pulled down by oil, but gold shines

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

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

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

Shannon Proudfoot, Canwest News Service

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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