Financial Update for May 20, 2009

TSX back in rally mode as oil hits US$60; N.Y. tepid on construction data

"We're into the third month of a very powerful rally - this could go on for months," observed Paul Thornton, investment adviser at Global Maxfin Capital. "This is going to be driven higher by the enormous amounts of cash that have been on the sidelines - people are afraid of missing this rally and the institutions have been big buyers."

 TSX+338.10 to 10,100.95 reclaiming last week's losses, as higher oil prices boosted energy issues and as the TSX caught up with a rise by U.S. stocks on Monday when the TSX was closed.
 DOW -29.23
 Dollar +1.67c to 86.48USD the strong performance on equity and commodity markets energized the Canadian dollar
 Oil +$2.69 + $.58 to $60.10US per barrel
 Gold +$5 to $926.70USD per ounce
 Canadian 5 yr bond yields +.04bps to 2.16
 http://www.financialpost.com/markets/market-data/money-yields-can_us.html?tmp=yields-can_us

The yield, rate of return on your bond, can be read through a yield curve, which is the pattern of yields on bonds. This increase in bond yield is something to watch. If the bond yield continues to go up, the spread will continue to shrink and this could be a trigger for interest rates to rise

April Uptick

National Post Published: Saturday, May 16, 2009

The Canadian Real Estate Association said this week that the rebound in home sales and prices for April was stronger than expected. Seasonally adjusted national sales climbed 11.2% from March, the largest month-over-month gain in more than five years. The number of homes that changed hands (34,838), was higher than in any of the prior seven months.

Calgary led the rebound, with a 31% gain in sales over March, followed by Vancouver (30%), Montreal (15%) and Toronto (10%). Sales were up from March levels in 70% of markets across the country. Actual sales of 43,473 in April was down 11.8% from the same month a year ago.

The average sale price of $306,366 is 3.2% below April, 2008's, average. Inventory numbers were down 1.8%, to their lowest level since June, 2006, and 16.4% below the peak in May, 2008. The supply-versus-demand ratio is more balanced now in British Columbia, Alberta, Ontario and Quebec.

Home Depot beats estimates Bloomberg News Published: Tuesday, May 19, 2009
Home Depot Inc., the world's largest home-improvement retailer, posted profit that exceeded analysts' estimates after the company reduced costs.

Net income rose to US$514-million, or 30 U.S. cents a share, from US$356-million, or 21 U.S. cents, a year earlier, the Atlanta-based company said on Tuesday in a statement. Sales fell 9.7% to US$16.2 billion in the three months ended May 3.

Excluding some items, Home Depot's profit was 35 U.S. cents a share. Analysts anticipated earnings on that basis of 29 U.S. cents from revenue of US$15.8 billion, the average of estimates compiled by Bloomberg.

Sales in stores open at least a year fell 10.2% in the period. Colin McGranahan, an analyst with Sanford C. Bernstein & Co. in New York, estimated a decline of 11.7%.

Lowe's Cos., the company's smaller rival, reported first-quarter earnings on Monday that also topped analysts' estimates as it curbed discounts and boosted sales of more-profitable plants and flowers.

Couple pay 1p a month for mortgage after rates slashed
A couple are paying just 1p a month on their mortgage after the Bank of England slashed interest rates

Daily Telegraph

Ben Cameron and his wife Nicola are being charged the nominal sum after signing up for an interest-only tracker deal in December 2007.

Their mortgage with Cheltenham & Gloucester tied their payments to 1.01 per cent below the base rate, which then stood at 5.5 per cent.

Since then it has fallen to 0.5 per cent, cutting their monthly bill from around £1,500 ($2,674) to zero.

But the couple from Hampton, south west London are being charged 1p because their building society's computers cannot deal with payments of nothing.

Their case highlights the tens of thousands of homeowners who have had their repayments slashed by the series of rate cuts imposed by the Bank in an attempt to stimulate lending. Interest rates have been reduced six times since October last year.

But while most people who took out tracker deals pegged below the base rate are still spending hundreds of pounds a month to pay off the capital on their homes, the Camerons' interest-only deal means they are enjoying a zero interest loan.

Mr Cameron, 37, an estate agent, said that they were keeping the money they have saved to put more equity in their home when their mortgage deal comes up for renewal. They had originally paid a 20 per cent deposit on the £400,000 property.

"We fell incredibly lucky, we almost didn't go for it," he told the Evening Standard. "We look at our mortgage statements now and they look ridiculous, it's fantastic." The couple are expecting their first baby in June.

Since rates began falling lenders have withdrawn all tracker deals that are tied below the base rate. The most attractive tracker mortgage currently on the market is 2.39 per cent above the Bank's rate.

Staying alive: As recession deepens, businesses keep bankruptcy at bay
By Julian Beltrame, The Canadian Press

OTTAWA - The ability of Canadian businesses to survive the worst recession in decades is giving hope that the rebound from current massive job losses will be stronger than widely expected.

One of the biggest surprises of the downturn - unique to Canada - is that as the economy has slumped, the number of businesses declaring bankruptcy has also declined.

This has hardly ever happened before and although Canada is only seven months into a recession expected to last another half-year, it suggests that the corporate destruction of past recessions won't be a major factor this time around.
"This is the story of the recession so far," Benjamin Tal of CIBC World Markets said Tuesday.

"The recession is not over, so I would expect to see (business bankruptcy) numbers rising before it is over. But the fact we're starting from a very low point suggests that the number will not be very high compared to previous recessions."

The federal Office of the Superintendent of Bankruptcy reported last week that insolvencies in March totalled 14,244, up 51 per cent from March of last year. But while swelling numbers of individuals succumbed to their debts, business bankruptcies were down 10 per cent.

By comparison, five months into the downturns of 1982 and 1992 corporate bankruptcies were 15 to 20 per cent higher than pre-recession levels, Tal said in an analysis.

In the United States, he added, business bankruptcies now are about 40 per cent higher than a year ago.

For the first three months of 2009 - in which the Bank of Canada estimates the economy contracted at an annualized rate of 7.3 per cent, the worst on record - business bankruptcies were actually down 14 per cent from the corresponding period in 2008.

Not all Canadian businesses have been fortunate. This year has seen several high-profile Canadian bankruptcy filings, notably Nortel Networks (TSX: NT.TO) and AbitibiBowater (TSX: ABH.TO).

And consumer insolvencies were up 57 per cent in March over a year ago.

However, Tal says Canadian businesses, after years of profit, entered the recession with plenty of cash. As well, many have aggressively downsized - laying off workers to cut operating costs. In fact, over 300,000 jobs have disappeared in the past six months.

While that is bad news for workers, Tal says it portends well for the recovery, which most economists, including the Bank of Canada, forecast will begin late in 2009.

Fewer corporate bankruptcies could result in a quicker rebound in the employment market, which normally trails recoveries, says Tal.

"There's been a little bit of pre-emptive downsizing that is making the situation worse now, but it means the recovery will be faster because it is much easier to re-hire when you still exist," he observed.

Tuesday brought another indication that Canada is surviving the recession better than its southern neighbour.

Canada Mortgage and Housing Corp. projected the recession will cause housing starts to fall about 33 per cent this year to 141,900, but predicted that building will edge up in subsequent years - although not to the 200,000-plus rates seen in the past several years.

While that shows significant weakness, it is far ahead of the U.S. situation, where starts have crumbled to one-quarter of pre-recession levels. Nor are the Canadian numbers far off the demographic fundamentals, including population growth.

"Housing market activity will begin to strengthen in 2010 as the Canadian economy recovers, bringing housing starts more in line with demographic fundamentals over the forecast period," said CMHC chief economist Bob Dugan.

Dugan forecasts housing starts in the 150,000 to 180,000 range over the next four years.